KEYPORT VARIABLE INVESTMENT TRUST
SUPPLEMENT DATED OCTOBER 16, 1995
TO
PROSPECTUS DATED MAY 1, 1995
- -------------------------------------------------------------------------------
Reference is made to "THE TRUST -- Application For Exemptive Order Permitting
Certain Fund Substitutions" on page 3 of the Prospectus. The substitutions of
fund shares described therein became effective as of the close of business on
October 13, 1995 in accordance with an exemptive order granted by the
Securities and Exchange Commission. As a result, C-K U.S. Gov't Fund has
ceased to exist as a separate Fund.
* * *
Reference is made to "TRUST MANAGEMENT ORGANIZATIONS -- KASC'S Sub-Advisers:
Colonial Management Associates, Inc. (Colonial) and Newport Fund Management,
Inc. (Newport) -- Colonial" on pages 11-12 of the Prospectus. Elizabeth Palmer
no longer is a co-manager of the C-K Growth and Income Fund. Dan Rie continues
to manage the Fund. In addition, James P. Haynie now serves with John E.
Lennon as co-manager of the C-K Utilities Fund. Mr. Haynie has managed various
other Colonial equity funds since 1993. Prior to joining Colonial in 1993, Mr.
Haynie was a Vice President at Massachusetts Financial Services Company and a
Portfolio Manager at Trinity Investment Management.
- -------------------------------------------------------------------------------
Client Service Hotline
800-367-3653 (press 3)
Distributed by:
Keyport Financial Services Corp.
125 High Street
Boston, Massachusetts 02110
<PAGE>
PROSPECTUSES
KEYPORT VARIABLE INVESTMENT TRUST
STEINROE VARIABLE INVESTMENT TRUST
MAY 1, 1995
<PAGE>
KEYPORT VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
Keyport Variable Investment Trust ("Trust") is an open-end management
investment company that currently includes seven separate Funds, each with
its own investment objective and policies. The seven Funds and their
investment objectives are:
(bullet) Colonial-Keyport U.S. Government Fund seeks a high level of current
income, as is consistent with prudent risk, by investing exclusively in U.S.
Government Securities. (This Fund is no longer being offered for new sales.)
(bullet) Colonial-Keyport Growth and Income Fund seeks primarily income and
long-term capital growth and, secondarily, preservation of capital.
(bullet) Colonial-Keyport Utilities Fund seeks primarily current income and,
secondarily, long-term capital growth.
(bullet) Colonial-Keyport International Fund For Growth seeks long-term
capital growth, by investing primarily in non-U.S. equity securities. The
Fund is non-diversified and may invest more than 5% of its total assets in
the securities of a single issuer, thereby increasing the risk of loss
compared to a diversified fund.
(bullet) Colonial-Keyport U.S. Fund For Growth seeks growth exceeding over
time the S&P 500 Index (Standard & Poor's Corporation Composite Stock Price
Index) performance.
(bullet) Colonial-Keyport Strategic Income Fund seeks a high level of current
income, as is consistent with prudent risk and maximizing total return, by
diversifying investments primarily in U.S. and foreign government and high
yield, high risk corporate debt securities. The Fund may invest a substantial
portion of its assets in high yield, high risk bonds (commonly referred to as
"junk bonds") and therefore may not be suitable for all investors. High risk,
high yield bonds are regarded as speculative as to payment of principal and
interest. Purchasers should carefully assess the risks associated with an
investment in the Fund.
(bullet) Newport-Keyport Tiger Fund seeks long-term capital growth by
investing primarily in equity securities of companies located in the four
Tigers of Asia (Hong Kong, Singapore, South Korea and Taiwan) and the other
mini-Tigers of East Asia (Malaysia, Thailand, Indonesia, China and the
Philippines).
There is no assurance that the objectives of the Funds will be realized.
Other Funds may be added or deleted from time to time.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus contains information about the Funds that a prospective
investor should know before applying for certain variable annuity contracts
and variable life insurance policies offered by separate accounts of
insurance companies investing in the Trust. Please read it carefully and
retain it for future reference.
Additional facts about the Funds are included in a Statement of Additional
Information dated May 1, 1995, incorporated herein by reference, which has
been filed with the Securities and Exchange Commission. For a free copy write
to Keyport Financial Services Corp. at 125 High Street, Boston, Massachusetts
02110 or other broker-dealers offering the variable annuity contracts and
variable life insurance policies of Participating Insurance Companies (as
such term is defined in this Prospectus).
SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A
POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OF KEYPORT LIFE INSURANCE
COMPANY, OF KEYPORT AMERICA LIFE INSURANCE COMPANY AND OF LIBERTY LIFE
ASSURANCE COMPANY OF BOSTON, OR OF OTHER PARTICIPATING INSURANCE COMPANIES.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
APPROPRIATE VA CONTRACTS OR VLI POLICIES OF PARTICIPATING INSURANCE
COMPANIES. BOTH PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
The date of this Prospectus is May 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
THE TRUST 3
FINANCIAL HIGHLIGHTS 4
THE FUNDS 8
How the Funds Invest 8
Colonial-Keyport U.S. Government Fund 8
Colonial-Keyport Growth and Income Fund 8
Colonial-Keyport Utilities Fund 9
Colonial-Keyport International Fund For Growth 9
Colonial-Keyport U.S. Fund For Growth 9
Colonial-Keyport Strategic Income Fund 10
Newport-Keyport Tiger Fund 10
TRUST MANAGEMENT ORGANIZATIONS 11
The Trustees 11
The Manager: Keyport Advisory Services Corp.
(KASC) 11
KASC's Sub-Advisers: Colonial Management Associates,
Inc. (Colonial) and Newport Fund Management, Inc.
(Newport) 11
Colonial's Sub-Advisers: Gartmore
Capital Management Limited (Gartmore) and
State Street Bank and Trust Company (State Street) 12
TRUST SERVICE ORGANIZATIONS 13
Underwriter: Keyport Financial Services Corp. (KFSC) 13
Custodian: Boston Safe Deposit and Trust Company
(The Boston Company) 13
Independent Accountants: Price Waterhouse LLP 13
OTHER CONSIDERATIONS 13
Expenses of the Funds 13
Purchases and Redemptions 13
Investment Return 14
Net Asset Value 14
Distributions 14
Taxes 14
Shareholder Communications 15
Organization, Meetings, and Voting Rights 15
Additional Information 16
OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS, AND
POLICIES OF THE FUNDS 16
Short-Term Trading 16
Cash Reserves and Repurchase Agreements 16
Forward Commitments and When-Issued Securities 17
Foreign Securities 17
Mortgage-Backed Securities 18
Collateralized Mortgage Obligations (CMOs) and Real
Estate Mortgage Investment Conduits (REMICs) 18
Zero-Coupon Bonds 19
High Yield, High Risk Bonds 19
Foreign Stock Index Futures 19
Writing and Purchasing Covered Put Options on
Securities 19
Interest Rate Futures 20
Certain Policies to Reduce Risk 20
CHANGES TO INVESTMENT OBJECTIVES AND NON-FUNDAMENTAL
POLICIES 20
APPENDIX A: Description of Bond Ratings A-1
APPENDIX B: C-K Strategic Income Fund -- Schedule of
Portfolio Asset Composition by Rating for 1994 B-1
</TABLE>
<PAGE>
THE TRUST
The Trust is an open-end management investment company currently consisting of
seven series: Colonial-Keyport U.S. Government Fund ("C-K U.S. Gov't Fund"),
Colonial-Keyport Growth and Income Fund ("C-K Growth and Income Fund"),
Colonial- Keyport Utilities Fund ("C-K Utilities Fund"), Colonial-Keyport
International Fund For Growth ("C-K International Fund For Growth"),
Colonial-Keyport U.S. Fund For Growth ("C-K U.S. Fund For Growth"),
Colonial-Keyport Strategic Income Fund ("C-K Strategic Income Fund") and
Newport-Keyport Tiger Fund ("N-K Tiger Fund") (individually referred to as a
"Fund" or by the initials indicated, or collectively as the "Funds"). Each of
C-K U.S. Gov't Fund, C-K Growth and Income Fund, C-K Utilities Fund, C-K U.S.
Fund For Growth, C-K Strategic Income Fund and N-K Tiger Fund is a diversified
fund. C-K International Fund For Growth is non-diversified and may invest more
than 5% of its total assets in the securities of a single issuer. This
increases the risk of loss compared to a diversified 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. (C-K U.S. Gov't Fund is no longer being offered for
new sales. See "Application For Exemptive Order Permitting Certain Fund
Substitutions" below.)
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 shares of the Funds currently are sold only to Keyport Life
Insurance Company ("Keyport"), Keyport America Life Insurance Company
("Keyport America") and Liberty Life Assurance Company of Boston ("Liberty").
The Participating Insurance Companies and their separate accounts are the
shareholders or investors ("shareholders") of the Funds. Owners of VA
contracts and owners of VLI policies invest in sub-accounts of separate
accounts of the Participating Insurance Companies that, in turn, invest in
the Funds.
The prospectuses of the separate accounts of the Participating Insurance
Companies describe which Funds are available to the separate accounts
offering the VA contracts and VLI policies. The Trust assumes no
responsibility for those prospectuses. However, Keyport Advisory Services
Corp. ("KASC") and the Board of Trustees of the Trust ("Board of Trustees")
monitor events to identify any material conflicts that may arise between the
interests of the Participating Insurance Companies or between the interests
of owners of VA contracts and VLI policies. The Trust currently does not
foresee any disadvantages to the owners of VA contracts and VLI policies
arising from the fact that certain interests of the owners may differ. The
Statement of Additional Information contains additional information regarding
such differing interests and related risks.
KASC provides investment management and advisory services to the Funds
pursuant to its Management Agreements with the Trust.
Colonial Management Associates, Inc. ("Colonial") provides sub-advisory
services to each Fund (other than N-K Tiger Fund) pursuant to separate
Sub-Advisory Agreements (the "Colonial Sub-Advisory Agreements") with each
such Fund and KASC.
Newport Fund Management, Inc. ("Newport") provides sub-advisory services to
N-K Tiger Fund pursuant to a separate Sub-Advisory Agreement (the "Newport
Sub-Advisory Agreement") with such Fund and KASC.
In addition, (i) in the case of the C-K International Fund For Growth,
pursuant to a separate Sub-Advisory Agreement among the Fund, KASC, Colonial
and Gartmore Capital Management Limited ("Gartmore"), Colonial has delegated
portfolio management of the Fund to Gartmore and (ii) in the case of C-K U.S.
Fund For Growth, pursuant to a separate Sub-Advisory Agreement among the
Fund, KASC, Colonial and State Street Global Advisors, a division of State
Street Bank and Trust Company ("State Street"), Colonial has delegated
portfolio management of the Fund to State Street.
KASC has delegated various administrative matters to Colonial. Colonial also
provides transfer agency and pricing and record keeping services to the
Trust. Keyport Financial Services Corp. ("KFSC") serves as the principal
underwriter of the Trust.
KASC, Colonial, Newport, KFSC, and Keyport are wholly- owned indirect
subsidiaries of Liberty Financial Companies, Inc. ("LFC"). (LFC acquired
Colonial on March 24, 1995 and acquired Newport on April 3, 1995.) As of
March 31, 1995, approximately 81.9% of the combined voting power of LFC's
issued and outstanding voting stock was held, indirectly, by Liberty Mutual
Insurance Company ("Liberty Mutual").
Application For Exemptive Order Permitting Certain Fund Substitutions
Keyport and certain of its affiliates have filed with the Securities and
Exchange Commission an application for an exemptive order permitting
substitution of shares of the Mortgage Securities Income Fund ("MSIF") for the
shares of C-K U.S. Gov't Fund. MSIF is a series fund of the SteinRoe Variable
Investment Trust ("SRVIT"). SRVIT also is a funding vehicle for VA contracts
and VLI policies of Participating Insurance Companies. Pending action on such
application, shares of C-K U.S. Gov't Fund are no longer being offered for new
sales. However, additional shares of the Fund continue to be issued prior to
the effective time of such substitution in connection with reinvested
distributions.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below present certain financial information for each Fund in the
Trust (other than the N-K Tiger Fund, which is expected to commence
operations on or about May 1, 1995) for the period beginning July 1, 1993
(for C-K International Fund For Growth, May 2, 1994, and for each of C-K U.S.
Fund For Growth and C-K Strategic Income Fund, July 5, 1994) and ended
December 31, 1994. The information has been audited and reported on by the
Trust's independent accountants, Price Waterhouse LLP, whose report thereon
appears in the Statement of Additional Information.
Colonial-Keyport Growth and Income Fund
<TABLE>
<CAPTION>
Period Ended December
31,
---------------------
1994 1993***
------- -----------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period $10.36 $10.00
------ ---------
Net investment income 0.26 0.09
Net realized and unrealized gains (losses) on investments and
foreign currency transactions (0.34) 0.41
------ ---------
Total from investment operations (0.08) 0.50
------ ---------
Less:
Dividends from net investment income (0.25) (0.11)
Distributions from net realized gains on investments -- (0.03)
------ ---------
Total distributions (0.25) (0.14)
---- ---------
Net asset value, end of period $10.03 $10.36
====== =========
Total return:
Total investment return (0.76)% 5.01%**(b)
Ratios/supplemental data:
Net assets, end of period (000) $48,052 $29,298
Ratio of net expenses to average net assets 0.87% 1.00%*(a)
Ratio of net investment income to average net assets 2.82% 2.32%*(b)
Portfolio turnover ratio 55% 8%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations July 1, 1993 to
December 31, 1993.
(a) If the Fund had paid all of its expenses and there had been no
reimbursement from KASC, this ratio would have been 1.23% (annualized) for
the period ended December 31, 1993.
(b) Computed giving effect to KASC's expense limitation undertaking.
4
<PAGE>
Colonial-Keyport Utilities Fund
<TABLE>
<CAPTION>
Period Ended December
31,
------------------------
1994 1993***
-------- -------------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period $ 9.65 $10.00
------- -----------
Net investment income 0.54 0.18
Net realized and unrealized losses on investments (1.53) (0.35)
------- -----------
Total from investment operations (0.99) (0.17)
------- -----------
Less:
Dividends from net investment income (0.55) (0.18)
Net asset value, end of period $ 8.11 $ 9.65
======= ===========
Total return:
Total investment return (10.27)% (1.70)%**(b)
Ratios/supplemental data:
Net assets, end of period (000) $38,156 $54,441
Ratio of net expenses to average net assets 0.86% 1.00%*(a)
Ratio of net investment income to average net assets 5.80% 5.10%*(b)
Portfolio turnover ratio 16% 2%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations July 1, 1993 to
December 31, 1993.
(a) If the Fund had paid all of its expenses and there had been no
reimbursement from KASC, this ratio would have been 1.09% (annualized) for
the period ended December 31, 1993.
(b) Computed giving effect to KASC's expense limitation undertaking.
Colonial-Keyport U.S. Government Fund
<TABLE>
<CAPTION>
Period Ended December
31,
---------------------
1994 1993***
------- -----------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period $ 9.88 $10.00
------ ---------
Net investment income 0.63 0.27
Net realized and unrealized losses on investments (0.77) (0.11)
------ ---------
Total from investment operations (0.14) 0.16
------ ---------
Less:
Dividends from net investment income (0.57) (0.28)
Net asset value, end of period $ 9.17 $ 9.88
====== =========
Total return:
Total investment return (1.42)% 1.61%**(b)
Ratios/supplemental data:
Net assets, end of period (000) $29,225 $30,880
Ratio of net expenses to average net assets 0.86% 1.00%*(a)
Ratio of net investment income to average net assets 7.24% 6.88%*(b)
Portfolio turnover ratio 320% 125%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations July 1, 1993 to
December 31, 1993.
(a) If the Fund had paid all of its expenses and there had been no
reimbursement from KASC, this ratio would have been 1.14% (annualized) for
the period ended December 31, 1993.
(b) Computed giving effect to KASC's expense limitation undertaking.
5
<PAGE>
Colonial-Keyport International Fund For Growth
<TABLE>
<CAPTION>
Period Ended
December 31,
1994***
-------------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period $ 2.00
------
Net investment income --
Net realized and unrealized losses on investments and foreign currency
transactions (0.12)
-------
Total from investment operations (0.12)
-------
Net asset value, end of period $ 1.88
========
Total return:
Total investment return (6.00)%**
Ratios/supplemental data:
Net assets, end of period (000) $19,146
Ratio of net expenses to average net assets 1.74%*
Ratio of net investment income to average net assets 0.13%*
Portfolio turnover ratio 31%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations (May 2, 1994) to
December 31, 1994
Colonial-Keyport U.S. Fund For Growth
<TABLE>
<CAPTION>
Period Ended
December 31,
1994***
------------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period $10.00
-------
Net investment income 0.09
Net realized and unrealized gains on investments 0.35
------
Total from investment operations 0.44
-------
Less:
Dividends from net investment income (0.11)
Distributions from net realized gains on investments (0.06)
-------
Total distributions (0.17)
-------
Net asset value, end of period $10.27
=======
Total return:
Total investment return 4.40%**(b)
Ratios/supplemental data:
Net assets, end of period (000) $15,373
Ratio of net expenses to average net assets 1.00%*(a)
Ratio of net investment income to average net assets 2.16%*(b)
Portfolio turnover ratio 52%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 5, 1994) to
December 31, 1994
(a) If the Fund had paid all of its expenses and there had been no
reimbursement from KASC, this ratio would have been 1.64% (annualized) for
the period.
(b) Computed giving effect to KASC's expense limitation undertaking.
6
<PAGE>
Colonial-Keyport Strategic Income Fund
<TABLE>
<CAPTION>
Period Ended
December 31,
1994***
-------------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period $ 10.00
--------
Net investment income 0.30
Net realized and unrealized losses on investments and foreign currency
transactions (0.19)
--------
Total from investment operations 0.11
--------
Less:
Dividends from net investment income (0.31)
Distributions from net realized gains on investments (0.01)
--------
Total distributions (0.32)
--------
Net asset value, end of period $ 9.79
========
Total return:
Total investment return 1.10%**(b)
Ratios/supplemental data:
Net assets, end of period (000) $13,342
Ratio of net expenses to average net assets 1.00%*(a)
Ratio of net investment income to average net assets 7.33%*(b)
Portfolio turnover ratio 94%**
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 5, 1994) to
December 31, 1994
(a) If the Fund had paid all of its expenses and there had been no
reimbursement from KASC, this ratio would have been 1.60% (annualized) for
the period ended December 31, 1994.
(b) Computed giving effect to KASC's expense limitation undertaking.
Further information about the performance of the Funds is contained in the
Trust's annual report to shareholders for the period ended December 31, 1994,
which may be obtained without charge from KFSC.
7
<PAGE>
THE FUNDS
How The Funds Invest
All investments, including mutual funds, have risks, and no one mutual fund
is suitable for all investors. No one Fund by itself constitutes a complete
investment program. The net asset value of the shares of the Funds will vary
with market conditions and there can be no guarantee that any Fund will
achieve its investment objective.
Each Fund and its investment objectives and policies are described below.
Certain additional investment policies and techniques common to some or all
of the Funds are described under "OTHER INVESTMENT PRACTICES, RISK
CONSIDERATIONS, AND POLICIES OF THE FUNDS" below.
More information about the portfolio securities in which the Funds invest,
including certain risks and investment limitations, is provided in the
Statement of Additional Information.
Colonial-Keyport U.S. Government Fund
This Fund currently is not being offered for new sales. See "THE
TRUST--Application For Exemptive Order Permitting Certain Fund
Substitutions."
Investment Objective. The Fund seeks a high level of current income, as is
consistent with prudent risk, by investing exclusively in U.S. Government
Securities.
Investment Program. The Fund invests exclusively in U.S. Government
Securities. U.S. Government Securities include: (1) U.S. Treasury
obligations; (2) obligations issued or guaranteed by U.S. Government agencies
and instrumentalities ("Agencies") which are supported by (a) the full faith
and credit of the U.S. Government, (b) the right of the issuer or guarantor
to borrow an amount limited to a line of credit with the U.S. Treasury, (c)
discretionary power of the U.S. Government to purchase obligations of the
Agencies, or (d) the credit of the Agencies; (3) real estate mortgage
investment conduits ("REMICs"), and collateralized mortgage obligations
("CMOs"), including privately-issued asset-backed securities and
privately-issued mortgage-backed securities guaranteed by an Agency; (4)
"when-issued" commitments relating to the foregoing; and (5) certain high
quality U.S. Government money market instruments, including repurchase
agreements ("REPOs") collateralized by U.S. Government Securities. The Fund
may invest in U.S. Government Securities of any maturity and in zero coupon
securities.
The Fund may trade portfolio securities for short-term profits to take
advantage of price differentials. These trades may be limited by certain
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
Colonial-Keyport Growth and Income Fund
Investment Objective. The Fund seeks primarily income and long-term capital
growth and, secondarily, preservation of capital.
Investment Program. The Fund may invest without limit in U.S. and foreign
common stocks that, when purchased, meet quantitative standards that, in
Colonial's judgment, indicate above average financial soundness and high
intrinsic value relative to price. The issuer of any common stock the Fund
purchases must have, when purchased, consolidated net worth in excess of
total consolidated debt, except for banking institutions and electric
utilities, whose consolidated net worth must exceed 35% of total
capitalization.
When purchased, each common stock must also meet one of the following
criteria:
1. Earnings yield equals or exceeds the prevailing average yield to maturity
of the five most recently issued, actively traded long-term U.S. Government
bonds;
2. Dividend yield equals or exceeds 66% of the prevailing average yield to
maturity of the five most recently issued, actively traded long-term U.S.
Government bonds; or
3. Per share going-concern value (as estimated by Colonial) exceeds book value
and market value. No purchases will be made based on this criterion if at
the time more than 25% of the Fund's total market value of common stocks
was purchased on this criterion.
Notwithstanding the foregoing, up to 5% of the Fund's net assets may be
invested in common stocks without regard to the quantitative standards in
clauses 1 through 3 above pertaining to consolidated net worth, earnings
yield, dividend yield and estimated going-concern value.
The Fund may also invest in debt securities, but currently intends to limit
those investments to U.S. Government and agency obligations (except for
temporary or defensive investments). The market value of debt securities will
fluctuate with changing interest rates which could affect the value of Fund
shares.
The portion of total assets invested in common stocks and debt securities
will vary based on the availability of common stocks meeting the foregoing
criteria and Colonial's judgment of the investment merit of common stocks
relative to debt securities.
The Fund may also invest without limit in securities traded outside of the
U.S. and may purchase foreign currencies on a spot or forward basis in
conjunction with its investments in foreign securities and to hedge against 9
fluctuations in foreign currencies. The Fund may also invest in money market
instruments including REPOs.
8
<PAGE>
Colonial-Keyport Utilities Fund
Investment Objective. The Fund seeks primarily current income and,
secondarily, long-term capital growth.
Investment Program. The Fund normally invests at least 65% of its total
assets in common and preferred equity securities of utility companies.
The Fund will normally invest substantially all of its total assets in the
equity securities (preferred and common stocks) of utility companies
(including the manufacturing, production, generation, transmission, and sale
of electricity and natural gas, water or other sanitation services,
telephone, telegraph, satellite, microwave or other communication services to
the public) except temporarily for defensive purposes. The market price and
dividends of securities in the utilities industry may be adversely affected
by fluctuating economic conditions, fuel availability and cost, energy
conservation, competition (particularly as a result of deregulation) and,
while relative to the utilities in general, particularly to nuclear
facilities: environmental regulations, shortened economic life, and untimely
or inadequate rate adjustments by regulatory commissions.
Colonial-Keyport International Fund For Growth
Investment Objective. The Fund seeks long-term capital growth by investing
primarily in non-U.S. equity securities.
Investment Program. The Fund normally invests at least 65% of its assets in
equity securities, consisting of common and preferred stock, warrants to
purchase such stock, and convertible debt, of issuers in at least three
countries other than the U.S. The Fund may also invest up to 35% of its
assets in high quality foreign government debt securities. The value of debt
securities usually fluctuates inversely to changes in interest rates. The
Fund may invest in both exchange and over-the-counter traded securities.
The Fund is non-diversified and may invest more than 5% of its total assets
in the securities of a single issuer, increasing the risk of loss compared to
a diversified fund.
The Fund may invest up to 10% of its total assets in closed-end investment
companies commonly referred to as "country funds." Such investments will
involve the payment of duplicative fees through the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies.
The Fund may invest in smaller, less well established companies which may
offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain special risks
related to limited product lines, markets or financial resources and
dependence on a small management group. Their securities may trade less
frequently, in smaller volumes and fluctuate more sharply in value than
exchange listed securities of larger companies.
For a discussion of certain special risks and other considerations pertaining
to investments in foreign securities applicable to the Fund, see "OTHER
INVESTMENT PRACTICES, RISK CONSIDERATIONS, AND POLICIES OF THE FUNDS: Foreign
Securities;" and "Foreign Stock Index Futures."
Colonial-Keyport U.S. Fund For Growth
Investment Objective. The Fund seeks growth over time exceeding the S&P 500
Index's performance.
Investment Program. The Fund normally invests at least 65% of its total
assets in U.S. common stocks that State Street believes have superior growth
and value characteristics selected from a universe which meets certain
guidelines for liquidity and investment information. To select securities,
State Street uses quantitative standards, designed to identify above average
intrinsic value relative to price and favorable earnings trends. The State
Street Bank Stock Universe consists of approximately 1,200 securities that
State Street believes have the highest capitalization and liquidity and are
followed by most analysts in the U.S. The Fund intends to invest in
approximately 100 of the securities in the State Street Bank Stock Universe
ranked highest by State Street based on its evaluation of (i) "Value"
criteria and (ii) the momentum of "Sentiment" of Wall Street analysts'
earnings estimates. State Street compiles its "Value" rankings based upon
comparisons of an issuer's assets and projected growth of income and cash
flow. State Street compiles its "Sentiment" rankings based upon the strength
and consistency of changes in Wall Street analysts' earnings estimates.
The S&P 500 Index is a market-value weighted index of 500 common stocks
publicly traded in the open stock market chosen on the basis of market value
and industry diversification. Standard & Poor's Corporation ("S&P") and the
S&P 500 Index are not affiliated with nor do they sponsor nor recommend the
Fund or the Trust.
The Fund will not concentrate more than 25% of its total assets in any one
industry. The Fund's investments are not limited to securities in the S&P 500
Index and will not precisely match the composition of the S&P 500 Index, but
may be managed to correlate with the sectors, capitalization and volatility
of the S&P 500 Index.
Portfolio securities may be sold without regard to time held (subject to
certain limitations imposed by the Code), causing a portfolio turnover rate
substantially higher than that of most funds, resulting in higher brokerage
commissions and custodian fees.
Generally the Fund will maintain less than 5% of total assets in cash
equivalents to meet current cash flow needs. The Fund may also invest
temporarily available cash in money market investment companies, subject to 10
the limits of the Investment
9
<PAGE>
Company Act of 1940. This will involve the indirect payment of a portion of
the expenses, including advisory fees, of such investment companies.
The Fund may lend securities to certain institutions (that State Street
considers qualified) to increase income. The loans will not exceed 33% of
total assets. Securities lending involves the risk of loss to the Fund if the
borrower defaults.
Colonial-Keyport Strategic Income Fund
Investment Objectives. The Fund seeks a high level of current income, as is
consistent with prudent risk and maximizing total return, by diversifying
investments primarily in U.S. and foreign government and high yield, high
risk corporate debt securities.
Investment Program. The Fund will seek to achieve its objectives by investing
its assets in each of the following sectors of the debt securities markets:
(i) U.S. Government Securities; (ii) debt securities issued by foreign
governments and their political subdivisions; and (iii) high yield, high risk
securities, some of which may involve equity features. The Fund may invest in
debt securities of any maturity. The allocation of investments among these
types of securities at any given time is based on Colonial's estimate of
expected performance and risk of each type of investment. The value of debt
securities (and thus of Fund shares) usually will fluctuate inversely to
changes in interest rates.
The U.S. Government Securities in which the Fund invests include those
securities which are eligible for purchase by the C-K U.S. Government Fund.
The Fund also may invest in certificates representing undivided interests in
the interest or principal of mortgage-backed securities (interest
only/principal only), which tend to be more volatile than other types of
securities. See "OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS AND POLICIES
OF THE FUNDS: Mortgage- Backed Securities."
The Fund may invest any portion of its assets in securities issued or
guaranteed by foreign governments. For a discussion of certain special risks
and other considerations pertaining to investments in foreign securities
applicable to the Fund, see "OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS
AND POLICIES OF THE FUNDS: Foreign Securities."
The Fund may purchase high yield, high risk bonds (commonly referred to as
junk bonds), including bonds in the lowest rating categories (C for Moody's
Investors Services, Inc. ("Moody's") and D for S&P) and unrated bonds. The
lowest rating categories include bonds which are in default. Because these
securities are regarded as predominantly speculative as to payment of
principal and interest, the Fund will not purchase the debt securities of a
single issuer rated by Ca by Moody's or CC by S&P or lower or comparable
unrated securities, if as a result holdings of that issuer exceed 0.5% of the
Fund's net assets. High yield, high risk bonds are those rated lower than Baa
by Moody's or BBB by S&P, or comparable unrated securities. For a discussion
of certain risks and other considerations pertaining to investments in high
yield bonds, see "OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS AND
POLICIES OF THE FUNDS: High Yield, High Risk Bonds."
Newport-Keyport Tiger Fund
Investment Objective. The Fund seeks long-term capital growth.
Investment Program. The fund invests primarily in equity securities of
companies located in the four Tigers of Asia (Hong Kong, Singapore, South
Korea and Taiwan), and the other mini- Tigers of East Asia (Malaysia,
Thailand, Indonesia, China and the Philippines). These nine countries are
referenced to herein as the "Tiger countries." Normally, the Fund will remain
fully invested in securities of companies located in the Tiger countries.
Equity securities in which the Fund invests include common and preferred
stock, warrants (rights) to purchase stock, debt securities convertible into
stock, and shares of closed-end investment companies that invest primarily in
the foregoing securities.
The Fund may invest up to 10% of its total assets in closed-end investment
companies commonly referred to as "country funds." Such investments will
involve the payment of duplicative fees through the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies.
For a discussion of certain special risks and other considerations pertaining
to investments in foreign securities applicable to the Fund, see "OTHER
INVESTMENT PRACTICES, RISK CONSIDERATIONS, AND POLICIES OF THE FUNDS: Foreign
Securities." Such special risks are particularly relevant to investments in
equity securities issued by companies located in the Tiger countries.
10
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Funds is supervised by the Trust's Board of
Trustees. The Statement of Additional Information contains the names of and
biographical information on the Trustees.
The Manager: Keyport Advisory Services Corp. (KASC)
KASC, 125 High Street, Boston Massachusetts 02110, is the manager of the
Trust. KASC was incorporated on January 8, 1993 under the laws of the
Commonwealth of Massachusetts.
In accordance with its Management Agreements with the Trust, KASC designs and
supervises a continuous investment program for the Trust, evaluates,
recommends, and monitors Colonial's, Newport's, Gartmore's and State Street's
performance, investment programs, and compliance with applicable laws and
regulations, and recommends to the Board of Trustees whether Colonial's,
Newport's, Gartmore's and State Street's respective contracts should be
continued or modified and whether a new sub-adviser or multiple sub-advisers
should be added or deleted. KASC is also responsible for administering the
Trust's operations, including the provision of office space and equipment in
connection with the maintenance of the Trust's headquarters, preparation and
filing of required reports, arrangements for Trustees' and shareholders'
meetings, maintenance of the Trust's corporate books and records,
communications with shareholders, and oversight of custodial, accounting and
other services provided to the Funds by others. In accordance with its
Management Agreements with the Trust, KASC may, at its own expense, delegate
the performance of certain of its administrative responsibilities to its
affiliate LFC, or any of LFC's majority-owned subsidiaries. KASC has
delegated its administrative responsibilities to Colonial in accordance with
this authority. KASC, or its affiliates, pay all compensation of the Trust's
directors and officers who are employees of KASC or its affiliates.
The Trust may add funds that utilize the investment advisory services of more
than one portfolio adviser, whereby each portfolio adviser is responsible for
specified portions of the Funds' investments. KASC will be responsible for
the selection and supervision of such advisers and the allocation of the
portions of the assets among such advisers.
The Trust pays KASC management fees, accrued daily and paid monthly, at the
following maximum annual rates of the average daily net assets of the
specified Fund.
<TABLE>
<CAPTION>
<S> <C>
C-K U.S. Government Fund 0.60%
C-K Growth and Income Fund 0.65%
C-K Utilities Fund 0.65%
C-K International Fund For Growth 0.90%
C-K U.S. Fund For Growth 0.80%
C-K Strategic Income Fund 0.65%
N-K Tiger Fund 0.90%
</TABLE>
The fee for the C-K U.S. Fund For Growth is higher than most management fees
for funds with comparable investment objectives.
KASC's Sub-Advisers: Colonial Management Associates, Inc. (Colonial) and
Newport Fund Management, Inc. (Newport)
Colonial
Colonial, an investment adviser since 1931, is the Sub-Adviser of each of the
current Funds (other than N-K Tiger Fund). Colonial, whose principal business
address is One Financial Center, Boston, Massachusetts, 02111, is a wholly
owned subsidiary of The Colonial Group, Inc. LFC acquired The Colonial Group,
Inc. on March 24, 1995.
KASC, out of the management fees it receives from the Trust, pays Colonial
sub-advisory fees at the following annual rates of the average daily net
assets of the specified Fund:
<TABLE>
<CAPTION>
<S> <C>
C-K U.S. Government Fund 0.40%
C-K Growth and Income Fund 0.45%
C-K Utilities Fund 0.45%
C-K International Fund For Growth 0.70%
C-K U.S. Fund For Growth 0.60%
C-K Strategic Income Fund 0.45%
</TABLE>
Under the Colonial Sub-Advisory Agreements, Colonial manages the assets of
the respective Funds in accordance with their investment objectives,
investment programs, policies, and restrictions under the supervision of KASC
and the Board of Trustees. Colonial determines which securities and other
instruments are purchased and sold for each Fund and obtains and evaluates
certain financial data relevant to each Fund, which it provides to KASC,
except that Colonial has delegated portfolio management of the C-K
International Fund For Growth to Gartmore and of the C-K U.S. Fund For Growth
to State Street. Colonial also provides transfer agency and certain pricing
and record keeping services for the Funds under separate agreements.
Leslie W. Finnemore manages the C-K U.S. Gov't Fund. Ms. Finnemore has been a
Vice President of Colonial since 1987 and has managed Colonial U.S.
Government Fund since its inception and various other Colonial taxable income
funds since 1987.
Mr. Daniel Rie, Senior Vice President, Colonial, and Ms. Elizabeth Palmer,
Vice President, Colonial, co-manage the C-K Growth and Income Fund. Mr. Rie
and Ms. Palmer have
11
<PAGE>
co-managed The Colonial Fund since 1993. Mr. Rie has managed various other
Colonial equity funds since 1986, and Ms. Palmer has managed other Colonial
equity funds since 1989.
John H. Lennon manages the C-K Utilities Fund. Mr. Lennon has been a Vice
President of Colonial since 1983 and has managed Colonial Utilities Fund
since 1984 and various other Colonial Funds since 1982.
Carl C. Ericson manages the C-K Strategic Income Fund. Mr. Ericson, a Vice
President of Colonial, has managed the Colonial Strategic Income Fund since
1991 and various other Colonial taxable income funds since 1985.
Newport
Newport is the Sub-Advisor of the N-K Tiger Fund. Newport is an indirect
wholly owned subsidiary of Liberty Newport Holdings, Ltd. ("LNH"), 580
California Street, Suite 1960, San Francisco, California 94104. LFC acquired
LNH on April 3, 1995.
KASC, out of the management fees it receives from the Trust, pays Newport a
sub-advisory fee at the annual rate of 0.70% of the average daily net assets
of the N-K Tiger Fund.
Under the Newport Sub-Advisory Agreement, Newport manages the assets of the
Fund in accordance with its investment objective, its investment program,
policies, and restrictions under the supervision of KASC and the Board of
Trustees. Newport determines which securities and other instruments are
purchased and sold for the Fund and obtains and evaluates certain financial
data relevant to the Fund, which it provides to KASC.
John M. Mussey, President of Newport, manages the Fund. Mr. Mussey has
managed the Colonial Newport Tiger Fund since 1989. (The Colonial Newport
Tiger Fund is the successor by merger to the Newport Tiger Fund, which
commenced operations in 1989).
Colonial's Sub-Advisers: Gartmore Capital Management Limited (Gartmore) and
State Street Bank and Trust Company (State Street)
Gartmore
Colonial has delegated portfolio management of the C-K International Fund For
Growth to Gartmore. Gartmore is a United Kingdom-based indirect subsidiary of
Gartmore plc, which is listed on the London Stock Exchange. Seventy-five
percent of the equity of Gartmore plc is owned indirectly by Banque Indosuez,
a leading French bank, which, in turn, is a wholly owned indirect subsidiary
of Compagnie de Suez S.A. Gartmore and its affiliates, with offices in
London, Paris, Tokyo, North America, Hong Kong and Singapore, manage pension
and other money for a wide range of institutional and retail clients. As of
December 31, 1994, Gartmore and its affiliates had over $30 billion (U.S.)
under management. Gartmore is a member of the Investment Management
Regulatory Organisation, a principal regulator in the U.K. for investment
management firms, and also is registered with the Securities and Exchange
Commission as an investment adviser.
Gartmore, subject to the supervision of the Trustees, KASC and Colonial,
directs the investment of C-K International Fund For Growth in accordance
with the Fund's investment objective, policies and restrictions. For these
services, Colonial pays Gartmore a monthly fee at the annual rate of 0.45% of
the average daily net assets of the Fund out of Colonial's own sub-advisory
fee.
Andrew Fleming, head of International Equities of Gartmore, is the Fund's
portfolio manager. Over the last five years Mr. Fleming has served as a
Managing Director of Gartmore, and from 1993 to March 1995 was head of
Gartmore's Far East Desk. Mr. Fleming also manages the Colonial International
Fund for Growth.
State Street
Colonial has delegated portfolio management of the C-K U.S. Fund For Growth
to State Street. State Street is the largest provider of securities
processing and recordkeeping services for U.S. mutual funds and pension
funds. State Street is a wholly-owned subsidiary of State Street Boston
Corporation, a publicly held bank holding company. State Street Global
Advisors (formerly State Street Asset Management), a division of the bank
established in 1978, specializes in quantitative investment products and is
the largest U.S. Manager of international pension assets. State Street Global
Advisors, with over $140 billion under management as of December 31, 1994,
provides complete global investment management services.
State Street, subject to the supervision of the Trustees, KASC and Colonial,
directs the investment of C-K U. S. Fund For Growth in accordance with the
Fund's investment objective, policies and restrictions. For these services,
Colonial pays State Street a monthly fee at the annual rate of (i) 0.40% of
the first $200 million of average daily net assets and (ii) 0.35% of average
daily net assets in excess of $200 million.
Investment decisions regarding the C-K U.S. Fund For Growth are made by a
committee at State Street, and no one person is primarily responsible for
making recommendations to that committee.
12
<PAGE>
TRUST SERVICE ORGANIZATIONS
Underwriter: Keyport Financial Services Corp. (KFSC)
KFSC, 125 High Street, Boston, Massachusetts 02110, serves as principal
underwriter for the Trust pursuant to an Underwriting Agreement. KFSC is
registered as a broker-dealer under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc.
Custodian: Boston Safe Deposit and Trust Company (Boston Company)
Boston Safe Deposit and Trust Company ("The Boston Company"), One Boston
Place, Boston, Massachusetts 02109, is the custodian for the Funds. Foreign
securities are maintained in the custody of foreign branches of U.S. banks,
foreign banks and foreign trust companies that are members of The Boston
Company's global custody network or foreign depositories used by such
members.
Independent Accountants: Price Waterhouse LLP
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110 are the
Trust's independent accountants.
OTHER CONSIDERATIONS
Expenses of the Funds
The Funds generally will pay all their expenses, other than those borne by
KASC, Colonial, Newport, Gartmore and State Street. KASC has agreed to
reimburse all expenses, including management fees, but excluding interest,
taxes, brokerage, and other expenses which are capitalized in accordance with
accepted accounting procedures, and extraordinary expenses, incurred by (i)
C-K U.S. Gov't Fund, C-K Growth and Income Fund, C-K Utilities Fund and C-K
U.S. Fund For Growth in excess of 1.00% of average net asset value per annum,
(ii) each of C-K International Fund For Growth and N-K Tiger Fund in excess
of 1.75% of average net asset value per annum and (iii) C-K Strategic Income
Fund in excess of 0.80% of average net asset value per annum, in each case
for the period beginning May 1, 1995 until April 30, 1996.
The expenses payable by the Funds include, among other things, the management
fees payable to KASC, described above; fees for services of independent
accountants; consultant fees; legal fees; transfer agent, custodian and
portfolio record keeping and tax information services; fees for pricing and
recordkeeping services, and of equipment for communication among the Funds'
custodian, KASC, Colonial, Newport, Gartmore, State Street and others; taxes
and the preparation of the Funds' tax returns; brokerage fees and
commissions; interest; costs of Board of Trustees and shareholder meetings;
updates and printing of prospectuses and reports to shareholders; fees for
filing reports with regulatory bodies and the maintenance of the Trust's
existence; membership dues for industry trade associations; fees to federal
authorities for the registration of the shares of the Funds; fees and
expenses of Trustees who are not directors, officers, employees or
stockholders of KASC, Colonial, Newport, Gartmore, State Street or their
affiliates; insurance and fidelity bond premiums; and litigation and other
extraordinary expenses of a non-recurring nature.
It is the policy of the Trust that expenses directly charged or attributable
to any particular Fund will be paid from the assets of that Fund. General
expenses of the Trust will be allocated among and charged to the assets of
each of the Funds on a basis that the Board of Trustees deems fair and
equitable, which may be based on the relative assets of each Fund or the
nature of the services performed and their relative applicability to each
Fund.
Purchases and Redemptions
The Participating Insurance Companies place orders to purchase and redeem
shares of each Fund based on, among other things, the net amount of purchase
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to the VA contracts and VLI policies, including deductions
for fees and charges by the applicable separate account. The Trust
continuously offers and redeems shares at net asset value without the
addition of any selling commission, sales load or redemption charge. Shares
are sold and redeemed at their net asset value as next determined after
receipt of purchase payments or redemption requests, respectively, by the
separate accounts. Similarly, shares are sold or redeemed as a result of
transactions under the VA contracts and VLI policies at the net asset value
computed for the day on which such transactions are effected by the separate
accounts. The right of redemption may be suspended or payments postponed
whenever permitted by applicable law and regulations.
13
<PAGE>
Investment Return
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment of all distributions) plus or
minus the change in the net asset value per share for a given period. A total
return percentage is calculated by first dividing the value of a share at the
end of the period (including reinvestment of distributions) by the value of
the share at the beginning of the period and then subtracting 1.0. A Fund's
average annual total return is determined by computing the annual percentage
change in value of a $1.00 investment in such Fund for a specified period,
assuming reinvestment of all dividends and distributions.
Performance information describes a Fund's performance for the period shown
and does not predict future performance. Comparison of a Fund's yield or
total return with those of alternative investments should consider
differences between the Fund and the alternative investments. A Fund's
investment performance figures do not reflect the cost of insurance and the
separate account fees and charges which vary with the VA contracts and VLI
policies offered through the separate accounts of the Participating Insurance
Companies, and which will decrease the return realized by a contract or
policyholder.
Net Asset Value
The initial net asset value of each Fund (other than C-K International Fund
For Growth and N-K Tiger Fund) at the commencement of operations was
established at $10.00. The initial net asset value of each of C-K
International Fund For Growth and N-K Tiger Fund was established at $2.00.
The net asset value per share of each Fund is valued as of the close of
regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.,
Boston time). Net asset value per share is calculated for each Fund by
dividing the current market value of total portfolio assets, less all
liabilities (including accrued expenses), by the total number of shares
outstanding. Net asset value is determined on each day when the NYSE is open,
except on such days in which no order to purchase or redeem shares is
received. The NYSE is scheduled to be open Monday through Friday throughout
the year except for certain federal and other holidays.
All assets denominated in foreign currencies are converted to U.S. dollars.
The books and records of the Trust are recorded in U.S. dollars.
Fund securities are valued based on market quotations or, if such quotations
are not available, at fair market value determined in good faith under
procedures established by the Board of Trustees. Investments maturing in 60
days or less are valued at amortized cost.
Distributions
Each Fund intends to declare and distribute, as dividends or capital gains
distributions, at least annually, substantially all of its net investment
income and net profits realized from the sale of portfolio securities, if
any, to its shareholders (Participating Insurance Companies' separate
accounts). The net investment income of each Fund consists of all dividends
or interest received by such Fund, less estimated expenses (including the
advisory and administrative fees). Income dividends will be declared and
distributed annually in the case of each Fund. All net short-term and
long-term capital gains of each Fund, net of carry-forward losses, if any,
realized during the fiscal year, are declared and distributed periodically,
no less frequently than annually. All dividends and distributions are
reinvested in additional shares of the Fund at net asset value, as of the
record date for the distributions.
Taxes
Each Fund intends to elect to be treated and to qualify as a "regulated
investment company" under Subchapter M of the 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, to the extent a Fund distributes its taxable net investment income and
its net realized long-term and short-term capital gains, 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.
In addition, the Tax Reform Act of 1986 made certain changes to the tax
treatment of regulated investment companies, including the imposition of a
nondeductible 4% excise tax on certain undistributed amounts. To avoid this
tax, each Fund must declare and distribute to its shareholders by the end of
each calendar year at least 98% of ordinary income earned during that
calendar year and at least 98% of capital gain net income, net of
carry-forward losses, if any, realized for the twelve-month period ending
October 31 of that year.
14
<PAGE>
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 and retirement plans. 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) of the
Code 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 Company 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 a variable insurance contract
owner's control of the investments of a segregated asset account may cause
such owner, rather than the insurance company, to be treated as an 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 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.
In order to avoid adverse tax consequences, a Fund may be required to limit
its equity investments in non-U.S. corporations that are treated as "passive
foreign investment companies" under the Code. C-K International Fund For
Growth, however, does invest in such entities. See "PASSIVE FOREIGN
INVESTMENT COMPANIES" in the Statement of Additional Information.
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 advisers.
Shareholder Communications
Owners of VA contracts and VLI policies, issued by the Participating
Insurance Companies or for which shares of one or more Funds are the
investment vehicles, receive from the Participating Insurance Company
unaudited semi-annual financial statements and audited year-end financial
statements of such Funds certified by the Trust's independent auditors. Each
report shows the investments owned by each Fund and provides other
information about the Trust and its operations. Copies of such reports may be
obtained from the Participating Insurance Company or the Secretary of the
Trust.
Organization, Meetings, and Voting Rights
The Trust is organized as a Massachusetts business trust under an Agreement
and Declaration of Trust ("Declaration of Trust") dated March 4, 1993. The
Declaration of Trust may be amended by a vote of either the Trust's
shareholders or the Board of Trustees. The Trust is authorized to issue an
unlimited number of shares of beneficial interest without par value, in one
or more series as the Board of Trustees 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 of Trustees with respect to that
Fund, and all shares of a Fund have equal rights in the event of liquidation
of that Fund.
The Trust is not required to hold annual meetings and does not intend to do
so. However, special meetings may be called for purposes such as electing
Trustees or approving an advisory contract. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required to
vote separately by Fund. Shareholders have the power to remove Trustees and 16
to call meetings to consider removal.
15
<PAGE>
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.
Additional Information
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the
Securities and Exchange Commission under the Securities Act of 1933. Copies
of the Registration Statement may be obtained from the Commission or may be
examined at the office of the Commission in Washington, D.C.
OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS, AND POLICIES OF THE FUNDS
A number of the investment policies and techniques referred to below are
subject to certain additional risks described more fully in the Statement of
Additional Information.
Short-Term Trading
In seeking each Fund's objective, Colonial (or Gartmore, in the case of C-K
International Fund For Growth, State Street, in the case of C-K U.S. Fund For
Growth, and Newport, in the case of The N-K Tiger Fund) will buy or sell
portfolio securities whenever it believes it is appropriate. The decisions of
Colonial, Gartmore, State Street or Newport will not generally be influenced
by how long the Fund may have owned the security. A Fund may buy securities
intending to seek short-term trading profits, subject to limitations imposed
by the Code. A change in the securities held by a Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These expenses may
include brokerage commissions or dealer mark- ups, custodian fees and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause a Fund
to realize net short-term capital gains, such gains will be taxable as
ordinary income.
As a result of a Fund's investment policies, under certain market conditions,
a Fund's portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser
of purchases or sales of portfolio securities to the monthly average of the
value of portfolio securities, excluding securities whose maturities at
acquisition were one year or less. A 100% turnover rate would occur if all of
the securities in the portfolio were sold and either repurchased or replaced
within one year. Although the Funds cannot predict portfolio turnover rate,
it is estimated that, under normal circumstances, the annual rate for each
Fund (other than the C-K U.S. Fund For Growth) will be no greater than 100%.
C-K U.S. Fund For Growth uses quantitative techniques which may result in a
high level of short-term trading. Colonial and State Street anticipate that
its turnover rate will not exceed 200%. C-K Utilities Fund, C-K International
Fund For Growth and N-K Tiger Fund also may have a higher rate of turnover
than the other Funds or alternative investment funds because of the
flexibility of their investment policies permitting shifts between different
types of investments and the use of aggressive strategies and investments.
The portfolio turnover rates of the Funds for the period ended December 31,
1993 are shown under "FINANCIAL HIGHLIGHTS" above. A Fund's portfolio
turnover rate is not a limiting factor when Colonial, Gartmore, State Street
or Newport considers a change in the Fund's portfolio.
Cash Reserves and Repurchase Agreements
Each of the Funds may invest temporarily available cash in U.S. dollar
denominated money market instruments. Such money market instruments will be
limited to high-quality securities rated within the two highest credit
categories by any nationally recognized securities rating organization or, if
not rated, of comparable investment quality as determined by Colonial,
Gartmore, State Street or Newport. Such domestic money market instruments may
include: U.S. Government securities; certificates of deposit; bankers'
acceptances; bank time deposits; commercial paper; short-term corporate debt
securities; and repurchase agreements with a securities dealer or bank. (C-K
U.S. Gov't Fund may not invest in certificates of deposits, bankers'
acceptances, commercial paper or short-term corporate debt securities.) In
these repurchase transactions, the underlying security, which is held by the
custodian through the federal book-entry system for a Fund as collateral,
will be marked to market on a daily basis to ensure full collateralization of
the repurchase agreement. In the event of a bankruptcy or default of certain
sellers of repurchase agreements, a Fund could experience costs and delays in
liquidating the underlying security
16
<PAGE>
and might incur a loss if such collateral held declines in value during this
period. Not more than 15% of a Fund's total assets will be invested in
repurchase agreements maturing in more than seven days and other illiquid
assets.
Forward Commitments and When-Issued Securities
Each of C-K U.S. Gov't Fund, C-K Growth and Income Fund and C-K Strategic
Income Fund may purchase securities on a when- issued, delayed delivery, or
forward commitment basis. When such transactions are negotiated, the price of
such securities is fixed at the time of the commitment, but delivery and
payment for the securities may take place up to 120 days after the date of
the commitment to purchase. The securities so purchased are subject to market
fluctuation, and no interest accrues to the purchaser during this period.
When-issued securities or forward commitments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Colonial does not believe that the net asset value or income of the Funds
will be adversely affected by the purchase of securities on a when-issued or
forward commitment basis. The Funds will not enter into such transactions for
leverage (borrowing) purposes.
Foreign Securities
N-K Tiger Fund normally will remain fully invested in equity securities of
companies located in the Tiger countries. C-K International Fund For Growth
normally invests primarily in foreign securities. C-K Strategic Income Fund
may invest any portion of its assets in securities issued or guaranteed by
foreign governments. C-K Growth and Income Fund also may invest in foreign
securities. Investments by a Fund in foreign securities involve certain risks
that are not typically associated with investing in domestic issuers,
including: (i) foreign securities traded for foreign currencies and/or
denominated in foreign currencies may be affected favorably or unfavorably by
changes in currency exchange rates and exchange control regulations, and the
Fund may incur costs in connection with conversions between various
currencies; (ii) less publicly available information about the securities and
about the foreign company or government issuing them; (iii) less
comprehensive accounting, auditing, and financial reporting standards,
practices, and requirements; (iv) securities markets outside the United
States may be less developed or efficient than those in the United States and
government supervision and regulation of those securities markets and brokers
and the issuers in those markets is less comprehensive than that in the
United States; (v) the securities of some foreign issuers may be less liquid
and more volatile than securities of comparable domestic issuers; (vi)
settlement of transactions with respect to foreign securities may sometimes
be delayed beyond periods customary in the United States; (vii) fixed
brokerage commissions on certain foreign securities exchanges and custodial
costs with respect to securities of foreign issuers generally exceed domestic
costs; and (viii) with respect to some countries, there is the possibility of
unfavorable changes in investment or exchange control regulations,
expropriation, or confiscatory taxation, taxation at the source of the income
payment or dividend distribution, difficulties in enforcing judgements,
limitations on the removal of funds or other assets of the Fund, political or
social instability, or diplomatic developments that could adversely affect
United States investments in those countries.
C-K International Fund For Growth's investments in foreign securities may
include investments in countries whose economies or securities markets are
not yet highly developed. Special risks associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's
dependence on revenues from particular commodities or on international aid or
development assistance, currency transfer restrictions, highly limited
numbers of potential buyers for such securities and delays and disruptions in
securities settlement procedures. See "DESCRIPTION OF CERTAIN INVESTMENTS:
Investments in Less Developed Countries" in the Statement of Additional
Information for a list of the countries whose economies or securities markets
currently are considered by Gartmore not to be highly developed. Normally no
more than 25% of the Fund's assets will be invested in such securities.
Foreign Currency Transactions. Transactions in foreign securities include
currency conversion costs. N-K Tiger Fund, C-K International Fund For Growth,
C-K Strategic Income Fund and C-K Growth and Income Fund may engage in
currency exchange transactions to convert currencies to or from U.S. dollars.
These Funds may purchase foreign currencies on a spot or forward basis. Such
transactions will be entered into (i) to lock in a particular foreign
exchange rate pending settlement of a purchase or sale of a foreign security
or pending the receipt of interest, principal or dividend payments on a
foreign security held by the Funds, or (ii) to hedge against a decline in the
value, in U.S. dollars or in another currency, of a foreign currency in which
securities held by the Fund are denominated.
C-K International Fund For Growth and C-K Strategic Income Fund also may buy
and sell currency futures contracts and options thereon for such hedging
purposes. C-K Strategic Income Fund also may buy options on currencies for
hedging purposes.
The Funds will not attempt, nor would they be able, to eliminate all foreign
currency risk. The precise matching of foreign currency exchange transactions
and the portfolio securities will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence
of market movements which cannot be precisely forecast. Currency hedging does
not eliminate fluctuations in the underlying prices of securities, but rather
establishes a rate of exchange at some future point in time. Although hedging
may lessen the risk of loss due to a decline in the value of the hedged
currency, it tends to limit potential gain from increases in currency values.
The purchase and sale of foreign currencies on a forward basis and the
purchase and sale of currency futures contracts and
17
<PAGE>
options thereon may present additional risks associated with the use of
leverage. Leverage may magnify the effect of fluctuations in the values of
the Fund's portfolio securities underlying these transactions. In accordance
with Securities and Exchange Commission pronouncements, to reduce (but not
necessarily eliminate) leverage, a Fund will either "cover" its obligations
under such transactions by holding the currency (or rights to acquire the
currency) it is obligated to deliver under such contracts, or deposit and
maintain in a segregated account with its custodian high quality liquid debt
securities, or equity securities denominated in the particular currency,
equal in value to the Fund's obligations under such contracts.
ADRs. With respect to equity securities, each of N-K Tiger Fund, C-K Growth
and Income Fund and C-K U.S. Fund For Growth may purchase American Depositary
Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates issued by a
United States bank or trust company representing the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch
of that bank or a corresponding bank and traded on a United States exchange
or in an over-the-counter market. Generally, ADRs are in registered form.
There are no fees imposed on the purchase or sale of ADRs when purchased from
the issuing bank or trust company in the initial underwriting, although the
issuing bank or trust company may impose charges for the collection of
dividends and the conversion of ADRs into the underlying securities.
Investment in ADRs has certain advantages over direct investment in the
underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable and for
which market quotations are readily available; and (ii) issuers whose
securities are represented by ADRs are subject to the same auditing,
accounting, and financial reporting standards as domestic issuers.
Investments in ADRs, however, are otherwise subject to the same general
considerations and risks pertaining to foreign securities described above.
See "DESCRIPTION OF CERTAIN INVESTMENTS: Investments in Less Developed
Countries;" "Foreign Currency Transactions;" "Forward Currency and Futures
Contracts;" "Currency Options;" "Settlement Procedures;" "Foreign Currency
Conversion;" and "Passive Foreign Investment Companies" in the Statement of
Additional Information for more information about foreign investments.
Mortgage-Backed Securities
C-K U.S. Gov't Fund and C-K Strategic Income Fund may invest in
mortgage-backed securities, which are securities representing interests in
pools of mortgages. Principal and interest payments made on the mortgages in
the pools are passed through to the holder of such securities. Payment of
principal and interest on some mortgage-backed securities (but not the market
value of the securities themselves) may be guaranteed by the full faith and
credit of the U.S. Government (in the case of securities guaranteed by GNMA),
or guaranteed by agencies or instrumentalities of the U.S. Government (in the
case of securities guaranteed by the FNMA or FHLMC). Mortgage-backed
securities created by non- governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers, and other secondary market issuers) may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit, which may be issued by governmental
entities, private insurers, or the mortgage poolers. The Funds will only
invest in mortgage-backed securities that are issued or guaranteed by
governmental entities.
Unscheduled or early repayment of principal on mortgage-backed securities
(arising from prepayment of principal due to the sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. The Fund may only be able to invest prepaid principal at lower
yields. The prepayment of securities purchased at a premium may result in
losses equal to the premium. Like other fixed-income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much
as other fixed-income securities.
C-K Strategic Income Fund may invest in certificates representing undivided
interests in the interest or principal of mortgage-backed securities
(interest only/principal only). These securities tend to be more volatile
than other types of securities. The interest only class involves the risk of
loss of the entire value of the investment if the underlying mortgages are
prepaid. In the case of principal only class securities, the Fund recognizes
(accrues) as income for accounting purposes a portion of the difference
between purchase price and face value. Because the Fund includes this accrued
income in calculating its dividend even though it has not received payment,
the Fund may have to sell other investments to obtain cash needed to make
income distributions.
Collateralized Mortgage Obligations (CMOs) and Real Estate Mortgage
Investment Conduits (REMICs)
C-K U.S. Gov't Fund and C-K Strategic Income Fund may invest in CMOs and
REMICs of investments grade or considered by Colonial to be of comparable
quality. CMOs are debt securities issued by special-purpose trusts
collateralized by underlying mortgage loans or pools of mortgage-backed
securities guaranteed by GNMA, FHLMC, or FNMA. CMOs may be issued by agencies
or instrumentalities of the U.S. Government, or by private originators of, or
investors in mortgage loans, including depository institutions, mortgage
banks, investment banks and special-purpose subsidiaries of the foregoing.
REMICs own mortgages and elect REMIC status under the Code.
CMOs and REMICs are not, however, "mortgage pass-through" securities, such as
those described above under "Mortgage-
18
<PAGE>
Backed Securities." Rather they are pay-through securities, i.e., securities
backed by the cash flow from the underlying mortgages. Investors in CMOs and
REMICs are not owners of the underlying mortgages, which serve as collateral
for such debt securities, but are simply owners of a fixed-income security
backed by such pledged assets. CMOs and REMICs are typically structured into
multiple classes, with each class bearing a different stated maturity and
having different payment streams. One class (the Residual) is in the nature
of equity. The Funds will not invest in the Residual class. Monthly payments
of principal, including prepayments, are first returned to the investors
holding the shortest maturity class; investors holding longer maturity
classes receive principal payments only after the shorter class or classes
have been retired. The Funds may experience costs and delays in liquidating
the collateral if the issuer defaults or enters bankruptcy and may incur a
loss. Principal on a REMIC, CMO or other mortgage-backed security may be
prepaid if the underlying mortgages are prepaid. Because of the prepayment
feature these investments may not increase in value when interest rates fall.
The Funds may be able to invest prepaid principal only at lower yields. The
prepayment of REMICs, CMOs or other mortgage-backed securities purchased at a
premium may result in losses equal to the premium.
Zero-Coupon Bonds
C-K U.S. Gov't Fund and C-K Strategic Income Fund may invest in zero-coupon
bonds. Such bonds may be issued directly by agencies and instrumentalities of
the U.S. Government or by private corporations. Zero-coupon bonds may
originate as such or may be created by stripping an outstanding bond. Zero-
coupon bonds do not make regular interest payments. Instead, they are sold at
a deep discount from their face value. Because a zero-coupon bond does not
pay current income, its price can be very volatile when interest rates
change. In calculating its dividend, the Fund takes into account as income a
portion of the difference between a zero-coupon bond's purchase price and its
face value. Thus, the Fund may have to sell other investments to obtain cash
needed to make income distributions.
High Yield, High Risk Bonds
The C-K Strategic Income Fund may invest a significant portion of its assets
in lower rated bonds (commonly referred to as "junk bonds") which are
regarded as speculative as to payment of principal and interest. Relative to
comparable securities of higher quality:
1. The market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond to
adverse publicity or investor perceptions, increasing the difficulty in
valuing or disposing of the bonds;
c. recent or future legislation limits and may further limit (i)
investment by certain institutions and (ii) tax deductibility of the
interest by the issuer, which may adversely affect value; and
d. certain high yield, high risk bonds do not pay interest in cash on a
current basis. However, the Fund will accrue and distribute this
interest on a current basis, and may have to sell securities to
generate cash for distributions.
2. The Fund's achievement of its investment objectives in respect of
investments in high yield, high risk bonds is more dependent on Colonial's
credit analysis.
3. High yield, high risk bonds are less sensitive to interest rate changes but
are more sensitive to adverse economic developments.
Foreign Stock Index Futures
The C-K International Fund For Growth may purchase futures contracts on
foreign stock indexes (index futures). Under an index future, the Fund will
either receive or pay cash on a specified maturity date, based on the value
of a specified stock index on that date. The Fund may also seek to "close
out" an index futures position before the maturity date, realizing either a
gain or a loss, by entering into an offsetting transaction on a futures
exchange. The Fund may invest in index futures to invest cash temporarily
pending investment in stocks, but not to hedge against market declines.
Writing and Purchasing Covered Put Options on Securities
To minimize anticipated declines in the value of the securities, the C-K
Utilities Fund may purchase (i.e., buy) exchange traded put options on
securities. The Fund may also write (i.e., sell) covered put options on
securities to generate premium income. A put option on a security gives the
holder the right to sell and obligates the writer to purchase, in return for
a premium paid, the underlying security at the exercise price during the
option period.
Although these investment practices will be used to reduce the effect of any
adverse price movement in the securities subject to the option, they do
involve certain risks that are different in some respects from investment
risks associated with similar funds which do not engage in such activities.
These risks include the following: writing covered put options -- the
inability to effect closing transactions at favorable prices and the
obligation to purchase the specified securities at prices which may not
reflect current market values; and purchasing put options -- possible loss of
the entire premium paid.
19
<PAGE>
Interest Rate Futures
C-K Strategic Income Fund may engage in transactions involving interest rate
futures contracts and options thereon to hedge against changes in interest
rates. See "DESCRIPTION OF CERTAIN INVESTMENTS: Futures Contracts and Related
Options" in the Statement of Additional Information. The Fund will engage in
such activities only with respect to securities it may otherwise purchase or
indices composed of such securities. The Fund will enter into such futures
contracts only when, in compliance with the requirements of the Securities
and Exchange Commission, cash or high quality liquid debt securities equal in
value to the commodity value (less any applicable margin deposits) have been
deposited in a segregated account of the Fund's custodian.
Certain Policies to Reduce Risk
Each Fund has adopted certain fundamental investment policies in managing its
portfolio that are designed to maintain the portfolio's diversity and reduce
risk. Each Fund will not: (i) with respect to 75% of each Fund's total
assets, invest in more than 10% of the outstanding voting securities of any
one issuer or invest more than 5% of its total assets in the securities of
any one issuer; or (ii) borrow money except temporarily from banks to
facilitate redemption requests that might otherwise require untimely
disposition of portfolio securities and in amounts not exceeding 10% of each
Fund's total assets. Limitation (i) does not apply to the C-K International
Fund For Growth or, in the case of the other Funds, to U.S. Government
Securities. The investment policies described above in this paragraph are
fundamental and may be changed for a Fund only by approval of that Fund's
shareholders.
It is the policy of each Fund that when Colonial (or Gartmore, State Street
or Newport, as the case may be) deems a temporary defensive position
advisable, the Fund may invest, without limitation (i.e., up to 100% of its
assets), in high-quality fixed-income securities, or hold assets in cash or
cash equivalents, to the extent Colonial (or Gartmore, State Street or
Newport, as the case may be) believes such alternative investments to be less
risky than those securities in which the Fund normally invests.
Additional investment restrictions are set forth in the Statement of
Additional Information.
CHANGES TO INVESTMENT OBJECTIVES AND NON-FUNDAMENTAL POLICIES
The Funds may not always achieve their investment objectives. The Funds
investment objectives and nonfundamental policies may be changed without
shareholder approval. The holders of VA Contracts and VLI Policies will be
notified at least thirty days prior to any material change in a Fund's
investment objective. A Fund's fundamental investment policies listed in the
Statement of Additional Information cannot be changed without shareholder
majority approval.
20
<PAGE>
APPENDIX A
Description of Bond Ratings
The ratings of certain debt instruments in which one or more of the Funds may
invest are described below:
Standard and Poor's Corporation--Bond Ratings
AAA The highest rating assigned by S&P indicates an extremely strong capacity
to repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal and interest than for bonds in the A
category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in
accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree. While likely to have some quality
and protection characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
Moody's Investors Service, Inc.--Bond Ratings
Aaa bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than Aaa securities.
Those bonds in the Aa through B groups which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and
Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes
these bonds.
B bonds generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
A-1
<PAGE>
APPENDIX B
C-K Strategic Income Fund -- Schedule of Portfolio Asset
Composition by Rating For 1994*
<TABLE>
<CAPTION>
Month
------------------------------------------------------------------------
Rating July August September October November December
------- ------- ---------- -------- --------- -----------
(percentage of portfolio)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aaa/AAA 59.1% 60.5% 56.1% 56.7% 40.7% 42.6%
Aa/AA 9.6% -- -- 1.7% 16.2% 15.2%
A/A -- -- -- -- -- --
Baa/BBB -- -- -- -- -- --
Ba/BB -- -- 2.1% 1.8% 3.1% 3.0%
B/B 31.3% 39.5% 39.5% 37.7% 40.0% 39.2%
Caa/CCC -- -- 2.3% 2.1% -- --
Ca/CC -- -- -- -- -- --
C -- -- -- -- -- --
Unrated -- -- -- -- -- --
------ ------ -------- ------ ------- ---------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ======== ====== ======= =========
</TABLE>
<TABLE>
<CAPTION>
1994
Rating (percentage of portfolio)
--------------------------
<S> <C>
Aaa/AAA 52.6%
Aa/AA 7.1%
A/A --
Baa/BBB --
Ba/BB 1.7%
B/B 37.9%
Caa/CCC 0.7%
Ca/CC --
C --
Unrated --
-------
Total 100.0%
========
</TABLE>
*The Fund commenced operations on July 5, 1994.
B-1
<PAGE>
KEYPORT VARIABLE INVESTMENT TRUST
Federal Reserve Plaza, 600 Atlantic Avenue
Boston, Massachusetts 02210
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information ("SAI") is not a Prospectus, but
should be read in conjunction with the Trust's Prospectus, dated May 1, 1995
and any supplement thereto, which may be obtained by calling Keyport Financial
Services Corp. at (800) 437-4466.
The date of this SAI is May 1, 1995.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ITEM PAGE
<S> <C>
INVESTMENT MANAGEMENT AND OTHER SERVICES ................................. S-3
General ............................................................. S-3
KASC's Responsibilities ............................................. S-5
Trust Charges and Expenses .......................................... S-5
INVESTMENT RESTRICTIONS .................................................. S-7
C-K U.S. Gov't Fund ................................................. S-7
C-K Growth and Income Fund .......................................... S-8
C-K Utilities Fund .................................................. S-9
C-K International Fund For Growth ................................... S-11
C-K U.S. Fund For Growth ............................................ S-13
C-K Strategic Income Fund ........................................... S-14
N-K Tiger Fund ...................................................... S-16
S-1
<PAGE>
MORE FACTS ABOUT TRUST ................................................... S-17
Mixed and Shared Funding ............................................ S-17
Organization ........................................................ S-18
Trustees and Officers ............................................... S-18
Principal Holders of Securities ..................................... S-21
Custodian ........................................................... S-22
Independent Accountants ............................................. S-22
OTHER CONSIDERATIONS ..................................................... S-22
Portfolio Turnover .................................................. S-22
Suspension of Redemptions ........................................... S-23
Valuation of Securities ............................................. S-23
Portfolio Transactions .............................................. S-24
DESCRIPTION OF CERTAIN INVESTMENTS ....................................... S-26
Money Market Instruments ............................................ S-26
Investments in Less Developed Countries ............................. S-29
Foreign Currency Transactions ....................................... S-30
Options on Securities .... .......................................... S-34
Futures Contracts and Related Options ............................... S-34
Passive Foreign Investment Companies ................................ S-37
Securities Loans .................................................... S-37
INVESTMENT PERFORMANCE ................................................... S-38
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS ......................... S-39
</TABLE>
S-2
<PAGE>
Keyport Variable Investment Trust (the "Trust"), a Massachusetts business
trust, is registered with the Securities and Exchange Commission ("SEC") as an
open-end management investment company. The Trust currently offers seven
Funds: Colonial-Keyport U.S. Government Fund ("C-K U.S. Gov't Fund");
Colonial-Keyport Growth and Income Fund ("C-K Growth and Income Fund");
Colonial-Keyport Utilities Fund ("C-K Utilities Fund"); Colonial-Keyport
International Fund For Growth ("C-K International Fund For Growth");
Colonial-Keyport U.S. Fund For Growth ("C-K U.S. Fund For Growth");
Colonial-Keyport Strategic Income Fund ("C-K Strategic Income Fund"); and
Newport-Keyport Tiger Fund ("N-K Tiger Fund"). The Trust commenced operations
on July 1, 1993.
INVESTMENT MANAGEMENT AND OTHER SERVICES
General
Keyport Advisory Services Corp. ("KASC") serves as Manager pursuant to
three investment advisory agreements between the Trust on behalf of one or
more of the Funds and KASC (the "Management Agreements"). KASC is a direct
wholly-owned subsidiary of Keyport Life Insurance Company ("Keyport"), which
is an indirect wholly-owned subsidiary of Liberty Financial Companies, Inc.
("LFC"). As of March 31, 1995, approximately 81.9% of the combined voting
power of LFC's outstanding voting stock was owned, indirectly, by Liberty
Mutual Insurance Company ("Liberty Mutual").
KASC and the Trust, on behalf of each Fund (other than N-K Tiger Fund),
have entered into a separate Sub-Advisory Agreement ("Colonial Sub-Advisory
Agreements") with Colonial Management Associates, Inc. ("Colonial"). Colonial
is a subsidiary of The Colonial Group, Inc. LFC acquired The Colonial Group,
Inc. on March 24, 1995. Colonial has delegated portfolio management of C-K
International Fund For Growth to Gartmore Capital Management Limited
("Gartmore") pursuant to a separate Sub-Advisory Agreement (the "Gartmore
Sub-Advisory Agreement") among the Fund, KASC, Colonial and Gartmore.
Similarly Colonial has delegated portfolio management of the C-K U.S. Fund For
Growth to State Street Global Advisors, a division of State Street Bank and
Trust Company ("State Street") pursuant to a separate Sub-Advisory Agreement
(the "State Street Sub-Advisory Agreement") among the Fund, KASC, Colonial and
State Street.
KASC and the Trust, on behalf of the N-K Tiger Fund, have entered into a
separate Sub-Advisory Agreement (the "Newport Sub-Advisory Agreement") with
Newport Fund Management, Inc. ("Newport"). Newport is an indirect wholly owned
subsidiary of Liberty Newport Holdings, Ltd. ("LNH"). LFC acquired LNH on
April 3, 1995.
Keyport Advisory Services Corp. Keyport owns all of the outstanding
common stock of KASC. The directors and principal executive officer of KASC
are: John W. Rosensteel, (principal executive officer); John E. Arant, III;
James J. Klopper; Paul H. LeFevre, Jr.; and Lee R. Roberts. Messrs. Rosensteel
and Roberts also are directors of Keyport Financial Services Corp. ("KFSC"),
the principal underwriter for shares of the Funds.
S-3
<PAGE>
Colonial Management Associates, Inc. The Colonial Group, Inc., One
Financial Center, Boston, Massachusetts 02111, owns all of the outstanding
common stock of Colonial. LFC owns all of the outstanding common stock of The
Colonial Group, Inc. The directors and principal executive officers of
Colonial are Bonny E. Boatman, Sheila E. Carroll, Harold W. Cogger (principal
executive officer), C. Herbert Emilson, C. Frazier Evans, Donald S. MacKinnon,
Jeffrey L. McGregor, John A. McNeice, Jr., Charles A. O'Neill, Helen Frame
Peters, Daniel Rie, Davey S. Scoon, Richard A. Silver and Arthur O. Stern.
Gartmore Capital Management Limited. Gartmore is a subsidiary of Gartmore
plc which is listed on the London Stock Exchange. Seventy-five percent of the
equity of Gartmore plc is owned indirectly by Banque Indosuez, a leading
French bank, which, in turn, is an indirect subsidiary of Compagnie de Suez
S.A. Gartmore is a member of the Investment Management Regulatory
Organization, a principal regulator in the U.K. for investment management
firms, and also is registered with the SEC as an investment adviser. The
directors and principal executive officer of Gartmore are Andrew Fleming,
Nicholas Henderson, Antoine Khayat, Stephen Lowe, Helen Marsden, Paul Myners
(principal executive officer), Sally J.J. Tennant, Richard Watt, David Watts,
Peter Whelpton and Jeremy Willoughby.
State Street Global Advisors. State Street Boston Corporation, a publicly
traded bank holding company, owns all of the outstanding capital stock of
State Street. The directors and principal executive officer of State Street
are Tenley B. Albright, Joseph A. Baute, L. MacAllister Booth, Marshall N.
Carter (principal executive officer), James L. Cash, Jr., Truman S. Casner,
Nader F. Darehshori, Charles F. Kaye, John M. Kucharski, Charles R. LaMantia,
David B. Perini, Dennis J. Picard and David A. Spina.
Newport. Newport Pacific owns all of the outstanding common stock of
Newport. Liberty Newport Holdings, Ltd. ("LNH") owns all of the outstanding
common stock of Newport Pacific. LFC owns all of the outstanding common stock
of LNH. LFC owns all of the outstanding common stock of LNH. The directors and
principal executive officers of Newport are John M. Mussey (principal
executive officer), Sabino Marinella, Kenneth R. Leibler, Lindsay Cook, Thomas
R. Tuttle, Pamela Frantz, Gerald Rush and Linda Couch.
The Management Agreements and the Sub-Advisory Agreements provide that
none of KASC, Colonial, Gartmore, State Street or Newport, nor any of their
respective directors, officers, stockholders (or partners of stockholders),
agents, or employees shall have any liability to the Trust or any shareholder
of any Fund for any error of judgment, mistake of law or any loss arising out
of any investment, or for any other act or omission in the performance by
KASC, Colonial, Gartmore, State Street or Newport of its respective duties
under the Agreement and the Sub-Advisory Agreements to which it is party,
except for liability resulting from willful misfeasance, bad faith or gross
negligence on the part of KASC, Colonial, Gartmore, State Street or Newport,
as the case may be, in the performance of its respective duties or from
reckless disregard by KASC, Colonial, Gartmore, State Street or Newport, as
the case may be, of its respective obligations and duties under the Management
Agreements and Sub-Advisory Agreements.
S-4
<PAGE>
KASC's Responsibilities
In addition to its duties described in the Prospectus, KASC, in
furtherance of such duties and responsibilities, gathers and evaluates general
economic, statistical, and financial data for presentation to the Board of
Trustees, recommends, following inquiry, the addition or deletion of Funds,
assists Colonial, Gartmore, State Street and Newport in the performance of
their respective duties, coordinates the provision of information to
shareholders, coordinates with Colonial, Gartmore, State Street, Newport and
KFSC to provide requested performance information and coordinates the
activities of other service entities such as (i) the custodian, (ii)
independent auditors, (iii) outside legal counsel, (iv) Colonial, as the
transfer agent or as delegated to perform administrative duties, and (v) KFSC.
KASC, at its own expense, provides office space, facilities and supplies,
equipment and personnel for the performance of its functions under the
Agreement and pays all compensation of the Trustees, officers, and employees
who are employees of KASC, KFSC or Keyport. Employees of other affiliates of
KASC are paid by such other affiliates.
Trust Charges and Expenses
Each of C-K U.S. Gov't Fund, C-K Growth and Income Fund and C-K Utilities
Fund commenced operations on July 1, 1993. C-K International Fund For Growth
commenced operations on May 2, 1994. Each of C-K U.S. Fund For Growth and C-K
Strategic Income Fund commenced operations on July 5, 1994. It is expected
that N-K Tiger Fund will commence operations on or about May 1, 1995.
Management Fees. During 1993 and 1994, respectively, pursuant to the
Management Agreements described in the Prospectus, each Fund listed below paid
KASC management fees as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
C-K U.S. Gov't Fund: $ 69,522 $188,172
C-K Growth and Income Fund: $ 69,688 $273,406
C-K Utilities Fund: $125,219 $269,227
C-K International Fund For Growth: -- $ 88,260
C-K U.S. Fund For Growth: -- $ 48,403
C-K Strategic Income Fund: -- $ 36,266
</TABLE>
S-5
<PAGE>
Certain Administrative Expenses. During 1994 each Fund listed below made
payments as follows to Colonial for pricing and bookkeeping services.
<TABLE>
<S> <C>
C-K U.S. Gov't Fund: $27,000
C-K Growth and Income Fund: $27,000
C-K Utilities Fund: $27,091
C-K International Fund For Growth: $18,000
C-K U.S. Fund For Growth: $13,500
C-K Strategic Income Fund: $13,500
</TABLE>
In addition during 1994 each Fund listed below made payments as follows
to Liberty Investment Services, Inc. ("LIS"), a wholly-owned subsidiary of
LFC, for transfer agent services:
<TABLE>
<S> <C>
C-K U.S. Gov't Fund: $7,500
C-K Growth and Income Fund: $7,500
C-K Utilities Fund: $7,500
C-K International Fund For Growth: $5,000
C-K U.S. Fund For Growth: $3,750
C-K Strategic Income Fund: $3,750
</TABLE>
Colonial assumed from LIS responsibility for providing transfer agency
services as of January 3, 1995.
Expense Limitations. KASC has agreed to reimburse all expenses, including
management fees, but excluding interest, taxes, brokerage, and other expenses
which are capitalized in accordance with accepted accounting procedures, and
extraordinary expenses, incurred by (i) each of C-K U.S. Gov't Fund, C-K
Growth and Income Fund, C-K Utilities Fund and C-K U.S. Fund For Growth in
excess of 1.00% of average net asset value per annum, (ii) each of C-K
International Fund For Growth and the N-K Tiger Fund in excess of 1.75% of
average daily net asset value per annum, and (iii) C-K Strategic Income Fund
in excess of 0.80% of average daily net asset value per annum, in each case
for the period from May 1, 1995 until April 30, 1996. (These expense
limitations have been in effect prior to May 1, 1995 for each Fund, except
that prior to such date the annual expense limitation of C-K Strategic Income
Fund was 1.00% of average daily net asset value per annum.) Pursuant to such
limitations the total expenses of the following Funds were reduced during 1994
by the following amounts:
<TABLE>
<S> <C>
C-K U.S. Fund For Growth: $38,435
C-K Strategic Income Fund: $33,219
</TABLE>
S-6
<PAGE>
INVESTMENT RESTRICTIONS
In addition to the restrictions set forth in the Prospectus with respect
to each Fund which are described as fundamental investment policies, the
investment restrictions specified below with respect to each Fund as
"Fundamental Investment Policies" have been adopted as fundamental investment
policies of each Fund. Such fundamental investment policies may be changed
only with the consent of a "majority of the outstanding voting securities" of
the particular Fund. As used in the Prospectus and in this SAI, the term
"majority of the outstanding voting securities" means the lesser of (i) 67% of
the voting securities of a Fund present at a meeting where the holders of more
than 50% of the outstanding voting securities of a Fund are present in person
or by proxy, or (ii) more than 50% of the outstanding voting securities of a
Fund. Shares of each Fund will be voted separately on matters affecting only
that Fund, including approval of changes in the fundamental objectives,
policies, or restrictions of that Fund.
Total assets and net assets are determined at current value for purposes
of compliance with investment restrictions and policies. All percentage
limitations will apply at the time of investment and are not violated unless
an excess or deficiency occurs as a result of such investment. For purposes of
the diversification requirement of the Investment Company Act of 1940, as
amended (the "1940 Act"), the issuer with respect to a security is the entity
whose revenues support the security.
C-K U.S. Gov't Fund
Fundamental Investment Policies. The C-K U.S. Gov't Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Invest up to 15% of its net assets in illiquid assets;
3. Underwrite securities issued by others only when disposing of
portfolio securities;
4. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements;
5. Not concentrate more than 25% of its total assets in any one
industry; and
6. With respect to 75% of total assets not purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer.
S-7
<PAGE>
Other Investment Policies. As non-fundamental investment policies of the
C-K U.S. Gov't Fund which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Own real estate unless it is acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options if the total
initial margin and premiums required to establish non-hedging
positions exceeds 5% of its total assets;
4. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
5. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
6. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old; or
7. Pledge more than 33% of its total assets.
C-K Growth and Income Fund
Fundamental Investment Policies. The C-K Growth and Income Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Invest up to 15% of its net assets in illiquid assets;
3. Underwrite securities issued by others only when disposing of
portfolio securities;
4. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements;
S-8
<PAGE>
5. Not concentrate more than 25% of its total assets in any one
industry; and
6. With respect to 75% of total assets not purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer.
Other Investment Policies. As non-fundamental investment policies of the
C-K Growth and Income Fund which may be changed without a shareholder vote,
the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Own real estate unless it is acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options if the total
initial margin and premiums required to establish non-hedging
positions exceeds 5% of its total assets;
4. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
5. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
6. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old; or
7. Pledge more than 33% of its total assets.
C-K Utilities Fund
Fundamental Investment Policies. The C-K Utilities Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Invest up to 15% of its net assets in illiquid assets;
S-9
<PAGE>
3. Underwrite securities issued by others only when disposing of
portfolio securities;
4. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements; and
5. With respect to 75% of total assets not purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer.
Other Investment Policies. As non-fundamental investment policies of C-K
Utilities Fund which may be changed without a shareholder vote, the Fund may
not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Own real estate unless it is acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options if the total
initial margin and premiums required to establish non-hedging
positions exceeds 5% of its total assets;
4. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
5. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
6. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old; or
7. Pledge more than 33% of its total assets.
S-10
<PAGE>
C-K International Fund For Growth
Fundamental Investment Policies. The C-K International Fund For Growth
may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. Only own real estate acquired as the result of owning securities and
not more than 5% of total assets;
6. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on the contracts do not exceed
5% of its total assets; and
7. Not purchase any security issued by another investment company if
immediately after such purchase the Fund would own in the aggregate
(i) more than 3% of the total outstanding voting securities of such
other investment company, (ii) securities issued by such other
investment company having an aggregate value in excess of 5% of the
Fund's total assets, or (iii) securities issued by investment
companies having an aggregate value in excess of 10% of the Fund's
total assets.
Other Investment Policies. As non-fundamental investment policies of the
C-K International Fund For Growth which may be changed without a shareholder
vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
S-11
<PAGE>
4. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
5. Pledge more than 33% of its total assets;
6. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would be invested in the securities of issuers
which are restricted as to disposition;
7. Invest more than 15% of its net assets in illiquid assets;
8. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at
the lower of cost or market, would exceed 10% of the value of the
Fund's net assets. Included within that amount, but not to exceed 2%
of the value of the Fund's net assets, may be warrants whose
underlying securities are not traded on principal domestic or foreign
exchanges. Warrants acquired by the Fund in units or attached to
securities will be deemed to be without value;
9. With respect to 75% of total assets, purchase any voting security of
an issuer if, as a result of such purchase, the Fund would own more
than 10% of the outstanding voting securities of such issuer;
10. Purchase puts, calls, straddles, spreads, or any combination thereof
if, as a result of such purchase, the Fund's aggregate investment in
such securities would exceed 5% of total assets;
11. Acquire any security issued by a person that, in its most recent
fiscal year, derived 15% or less of its gross revenues from
securities related activities (within the meaning of Rule 12d3-1
under the Investment Company Act of 1940 (the "1940 Act")) if the
Fund would control such person after such acquisition; or
12. Acquire any security issued by a person that, in its most recent
fiscal year, derived more than 15% of its gross revenues from
securities related activities (as so defined) unless (i) immediately
after such acquisition of any equity security, the Fund owns 5% or
less of the outstanding securities of that class of the issuer's
equity securities, (ii) immediately after such acquisition of a debt
security, the Fund owns 10% or less of the outstanding principal
amount of the issuer's debt securities, and (iii) immediately after
such acquisition, the Fund has invested not more than 5% of its total
assets in the securities of the issuer.
S-12
<PAGE>
C-K U.S. Fund For Growth
Fundamental Investment Policies. The C-K U.S. Fund For Growth may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry; and
5. With respect to 75% of total assets not purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer;
6. Only own real estate acquired as the result of owning securities and
not more than 5% of total assets; and
7. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on the contracts do not exceed
5% of its total assets.
Other Investment Policies. As non-fundamental investment policies of C-K
U.S. Fund For Growth which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
S-13
<PAGE>
4. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old; and
5. Pledge more than 33% of its total assets;
6. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would be invested in the securities of issuers
which are restricted as to disposition;
7. Invest more than 15% of its net assets in illiquid assets;
8. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at
the lower of cost or market, would exceed 10% of the value of the
Fund's net assets. Included within that amount, but not to exceed 2%
of the value of the Fund's net assets, may be warrants whose
underlying securities are not traded on principal domestic or foreign
exchanges. Warrants acquired by the Fund in units or attached to
securities will be deemed to be without value; or
9. Purchase or sell commodity contracts if the total initial margin and
premiums on the contracts would exceed 5% of its total assets.
C-K Strategic Income Fund
Fundamental Investment Policies. The C-K Strategic Income Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments and similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. With respect to 75% of total assets not purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer;
S-14
<PAGE>
6. Only own real estate acquired as the result of owning securities and
not more than 5% of total assets; and
7. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on the contracts do not exceed
5% of its total assets.
Other Investment Policies. As non-fundamental investment policies of the
C-K Strategic Income Fund which may be changed without a shareholder vote, the
Fund may not:
1. Purchase securities on margin, but it may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, including leases;
4. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
5. Pledge more than 33% of its total assets;
6. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would be invested in the securities of issuers
which are restricted as to disposition;
7. Invest more than 15% of its net assets in illiquid assets; or
8. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at
the lower of cost or market, would exceed 10% of the value of the
Fund's net assets. Included within that amount, but not to exceed 2%
of the value of the Fund's net assets, may be warrants whose
underlying securities are not traded on principal domestic or foreign
exchanges. Warrants acquired by the Fund in units or attached to
securities will be deemed to be without value.
S-15
<PAGE>
N-K Tiger Fund
Fundamental Investment Policies. The N-K Tiger Fund may not:
1. With respect to 75% of total assets purchase any security (other than
obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting shares of such
issuer;
2. Underwrite securities issued by others except when disposing of
portfolio securities;
3. Buy or sell commodities or commodity contracts (other than currency
forward contracts);
4. Borrow amounts in excess of 5% of the Fund's net asset value, and
only from banks as a temporary measure for extraordinary or emergency
purposes and not for investment in securities. To avoid the untimely
disposition of assets to meet redemptions it may borrow up to 20% of
the net value of its assets to meet redemptions. The Fund will not
make other investments while such borrowings referred to above in
this item are outstanding. The Fund will not mortgage, pledge or in
any other manner transfer, as security for indebtedness, any of its
assets. (Short-term credits necessary for the clearance of purchases
or sales of securities will not be deemed to be borrowings by the
Fund.);
5. Make loans, except that the Fund may: (a) acquire for investment a
portion of an issue of bonds, debentures, notes or other evidences of
indebtedness of a corporation or government; (b) enter into
repurchase agreements, secured by obligations of the United States or
any agency or instrumentality thereof;
6. Issue senior securities (except in accordance with 4 above);
7. Concentrate more than 25% of its total assets in any one of its
industry;
8. Purchase or sell real estate, provided that securities of companies
which deal in real estate or interests therein will not be deemed to
be investments in real estate.
Other Investment Policies. As non-fundamental investment policies of the
N-K Tiger Fund which may be changed without a shareholder vote, the Fund may
not:
S-16
<PAGE>
1. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
2. Invest in companies for the purpose of exercising control;
3. Invest in securities of other investment companies except by purchase
in the open market involving only customary broker's commissions, or
as part of a merger, consolidation, or acquisition of assets;
4. Participate on a joint and several basis in any securities trading
account;
5. Write or trade in put or call options;
6. Purchase securities on margin, but the Fund may utilize such
short-term credits as may be necessary for clearance of purchases or
sales of securities;
7. Engage in short sales of securities; or
8. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases.
MORE FACTS ABOUT THE TRUST
Mixed and Shared Funding
As described in the Prospectus, the Trust serves as the funding medium
for VA contracts and VLI policies of Keyport, Keyport America Life Insurance
Company (a wholly owned subsidiary of Keyport formerly known as "Crown America
Life Insurance Company")("Keyport America"), and Liberty Life Assurance
Company of Boston ("Liberty Life"), 90%-owned subsidiary of Liberty Mutual.
This is referred to as "mixed and shared funding." 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 Board of Trustees monitors 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 of Participating Insurance Companies
(as such term is defined in the Prospectus) 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.
At this time the Trust does not anticipate offering its shares to
insurance companies that are unaffiliated with Keyport or Liberty Mutual, but
may do so in the future.
S-17
<PAGE>
Organization
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.
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.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Trust's shareholders are the separate accounts and general accounts
of Keyport, Keyport America and Liberty Life. 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 of Trustees. 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 is also believed to be remote.
Trustees and Officers
The Trustees and officers of the Trust, together with information as to
their principal addresses and business occupations during the last five years,
are shown below. An asterisk next to a name indicates that a Trustee is
considered an "interested person" of the Trust (as defined in the 1940 Act).
S-18
<PAGE>
<TABLE>
<CAPTION>
======================================= ========================= ====================================
Positions(s) held Principal occupations
Name and Address with the Trust during past five years
<S> <C> <C>
======================================== ========================= ====================================
Richard R. Christensen* President and Trustee President, Liberty Investment
Federal Reserve Plaza Services, Inc.
600 Atlantic Avenue
Boston, MA 02210
- --------------------------------------- ------------------------- ------------------------------------
John A. Bacon Jr. Trustee Private Investor; Director, Duplex
4N640 Honey Hill Road Products, Inc.
Box 296
Wayne, IL 60184
- --------------------------------------- ------------------------- ------------------------------------
Salvatore Macera Trustee Private Investor
20 Rowes Wharf
Boston, MA 02109
- --------------------------------------- ------------------------- ------------------------------------
Dr. Thomas E. Stitzel Professor of Finance, College of
2208 Tawny Woods Place Trustee Business, Boise State University;
Boise, ID 83706 Business Consultant and Author
- --------------------------------------- ------------------------- ------------------------------------
Richard A. Silver Treasurer Senior Vice President and Chief
One Financial Center Financial Officer, Colonial
Boston, MA 02111 Management Associates, Inc.
- --------------------------------------- ------------------------- ------------------------------------
Peter L. Lydecker Controller Vice President -- Funds
One Financial Center Controller, Colonial Management
Boston, MA 02111 Associates, Inc.
- --------------------------------------- ------------------------- ------------------------------------
Daniel Rie Vice President Senior Vice President,
One Financial Center Colonial Management
Boston, MA 02111 Associates, Inc.
- --------------------------------------- ------------------------- ------------------------------------
Leslie W. Finnemore Vice President Vice President, Colonial
One Financial Center Management Associates, Inc.
Boston, MA 02111
- --------------------------------------- ------------------------- ------------------------------------
John H. Lennon Vice President Vice President, Colonial
One Financial Center Management Associates, Inc.
Boston, MA 02111
- --------------------------------------- ------------------------- ------------------------------------
S-19
<PAGE>
- --------------------------------------- ------------------------- ------------------------------------
Michael H. Koonce Vice President Vice President and Counsel,
One Financial Center Colonial Management Associates,
Boston, MA 02111 Inc. (1992-present); Associate,
Ropes & Gray, Boston, MA (prior
thereto)
- --------------------------------------- ------------------------- ------------------------------------
Carl C. Ericson Vice President Vice President, Colonial
One Financial Center Management Associates, Inc.
Boston, MA 02111
- --------------------------------------- ------------------------- ------------------------------------
John M. Mussey Vice President President, Newport Fund
580 California Street Management, Inc.
San Francisco, CA 94104
- --------------------------------------- ------------------------- ------------------------------------
John A. Benning Secretary Senior Vice President and General
Federal Reserve Plaza Counsel, Liberty Financial
600 Atlantic Avenue Companies, Inc.
Boston, MA 02210
- --------------------------------------- ------------------------- ------------------------------------
Kevin M. Carome Assistant Secretary Since April 1993, Associate
Federal Reserve Plaza General Counsel and Vice President
600 Atlantic Avenue (since February 1995), Liberty
Boston, MA 02210 Financial Companies, Inc.;
Associate, Ropes & Gray, prior
thereto
======================================== ========================= ====================================
</TABLE>
As indicated in the above table, certain Trustees and officers of the
Trust also hold positions with LFC, Keyport, KASC, KFSC, Colonial, Newport
and/or certain of their affiliates. Certain of the Trustees and officers of
the Trust hold comparable positions with certain other investment companies.
Compensation of Trustees
The table set forth below presents certain information regarding the fees
paid to the Trustees for their services in such capacity and total fees paid
to them by all other investment companies affiliated with the Trust. Trustees
do not receive any pension or retirement benefits from the Trust. No officers
of the Trust or other individuals who are affiliated with the Trust receive
any compensation from the Trust for services provided to it.
S-20
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
- -------------------------------------------------------------------------------------------------------------------
Total Compensation
From the Trust and
Affiliated Investment
Name of Trustee Aggregate 1994 Compensation* Companies in 1994**
- --------------- ---------------------------- -----------------
<S> <C> <C>
Richard R. Christensen -- --
John A. Bacon Jr. $10,500 $29,500
Salvatore Macera 10,500 29,500
Dr.Thomas E. Stitzel 10,500 29,500
</TABLE>
- ---------------------
* Consists of Trustee fees in the amount of (i) a $5,000 annual
retainer, (ii) a $1,000 meeting fee for each meeting attended in
person and (iii) a $500 meeting fee for each telephone meeting
** Includes Trustee fees paid by the Trust and Trustee fees paid by
SteinRoe Variable Investment Trust
Principal Holders of Securities
All the shares of the Funds are held of record by sub-accounts of
separate accounts of Keyport, Keyport America or Liberty Life on behalf of the
owners of VA contracts and VLI policies or by the general account of Keyport.
At March 31, 1995, the general account of Keyport owned of record 57% of C-K
U.S. Gov't Fund, 32% of C-K Growth and Income Fund, 46% of C-K International
Fund For Growth, 51% of C-K U.S. Fund For Growth and 58% of C-K Strategic
Income Fund. As of that date, Keyport's general account owned of record less
than 25% of the outstanding shares of C-K Utilities Fund. At all meetings of
shareholders of the Funds, Keyport, Keyport America and Liberty Life will vote
the shares held of record by subaccounts of their respective separate accounts
as to which instructions are received from the VA contract and VLI policy
owners on behalf of whom such shares are held only in accordance with such
instructions. 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 VA contracts and VLI policies).
There is no requirement as to the minimum level of instructions which must be
received from policy and contract owners. Accordingly, each of Keyport,
Keyport America and Liberty Life disclaims beneficial ownership of the shares
of the Funds held of record by the sub-accounts of their respective separate
accounts (or, in the case of Keyport, its general account). None of Keyport,
Keyport America or Liberty Life know of any owner of a VA contract or VLI
policy issued by it which on March 31, 1995 owned beneficially 5% or more of
the outstanding shares of any Fund.
S-21
<PAGE>
Custodian
Boston Safe Deposit and Trust Company ("The Boston Company") is custodian
of the securities and cash owned by the Funds. The Boston Company, One Boston
Place, Boston, Massachusetts 02108, 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 Funds, and
performing other administrative duties, all as directed by persons authorized
by the Trust. The Boston Company does not exercise any supervisory function in
such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Funds or the Trust. Portfolio
securities of the Funds purchased in the U.S. are maintained in the custody of
The Boston Company and may be entered into the Federal Reserve Book Entry
system, or the security depository system of the Depository Trust Company or
other security depository systems. Pursuant to the Custodian Agreement between
the Trust and The Boston Company, portfolio securities purchased outside the
U.S. are maintained in the custody of various foreign branches of The Boston
Company and such other custodians, including foreign banks and foreign
securities depositories, as are approved by the Board of Trustees, in
accordance with regulations under the 1940 Act. The Funds may invest in
obligations of The Boston Company and may purchase or sell securities to The
Boston Company.
Independent Accountants
Price Waterhouse LLP, whose address is 160 Federal Street, Boston, MA
02110, has been selected as the independent accountants for the Trust. Their
selection, with respect to each Fund, has been approved by Keyport in
connection with the organization of the Fund (at which time Keyport acted as
sole shareholder of the Fund), and by the Board of Trustees.
OTHER CONSIDERATIONS
Portfolio Turnover
Although no Fund purchases securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held by
any Fund and a Fund's annual portfolio turnover rate may vary significantly
from year to year. A 100% turnover rate would occur if all of the securities
in the portfolio were sold and either repurchased or replaced within one year.
Although the Funds cannot predict portfolio turnover rate, it is estimated
that, under normal circumstances, the annual rate for each Fund (other than
the C-K U.S. Fund For Growth) will be no greater than 100%. Colonial and State
Street anticipate that the portfolio turnover rate of the C-K U.S. Fund For
Growth will not exceed 200%. The portfolio turnover rates of the Funds (other
than N-K Tiger Fund, which was not in existence during applicable periods) are
shown under "Financial Highlights" in the Financial Statements of the Trust
contained in Appendix B to this Statement of Additional Information.
S-22
<PAGE>
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. 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.
C-K U.S. Fund For Growth uses quantitative techniques which may result in
a high level of short-term trading producing a high portfolio turnover rate.
C-K International Fund For Growth may be expected to experience higher
portfolio turnover rates if such Fund makes a change in its investments from
one geographic sector (e.g., Europe; Japan; emerging Asian markets; etc.) to
another geographic sector. Costs will be greater if the change is from the
sector in which the greatest proportion of its assets are invested.
Suspension of Redemptions
The right to redeem shares or to receive payment with respect to any
redemption of shares of the Funds may only be suspended (i) for any period
during which trading on the New York Stock Exchange ("NYSE") is restricted or
the NYSE is closed, other than customary weekend and holiday closing, (ii) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of the Funds is not
reasonably practicable, or (iii) for such other periods as the SEC may by
order permit for protection of shareholders of the Funds.
Valuation of Securities
The assets of the Funds are valued as follows:
Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Colonial (the
Trust's pricing and bookkeeping agent) deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid prices. Short-term obligations with a maturity of 60 days
or less are valued at amortized cost when such cost approximates market value
pursuant to procedures approved by the Trustees. The values of foreign
securities quoted in foreign currencies are translated into U.S. dollars at
the exchange rate as of 3:00 p.m. Eastern time. Portfolio positions for which
there are no such valuations and other assets are valued at fair value as
determined in good faith under the direction of the Trustees.
S-23
<PAGE>
The net asset value of shares of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m., Boston time, on
every day the NYSE is open for trading, except on days where both (i) the
degree of trading in a Fund's portfolio securities would not materially affect
the net asset value of that Fund's shares and (ii) no shares of a Fund were
tendered for redemption and no purchase order was received. The NYSE is open
Monday through Friday, except on the following national holidays: New Year's
Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
NYSE. The values of these securities used in determining the net asset value
are computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds and U.S.
government securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
NYSE. Occasionally, events affecting the value of such securities may occur
between such times and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value following procedures approved by the
Trustees.
Portfolio Transactions
The Trust has no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities with respect
to the Funds, and the Funds have no intention to deal exclusively with any
particular broker-dealer or group of broker-dealers.
Each of Colonial, Gartmore, State Street and Newport places the
transactions of the Funds with broker-dealers selected by it and, if
applicable, negotiates commissions. Broker-dealers may receive brokerage
commissions on portfolio transactions, including the purchase and writing of
options, the effecting of closing purchase and sale transactions, and the
purchase and sale of underlying securities upon the exercise of options and
the purchase or sale of other instruments. The Funds from time to time may
also execute portfolio transactions with such broker-dealers acting as
principals.
Except as described below in connection with commissions paid to a
clearing agent on sales of securities, it is each Fund's policy and the policy
of each of Colonial, Gartmore, State Street and Newport always to seek best
execution, which is to place the Fund's transactions where the Fund can obtain
the most favorable combination of price and execution services in particular
transactions or provided on a continuing basis by a broker-dealer, and to deal
directly with a principal market maker in connection with over-the-counter
transactions, except when Colonial, Gartmore, State Street or Newport believes
that best execution is obtainable elsewhere. In evaluating the execution
services of, including the overall reasonableness of brokerage commissions
paid to, a broker-dealer, consideration is given to, among other things, the
firm's general execution and operational capabilities, and to its reliability,
integrity and financial condition.
S-24
<PAGE>
Subject to such policy of always seeking best execution, securities
transactions of the Funds may be executed by broker-dealers who also provide
research services (as defined below) to Colonial, Gartmore, State Street,
Newport, the Funds or other accounts as to which Colonial, State Street,
Gartmore or Newport exercises investment discretion. Each of Colonial,
Gartmore, State Street and Newport may use all, some or none of such research
services in providing investment advisory services to each of its clients,
including the Funds it advises. To the extent that such services are used by
Colonial, Gartmore, State Street, or Newport they tend to reduce their
expenses. In the opinion of Colonial, Gartmore, State Street and Newport, it
is impossible to assign an exact dollar value for such services.
Subject to such policies as the Board of Trustees may determine, each of
Colonial, Gartmore, State Street and Newport may cause a Fund to pay a
broker-dealer that provides brokerage and research services to it an amount of
commission for effecting a securities transaction, including the sale of an
option or a closing purchase transaction, for a Fund in excess of the amount
of commission that another broker-dealer would have charged for effecting that
transaction. As provided in Section 28(e) of the Securities Exchange Act of
1934, "brokerage and research services" include advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends and portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Each of Colonial,
Gartmore, State Street and Newport must determine in good faith that such
greater commission is reasonable in relation to the value of the brokerage and
research services provided to it by the executing broker-dealer viewed in
terms of that particular transaction or its overall responsibilities to the
Fund and all its other clients.
Certain of the other accounts of Colonial, Gartmore, State Street and
Newport may have investment objectives and programs that are similar to those
of the Funds. Accordingly, occasions may arise when each of Colonial,
Gartmore, State Street and Newport engages in simultaneous purchase and sale
transactions of securities that are consistent with the investment objectives
and programs of a Fund and such other accounts. On those occasions, Colonial,
Gartmore, State Street or Newport will allocate purchase and sale transactions
in an equitable manner according to written procedures as approved by the
Board of Trustees. Such procedures may, in particular instances, be either
advantageous or disadvantageous to a Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best execution and such other
policies as the Board of Trustees may determine, each of Colonial, Gartmore,
State Street and Newport may consider sales of VA contracts and VLI policies
as a factor in the selection of broker-dealers to execute securities
transactions for the Funds.
S-25
<PAGE>
The table below shows information on brokerage commissions paid by each
Fund during the periods indicated (other than (i) C-K U.S. Government Fund and
C-K Strategic Income Fund, which did not pay commissions on any of their
transactions, and (ii) the N-K Tiger Fund, which was not in existence during
such periods).
<TABLE>
<CAPTION>
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
C-K Growth and C-K Utilities C-K C-K U.S.Fund
Income Fund Fund International For Growth
Fund For
Growth
<S> <C> <C> <C> <C>
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
Total amount of brokerage $64,373 $37,872 $68,394 $31,950
commissions paid during 1994
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
Amount of such commissions paid to $ 7,654 $ 552 -- --
brokers or dealers who supplied
research services to Colonial,
Gartmore or State Street
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
Amount of commissions paid to $ 7,654 $ 552 -- --
brokers or dealers that were
allocated to such brokers or
dealers by Colonial, Gartmore or
State Street because of research
services provided to the Fund
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
Total brokerage paid during period $25,577 $57,260 -- --
from July 1, 1993 (commencement of
operation) through December 31, 1993
- ------------------------------------- ------------------ ----------------- ----------------- --------------------
</TABLE>
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which may
be made by one or more of the Funds.
Money Market Instruments
As stated in the Prospectus, each Fund may invest in a variety of
high-quality money market instruments, except that C-K U.S. Gov't Fund will
not invest in certificates of deposit, bankers' acceptances, commercial paper,
bank time deposits or corporate debt instruments. The money market instruments
that may be used by each Fund may include:
S-26
<PAGE>
United States Government Obligations. These consist of various types of
marketable securities issued by the U.S. Treasury, i.e., bills, notes and
bonds. Such securities are direct obligations of the U.S. Government and
differ mainly in the length of their maturity. Treasury bills, the most
frequently issued marketable government security, have a maturity of up to one
year and are issued on a discount basis.
United States Government Agency Securities. These consist of debt
securities issued by agencies and instrumentalities of the U.S. Government,
including the various types of instruments currently outstanding or which may
be offered in the future. Agencies include, among others, the Federal Housing
Administration, Government National Mortgage Association, Farmer's Home
Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities
include, for example, each of the Federal Home Loan Banks, the National Bank
for Cooperatives, the Federal Home Loan Mortgage Corporation, the Farm Credit
Banks, the Federal National Mortgage Association, and the United States Postal
Service. These securities are either: (i) backed by the full faith and credit
of the U.S. Government (e.g., U.S. Treasury Bills); (ii) guaranteed by the
U.S. Treasury (e.g., Government National Mortgage Association mortgage-backed
securities); (iii) supported by the issuing agency's or instrumentality's
right to borrow from the U.S. Treasury (e.g., Federal National Mortgage
Association Discount Notes); or (iv) supported only by the issuing agency's or
instrumentality's own credit (e.g., securities issued by the Farmer's Home
Administration).
Bank and Savings and Loan Obligations. These include certificates of
deposit, bankers' acceptances, and time deposits. Certificates of deposit
generally are short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in
the issuing institution. Bankers' acceptances are time drafts drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (e.g., to finance the import, export, transfer, or
storage of goods). With a bankers' acceptance, the borrower is liable for
payment as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are generally short-term, interest-bearing negotiable
obligations issued by commercial banks against funds deposited in the issuing
institutions. The Funds will not invest in any security issued by a commercial
bank or a savings and loan association unless the bank or savings and loan
association is organized and operating in the United States, has total assets
of at least one billion dollars, and is a member of the Federal Deposit
Insurance Corporation ("FDIC"), in the case of banks, or insured by the FDIC
in the case of savings and loan associations; provided, however, that such
limitation will not prohibit investments in foreign branches of domestic banks
which meet the foregoing requirements. The Funds will not invest in
time-deposits maturing in more than seven days.
Short-Term Corporate Debt Instruments. These include commercial paper
(i.e., short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs). Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not exceeding nine
months. Also included are non-convertible corporate debt securities (e.g.,
bonds and debentures). Corporate debt securities with a remaining maturity of
less than 13 months are liquid (and tend to become more liquid as their
maturities lessen) and are traded as money market securities. Each Fund may
purchase corporate debt securities having greater maturities.
S-27
<PAGE>
Repurchase Agreements. The Funds may invest in repurchase agreements. A
repurchase agreement is an instrument under which the investor (such as a
Fund) acquires ownership of a security (known as the "underlying security")
and the seller (i.e., a bank or primary dealer) agrees, at the time of the
sale, to repurchase the underlying security at a mutually agreed upon time and
price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during
such period, unless the seller defaults on its repurchase obligations. The
underlying securities will consist only of securities issued by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities").
Repurchase agreements are, in effect, collateralized by such underlying
securities, and, during the term of a repurchase agreement, the seller will be
required to mark-to-market such securities every business day and to provide
such additional collateral as is necessary to maintain the value of all
collateral at a level at least equal to the repurchase price. Repurchase
agreements usually are for short periods, often under one week, and will not
be entered into by a Fund for a duration of more than seven days if, as a
result, more than 15% of the value of that Fund's total assets would be
invested in such agreements or other securities which are illiquid.
The Funds will seek to assure that the amount of collateral with respect
to any repurchase agreement is adequate. As with any extension of credit,
however, there is risk of delay in recovery or the possibility of inadequacy
of the collateral should the seller of the repurchase agreement fail
financially. In addition, a Fund could incur costs in connection with
disposition of the collateral if the seller were to default. The Funds will
enter into repurchase agreements only with sellers deemed to be creditworthy
under creditworthiness standards approved by the Board of Trustees and only
when the economic benefit to the Funds is believed to justify the attendant
risks. The Board of Trustees believes these standards are designed to
reasonably assure that such sellers present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase agreement. The Funds may enter into repurchase agreements only with
commercial banks or registered broker-dealers.
Adjustable Rate and Floating Rate Securities. Adjustable rate securities
(i.e., variable rate and floating rate instruments) are securities that have
interest rates that are adjusted periodically, according to a set formula. The
maturity of some adjustable rate securities may be shortened under certain
special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of
deposit) that provide for the adjustment of their interest rates on
predetermined dates or whenever a specific interest rate changes. A variable
rate instrument subject to a demand feature is considered to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
S-28
<PAGE>
Floating rate instruments (generally corporate notes, bank notes or
Eurodollar certificates of deposit) have interest rate reset provisions
similar to those for variable rate instruments and may be subject to demand
features like those for variable rate instruments. The interest rate is
adjusted, periodically (e.g. daily, monthly, semi-annually), to the prevailing
interest rate in the marketplace. The interest rate on floating rate
securities is ordinarily determined by reference to, or is a percentage of, a
bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates or some other objective measure. The maturity of a floating
rate instrument is considered to be the period remaining until the principal
amount can be recovered through demand.
Investments in Less Developed Countries
The C-K International Fund For Growth's investments in foreign securities
may include investments in countries whose economies or securities markets are
considered by Gartmore not to be highly developed (referred to as "emerging
market countries"). Normally no more than 40% of the Fund's assets will be
invested in such emerging market countries. As of March 31, 1995, the
following countries were considered by Gartmore to be emerging market
countries:
<TABLE>
<S> <C> <C>
======================================= ===================================== ====================================
Asia Latin America Europe and the Middle East
- --------------------------------------- ------------------------------------- ------------------------------------
Argentina Greece
- --------------------------------------- ------------------------------------- ------------------------------------
India Brazil Israel
- --------------------------------------- ------------------------------------- ------------------------------------
Indonesia Chile Jordan
- --------------------------------------- ------------------------------------- ------------------------------------
Korea Colombia Portugal
- --------------------------------------- ------------------------------------- ------------------------------------
Malaysia Mexico Turkey
- --------------------------------------- ------------------------------------- ------------------------------------
Pakistan Peru
- --------------------------------------- ------------------------------------- ------------------------------------
Philippines Venezuela
- --------------------------------------- ------------------------------------- ------------------------------------
Sri Lanka
- --------------------------------------- ------------------------------------- ------------------------------------
Taiwan
- --------------------------------------- ------------------------------------- ------------------------------------
Thailand
======================================= ===================================== =====================================
</TABLE>
N-K Tiger Fund invests primarily in companies located in the Tiger
countries, which include Hong Kong, Indonesia, Korea, Malaysia, the
Philippines, Taiwan and Thailand.
S-29
<PAGE>
Foreign Currency Transactions
Each of C-K International Fund For Growth, N-K Tiger Fund, C-K Strategic
Income Fund and C-K Growth and Income Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future currency
exchange rates. These Funds may purchase foreign currencies on a spot or
forward basis in conjunction with their investments in foreign securities and
to hedge against fluctuations in foreign currencies. C-K International Fund
For Growth and C-K Strategic Income Fund also may buy and sell currency
futures contracts and options thereon for such hedging purposes. C-K Strategic
Income Fund also may buy options on currencies for hedging purposes.
A Fund may engage in both "transaction hedging" and "position hedging."
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with purchases or sales of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payments is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with the settlement of transactions
in portfolio securities denominated in that foreign currency. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and (if the Fund is so authorized) purchase and sell
foreign currency futures contracts.
For transaction hedging purposes a Fund which is so authorized may also
purchase exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. Over-the-counter options
are considered to be illiquid by the SEC staff. A put option on a futures
contract gives the Fund the right to assume a short position in the futures
contract until expiration of the option. A put option on a currency gives the
Fund the right to sell a currency at an exercise price until the expiration of
the option. A call option on a futures contract gives the Fund the right to
assume a long position in the futures contract until the expiration of the
option. A call option on a currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Fund expects to
purchase, when the Fund holds cash or short-term investments). In connection
with position hedging, a Fund which is so authorized may purchase put or call
options on foreign currency and foreign currency futures contracts and buy or
sell forward contracts and foreign currency futures contracts. A Fund may
enter into short sales of a foreign currency to hedge a position in a security
denominated in that currency. In such circumstances, the Fund will maintain in
a segregated account with the Fund's Custodian an amount of cash or liquid
debt securities equal to the excess of (i) the amount of foreign currency
required to cover such short sale position over (ii) the amount of such
foreign currency which could then be realized through the sale of the foreign
securities denominated in the currency subject to the hedge.
S-30
<PAGE>
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which the Fund can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in value of such currency.
Currency Forward and Futures Contracts
Each of C-K International Fund For Growth, C-K Strategic Income Fund and
N-K Tiger Fund will enter into such contracts only when cash or equivalents
equal in value to either (i) the commodity value (less any applicable margin
deposits) or (ii) the difference between the commodity value (less any
applicable margin deposits) and the aggregate market value of all equity
securities denominated in the particular currency held by the Fund have been
deposited in a segregated account of the Fund's custodian. A forward currency
contract involves an obligation to purchase or sell specific currency at a
future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A contract generally has
no deposit requirement, and no commissions are charged at any stage for
trades. A currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a
price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the
Commodities Futures Trading Commission ("CFTC"), such as the New York
Mercantile Exchange. (N-K Tiger Fund may not invest in currency futures
contracts.)
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<PAGE>
Forward currency contracts differ from currency futures contracts in
certain respects. For example, the maturity date of a forward contract may be
any fixed number of days from the date of the contract agreed upon the
parties, rather than a predetermined date in a given month. Forward contracts
may be in any amounts agreed upon by the parties rather than predetermined
amounts. Also, forward contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally requires no
margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in currency futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such
contracts. Although the Funds intend to purchase or sell currency futures
contracts only on exchanges or boards of trade where there appears to be an
active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments or variation margin.
Currency Options
In general, options on currencies operate similarly to options on
securities and are subject to many risks similar to those applicable to
currency futures and forward contracts. Currency options are traded primarily
in the over-the-counter market, although options on currencies have recently
been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
C-K Strategic Income Fund will only purchase or write currency options
when Colonial believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specified time. Currency options are affected by all
of those factors which influence exchange rates and investments generally. To
the extent that these options are traded over the counter, they are considered
to be illiquid by the SEC staff.
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<PAGE>
The value of any currency, including the U.S. dollar, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the value of
currency options) may be significantly affected, fixed, or supported directly
or indirectly by government actions. Government intervention may increase
risks involved in purchasing or selling currency options, since exchange rates
may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate
which in turn reflects relative values of two currencies, the U.S. dollar and
the foreign currency in question. Because currency transactions occurring in
the interbank market involve substantially larger amounts than those that may
be involved in the exercise of currency options, investors may be
disadvantaged by having to deal in an odd-lot market for the underlying
currencies in connection with options at prices that are less favorable than
for round-lots. Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of currencies.
Valuations
There is no systematic reporting of last sale information for currencies
and there is no regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable. The interbank market in currencies is a global,
around-the-clock market. To the extent that options markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements may take place in the underlying markets that cannot be
reflected in the options markets.
Settlement Procedures
Settlement procedures relating to the Funds' investments in foreign
securities and to their foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not present in such
Funds' domestic investments, including foreign currency risks and local custom
and usage. Foreign currency transactions may also involve the risk that an
entity involved in the settlement may not meet its obligations.
S-33
<PAGE>
Foreign Currency Conversion
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based on the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus,
a dealer may offer to sell a foreign currency to the Funds at one rate, while
offering a lesser rate of exchange should the Funds desire to resell that
currency to the dealer. Foreign currency transactions may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Options on Securities
C-K Utilities Fund may write covered put options on securities and may
purchase put options on securities. The Fund will only utilize options on
securities that are exchange traded.
A put option is a contract that gives the purchaser thereof, during the
term of the option, the right to sell a specified amount of the security
underlying the put option at the exercise price upon exercise of the option.
Through the writing of a covered put option, the Fund will receive
premium income but will also thereby obligate itself during the term of the
option, upon the exercise thereof, to purchase from the holder of the put
option the security underlying the option regardless of the market value of
the security during the option period.
To cover a put option written, the Fund may, for example, establish a
segregated asset account with the Trust's custodian containing cash or liquid
assets that, when added to amounts, if any, deposited with its broker as
margin, equal the market value of the securities underlying the put option
written.
The Fund may purchase put options on securities for defensive purposes in
order to hedge against an anticipated decline in the value of its portfolio
securities. In addition, the Fund may write put options on securities, which
may partially offset the effects of adverse changes in the value of the Fund's
portfolio securities.
Although these investment practices will be used to attempt to reduce the
effect of any adverse price movement in the securities subject to the option,
they do involve certain risks that are different, in some respects, from the
investment risks associated with similar funds that do not engage in such
activities. These risks include the inability to effect closing transactions
at favorable prices and the obligation to purchase the specified securities at
prices which may not reflect their current market values. In addition, when
purchasing put options, the Fund is exposed to the possible loss of the entire
premium paid if the option expires unexercised.
Futures Contracts and Related Options
C-K Strategic Income Fund may engage in transactions involving interest
rate futures contracts and options thereon to hedge against changes in
interest rates. The Fund will engage in such transactions only with respect to
securities it may otherwise purchase or indices composed of such securities.
S-34
<PAGE>
A futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken at settlement date
are not determined until on or near that date. The determination is made in
accordance with the rules of the exchanges on which the futures contract was
made. Futures contracts are traded in the United States only on a commodity
exchange or boards of trade -- known as "contract markets" -- approved for
such trading by the CFTC, and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying financial instruments, the contracts usually are
closed out before the settlement date without the making or taking of
delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of
financial instrument with the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a
gain, and if the purchase price exceeds the offsetting sale price, the
purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
Securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin", to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security or commodity fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking to
market." The Fund may elect to close some or all of its futures positions at
any time prior to their expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which will operate
to terminate the Fund's position in the futures contracts. Final
determinations of variation margin are then made, additional cash is required
to be paid by or released to the Fund, and the Fund realizes a loss or gain.
Such closing transactions involve additional commission costs.
S-35
<PAGE>
The Fund will enter into futures contracts only when, in compliance with
the SEC's requirements, cash or high quality liquid debt securities equal in
value to the commodity value (less any applicable margin deposits) have been
deposited in a segregated account of the Fund's custodian.
Options on futures contracts
The Fund may purchase and write call and put options on futures contracts
it may buy or sell and enter into closing transactions with respect to such
options to terminate existing positions. The Fund may use such options on
futures contracts in lieu of purchasing and selling the underlying futures
contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. The Fund
will enter into written options on futures contracts only when, in compliance
with the SEC's requirements, cash or equivalents equal in value to the
commodity value (less any applicable margin deposits) have been deposited in a
segregated account of the Fund's custodian.
Risks of transactions in futures contracts and related options
Successful use of futures contracts by the Fund is subject to Colonial's
ability to predict correctly movements in the direction of interest rates and
other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would not, such as
when there is no movement in the prices of the hedged investments. The writing
of an option on a futures contract involves risks similar to those relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not at times render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
S-36
<PAGE>
To reduce or eliminate a hedge position held by the Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop or continue to exist
for a particular futures contract. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen circumstances
may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series of contracts
or options), in which event the secondary market on that exchange (or in the
class or series of contacts or options), would cease to exist, although
outstanding contracts or options on the exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.
Passive Foreign Investment Companies
The C-K International Fund For Growth and N-K Tiger Fund may invest in
certain Passive Foreign Investment Companies (PFICs) which may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain
(PFIC tax) related to the investment. The PFIC tax is the highest ordinary
income rate and it could be increased by an interest charge on the deemed tax
deferral. The Funds may possibly elect to include in its income its pro rata
share of the ordinary earnings and net capital gain of the PFIC. This election
requires certain annual information from the PFICs which in many cases may be
difficult to obtain. An alternative election would permit the Fund to
recognize as income any appreciation (but not depreciation) on its holdings of
PFICs as of the end of its fiscal year.
Securities Loans
C-K U.S. Fund For Growth may make loans of its portfolio securities
amounting to not more than 30% of its total assets. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to agreements requiring
that loans be continuously secured by collateral in cash or short-term debt
obligations at least equal at all times to the value of the securities on
loan. This collateral is deposited with the Trust's custodian which segregates
and identifies these assets on its books as security for the loan. The
borrower pays to the Fund an amount equal to any dividends, interest or other
distributions received on securities lent. The borrower is obligated to return
identical securities on termination of the loan. The Fund retains all or a
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<PAGE>
portion of the interest received on investment of the cash collateral or
receives a fee from the borrower. Although voting rights or rights to consent
with respect to the loaned securities pass to the borrower, the Fund retains
the right to call the loans at any time on reasonable notice, and it will do
so in order that the securities may be voted by the Fund if the holders of
such securities are asked to vote upon or consent to matters materially
affecting the investment. The Fund may also call such loans in order to sell
the securities involved. The Trust has adopted these policies, in part, so
that interest, dividends and other distributions received on the loaned
securities, the interest or fees paid by the borrower to the Fund for the
loan, and the investment income from the collateral will qualify under certain
investment limitations under Subchapter M of the Internal Revenue Code.
INVESTMENT PERFORMANCE
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 percentages may be calculated by dividing the value of a share at the
end of a given period by the value of the share at the beginning of the period
and subtracting one.
Average Annual Total Return is computed as follows:
ERV = P(1+T)n
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period (or
fractional portion thereof).
For example, for a $1,000 investment in the Funds, the "Total Return",
the "Total Return Percentage" and (where applicable) the "Average Annual Total
Return" for the life of each Fund listed below (the period from July 1, 1993
(May 2, 1994, in the case of C-K International Fund For Growth, and July 5,
1994 in the case of C-K U.S. Fund For Growth and C-K Strategic Income Fund))
through December 31, 1994 were:
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<PAGE>
<TABLE>
<CAPTION>
============================================== ===================== ===================== =======================
Fund Total Return Total Return Average Annual
Percentage Total Return
<S> <C> <C> <C>
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K U.S. Gov't Fund $ 1,001.67 0.167% 0.111%
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K Growth and Income Fund $ 1,042.18 4.218% 2.792%
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K Utilities Fund $ 882.04 (11.796)% (8.028)%
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K International Fund For Growth $ 940.00 (6.000)% (8.864)%
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K U.S. Fund For Growth $ 1,043.96 4.396% 8.984%
- ---------------------------------------------- --------------------- --------------------- -----------------------
C-K Strategic Income Fund $ 1,010.96 1.096% 2.205%
============================================== ===================== ===================== =======================
</TABLE>
The figures contained in this "Investment Performance" section assume
reinvestment of all dividends and distributions. They are not necessarily
indicative of future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although information such as that shown above is useful in reviewing
a Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. The
Fund's total returns do not reflect the cost of insurance and other insurance
company separate account charges which vary with the VA contracts and VLI
policies offered through the separate accounts of the Participating Insurance
Companies.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the Trust's independent accountants. The
financial statements incorporated by reference in this SAI have been so
incorporated, and the schedule of financial highlights has been included in
the Prospectus, in reliance upon the report of Price Waterhouse LLP given on
the authority of said firm as experts in accounting and auditing.
The financial statements of the Fund and Report of Independent
Accountants appearing on pages 5 to 17 of the December 31, 1994 Annual Report
of the Trust are incorporated in this SAI by reference.
S-39