File No. 33-59216
File No. 811-7556
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ X ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 12 [ X ]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 13 [ X ]
(check appropriate box or boxes)
LIBERTY VARIABLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, Massachusetts 02210
Registrant's Telephone Number Including Area Code: (617) 722-6000
JOHN A. BENNING, ESQ.
Senior Vice President and General Counsel
Liberty Financial Companies, Inc.
Federal Reserve Plaza, 600 Atlantic Avenue
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering:
It is proposed that this filing become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|x| on May 1, 1998 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(i) of Rule 485
|_| on ___ pursuant to paragraph (a)(i) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
|_| on ___ pursuant to paragraph (a)(ii) of Rule 485
An indefinite number of shares of beneficial interest of all existing and
subsequently created series of the Trust under the Securities Act of 1933 were
registered by the Registration Statement filed on March 8, 1993 under the
Securities Act of 1933 pursuant to Rule 24f-2.
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
PART A
FORM N-1A LOCATION
1. Cover Page Cover Page
2. Synopsis The Trust
3. Condensed Financial Information Financial Highlights; Investment
Return
4. General Description of Registrant Cover Page; The Trust
5. Management of the Fund Trust Management Organizations
5A. Management's Discussion of Fund Information required by Item 5A is
Performance included in the Registrant's Annual
Report for the year ended December
31, 1997. As required by said Item
5, the Registrant undertakes under
"Financial Highlights" in the
Prospectus to provide a copy of said
Annual Report free of charge to
persons requesting the same.
6. Capital Stock and Other Securities The Trust; Other Considerations:
Purchases and Redemptions, Net Asset
Value, Distributions, Taxes,
Shareholder Communications,
Organization, Meetings and Voting
Rights
7. Purchase of Securities Being Offered Other Considerations: Purchases and
Redemptions, Net Asset Value
8. Redemption or Repurchase Other Considerations: Purchases and
Redemptions
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B
FORM N-1A LOCATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History More Facts About the Trust: Mixed
and Shared Funding, Organization
13. Investment Objectives and Policies Investment Restrictions; Description
of Certain Investments
14. Management of the Fund Investment Management and Other
Services; More Facts About the
Trust: Trustees and Officers
15. Control Persons and Principal More Facts About the Trust:
Holders of Securities Principal Holders of Securities
16. Investment Advisory and Other Investment Management and Other
Services Services; More Facts About the
Trust:Custodian, Independent
Accountants and Financial Statements
17. Brokers Allocation and Other Other Considerations:
Practices Portfolio Transactions
18. Capital Stock and Other Securities Other Considerations: Expenses of
the Funds, Purchases and
Redemptions, Net Asset Value
(Part A)
19. Purchase, Redemption and Pricing Other Considerations: Purchases
of Securities Being Offered and Redemptions, Net Asset Value
(Part A)
20. Tax Status Other Considerations: Taxes (Part A)
<PAGE>
21. Underwriters Other Considerations: Purchases and
Redemptions (Part A)
22. Calculation of Performance Data Investment Performance
23. Financial Statements The financial statements required by
item 23 are incorporated by reference
from (i) the Registrant's Annual
Report for the year ended December
31, 1997.
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
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Liberty Variable Investment Trust (formerly named "Keyport Variable Investment
Trust") ("Trust") is an open-end management investment company that currently
includes nine separate Funds, each with its own investment objective and
policies. This Prospectus contains information about seven of the Funds of the
Trust. The seven Funds and their investment objectives are:
[bullet] Colonial Growth and Income Fund, Variable Series seeks primarily
income and long-term capital growth and, secondarily, preservation of
capital.
[bullet] Stein Roe Global Utilities Fund, Variable Series seeks current income
and long-term growth of capital and income.
[bullet] Colonial International Fund For Growth, Variable Series 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 U.S. Stock Fund, Variable Series seeks long-term capital
growth by investing primarily in large capitalization equity
securities.
[bullet] Colonial Strategic Income Fund, Variable Series 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 lower rated corporate debt securities. The Fund
may invest a substantial portion of its assets in lower rated bonds
(commonly referred to as "junk bonds") and therefore may not be
suitable for all investors. Purchasers should carefully assess the
risks associated with an investment in the Fund.
[bullet] Newport Tiger Fund, Variable Series seeks long-term capital growth by
investing primarily in equity securities of companies located in the
nine Tigers of Asia (Hong Kong, Singapore, South Korea, Taiwan,
Malaysia, Thailand, Indonesia, China and the Philippines).
[bullet] Liberty All-Star Equity Fund, Variable Series seeks total investment
return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of
equity securities.
There is no assurance that the objectives of the Funds will be realized.
Other Funds may be added or deleted from time to time.
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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.
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This Prospectus contains information about the Funds that a prospective
investor should know before applying for certain variable annuity contracts and
variable life insurance policies offered by separate accounts of insurance
companies investing in the Trust. Please read it carefully and retain it for
future reference.
Additional facts about the Funds are included in a Statement of Additional
Information dated May 1, 1998, incorporated herein by reference, which has been
filed with the Securities and Exchange Commission. For a free copy write to
Keyport Financial Services Corp. at 125 High Street, Boston, Massachusetts
02110 or 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).
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SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A
POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS ("VA CONTRACTS") AND
VARIABLE LIFE INSURANCE POLICIES ("VLI POLICIES") OF PARTICIPATING INSURANCE
COMPANIES.
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THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE APPROPRIATE
VA CONTRACTS OR VLI POLICIES OF THE APPLICABLE PARTICIPATING INSURANCE COMPANY.
BOTH PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
The date of this Prospectus is May 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
THE TRUST .............................................. 3
FINANCIAL HIGHLIGHTS ................................... 4
THE FUNDS .............................................. 11
Colonial Growth and Income Fund, Variable Series ...... 11
Stein Roe Global Utilities Fund, Variable Series ...... 11
Colonial International Fund For Growth, Variable
Series ............................................. 12
Colonial U.S. Stock Fund, Variable Series ............. 13
Colonial Strategic Income Fund, Variable Series ....... 13
Newport Tiger Fund, Variable Series ................... 13
Liberty All-Star Equity Fund, Variable Series ......... 14
TRUST MANAGEMENT ORGANIZATIONS ......................... 15
The Trustees .......................................... 15
The Manager: Liberty Advisory Services Corp.
(LASC) ............................................. 15
LASC's Sub-Advisers ................................... 16
TRUST SERVICE ORGANIZATIONS ............................ 17
Custodians ............................................ 17
Independent Accountants: Price Waterhouse LLP ......... 17
OTHER CONSIDERATIONS ................................... 18
Expenses of the Funds ................................. 18
Purchases and Redemptions ............................. 18
Investment Return ..................................... 18
Net Asset Value ....................................... 18
Distributions ......................................... 19
Taxes ................................................. 19
Shareholder Communications ............................ 20
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Organization, Meetings, and Voting Rights ............. 20
Additional Information ................................ 20
OTHER INVESTMENT PRACTICES, RISK
CONSIDERATIONS AND POLICIES OF THE FUNDS............. 20
Short-Term Trading .................................... 21
Certain Investment Considerations Pertaining to
Government Debt Securities ......................... 21
Cash Reserves and Repurchase Agreements ............... 21
Forward Commitments and When-Issued Securities;
Dollar Roll Transactions ........................... 22
Securities Lending .................................... 22
Foreign Securities .................................... 22
Mortgage-Backed Securities ............................ 23
Collateralized Mortgage Obligations (CMOs) and
Real Estate Mortgage Investment Conduits
(REMICs) ........................................... 24
Certain Derivative Investments ........................ 24
Zero-Coupon Bonds; Pay-in-Kind Securities ............. 25
Lower Rated Bonds ..................................... 25
Leverage Risks Associated with Certain Investment
Techniques ........................................ 25
Certain Policies to Reduce Risk ....................... 26
CHANGES TO INVESTMENT OBJECTIVES AND
NON-FUNDAMENTAL POLICIES ............................ 26
APPENDIX A: Description of Bond Ratings ................ A-1
APPENDIX B: Colonial Strategic Income Fund, Variable
Series -- Schedule of Portfolio Asset Composition by
Rating for 1996 ..................................... B-1
</TABLE>
<PAGE>
THE TRUST
The Trust is an open-end management investment company currently consisting of
nine series, seven of which are offered by this Prospectus: Colonial Growth and
Income Fund, Variable Series ("Growth and Income Fund"), Stein Roe Global
Utilities Fund, Variable Series ("Global Utilities Fund"), Colonial
International Fund For Growth, Variable Series ("International Fund For
Growth"), Colonial U.S. Stock Fund, Variable Series ("U.S. Stock Fund"),
Colonial Strategic Income Fund, Variable Series ("Strategic Income Fund"),
Newport Tiger Fund, Variable Series (" Tiger Fund") and Liberty All-Star Equity
Fund, Variable Series ("All-Star Fund") (individually referred to as a "Fund"
or by the abbreviated name indicated, or collectively as the "Funds"). Each
Fund other than International Fund For Growth is a diversified fund.
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.
The Trust is the funding vehicle for variable annuity contracts ("VA
contracts") and variable life insurance policies ("VLI policies") offered by
the separate accounts of life insurance companies ("Participating Insurance
Companies"). Certain Participating Insurance Companies are affiliated with the
adviser to the Funds ("Affiliated Participating Insurance Companies"). As of
the date of this Prospectus, such Affiliated Participating Insurance Companies
are Keyport Life Insurance Company ("Keyport"), Independence Life & Annuity
Company ("Independence") and Liberty Life Assurance Company of Boston ("Liberty
Life"). Shares of the Funds from time to time may be sold to other unaffiliated
Participating Insurance Companies.
The Participating Insurance Companies and their separate accounts are the
shareholders or investors ("shareholders") of the Funds. Owners of VA contracts
and owners of VLI policies invest in sub-accounts of separate accounts of the
Participating Insurance Companies that, in turn, invest in the Funds.
The prospectuses 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, Liberty Advisory Services Corp. (formerly named
"Keyport Advisory Services Corp.") ("LASC") 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.
LASC provides investment management and advisory services to the Funds pursuant
to its Management Agreements with the Trust.
Colonial Management Associates, Inc. ("Colonial") sub-advises four Funds:
Growth and Income Fund, International Fund For Growth, U.S. Stock Fund and
Strategic Income Fund pursuant to separate Sub-Advisory Agreements (the
"Colonial Sub-Advisory Agreements") with each such Fund and LASC.
Stein Roe & Farnham Incorporated ("Stein Roe") sub-advises Global Utilities
Fund pursuant to a Sub-Advisory Agreement (the "Stein Roe Sub-Advisory
Agreement") with such Fund and LASC.
Newport Fund Management, Inc. ("Newport") sub-advises Tiger Fund pursuant to a
Sub-Advisory Agreement (the "Newport Sub-Advisory Agreement") with such Fund
and LASC.
Liberty Asset Management Company ("LAMCO") sub-advises All-Star Fund pursuant
to LASC's Management Agreement for such Fund (to which LAMCO is a party).
LASC 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 with respect to sales of shares to Affiliated Participating
Insurance Companies.
LASC, Colonial, Stein Roe, Newport, LAMCO, KFSC, Keyport and Independence are
wholly-owned indirect subsidiaries of Liberty Financial Companies, Inc.
("LFC"). As of March 31, 1998, approximately 72.3% of the combined voting power
of LFC's issued and outstanding voting stock was held, indirectly, by Liberty
Mutual Insurance Company ("Liberty Mutual"). Liberty Life is a subsidiary of
Liberty Mutual.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below present certain financial information for each Fund in the
Trust offered by this Prospectus for the period beginning with such Fund's
commencement of operations (July 1, 1993 for each of Growth and Income Fund and
Global Utilities Fund; May 2, 1994 for International Fund For Growth; July 5,
1994 for each of U.S. Stock Fund and Strategic Income Fund; May 1, 1995 for
Tiger Fund and November 17, 1997 for All-Star Fund) and ended December 31,
1997. The information through the fiscal year ended December 31, 1997 has been
audited and reported on by the Trust's independent accountants, Price
Waterhouse LLP, whose report thereon appears in the Trust's annual report to
shareholders for the fiscal year ended December 31, 1997 (which may be obtained
without charge from KFSC or from the Participating Insurance Company issuing
the applicable VA contract or VLI policy) and is incorporated by reference into
the Statement of Additional Information. The Funds' total returns presented
below do not reflect the cost of insurance and other insurance company separate
account charges which vary with the VA contracts and VLI policies offered
through the separate accounts of Participating Insurance Companies.
Colonial Growth and Income Fund, Variable Series
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 13.96 $ 12.60
-------- --------
Net investment income (a) .................................... 0.28 0.28
Net realized and unrealized gains (losses) on
investments and foreign currency transactions ............... 3.75 1.98
-------- --------
Total from investment operations ............................. 4.03 2.26
-------- --------
Less distributions from:
Net investment income ....................................... (0.27) (0.28)
In excess of net investment income .......................... (0.01) --
Net realized gains on investments ........................... (2.37) (0.62)
-------- --------
Total distributions .......................................... (2.65) (0.90)
-------- --------
Net asset value, end of period ............................... $ 15.34 $ 13.96
======== ========
Total return:
Total investment return (b) .................................. 28.97% 17.89%
Ratios/supplemental data:
Net assets, end of period (000) .............................. $106,909 $ 93,247
Ratio of net expenses to average net assets .................. 0.79%(e) 0.79%(e)
Ratio of net investment income to average net assets ......... 1.77%(e) 2.02%(e)
Portfolio turnover ratio ..................................... 60% 24%
Average commission rate (f) .................................. $ 0.0401 $ 0.0383
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993***
---------------- ----------- --------------------
<S> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 10.03 $ 10.36 $ 10.00
--------- ------- ---------
Net investment income (a) .................................... 0.29 0.26 0.09
Net realized and unrealized gains (losses) on
investments and foreign currency transactions ............... 2.72 (0.34) 0.41
--------- ------- ---------
Total from investment operations ............................. 3.01 (0.08) 0.50
--------- ------- ---------
Less distributions from:
Net investment income ....................................... (0.25) (0.25) (0.11)
In excess of net investment income .......................... -- -- --
Net realized gains on investments ........................... (0.19) -- (0.03)
--------- ------- ---------
Total distributions .......................................... (0.44) (0.25) (0.14)
--------- ------- ---------
Net asset value, end of period ............................... $ 12.60 $ 10.03 $ 10.36
========= ======= =========
Total return:
Total investment return (b) .................................. 30.03% (0.76)% 5.01%**(d)
Ratios/supplemental data:
Net assets, end of period (000) .............................. $ 71,070 $48,052 $ 29,298
Ratio of net expenses to average net assets .................. 0.81%(e) 0.87% 1.00%*(c)
Ratio of net investment income to average net assets ......... 2.51%(e) 2.82% 2.32%*(d)
Portfolio turnover ratio ..................................... 79% 55% 8%**
Average commission rate (f) .................................. -- -- --
</TABLE>
- ----------------
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 1, 1993) to
December 31, 1993.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) If the Fund had paid all of its expenses and there had been no
reimbursement from LASC, this ratio would have been 1.23% (annualized) for
the period ended December 31, 1993.
(d) Computed giving effect to LASC's expense limitation undertaking.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
4
<PAGE>
Stein Roe Global Utilities Fund, Variable Series
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 10.70 $ 10.50
------- -------
Net investment income (a) .................................... 0.46 0.46
Net realized and unrealized gains (losses) on
investments ................................................. 2.62 0.23
------- -------
Total from investment operations ............................. 3.08 0.69
------- -------
Less distributions from:
Net investment income ....................................... (0.48) (0.49)
Net realized gains .......................................... (1.38) --
------- -------
Total distributions .......................................... (1.86) (0.49)
Net asset value, end of period ............................... $ 11.92 $ 10.70
======= =======
Total return:
Total investment return (b) .................................. 28.75% 6.53%
Ratios/supplemental data:
Net assets, end of period (000) .............................. $54,603 $47,907
Ratio of net expenses to average net assets .................. 0.83%(d) 0.81%(d)
Ratio of net investment income to average net assets ......... 3.96%(d) 4.36%(d)
Portfolio turnover ratio ..................................... 89% 14%
Average commission rate (f) .................................. $0.0041 $0.0468
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993***
---------------- ------------- ----------------------
<S> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 8.11 $ 9.65 $ 10.00
--------- --------- ---------
Net investment income (a) .................................... 0.46 0.54 0.18
Net realized and unrealized gains (losses) on
investments ................................................. 2.39 (1.53) (0.35)
--------- --------- ---------
Total from investment operations ............................. 2.85 (0.99) (0.17)
--------- --------- ---------
Less distributions from:
Net investment income ....................................... (0.46) (0.55) (0.18)
Net realized gains .......................................... -- -- --
--------- --------- ---------
Total distributions .......................................... (0.46) (0.55) (0.18)
Net asset value, end of period ............................... $ 10.50 $ 8.11 $ 9.65
========= ========= =========
Total return:
Total investment return (b) .................................. 35.15% (10.27)% (1.70)%**(c)
Ratios/supplemental data:
Net assets, end of period (000) .............................. $ 51,597 $ 38,156 $ 54,441
Ratio of net expenses to average net assets .................. 0.83%(d) 0.86% 1.00%*(e)
Ratio of net investment income to average net assets ......... 4.98%(d) 5.80% 5.10%*(c)
Portfolio turnover ratio ..................................... 18% 16% 2%**
Average commission rate (f) .................................. -- -- --
</TABLE>
- ----------------
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 1, 1993) to
December 31, 1993.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to LASC's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from LASC, this ratio would have been 1.09% (annualized) for
the period ended December 31, 1993.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
5
<PAGE>
Colonial International Fund For Growth, Variable Series
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997
----------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 1.96
-------
Net investment income (a) .................................... 0.02
Net realized and unrealized gains (losses) on investments and
foreign currency transactions ............................... (0.08)
-------
Total from investment operations ............................. (0.06)
-------
Less distributions from:
Net investment income ...................................... (0.02)
In excess of net investment income ......................... (0.02)
Net realized gains on investments .......................... (0.08)
-------
Total distributions .......................................... (0.12)
-------
Net asset value, end of period ............................... $ 1.78
=======
Total return:
Total investment return (b) .................................. (3.27)%
Ratios/supplemental data:
Net assets, end of period (000) .............................. $30,600
Ratio of net expenses to average net assets .................. 1.34%(c)
Ratio of net investment income to average net assets ......... 0.82%(c)
Portfolio turnover ratio ..................................... 28%
Average commission rate (d) .................................. $0.0082
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994***
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 1.97 $ 1.88 $ 2.00
------- ------- -------
Net investment income (a) .................................... 0.02 0.01 --
Net realized and unrealized gains (losses) on investments and
foreign currency transactions ............................... 0.09 0.10 (0.12)
------- ------- -------
Total from investment operations ............................. 0.11 0.11 (0.12)
------- ------- -------
Less distributions from:
Net investment income ...................................... -- (0.02) --
In excess of net investment income ......................... -- -- --
Net realized gains on investments .......................... (0.12) -- --
------- ------- -------
Total distributions .......................................... (0.12) (0.02) --
------- ------- -------
Net asset value, end of period ............................... $ 1.96 $ 1.97 $ 1.88
======= ======= =======
Total return:
Total investment return (b) .................................. 5.61% 5.85% (6.00)%**
Ratios/supplemental data:
Net assets, end of period (000) .............................. $26,593 $22,764 $19,146
Ratio of net expenses to average net assets .................. 1.40%(c) 1.40%(c) 1.74%*
Ratio of net investment income to average net assets ......... 0.84%(c) 0.75%(c) 0.13%*
Portfolio turnover ratio ..................................... 115% 40% 31%**
Average commission rate (d) .................................. $0.0010 -- --
</TABLE>
- ----------------
* Annualized
** Not Annualized
*** For the period from the commencement of operations (May 2, 1994) to
December 31, 1994.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
6
<PAGE>
Colonial U.S. Stock Fund, Variable Series
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 14.22 $ 12.36
------- -------
Net investment income (a) .................................... 0.20 0.19
Net realized and unrealized gains on investments ............. 4.37 2.52
------- -------
Total from investment operations ............................. 4.57 2.71
------- -------
Less distributions from:
Net investment income ....................................... (0.18) (0.17)
In excess of net investment income .......................... (0.01) --
Net realized gains on investments ........................... (2.30) (0.68)
In excess of net realized gains ............................. (0.01) --
------- -------
Total distributions .......................................... (2.50) (0.85)
------- -------
Net asset value, end of period ............................... $ 16.29 $ 14.22
======= =======
Total return:
Total investment return (c) .................................. 32.23% 21.84%
Ratios/supplemental data:
Net assets, end of period (000) .............................. $96,715 $60,855
Ratio of net expenses to average net assets .................. 0.94%(e) 0.95%(e)
Ratio of net investment income to average net assets ......... 1.19%(e) 1.39%(e)
Portfolio turnover ratio ..................................... 63% 77%
Average commission rate (f) .................................. $0.0400 $0.0395
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994***
---------------------- --------------------
<S> <C> <C>
Per share operating performance:
Net asset value, beginning of period ......................... $ 10.27 $ 10.00
------- -------
Net investment income (a) .................................... 0.21 0.09
Net realized and unrealized gains on investments ............. 2.84 0.35
------- -------
Total from investment operations ............................. 3.05 0.44
------- -------
Less distributions from:
Net investment income ....................................... (0.16) (0.11)
In excess of net investment income .......................... -- --
Net realized gains on investments ........................... (0.80) (0.06)
In excess of net realized gains ............................. -- --
------- -------
Total distributions .......................................... (0.96) (0.17)
------- -------
Net asset value, end of period ............................... $ 12.36 $ 10.27
======= =======
Total return:
Total investment return (c) .................................. 29.70%(b) 4.40%(b)**
Ratios/supplemental data:
Net assets, end of period (000) .............................. $43,017 $15,373
Ratio of net expenses to average net assets .................. 1.00%(d)(e) 1.00%(d)*
Ratio of net investment income to average net assets ......... 1.72%(b)(e) 2.16%(b)*
Portfolio turnover ratio ..................................... 115% 52%**
Average commission rate (f) .................................. -- --
</TABLE>
- ----------------
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 5, 1994) to
December 31, 1994.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Computed giving effect to LASC's expense limitation undertaking.
(c) Total return at net asset value assuming all distributions reinvested.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement from LASC, these ratios would have been 1.07% and 1.64%
(annualized), respectively.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
7
<PAGE>
Colonial Strategic Income Fund, Variable Series
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997
----------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period ............................. $ 11.04
-------
Net investment income (a) ........................................ 0.90
Net realized and unrealized gains (losses) on investments and
foreign currency transactions ................................... 0.11
-------
Total from investment operations ................................. 1.01
-------
Less distributions from:
Net investment income ........................................... (0.79)
In excess of net investment income .............................. (0.05)
Net realized gains on investments ............................... (0.05)
In excess of net realized gains ................................. (0.01)
-------
Total distributions .............................................. (0.90)
-------
Net asset value, end of period ................................... $ 11.15
=======
Total return:
Total investment return (b) (c) .................................. 9.11%
Ratios/supplemental data:
Net assets, end of period (000) .................................. $73,175
Ratio of net expenses to average net assets (e) .................. 0.80%(d)
Ratio of net investment income to average net assets (c) ......... 7.86%(d)
Portfolio turnover ratio ......................................... 94%
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994***
---------------- ---------------- --------------
<S> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period ............................. $ 10.99 $ 9.79 $ 10.00
------- ------- -------
Net investment income (a) ........................................ 0.92 0.55 0.30
Net realized and unrealized gains (losses) on investments and
foreign currency transactions ................................... 0.16 1.24 (0.19)
------- ------- -------
Total from investment operations ................................. 1.08 1.79 0.11
------- ------- -------
Less distributions from:
Net investment income ........................................... (0.96) (0.56) (0.31)
In excess of net investment income .............................. -- -- --
Net realized gains on investments ............................... (0.07) (0.03) (0.01)
In excess of net realized gains ................................. -- -- --
------- ------- -------
Total distributions .............................................. (1.03) (0.59) (0.32)
------- ------- -------
Net asset value, end of period ................................... $ 11.04 $ 10.99 $ 9.79
======= ======= =======
Total return:
Total investment return (b) (c) .................................. 9.83% 18.30% 1.10%**
Ratios/supplemental data:
Net assets, end of period (000) .................................. $53,393 $48,334 $13,342
Ratio of net expenses to average net assets (e) .................. 0.80%(d) 0.84%(d) 1.00%*
Ratio of net investment income to average net assets (c) ......... 8.13%(d) 8.08%(d) 7.33%*
Portfolio turnover ratio ......................................... 114% 281% 94%**
</TABLE>
- ----------------
* Annualized
** Not Annualized
*** For the period from the commencement of operations (July 5, 1994) to
December 31, 1994.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to LASC's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from LASC, these ratios would have been 0.82%, 0.86%, 0.94%
and 1.60% (annualized), respectively.
8
<PAGE>
Newport Tiger Fund, Variable Series
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995***
------------- ----------- --------------
<S> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period ............................. $ 2.52 $ 2.28 $ 2.00
------- ------- ------
Net investment income (a) ........................................ 0.03 0.03 0.01
Net realized and unrealized gains (losses) on investments and
foreign currency transactions ................................... (0.81) 0.24 0.29
-------- ------- ------
Total from investment operations ................................. (0.78) 0.27 0.30
-------- ------ ------
Less distributions from:
Net investment income ........................................... (0.02) (0.02) (0.01)
In excess of net investment income .............................. (0.01) -- (0.01)
Net realized gains on investments ............................... -- (0.01) --
------- ------- -------
Total distributions .............................................. (0.03) (0.03) (0.02)
------- ------- -------
Net asset value, end of period ................................... $ 1.71 $ 2.52 $ 2.28
======= ======= =======
Total return:
Total investment return (b) ...................................... (31.14)% 11.73% 15.00%**
Ratios/supplemental data:
Net assets, end of period (000) .................................. $24,934 $34,642 $18,977
Ratio of net expenses to average net assets (c) .................. 1.25% 1.27% 1.75%*
Ratio of net investment income to average net assets (c) ......... 1.14% 1.20% 0.89%*
Portfolio turnover ratio ......................................... 27% 7% 12%**
Average commission rate (d) ...................................... $0.0083 $0.0172 --
</TABLE>
* Annualized
** Not Annualized
*** For the period from the commencement of operations (May 1, 1995) to
December 31, 1995.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
9
<PAGE>
Liberty All-Star Equity Fund, Variable Series
<TABLE>
<CAPTION>
Period Ended
December 31,
-------------
1997***
-------------
<S> <C>
Per share operating performance:
Net asset value, beginning of period ................................ $ 10.00
-------
Net investment income (a) ........................................... 0.01
Net realized and unrealized gains on investments ................... 0.07
-------
Total from investment operations .................................... 0.08
-------
Less distributions from:
Net investment income .............................................. (0.01)
-------
Net asset value, end of period ...................................... $ 10.07
=======
Total return:
Total investment return (b)(c) ..................................... 0.80%**
Ratios/supplemental data:
Net assets, end of period (000) ..................................... $22,228
Ratio of net expenses to average net assets (d)(e) .................. 1.00%*
Ratio of net investment income to average net assets (c)(e) ......... 0.83%*
Portfolio turnover ratio ............................................ 1%**
Average commission rate ............................................. $0.0475
</TABLE>
- ----------------
* Annualized
** Not Annualized.
*** For the period from the commencement of operations November 17, 1997 to
December 31, 1997.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to LASC's expense limitation undertaking.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement from LASC, this ratio would have been 1.45% (annualized).
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
10
<PAGE>
Further information about the performance of the Funds is contained in the
Trust's annual report to shareholders for the period ended December 31, 1997,
which may be obtained without charge from KFSC or from the Participating
Insurance Company issuing the applicable VA contract or VLI policy.
THE FUNDS
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 Growth and Income Fund, Variable Series
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. stock exchange or
Nasdaq National Market System listed common stocks and foreign common stocks
which, when purchased, meet quantitative standards which in Colonial's judgment
indicate above average financial soundness and high intrinsic value relative to
price. Companies in which the Fund invests will fall into one of the following
three categories:
1. Companies whose current business activities provide earnings, dividends or
assets that represent above average value for each dollar invested; or
2. Companies whose business activities are concentrated in industries or
business strategies which are expected to provide above average stability
or value in turbulent markets; or
3. Companies with anticipated business growth prospects that represent above
average value for each dollar invested.
For this purpose, "average" will not be pegged to a specific index but rather
determined in Colonial's judgment based on an eligible universe of securities
of appropriate market capitalization for which sufficient data is available.
Such average may also be qualified by industry group or sector.
Up to 5% of the Fund's net assets may be invested in common stocks not meeting
any of the foregoing conditions at the time of purchase.
The U.S. Government Securities in which the Fund invests 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 will not invest in residual classes of CMOs. The Fund may invest in
U.S. Government Securities of any maturity that pay fixed, floating or
adjustable interest rates.
The Fund may 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 fluctuations in
foreign currencies.
Stein Roe Global Utilities Fund, Variable Series
Investment Objective. The Fund seeks current income and long-term growth of
capital and income.
Investment Program. The Fund normally invests at least 65% of its total assets
in U.S. and foreign equity and debt securities of companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electricity, natural gas or other types of energy, or water or other sanitary
services, and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media (but not
companies primarily engaged in public broadcasting, print media or cable
television) ("Utility Companies"). The Fund will invest primarily in securities
of large, established Utility Companies located in developed countries,
including the U.S. The Fund may invest without limit in foreign securities. See
"OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS AND POLICIES OF THE FUNDS:
Foreign Securities." The Fund normally will invest in securities issued by
companies located in at least three countries includ-
11
<PAGE>
ing the U.S. Up to 35% of the Fund's total assets may be invested in equity
securities of any type and investment grade debt securities that are not issued
by Utility Companies. Because the Fund concentrates its investments in
securities of Utility Companies, an investment in the Fund may entail more risk
than an investment in a more diversified portfolio.
Equity securities purchased by the Fund generally include common and preferred
stock, warrants (rights) to purchase such stock, debt securities convertible
into such stock, and structured and unstructured American Depositary Receipts
(receipts issued in the U.S. by banks or trust companies evidencing ownership
of underlying foreign securities (ADRs)). At least 20% of the Fund's total
assets will be invested in equity securities of Utility Companies.
Debt securities purchased by the Fund generally include securities of any
maturity that pay fixed, floating or adjustable interest rates. The Fund may
invest in zero-coupon bonds and pay-in-kind securities. See "OTHER INVESTMENT
PRACTICES, RISK CONSIDERATIONS AND OTHER POLICIES OF THE FUNDS: Zero-Coupon
Bonds; Pay-in-Kind Securities."
The debt securities in which the Fund invests will be rated at the time of
investment at least Baa by Moody's Investors Service ("Moody's") or BBB by
Standard & Poor's Corporation ("S&P") or will be unrated but considered by
Stein Roe to be of comparable credit quality. Such securities will not
necessarily be sold if the rating is subsequently reduced unless any such
downgrade would cause the Fund to hold more than 5% of its total assets in debt
securities rated below investment grade. Debt securities rated BBB or Baa have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuers of
such securities to make principal and interest payments than would likely be
the case with investments in securities with higher credit ratings.
The values of debt securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating rate
securities, since interest rate changes are more likely to be reflected in
changes in the rates paid on the securities. However, reductions in interest
rates may also translate into lower return.
The values of securities issued by Utility Companies are especially affected by
changes in prevailing interest rate levels (as interest rates increase, the
values of Utility Company securities tend to decrease, and vice versa), as well
as by general competitive and market forces in the utility industries, changes
in federal and state regulation, energy conservation efforts and other
environmental concerns and, particularly with respect to nuclear facilities,
shortened economic life and cost overruns. Certain utilities, especially gas
and telephone utilities, have in recent years been affected by increased
competition, which could adversely affect the profitability of such utilities.
Similarly, the profitability of certain electric utilities may in the future be
adversely affected by increased competition resulting from partial
deregulation.
The Fund may purchase and sell (i) U.S. and foreign stock and bond index
futures contracts, (ii) U.S. and foreign interest rate futures contracts and
(iii) options on any of the foregoing. Such transactions will be entered into
(x) for hedging purposes or (y) to gain exposure to a particular market pending
investment in individual securities. The Fund also may purchase and sell
options on individual securities for hedging purposes. See "OTHER INVESTMENT
PRACTICES, RISK CONSIDERATIONS AND POLICIES OF THE FUNDS: Certain Derivative
Investments." The Fund will purchase and sell such derivative securities only
with respect to securities it may otherwise purchase or indices composed of
such securities.
Colonial International Fund For Growth, Variable Series
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 debt securities in
which the Fund may invest may be of any maturity that pay fixed, floating or
adjustable 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 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."
The Fund may purchase and sell (i) foreign stock and bond index futures
contracts, (ii) foreign interest rate futures contracts and (iii) options on
any of the foregoing. Such transactions will be entered into (x) for hedging
purposes or (y) to gain exposure to a particular market pending investment in
individual securities. The Fund also may purchase and sell options
12
<PAGE>
on individual securities for hedging purposes. See "OTHER INVESTMENT PRACTICES,
RISK CONSIDERATIONS AND POLICIES OF THE FUNDS: Certain Derivative Investments."
The Fund will purchase and sell such derivative securities only with respect to
securities it may otherwise purchase or indices composed of such securities.
Colonial U.S. Stock Fund, Variable Series
Investment Objective. The Fund seeks long-term capital growth by investing
primarily in large capitalization equity securities.
Investment Program. The Fund normally invests at least 65% of its total assets
in common stock of U.S. companies with equity market capitalizations at the
time of purchase in excess of $3 billion. Up to 35% of total assets may be
invested in common stock of U.S. companies with equity market capitalizations
at the time of purchase between $1 billion and $3 billion. Up to 10% of total
assets may be invested in ADRs. Up to 10% of total assets may be invested in
any combination of (i) convertible debt securities (i.e., debt securities that
are convertible into common stock at the holder's option), (ii) investment
grade corporate debt securities (i.e., rated investment grade by at least two
nationally recognized rating agencies), and (iii) debt securities issued or
guaranteed by the U.S. Government or its agencies (including mortgage-backed
securities, CMOs and REMICs). The Fund will purchase equity securities that
Colonial believes have superior earnings and value characteristics selected
from a universe which meets certain guidelines for liquidity and available
investment information. Quantitative standards, designed to identify above
average intrinsic value relative to price and favorable earnings trends, are
used as the core of the process. Fundamental company analysis is then used to
select securities. The Fund will not concentrate more than 25% of its total
assets in any one industry.
Colonial Strategic Income Fund, Variable Series
Investment Objective. 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 lower rated 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) lower rated 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
described as eligible for investment by Growth and Income Fund. The Fund may
invest in U.S. Government Securities of any maturity and in zero coupon
securities. 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 lower rated bonds (commonly referred to as junk bonds),
which are not considered investment grade, including bonds in the lowest rating
categories (C for 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 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. Below investment
grade 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 lower rated bonds, see "OTHER
INVESTMENT PRACTICES, RISK CONSIDERATIONS AND POLICIES OF THE FUNDS: Lower
Rated Bonds." Appendix A to this Prospectus provides a description of bond
ratings.
The Fund may purchase and sell U.S. and foreign interest rate futures contracts
and options thereon to hedge against changes in interest rates. See "OTHER
INVESTMENT PRACTICES, RISK CONSIDERATIONS AND POLICIES OF THE FUNDS: Certain
Derivative Investments." The Fund will engage in such activities only with
respect to securities it may otherwise purchase or indices composed of such
securities.
Newport Tiger Fund, Variable Series
Investment Objective. The Fund seeks long-term capital growth.
Investment Program. The Fund invests primarily in equity securities of
companies located in the nine Tigers of East Asia (Hong Kong, Singapore, South
Korea, Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines). These
nine countries are referenced to herein as the "Tiger countries." Normally, the
Fund will seek to be fully invested in equity securities of larger, well
established companies located in the Tiger countries.
13
<PAGE>
Equity securities in which the Fund invests include common and preferred stock,
warrants (rights) to purchase such stock, debt securities convertible into
stock, ADRs, Global Depositary Receipts (receipts issued by foreign banks or
trust companies) and shares of other investment companies that invest primarily
in the foregoing securities.
The Fund may invest up to 10% of its total assets in other 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.
Although the securities markets of the Tiger countries, especially China, have
grown and evolved rapidly over the last several years, political, legal,
economic and regulatory systems continue to lag behind those of more developed
countries. Accordingly, the risk that restrictions on repatriation of Fund
investments may be imposed unexpectedly or other limitations on the Fund's
ability to realize on its investments may be instituted are greater with
respect to investments in the Tiger countries.
Hong Kong. A substantial amount of the Fund's investments have been and may
continue to be in companies located in Hong Kong. Although Hong Kong has the
most developed securities markets of the Tiger countries, a substantial portion
of its economy is dependent on investments in or trade with China and other
less-developed Asian countries. Political and economic developments in those
countries could adversely impact the Fund's Hong Kong investments.
On July 1, 1997, sovereignty over Hong Kong was transferred from Great Britain
to China and Hong Kong became a Special Administrative Region of China. In
connection with this transfer, China has agreed to maintain for 50 years Hong
Kong's current economic and social systems, as well as most of the personal
freedoms currently enjoyed by Hong Kong residents. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Further, uncertainty surrounding
the transfer could hurt the value of the Fund's investments or make them more
volatile in the short-run.
Liberty All-Star Equity Fund, Variable Series
Investment Objective. The Fund seeks total investment return, comprised of
long-term capital appreciation and current income, through investment primarily
in a diversified portfolio of equity securities.
Investment Program. The Fund invests primarily in equity securities, defined as
common stocks and securities convertible into common stocks (such as bonds and
preferred stocks) and securities having common stock characteristics (such as
warrants and rights to purchase equity securities.) The Fund also may invest in
ADRs. The Fund may lend its portfolio securities.
The Fund's investment program is based upon LAMCO's multi-manager concept.
LAMCO allocates the Fund's portfolio assets on an approximately equal basis
among a number of independent investment management organizations ("Portfolio
Managers")--currently five in number--each of which employs a different
investment style, and from time to time rebalances the portfolio among the
Portfolio Managers so as to maintain an approximately equal allocation of the
portfolio among them throughout all market cycles.
In LAMCO's opinion, the multi-manager concept provides advantages over the use
of a single manager because of the following primary factors:
(i) most equity investment management firms consistently employ a distinct
investment "style" which causes them to emphasize stocks with particular
characteristics;
(ii) because of changing investor preferences, any given investment style
will move into and out of market favor and will result in better investment
performance under certain market conditions but less successful performance
under other conditions;
(iii) consequently, by allocating the Fund's portfolio on an approximately
equal basis among Portfolio Managers employing different styles, the impact of
any one such style on investment performance will be diluted, and the
investment performance of the total portfolio will be more consistent and less
volatile over the long term than if a single style were employed throughout the
entire period; and
(iv) more consistent performance at a given annual rate of return over time
produces a higher rate of return for the long term than more volatile
performance having the same average annual rate of return.
LAMCO, based on the foregoing principles and on its analysis and evaluation of
information regarding the personnel and investment styles and performance of a
universe of several hundred professional investment management firms, has
selected for appointment by the Fund a group of Portfolio Managers representing
a blending of different investment styles which, in its opinion, is appropriate
to the Fund's investment objective.
LAMCO continuously monitors the performance and investment styles of the Fund's
Portfolio Managers and from time to time may recommend changes of Portfolio
Managers based on factors such as changes in a Portfolio Manager's investment
style or a departure by a Portfolio Manager from the investment style for which
it had been selected, a deterioration in a Portfolio Manager's performance
relative to that of other investment management firms practicing a similar
style, or adverse changes
14
<PAGE>
in its ownership or personnel. Portfolio Manager changes may also be made to
change the mix of investment styles employed by the Fund's Portfolio Manager.
The Fund's current Portfolio Managers are:
J. P. Morgan Investment Management Inc.
Oppenheimer Capital
Palley-Needelman Asset Management, Inc.
(to be replaced effective May 11, 1998, by Boston Partners Asset
Management, L.P.)
Westwood Management Corp.
Wilke/Thompson Capital Management, Inc.
On April 23, 1998, the Board of Trustees approved LAMCO's recommendation that
Boston Partners Asset Management, L.P. replace Palley-Needelman Asset
Management, Inc. as a Portfolio Manager. This change will take effect on May
11, 1998.
LAMCO also is the manager of Liberty All-Star Equity Fund, a multi-managed
closed-end fund. This other fund has the same investment objective and
investment program as the Fund, and currently has the same Portfolio Managers.
LAMCO expects that both funds will make corresponding changes if and when
Portfolio Managers are changed in the future.
Although under normal circumstances the Fund will remain substantially fully
invested in equity securities, up to 35% of the value of the Fund's total
assets may be invested in U.S. dollar denominated money market instruments of
the type described under "OTHER INVESTMENT PRACTICES, RISK CONSIDERATIONS AND
POLICIES OF THE FUNDS: Cash Reserves and Repurchase Agreements."
The Fund may purchase and sell U.S. stock futures contracts and options
thereon. Such transactions will be entered into (i) for hedging purposes or
(ii) to maintain market exposure in connection with (A) LAMCO's rebalancing the
Funds' Portfolio among Portfolio Managers or (B) changes in Portfolio Managers.
The Fund also may purchase and sell options on individual securities (i) for
hedging purposes or (ii) to increase investment return. See "OTHER INVESTMENT
PRACTICES, RISK CONSIDERATIONS AND POLICIES OF THE FUNDS: Certain Derivative
Investments." The Fund will purchase and sell such derivative securities only
with respect to securities it may otherwise purchase or indices composed of
such securities.
The Fund may remain substantially fully invested during periods when stock
prices generally rise and also during periods when they generally decline. The
Fund is intended to be a long-term investment vehicle and is not designed to
provide a means of speculating on short-term stock market movements.
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 Informa-tion contains the names of and
biographical information on the Trustees.
The Manager: Liberty Advisory Services Corp. (LASC)
LASC, 125 High Street, Boston Massachusetts 02110, is the manager of the Trust.
LASC was incorporated on January 8, 1993 under the laws of the Commonwealth of
Massachusetts.
In accordance with its Management Agreements with the Trust, LASC designs and
supervises a continuous investment program for the Trust, evaluates and
monitors its Sub-Advisers' performance, investment programs, and compliance
with applicable laws and regulations, and recommends to the Board of Trustees
whether its Sub-Advisers' respective contracts should be continued or modified
and whether a new sub-adviser or multiple sub-advisers should be added or
deleted. LASC 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, LASC 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. LASC has delegated its administrative responsibilities to
Colonial in accordance with this authority. LASC, or its affiliates, pay all
compensation of the Trust's trustees and officers who are employees of LASC 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. LASC 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 LASC management fees, accrued daily and paid monthly, at the
following maximum annual rates of the average daily net assets of the specified
Fund.
<TABLE>
<S> <C>
Growth and Income Fund 0.65%
Global Utilities Fund 0.65%
International Fund For Growth 0.90%
U.S. Stock Fund 0.80%
Strategic Income Fund 0.65%
Tiger Fund 0.90%
All-Star Fund 0.80%
</TABLE>
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LASC's Sub-Advisers
Colonial
Colonial, an investment adviser since 1931, is the Sub-Adviser of each of
Growth and Income Fund, International Fund For Growth, U.S. Stock Fund and
Strategic Income Fund. Colonial, whose principal business address is One
Financial Center, Boston, Massachusetts 02111, is an indirect wholly owned
subsidiary of LFC.
LASC, 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:
Growth and Income Fund 0.45%
International Fund For Growth 0.70%
U.S. Stock Fund 0.60%
Strategic Income Fund 0.45%
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 LASC and the
Board of Trustees. Colonial determines which securities and other instruments
are purchased and sold for each Fund. Colonial also provides transfer agency
and certain pricing and record keeping services for the Funds under separate
agreements.
John E. Lennon, Vice President of Colonial, has co-managed the Growth and
Income Fund since 1997 and has managed various other Colonial equity funds
since 1982.
Gordon A. Johnson, Vice President of Colonial, has co-managed the Growth and
Income Fund since 1997. From 1993 to 1995, Mr. Johnson served as a senior
equity analyst with Colonial.
Mark Stoeckle has managed the U.S. Stock Fund since December, 1996. Mr.
Stoeckle is a Vice President of Colonial. He also manages the Colonial U.S.
Stock Fund. Prior to joining Colonial in 1996, Mr. Stoeckle was a portfolio
manager at Massachusetts Financial Services Company and an investment banker at
Bear, Stearns & Co., Inc.
Carl C. Ericson has managed the Strategic Income Fund since its inception. Mr.
Ericson, a Senior Vice President of Colonial and director of Colonial's Taxable
Fixed Income Group, has managed the Colonial Strategic Income Fund since 1991
and various other Colonial taxable income funds since 1985.
David Harris, who is jointly employed by Colonial and Stein Roe, manages the
International Fund For Growth. Prior to joining Stein Roe in May, 1995, Mr.
Harris was employed by Rockefeller & Co., Inc., as a Portfolio Manager.
Colonial utilizes the trading facilities of Stein Roe to place all orders for
the purchase and sale of portfolio securities, futures contracts and foreign
currencies for the International Fund For Growth. In selecting broker-dealers,
Colonial may direct Stein Roe to consider research and brokerage services
furnished to Colonial.
Stein Roe
Stein Roe is the Sub-Adviser of the Global Utilities Fund. Stein Roe, whose
principal address is One South Wacker Drive, Chicago, Illinois 60606, is an
indirect wholly owned subsidiary of LFC.
LASC, out of the management fees it receives from the Trust, pays Stein Roe a
sub-advisory fee at the annual rate of 0.45% of the average daily net assets of
the Global Utilities Fund.
Under the Stein Roe Sub-Advisory Agreement, Stein Roe manages the assets of the
Fund in accordance with its investment objective, investment program, policies,
and restrictions under the supervision of LASC and the Board of Trustees. Stein
Roe determines which securities and other instruments are purchased and sold
for the Fund.
Ophelia Barsketis, Senior Vice President of Stein Roe, co-manages the Global
Utilities Fund. Ms. Barsketis joined Stein Roe in 1983 and progressed through a
variety of equity analyst positions before assuming her current
responsibilities.
Deborah A. Jansen, Vice President and Senior Research Analyst for global and
domestic equities and global economic forecasting for Stein Roe, co-manages the
Global Utilities Fund. Ms. Jansen joined Stein Roe in 1987 and served as an
associate economist and senior economist before assuming her current
responsibilities. Ms. Jansen left Stein Roe in January, 1995 and returned to
her position as Vice President in March, 1996. From June 5, 1995 through June
30, 1995, Ms. Jansen was a Senior Equity Research Analyst for BancOne
Investment Advisers Corporation.
Newport
Newport is the Sub-Adviser of the Tiger Fund. Newport, whose principal address
is 580 California Street, Suite 1960, San Francisco, California 94104, is an
indirect wholly owned subsidiary of LFC.
LASC, 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 Tiger Fund.
Under the Newport Sub-Advisory Agreement, Newport manages the assets of the
Fund in accordance with its investment objective, investment program, policies,
and restrictions under the supervision of LASC and the Board of Trustees.
Newport determines which securities and other instruments are purchased and
sold for the Fund.
John M. Mussey and Thomas R. Tuttle, President and Senior Vice President,
respectively, of Newport, co-manage 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.) Mr. Tuttle has co-managed the Colonial Newport Tiger Fund since
November, 1995. Messrs. Mussey and Tuttle have been officers of Newport since
1984.
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<PAGE>
LAMCO and LAMCO's Portfolio Managers
LAMCO is the Sub-Adviser of the All-Star Fund. LAMCO, whose principal address
is 600 Atlantic Avenue, 23rd Floor, Boston, Massachusetts 02210, is an indirect
wholly owned subsidiary of LFC.
LASC, out of the management fees it receives from the Trust, pays LAMCO a
sub-advisory fee at the annual rate of 0.60% of the average daily net assets of
the All-Star Fund.
LAMCO is party to LASC's Management Agreement with the Trust for the All-Star
Fund. Under the Management Agreement, LASC delegates investment management of
the Fund to LAMCO, in accordance with the Fund's investment objective,
investment program, policies and restrictions under the supervision of LASC and
the Board of Trustees. The Management Agreement further authorizes LAMCO to
recommend for appointment one or more Portfolio Managers pursuant to a
portfolio management agreement among the Trust, LAMCO and the applicable
Portfolio Manager. The Management Agreement provides that each Portfolio
Manager shall have full investment discretion and authority to make all
determinations with respect to the investment of the portion of the Fund's
assets assigned to such Portfolio Manager by LAMCO, in accordance with LAMCO's
multi-manager concept.
Pursuant to a separate portfolio management agreement with each Portfolio
Manager, LAMCO, out of the management fees it receives from LASC, pays each
such Portfolio Manager a fee at the annual rate of 0.30% of the average daily
net assets of that portion of the Fund's assets assigned to such Portfolio
Manager.
No one individual at LAMCO is responsible for LAMCO's investment management of
All-Star Fund.
Henry D. Cavanna, Managing Director of J.P. Morgan Investment Management, Inc.,
manages that portion of All-Star Fund's portfolio assigned to that firm.
John Lindenthal, Managing Director of Oppenheimer Capital, manages that portion
of All-Star Fund's portfolio assigned to that firm.
Roger B. Palley, President and Senior Investment Officer of Palley-Needelman
Asset Management, Inc., manages that portion of All-Star Fund's portfolio
assigned to that firm. On May 11, 1998, Boston Partners Asset Management, L.P.
will replace Palley-Needelman Asset Management, Inc. as a Portfolio Manager.
Mark Donovan, Chairman, Equity Strategy Committee, of Boston Partners Asset
Management, L.P. will manage that portion of All Star Fund's portfolio assigned
to that firm.
Susan M. Byrne, President and Chief Executive Officer of Westwood Management
Corp., manages that portion of All-Star Fund's portfolio assigned to that firm.
Mark A. Thompson, Chairman and Chief Investment Officer of Wilke/Thompson
Capital Management, Inc., manages that portion of All-Star Fund's portfolio
assigned to that firm.
The Trust, LASC and LAMCO have applied to the Securities and Exchange
Commission for an exemptive order that would permit LAMCO and the Trust to
enter into a new portfolio management agreement with a new Portfolio Manager
(whether or not in connection with the replacement of an existing Portfolio
Manager) and with an existing Portfolio Manager (or its successor) following a
transaction resulting in a change of control of such Portfolio Manager without
a vote of the shareholders of the All-Star Fund. The exemptive order is
expected to issue on May 5, 1998. The change from Palley-Needelman Asset
Management, Inc. to Boston Partners Asset Management, L.P. will be made in
reliance on the exemptive order. Information regarding any additional new
Portfolio Managers will be sent to holders of VA contracts and VLI policies
within 90 days following the effective date of the change or addition.
TRUST SERVICE ORGANIZATIONS
Custodians
As of the date of this Prospectus, Boston Safe Deposit and Trust Company, One
Boston Place, Boston, Massachusetts 02109, is the custodian for U.S. Stock
Fund, Growth and Income Fund, Strategic Income Fund and International Fund for
Growth. The Board of Trustees has approved the appointment of The Chase
Manhattan Bank, 3 Chase Metro Tech Center, 8th Floor, Brooklyn, New York 11245
to become the custodian for those Funds. This change is expected to be made on
or about May 15, 1998. Chase Manhattan Bank is the custodian for the other
Funds in the Trust. 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 custodians' 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.
17
<PAGE>
OTHER CONSIDERATIONS
Expenses of the Funds
The Funds generally will pay all their expenses, other than those borne by
LASC, Colonial, Stein Roe, Newport, LAMCO and LAMCO's Portfolio Managers. LASC
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) Growth and Income Fund, Global Utilities Fund, U.S. Stock Fund
and All-Star Fund in excess of 1.00% of average net asset value per annum, (ii)
each of International Fund For Growth and Tiger Fund in excess of 1.75% of
average net asset value per annum and (iii) Strategic Income Fund in excess of
0.80% of average net asset value per annum, in each case for the period
beginning May 1, 1998 until April 30, 1999.
The expenses payable by the Funds include, among other things, the management
fees payable to LASC, described above; fees for services of independent
accountants; consultant fees; legal fees; transfer agent, custodian and
portfolio record keeping and tax information services fees; fees for pricing
and record keeping services, and of equipment for communication among the
Funds' custodians, LASC, Colonial, Stein Roe, Newport, LAMCO, LAMCO's Portfolio
Managers and others; taxes and fees for the preparation of the Funds' tax
returns; brokerage fees and commissions; interest; costs of Board of Trustees
and shareholder meetings; cost of 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 LASC, Colonial, Stein Roe, Newport, LAMCO, LAMCO's
Portfolio Managers or their affiliates; insurance and fidelity bond premiums;
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 daily orders to purchase and redeem
shares of each Fund based on, among other things, the net amount of purchase
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to the VA contracts and VLI policies, including deductions
for fees and charges by the applicable insurance company separate account. The
Trust continuously offers and redeems shares at net asset value without the
addition of any selling commission, sales load or redemption charge. Shares are
sold and redeemed at their net asset value as next determined after receipt of
purchase payments or redemption requests, respectively, by the separate
accounts. Similarly, shares are sold or redeemed as a result of such other
transactions under the VA contracts and VLI policies at the net asset value
computed for the day on which such transactions are effected by the separate
accounts. The right of redemption may be suspended or payments postponed
whenever permitted by applicable law and regulations.
Investment Return
Average annual total returns for the Funds are calculated in accordance with
the Securities and Exchange Commission's formula and assume reinvestment of all
distributions. Other total returns differ from average annual total return only
in that they may relate to different time periods and may represent aggregate
as opposed to average annual total returns. A Fund's average annual total
return is determined by computing the annual percentage change in value of a
$1,000 investment in such Fund for a specified period, assuming reinvestment of
all dividends and distributions.
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 International Fund For
Growth and Tiger Fund) at the commencement of operations was established at
$10.00. The initial net asset value of each of International Fund For Growth
and Tiger Fund was established at $2.00. The net asset value per share of each
Fund is determined as of the close of regular trading on the New York Stock
Exchange ("NYSE") (currently 4:00 p.m., New York time). Net asset value per
share is calculated for each Fund by dividing the current market value of total
portfolio assets, less all liabilities (including accrued expenses), by the
total number of shares out-
18
<PAGE>
standing. 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,
plus any remaining undistributed income from the prior year.
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
19
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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.
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 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 amendment to 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 to call meetings to consider removal.
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.
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Short-Term Trading
In seeking each Fund's objective, the applicable portfolio manager will buy or
sell portfolio securities whenever it believes it is appropriate. Their
decisions 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.
In selecting broker-dealers for the purchase and sale of portfolio securities,
the portfolio manager may consider research and brokerage services furnished by
such broker-dealers to the portfolio manager and its affiliates. In recognition
of the research and brokerage services provided, the portfolio manager may
cause a Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services. For
Growth and Income Fund, International Fund for Growth and U.S. Stock Fund,
Colonial may use the services of AlphaTrade, Inc., a registered broker-dealer
affiliate, when buying or selling equity securities, pursuant to procedures
adopted under Investment Company Act Rule 17e-1. Subject to seeking best
execution, a portfolio manager may consider sales of contracts of Participating
Insurance Companies (and of shares of other mutual funds advised by it and its
affiliates), in selecting broker-dealers for portfolio security transactions.
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 will
be no greater than 100%. Global Utilities Fund and International Fund For
Growth 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. Changes in All-Star Fund's Portfolio
Managers and rebalancings of its portfolio among the Portfolio Managers may
result in higher portfolio turnover than would otherwise be the case. The
portfolio turnover rates of the Funds for the period ended December 31, 1997
are shown under "FINANCIAL HIGHLIGHTS" above. A Fund's portfolio turnover rate
is not a limiting factor when the portfolio manager considers a change in the
Fund's portfolio.
Certain Investment Considerations Pertaining to Government Debt Securities
Each of Growth and Income Fund, Strategic Income Fund and U.S. Stock Fund may,
as part of its normal investment program, invest in U.S. Government Securities.
Similarly, each of International Fund For Growth and Strategic Income Fund may,
as part of its normal investment program, invest in foreign government debt
securities.
While U.S. Government Securities are considered virtually free of default risk,
their values nevertheless generally fluctuate inversely with changes in
interest rates. Further, U.S. Government Securities consisting of
mortgage-backed securities, CMOs or REMICs may decline in value more
substantially than comparable maturity treasury securities given an interest
rate increase, but may not increase in value as much given an interest rate
decline. See "Mortgage-Backed Securities" and "Collateralized Mortgage
Obligations (CMOs) and Real Estate Mortgage Investment Conduits (REMICs)"
below.
The values of foreign government debt securities generally fluctuate inversely
with changes in interest rates in the countries where the securities are
issued. Foreign government debt securities are also subject generally to the
additional special risks and other considerations pertaining to investments in
foreign securities discussed below under "Foreign Securities."
Cash Reserves and Repurchase Agreements
Each of the Funds may invest temporarily available cash in certificates of
deposit, bankers' acceptances, high quality commercial paper, Treasury bills,
U.S. government securities and repurchase agreements with a securities dealer
or bank. Some or all of the Fund's assets may be invested in such instruments
during periods of unusual market conditions. Tiger Fund also may purchase
foreign currency denominated instruments. In 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. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. 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 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.
21
<PAGE>
Forward Commitments and When-Issued Securities; Dollar Roll Transactions
Each of Growth and Income Fund, Global Utilities Fund and 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 will take place at a future date beyond customary settlement
time. 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 and Stein Roe do 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.
Strategic Income Fund may enter into dollar roll transactions. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and receive principal payments
on the securities sold. Dollar roll transactions involve the risk that the
market value of the securities sold by the Fund may decline below the
repurchase price of those securities. In the event the buyer of securities
under a dollar roll transaction files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the transaction may be restricted pending a
determination by or with respect to the other party.
Securities Lending
Each of Global Utilities Fund, U.S. Stock Fund and All-Star Fund may lend
portfolio securities to certain institutions (principally broker-dealers) that
the applicable portfolio manager considers qualified in order to increase
income. The loans will not exceed 30% of total assets. Securities lending
involves the risk of loss to the Fund if the borrower defaults.
Foreign Securities
Tiger Fund normally will remain fully invested in equity securities of
companies located in the Tiger countries. International Fund For Growth
normally invests primarily in foreign securities. Global Utilities Fund may
invest without limit in foreign securities. Similarly, Strategic Income Fund
may invest any portion of its assets in securities issued or guaranteed by
foreign governments. Growth and Income Fund also may invest in foreign
securities. Investments in foreign securities include sovereign risks and risks
pertaining to the local economy in the country or countries in which the
foreign issuer conducts business. Investments in foreign securities also
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 judgments, 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.
Investments in foreign securities may include investments in securities issued
or guaranteed by companies or governments located 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, volatile debt burdens or
inflation rates, currency transfer restrictions, limited numbers of potential
buyers for such securities, restrictions on repatriation of capital 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 Colonial not to be highly
developed. With respect to International Fund for Growth, Global Utilities Fund
and Strategic Income Fund, normally no more than 40% of the Fund's assets will
be invested in such securities.
22
<PAGE>
Foreign Currency Transactions. Transactions in foreign securities include
currency conversion costs. Tiger Fund, International Fund For Growth, Global
Utilities Fund, Strategic Income Fund and Growth and Income Fund may engage in
currency exchange transactions to convert currencies to or from U.S. dollars.
These Funds may purchase or sell 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 Fund, 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.
International Fund For Growth, Global Utilities Fund, and Strategic Income Fund
also may buy and sell currency futures contracts and options thereon for such
hedging purposes. Global Utilities Fund and Strategic Income Fund also may buy
or sell options on currencies for such hedging purposes. Over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies
are considered illiquid by the SEC staff.
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 generally will not 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.
ADRs. With respect to equity securities, each of Tiger Fund, International Fund
For Growth, Global Utilities Fund, Growth and Income Fund, U.S. Stock Fund and
All-Star Fund may purchase structured and unstructured 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
Strategic Income Fund, Growth and Income Fund and U.S. Stock 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, except that
Strategic Income Fund also may invest in other mortgage-backed securities if
the underlying mortgages are guaranteed by a governmental agency.
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 Funds to a lower rate of return upon reinvestment of
principal. The Funds 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. This is because the mortgages underlying the
securities can be prepaid, and prepayment rates
23
<PAGE>
tend to increase as interest rates decline (effectively shortening the
mortgage-backed security's maturity) and decrease as interest rates rise
(effectively lengthening the mortgage-backed security's maturity).
Strategic Income Fund also may invest in certificates representing undivided
interests in the interest or principal of mortgage-backed securities
(interest-only/principal-only securities). These securities tend to be more
volatile than other types of debt securities. The interest-only class involves
the risk of loss of the entire value of the investment if the underlying
mortgages are prepaid. In the case of principal-only class securities, 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)
Strategic Income Fund, Growth and Income Fund and U.S. Stock Fund may invest in
CMOs and REMICs of investment grade or considered by Colonial to be of
comparable quality. U.S. Stock Fund may invest only in CMOs and REMICs which
are issued or guaranteed by the U.S. government or its agencies. CMOs and
REMICs 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 and REMICs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in mortgage loans, including depository institutions, mortgage banks,
investment banks and special-purpose subsidiaries of the foregoing.
CMOs and REMICs are not, however, "mortgage pass-through" securities, such as
those described above under "Mortgage-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 typically are structured into multiple classes, with each class
bearing a different stated maturity and having different payment streams. One
class (the Residual) is in the nature of equity. The Funds will not invest in
the Residual class. Although the structures of CMOs and REMICs vary greatly,
monthly payments of principal, including prepayments, typically are first
returned to the investors holding the shortest maturity class; investors
holding longer maturity classes typically receive principal payments only after
the shorter class or classes have been retired. The Fund 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 Fund 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.
Certain Derivative Investments
As specified above under "THE FUNDS," certain Funds may invest in derivative
securities for certain specified purposes. These derivative securities include
U.S. and foreign stock and bond index futures contracts, U.S. and foreign
interest rate futures contracts, options on stock, bond and interest rate
futures contracts, and options on individual securities.
A financial futures contract creates an obligation by the seller to sell and
the purchaser to buy an amount of cash equal to a specified cash amount
multiplied by the difference between the value of a specified index (based on
stocks, bonds, or interest rates) at the contract's settlement date and the
benchmark index value at which the contract is made. A sale of a futures
contract can be terminated in advance of the settlement date by subsequently
purchasing a similar offsetting (opposite way) contract. Similarly, a purchase
of a futures contract can be terminated by a similar offsetting sale. Gain or
loss on a futures contract generally is realized upon such termination.
An option generally gives the option holder the right, but not the obligation,
to purchase or sell a specified security or futures contract prior to the
option's specified expiration date. A call option gives the option purchaser
the right to buy from the option seller (writer); a put option gives the option
purchaser the right to sell to the option writer. A Fund will pay a premium to
purchase an option, which will become a loss if the option expires unexercised.
A Fund will receive a premium from writing an option, which increases its
return if the option expires unexercised or is closed out at a profit. When a
Fund writes a call option, it may become obligated to sell the underlying
security at a below market price. Similarly, if a Fund writes a put option, it
may become obligated to buy the underlying security at an above market price.
With respect to each futures contract or call option purchased, the Fund will
set aside in a segregated account maintained with its custodian (or broker, if
legally permitted) cash or liquid securities in an amount equal to the market
value of the futures contract or option, less the initial margin deposit. A
Fund will write only "covered" options, meaning that, so long as the Fund is
obligated under the option, it must own the underlying security subject to the
option (or comparable securities satisfying the cover requirements of the
Securities and Exchange Commission) in the case of a call option written by the
Fund, or maintain in a segregated account with the Fund's custodian cash or
liquid
24
<PAGE>
securities with a value sufficient at all times to cover its obligations under
put options written by it.
Transactions in futures and options may not precisely achieve the goals of
hedging, gaining or maintaining market exposure or increasing returns, as
applicable, to the extent there is an imperfect correlation between the price
movements of the futures contracts or options and of the underlying securities.
In addition, if the portfolio manager's prediction on stock or bond market
movements or changes in interest rates is inaccurate, the Fund may be worse off
than if it had not used such derivative investment techniques.
For more information on these derivative investments, see "DESCRIPTION OF
CERTAIN INVESTMENTS: Futures Contracts and Related Options" and "--Options on
Securities" in the Statement of Additional Information.
Zero-Coupon Bonds; Pay-In-Kind Securities
Zero Coupon Bonds. Global Utilities Fund and 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.
Pay-In-Kind Securities Global Utilities Fund also may invest in pay-in-kind
securities. Such securities pay interest, typically at the issuer's option, in
additional securities instead of cash. Similar to zero-coupon bonds, the Fund
accrues interest paid in kind and may have to sell other investments to raise
the cash needed to make income distributions. These securities are generally
lower rated securities and in addition to the other risks associated with
investing in lower rated securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks
of lower rated securities.
Lower Rated Bonds
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. existing 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 lower rated 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. Lower rated bonds are less sensitive to interest rate changes but are more
sensitive to adverse economic developments.
Leverage Risks Associated with Certain Investment Techniques
Certain investment techniques used by the Funds and described above may present
additional risks associated with the use of leverage. These techniques are
forward commitments and the purchase of securities on a when-issued basis, the
purchase and sale of foreign currency on a forward basis, the purchase and sale
of certain futures contracts and options thereon, and the purchase and sale of
certain options. Leverage may magnify the effect on Fund shares of fluctuations
in the values of the securities underlying these transactions. In accordance
with Securities and Exchange Commission pronouncements, to reduce (but not
necessarily eliminate) leverage, the Fund will either "cover" its obligations
under such transactions by holding the securities or other commodities (or
rights to acquire the securities or such commodities) it is obligated to
deliver under such transactions, or deposit and maintain in a segregated
account with its custodian cash, liquid securities, or securities denominated
in the particular foreign currency, equal in value to the Fund's obligations
under such transactions.
25
<PAGE>
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 its total assets, invest
in more than 10% of its 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 for temporary or emergency
purposes, for example, 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. While borrowings exceed 5% of net
assets, the Funds will not purchase additional portfolio securities. Limitation
(i) does not apply to the 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 its portfolio manager(s) deem a
temporary defensive position advisable, the Fund may invest, without limitation
(i.e., up to 100% of its assets), in higher rated securities, or hold assets in
cash or cash equivalents, to the extent such portfolio managers believe 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 non-fundamental policies may be changed without
shareholder approval. The holders of VA Contracts and VLI Policies will be
notified in connection with 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.
26
<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 bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal 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 repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation and
CC the highest degree. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
large exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within the major
rating categories.
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 protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa 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 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 obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba bonds 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 bonds in
this class.
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. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
A-1
<PAGE>
<PAGE>
APPENDIX B
Colonial Strategic Income Fund, Variable Series -- Schedule of Portfolio Asset
Composition by Rating For 1997
<TABLE>
<CAPTION>
Month
-----------------------------------------------------
January February March April May
Rating --------- ---------- ---------- ---------- ----------
(percentage of portfolio)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aaa/AAA ..... 34.5% 37.6% 40.0% 43.0% 42.1%
Aa/AA ....... 18.2% 14.4% 12.2% 10.8% 12.5%
A/A ......... 0.0% 0.0% 0.0% 0.0% 0.0%
Baa/BBB ..... 1.1% 0.0% 0.0% 0.0% 3.1%
Ba/BB ....... 10.3% 11.9% 12.1% 10.3% 9.0%
B/B ......... 31.9% 32.5% 32.3% 31.1% 28.5%
Caa/CCC ..... 4.0% 3.6% 3.4% 1.9% 1.9%
Ca/CC ....... 0.0% 0.0% 0.0% 0.0% 0.0%
C ........... 0.0% 0.0% 0.0% 0.0% 0.0%
D ........... 0.0% 0.0% 0.0% 0.0% 0.0%
Unrated ..... 0.0% 0.0% 0.0% 2.9% 2.9%
----- ----- ----- ----- -----
Total ....... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
<CAPTION>
Month
---------------------------------------------------------------------------
June July August September October November December
Rating ---------- ---------- ---------- ----------- --------- ---------- ---------
(percentage of portfolio)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aaa/AAA ..... 36.7% 38.7% 36.8% 40.9% 50.7% 44.8% 43.5%
Aa/AA ....... 12.5% 10.5% 10.2% 8.6% 5.6% 8.8% 8.2%
A/A ......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Baa/BBB ..... 3.1% 2.4% 3.2% 3.1% 2.9% 3.0% 2.9%
Ba/BB ....... 11.9% 14.0% 15.4% 13.8% 11.1% 7.9% 7.3%
B/B ......... 31.4% 33.0% 33.0% 32.2% 28.9% 34.3% 36.6%
Caa/CCC ..... 2.9% 0.0% 0.0% 0.0% 0.0% 0.4% 0.8%
Ca/CC ....... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
C ........... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
D ........... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Unrated ..... 1.5% 1.4% 1.4% 1.4% 0.8% 0.8% 0.7%
----- ----- ----- ----- ----- ----- -----
Total ....... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1997
(percentage of portfolio)
Rating --------------------------
<S> <C>
Aaa/AAA ......... 40.7%
Aa/AA ........... 11.1%
A/A ............. 0.0%
Baa/BBB ......... 2.1%
Ba/BB ........... 11.3%
B/B ............. 32.1%
Caa/CCC ......... 1.6%
Ca/CC ........... 0.0%
C ............... 0.0%
D ............... 0.0%
Unrated ......... 1.1%
-----
Total ........... 100.0%
=====
</TABLE>
B-1
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
Federal Reserve Plaza, 600 Atlantic Avenue
Boston, Massachusetts 02210
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1998
The Statement of Additional Information ("SAI") is not a Prospectus,
but should be read in conjunction with the Trust's Prospectus, dated May 1, 1998
and any supplement thereto, which may be obtained at no charge by calling
Keyport Financial Services Corp. at (800) 437-4466, or by contacting the
applicable Participating Insurance Company, or the broker-dealers offering
certain variable annuity contracts or variable life insurance policies issued by
the Participating Insurance Company.
The date of this SAI is May 1, 1998.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
INVESTMENT MANAGEMENT AND OTHER SERVICES.............................. S-3
General...................................................... S-3
Trust Charges and Expenses................................... S-6
INVESTMENT RESTRICTIONS ........................................... S-8
Growth and Income Fund...................................... S-8
Global Utilities Fund........................................ S-9
International Fund For Growth................................ S-10
U.S. Stock Fund ........................................... S-12
Strategic Income Fund........................................ S-13
Tiger Fund................................................... S-13
All-Star Fund ............................................. S-15
Small Cap Value ........................................... S-17
High Yield Securities........................................ S-18
MORE FACTS ABOUT TRUST .............................................. S-19
Mixed and Shared Funding .................................... S-19
Organization ................................................ S-19
Trustees and Officers ...................................... S-20
Principal Holders of Securities ............................. S-24
Custodians ................................................. S-24
OTHER CONSIDERATIONS ................................................ S-25
Portfolio Turnover ........................................ S-25
Suspension of Redemptions ................................... S-25
Valuation of Securities .................................... S-26
Portfolio Transactions ..................................... S-26
DESCRIPTION OF CERTAIN INVESTMENTS.................................... S-30
Money Market Instruments .................................... S-30
Investments in Less Developed Countries ..................... S-33
Foreign Currency Transactions ............................... S-33
Options on Securities ...................................... S-37
Futures Contracts and Related Options ....................... S-41
Securities Loans ........................................... S-45
INVESTMENT PERFORMANCE .............................................. S-45
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS ..................... S-47
S-2
<PAGE>
Liberty 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
nine Funds: Colonial Growth and Income Fund, Variable Series ("Growth and Income
Fund"); Stein Roe Global Utilities Fund, Variable Series ("Global Utilities
Fund"); Colonial International Fund For Growth, Variable Series ("International
Fund For Growth"); Colonial U.S. Stock Fund, Variable Series ("U.S. Stock
Fund"); Colonial Strategic Income Fund, Variable Series ("Strategic Income
Fund"); Newport Tiger Fund, Variable Series ("Tiger Fund"); Liberty All-Star
Equity Fund, Variable Series ("All-Star Fund"), Colonial Small Cap Value Fund,
Variable Series ("Small Cap Value Fund") and Colonial High Yield Securities
Fund, Variable Series ("High Yield Securities Fund"). The Trust may add or
delete Funds from time to time. The Trust commenced operations on July 1, 1993.
Small Cap Value Fund and High Yield Securities Fund are not available
for sale as of the date of this SAI. Such Funds are expected to become available
for sale upon the effective date of an amendment to the Trust's Registration
Statement on Form N-1A filed March 3, 1998 and scheduled to become effective on
May 19, 1998.
INVESTMENT MANAGEMENT AND OTHER SERVICES
General
Liberty Advisory Services Corp. ("LASC") serves as Manager pursuant to
five investment advisory agreements between the Trust on behalf of one or more
of the Funds and LASC (the "Management Agreements"). LASC 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, 1998, approximately 72.3% of the combined voting power of LFC's
outstanding voting stock was owned, indirectly, by Liberty Mutual Insurance
Company ("Liberty Mutual").
LASC and the Trust, on behalf of each of Growth and Income Fund,
International Fund For Growth, U.S. Stock Fund, Strategic Income Fund, Small Cap
Value Fund and High Yield Securities Fund, have entered into separate
Sub-Advisory Agreements ("Colonial Sub-Advisory Agreements") with Colonial
Management Associates, Inc.
("Colonial"). Colonial is an indirect wholly owned subsidiary of LFC.
LASC and the Trust, on behalf of the Global Utilities Fund, have
entered into a separate Sub-Advisory Agreement (the "Stein Roe Sub-Advisory
Agreement") with Stein Roe & Farnham Incorporated ("Stein Roe"). Stein Roe is an
indirect wholly owned subsidiary of LFC.
LASC and the Trust, on behalf of the Tiger Fund, have entered into a
separate Sub-Advisory Agreement (the "Newport Sub-Advisory Agreement;"
collectively, with the Colonial Sub-Advisory Agreements and the Stein Roe
Sub-Advisory Agreement, the "Sub-Advisory Agreements") with Newport Fund
Management, Inc. ("Newport"). Newport is an indirect wholly owned subsidiary of
LFC.
S-3
<PAGE>
Liberty Asset Management Company ("LAMCO") sub-advises All-Star Fund
pursuant to the Management Agreement for such Fund (to which LAMCO is a party).
All-Star Fund's investment program is based upon LAMCO's multi-manager concept.
LAMCO allocates the Fund's portfolio assets on an equal basis among a number of
independent investment management organizations ("Portfolio Managers") --
currently five in number -- each of which employs a different investment style,
and periodically rebalances the Fund's portfolio among the Portfolio Managers so
as to maintain an approximately equal allocation of the portfolio among them
throughout all market cycles. Each Portfolio Manager provides these services
under a Portfolio Management Agreement (the "Portfolio Management Agreements")
among the Trust, on behalf of All-Star Fund, LAMCO and such Portfolio Manager.
All-Star Fund's current Portfolio Managers are:
J.P. Morgan Investment Management Inc.
Oppenheimer Capital
Palley-Needelman Asset Management, Inc. (to be replaced,
effective May 11, 1998, by Boston Partners Asset
Management, L.P.)
Westwood Management Corp.
Wilke/Thompson Capital Management, Inc.
On April 23, 1998, the Board of Trustees approved LAMCO's
recommendation that Boston Partners Asset Management, L.P. replace Palley
Needelman Asset Management, Inc. as a Portfolio Manager. This change will take
effect on May 11, 1998.
Liberty Advisory Services Corp. Keyport owns all of the outstanding
common stock of LASC. LASC's address is 125 High Street, Boston, Massachusetts
02110. The directors and principal executive officer of LASC are: John W.
Rosensteel (principal executive officer); John E. Arant, III, James J. Klopper;
and Paul H. LeFevre, Jr. Mr. Rosensteel also is a director of Keyport Financial
Services Corp. ("KFSC"), the principal underwriter for shares of the Funds sold
to Affiliated Participating Insurance Companies (as such term is defined in the
Prospectus).
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 officer of Colonial
are Harold W. Cogger, Nancy L. Conlin, Stephen E. Gibson (principal executive
officer) and Davey S. Scoon.
Stein Roe & Farnham Incorporated. Stein Roe, One South Wacker Drive,
Chicago, Illinois, 60606, is an indirect wholly owned subsidiary of LFC. The
directors and principal executive officer of Stein Roe are Kenneth R. Leibler,
C. Allen Merritt, Jr., Hans P. Ziegler (principal executive officer), Thomas W.
Butch and Harold W. Cogger.
Newport. Newport Pacific Management, Inc. ("Newport Pacific"), 580
California Street, San Francisco, California 94104, owns 75.1% of the
outstanding common stock of Newport. LFC
S-4
<PAGE>
owns the balance. Liberty Newport Holdings, Ltd. ("LNH") owns all of the
outstanding common stock of Newport Pacific. LFC owns all of the outstanding
stock of LNH. The directors and principal executive officers of Newport are John
M. Mussey (principal executive officer), Kenneth R. Leibler, Lindsay Cook,
Thomas R. Tuttle, Pamela Frantz and Linda Couch.
Liberty Asset Management Company; LAMCO's Portfolio Managers. LAMCO,
600 Atlantic Avenue, 23rd Floor, Boston, Massachusetts 02210, is an indirect
wholly owned subsidiary of LFC. The directors and principal executive officer of
LAMCO are: Kenneth R. Leibler, Richard R. Christensen (principal executive
officer), Lindsay Cook and C. Allen Merritt, Jr. Mr. Christensen is Chairman of
the Board of Trustees of the Trust.
As of the date of this Statement of Additional Information, the
following entities serve as LAMCO's Portfolio Managers for All-Star Fund:
o J.P. Morgan Investment Management, Inc. J.P. Morgan Investment
Management Inc. ("J.P. Morgan"), 522 Fifth Avenue, New York,
New York 10036, is a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated, a New York Stock Exchange listed bank
holding company the principal banking subsidiary of which is
Morgan Guaranty Trust Company of New York. J.P. Morgan's
principal executive officer is Keith M. Schappert, and its
directors are Mr. Schappert and Messrs. William L. Cobb, Jr.,
C. Nicolas Potter, Michael R. Granito, John R. Thomas, Thomas
M. Luddy, Michael E. Patterson, Jean Louis Pierre Brunel,
Robert A. Anselmi, Milan Steven Soltis and K. Warren Anderson.
o Oppenheimer Capital. Oppenheimer Capital, Oppenheimer Tower,
World Financial Center, New York, New York 10281, also is a
wholly-owned subsidiary of PIMCO Advisors L.P. Oppenheimer
Capital's principal executive officer is George Long, and its
directors are Mr. Long and Frank LaCates.
o Palley-Needelman Asset Management, Inc. Palley-Needelman Asset
Management, Inc.'s address is 800 Newport Center Drive, Suite
450, Newport Beach, California 92660. The firm is owned by
Roger B. Palley, President, and Chester J. Needelman, chief
executive officer. Messrs. Palley and Needelman are its
directors. On April 23, 1998, the Board of Trustees approved
LAMCO's recommendation to replace Palley-Needelman Asset
Management, Inc. with Boston Partners Asset Management, L.P.
This change will become effective May 11, 1998.
S-5
<PAGE>
o Boston Partners Asset Management, L.P. Boston Partners Asset
Management, L.P.'s address is One Financial Center, Boston,
Massachusetts 02111. The firm is owned by its partners.
Desmond S. Heathwood is the sole General Partner.
o Westwood Management Corp. Westwood Management Corp., 300
Crescent Court, Suite 1320, Dallas, Texas 75201, is a wholly
owned subsidiary of Southwest Securities Group, Inc. Its
principal executive officer is Susan M. Byrne. Its directors
are Ms. Byrne, Raymond E. Wooldridge, Don A. Buchhotz, David
M. Glatstein, and Patricia R. Fraze.
o Wilke/Thompson Capital Management, Inc. Wilke/Thompson Capital
Management, Inc. ("Wilke/Thompson"), 3800 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402, is a
corporation of which Anthony L. Ventura, its President, owns
23%, and Mark A. Thompson, its Chairman and Chief Investment
Officer, owns 56%, of its outstanding shares. (The balance of
such shares are owned by other employees). Messrs. Thompson
and Ventura comprise its Board of Directors.
The Management Agreements, the Sub-Advisory Agreements and the
Portfolio Management Agreements provide that none of LASC, Colonial, Stein Roe,
Newport, LAMCO or LAMCO's Portfolio Managers (collectively, the "Advisers"), 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 such Adviser of its respective duties under such agreements,
except for liability resulting from willful misfeasance, bad faith or gross
negligence on the part of such Adviser, in the performance of its respective
duties or from reckless disregard by such Adviser of its respective obligations
and duties thereunder.
Trust Charges and Expenses
Growth and Income Fund and Global Utilities Fund commenced operations
on July 1, 1993. International Fund For Growth commenced operations on May 2,
1994. U.S. Stock Fund and Strategic Income Fund commenced operations on July 5,
1994. Tiger Fund commenced operations on May 1, 1995. All-Star Fund commenced
operations on November 15, 1997. Small Cap Value Fund and High Yield Securities
Fund will commence operations on or about May 19, 1998, following the
effectiveness of an amendment to the Fund's Registration Statement on Form N-1A
adding those Funds.
Management Fees. Each Fund listed below paid LASC management fees as
follows during each year in the three-year period ended December 31, 1997
pursuant to the Management Agreements described in the Prospectus:
S-6
<PAGE>
1995 1996 1997
---- ---- ----
Growth and Income Fund: $384,179 $538,173 $605,151
Global Utilities Fund: $284,469 $315,944 $310,458
International Fund For Growth: $183,697 $224,146 $270,532
U.S. Stock Fund: $237,547 $418,745 $623,484
Strategic Income Fund: $181,811 $322,142 $384,347(1)
Tiger Fund: $ 86,228 $258,891 $303,701
All-Star Fund: ---- ---- $ 8,804(1)
Small Cap Value: ---- ---- ----
High Yield Securities: ---- ---- ----
- ---------
(1) Reduced to reflect applicable expense limitations. If the limitations had
not been in effect, these funds would have paid fees of $399,569 and $20,337,
respectively.
Certain Administrative Expenses. During each year in the three-year period ended
December 31, 1997 each Fund listed below made payments as follows to Colonial or
an affiliate thereof for pricing and bookkeeping services.
1995 1996 1997
---- ---- ----
Growth and Income Fund: $30,524 $40,025 $43,653
Global Utilities Fund: $27,000 $27,000 $27,071
International Fund For Growth: $27,000 $27,000 $27,000
U.S. Stock Fund: $27,000 $27,000 $39,024
Strategic Income Fund: $27,000 $27,000 $31,551
Tiger Fund: $18,000 $27,000 $27,000
All-Star Fund: ---- ---- $ 3,225
Small Cap Value: ---- ---- ----
High Yield Securities: ---- ---- ----
In addition, during each year in the three-year period ended December
31, 1997 each Fund listed below made payments as follows to Colonial or an
affiliate thereof for transfer agent services:
1995 1996 1997
---- ---- ----
Growth and Income Fund: $7,500 $7,500 $7,500
Global Utilities Fund: $7,500 $7,500 $7,500
International Fund For Growth: $7,500 $7,500 $7,500
U.S. Stock Fund: $7,500 $7,500 $7,500
Strategic Income Fund: $7,500 $7,500 $7,500
Tiger Fund: $5,000 $7,500 $ 896
All-Star Fund: ---- ---- ----
Small Cap Value: ---- ---- ----
High Yield Securities: ---- ---- ----
S-7
<PAGE>
Expense Limitations. LASC has agreed to reimburse all expenses,
including management fees, but excluding interest, taxes, brokerage, and other
expenses which are capitalized in accordance with generally accepted accounting
principles, and extraordinary expenses, incurred by (i) each of Growth and
Income Fund, Global Utilities Fund, U.S. Stock Fund, All-Star Fund and Small Cap
Value Fund in excess of 1.00% of average daily net asset value per annum, (ii)
each of International Fund For Growth and Tiger Fund in excess of 1.75% of
average daily net asset value per annum, and (iii) each of Strategic Income Fund
and High Yield Securities Fund in excess of 0.80% of average daily net asset
value per annum, in each case for the period from May 1, 1998 until April 30,
1999.
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.
Growth and Income Fund
Fundamental Investment Policies. 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;
S-8
<PAGE>
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;
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; and
7. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets.
Other Investment Policies. As non-fundamental investment policies of
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. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets; or
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities.
Global Utilities Fund
Fundamental Investment Policies. Global 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;
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-9
<PAGE>
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; and
6. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets.
Other Investment Policies. As non-fundamental investment policies of
Global 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 (this restriction does
not apply to securities purchased on a when-issued basis or to
margin deposits in connection with futures or options
transactions);
2. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets; and
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities.
International Fund For Growth
Fundamental Investment Policies. 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;
S-10
<PAGE>
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
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 more than 15% of its net assets in illiquid assets;
4. 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;
5. 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;
6. 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
7. 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-11
<PAGE>
U.S. Stock Fund
Fundamental Investment Policies. U.S. Stock 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; 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
U.S. Stock 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 more than 15% of its net assets in illiquid assets; or
4. Purchase or sell commodity contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets.
S-12
<PAGE>
Strategic Income Fund
Fundamental Investment Policies. 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;
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
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; or
3. Invest more than 15% of its net assets in illiquid assets.
Tiger Fund
Fundamental Investment Policies. Tiger Fund may not:
S-13
<PAGE>
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
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
Tiger Fund which may be changed without a shareholder vote, the Fund may not:
1. Invest in companies for the purpose of exercising control;
2. 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;
3. Participate on a joint and several basis in any securities
trading account;
S-14
<PAGE>
4. Write or trade in put or call options;
5. 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; or
6. Engage in short sales of securities.
All-Star Fund
Fundamental Investment Policies. All-Star Fund may not:
1. Issue senior securities, except as permitted by (2) below;
2. Borrow money, except that it may borrow in an amount not
exceeding 7% of its total assets (including the amount
borrowed) taken at market value at the time of such borrowing,
and except that it may make borrowings in amounts up to an
additional 5% of its total assets (including the amount
borrowed) taken at market value at the time of such borrowing,
to obtain such short-term credits as are necessary for the
clearance of securities transactions, or for temporary or
emergency purposes, and may maintain and renew any of the
foregoing borrowings, provided that the Fund maintains asset
coverage of 300% with respect to all such borrowings;
3. Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if
such pledging, mortgaging or hypothecating does not exceed 12%
of the Fund's total assets taken at market value at the time
of such pledge, mortgage or hypothecation. The deposit in
escrow of securities in connection with the writing of put and
call options and collateral arrangements with respect to
margin for future contracts are not deemed to be pledges or
hypothecation for this purpose;
4. Act as an underwriter of securities of other issuers, except
when disposing of securities;
5. Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-through and
collateralized mortgage obligations, or issued by companies
that invest in real estate or interests therein;
6. Make loans to other persons except for loans of portfolio
securities (up to 30% of total assets) and except through the
use of repurchase agreements, the purchase of commercial paper
or the purchase of all or a portion of an issue of debt
securities in accordance with its investment objective,
policies and restrictions, and provided that
S-15
<PAGE>
not more than 10% of the Fund's assets will be invested in
repurchase agreements maturing in more than seven days;
7. Invest in commodities or in commodity contracts (except stock
index futures and options);
8. Purchase securities on margin (except to the extent that the
purchase of options and futures may involve margin and except
that it may obtain such short-term credits as may be necessary
for the clearance of purchases or sales of securities), or
make short sales of securities;
9. Purchase the securities of issuers conducting their principal
business activity in the same industry (other than securities
issued or guaranteed by the United States, its agencies and
instrumentalities) if, immediately after such purchase, the
value of its investments in such industry would comprise 25%
or more of the value of its total assets taken at market value
at the time of each investment;
10. Purchase securities of any one issuer, if
(a) more than 5% of the Fund's total assets taken at
market value would at the time be invested in the securities
of such issuer, except that such restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities or corporations sponsored
thereby, and except that up to 25% of the Fund's total assets
may be invested without regard to this limitation; or
(b) such purchase would at the time result in more
than 10% of the outstanding voting securities of such issuer
being held by the Fund, except that up to 25% of the Fund's
total assets may be invested without regard to this
limitation;
11. Invest in securities of another registered investment company,
except (i) as permitted by the Investment Company Act of 1940,
as amended from time to time, or any rule or order thereunder,
or (ii) in connection with a merger, consolidation,
acquisition or reorganization;
12. Purchase any security, including any repurchase agreement
maturing in more than seven days, which is subject to legal or
contractual delays in or restrictions on resale, or which is
not readily marketable, if more than 10% of the net assets of
the Fund, taken at market value, would be invested in such
securities;
13. Invest for the purpose of exercising control over or
management of any company; or
14. Purchase securities unless the issuer thereof or any company
on whose credit the purchase was based, together with its
predecessors, has a record of at least three years' continuous
operations prior to the purchase, except for investments
which, in
S-16
<PAGE>
the aggregate, taken at cost do not exceed 5% of the Fund's
total assets.
Other Investment Policies. As non-fundamental investment policies of
All-Star Fund which may be changed without a shareholder vote, the Fund may not
borrow in an amount in excess of 5% of its total assets (including the amount
borrowed).
Small Cap Value Fund
Fundamental Investment Policies. Small Cap Value 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, it will not purchase additional portfolio
securities while borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
does not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing of
portfolio securities;
5. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one
industry or 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 voting securities of an issuer if,
as a result of 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
Small Cap Value Fund which may be changed, 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. Purchase or sell commodity contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets; and
4. Invest more than 15% of its net assets in illiquid assets.
S-17
<PAGE>
High Yield Securities Fund
Fundamental Investment Policies. High Yield Securities 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. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. 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;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one
industry or 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 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-18
<PAGE>
Other Investment Policies. As non-fundamental investment policies of
High Yield Securities fund which may be changed, the Fund may not:
1. Purchase securities on margin, but the Fund may receive
short-term credit to clear securities transactions and may
make initial or maintenance margin deposits in connection with
futures transactions; and
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities.
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 Participating Insurance Companies (as such
term is defined therein), including those of Keyport, Independence Life &
Annuity Company ("Independence") and Keyport Benefit Life Insurance Company
("Keyport Benefit"), each of which is a wholly owned subsidiary of Keyport, and
Liberty Life Assurance Company of Boston ("Liberty Life"), a 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 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.
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.
S-19
<PAGE>
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 of Participating
Insurance Companies, and, in certain cases, the general account of Keyport.
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).
<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 Services,
Federal Reserve Plaza Inc.; since 1994, President, LAMCO
600 Atlantic Avenue
Boston, MA 02210
- --------------------------------------------------------------------------------------------------------------
John A. Bacon Jr. Trustee Private Investor
4N640 Honey Hill Road
Box 296
Wayne, IL 60184
- --------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Positions(s) held Principal occupations
Name and Address with the Trust during past five years
==============================================================================================================
<S> <C> <C>
Salvatore Macera Trustee Private Investor; formerly Executive Vice
20 Rowes Wharf President of Itek Corp. and President of
Boston, MA 02109 Itek Optical & Electronic Industries, Inc.
- --------------------------------------------------------------------------------------------------------------
Dr. Thomas E. Stitzel Professor of Finance, College of Business,
2208 Tawny Woods Place Trustee Boise State University; Business Consultant
Boise, ID 83706 and Author
- --------------------------------------------------------------------------------------------------------------
Timothy J. Jacoby Treasurer and Chief Treasurer and Chief Financial Officer of
One Financial Center Financial Officer the Colonial Funds; Senior Vice President
Boston, MA 02111 and Chief Financial Officer of Colonial
Management Associates, Inc.; formerly
Senior Vice President, Fidelity Accounting
and Custody Services, Inc. and Assistant
Treasurer to the Fidelity Group of Funds
- --------------------------------------------------------------------------------------------------------------
John E. Lennon Vice President Vice President, Colonial
One Financial Center Management Associates, Inc.
Boston, MA 02111
- --------------------------------------------------------------------------------------------------------------
Nancy L. Conlin None Director, Senior Vice President and General
One Financial Center Counsel, Colonial Management Associates,
Boston, MA 02111 Inc. (April, 1998 to present); Vice
President and Counsel (February, 1994 to
April, 1998); Partner, Mintz, Levin, Cohn,
Ferris, Glovsky & Popeo, prior thereto
- --------------------------------------------------------------------------------------------------------------
Andrea Feingold Vice President Vice President, Colonial Management
One Financial Center Associates, Inc.
Boston, MA 02111
- --------------------------------------------------------------------------------------------------------------
James P. Haynie Vice President Vice President, Colonial Management
One Financial Center Associates, Inc.
Boston, MA 02111
- --------------------------------------------------------------------------------------------------------------
Michael Rega Vice President Vice President, Colonial Management
One Financial Center Associates, Inc.
Boston, MA 02111
- --------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Positions(s) held Principal occupations
Name and Address with the Trust during past five years
==============================================================================================================
<S> <C> <C>
Carl C. Ericson Vice President Senior Vice President (Vice President prior
One Financial Center to 1996) and Manager of the Taxable Fixed
Boston, MA 02111 Income Group, Colonial Management
Associates, Inc.
- --------------------------------------------------------------------------------------------------------------
John M. Mussey Vice President President, Newport Fund Management, Inc.
580 California Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------------------------------------
Ophelia Barsketis Vice President Senior Vice President, Stein Roe
One South Wacker Drive
Chicago, Illinois 60606
- --------------------------------------------------------------------------------------------------------------
Deborah A. Jansen Vice President Vice President and Senior Research Analyst,
One South Wacker Drive Stein Roe (March 1996 to present and 1987
Chicago, Illinois 60606 to January, 1995); from June 5, 1995 to
June 30, 1995, Senior Equity Research
Analyst, BankOne Investment Advisers
Corporation
- --------------------------------------------------------------------------------------------------------------
William R. Parmentier, Jr. Vice President Chief Investment Officer, LAMCO (April,
600 Atlantic Avenue 1995 to present); Chief Investment Officer
Boston, Massachusetts 02210 of Grumman Corporation, 1979-1994
- --------------------------------------------------------------------------------------------------------------
Christopher S. Carabell Vice President Vice President, Investments, LAMCO (March,
600 Atlantic Avenue 1996 to present); Associate Director, U.S.
Boston, Massachusetts 02210 Equity Research, Rogers Casey & Associates,
January, 1995 to March, 1996; Director of
Investments, Boy Scouts of America, Inc.,
June, 1990 to January, 1995
- --------------------------------------------------------------------------------------------------------------
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Positions(s) held Principal occupations
Name and Address with the Trust during past five years
==============================================================================================================
<S> <C> <C>
John A. Benning Assistant Secretary Senior Vice President and General Counsel,
Federal Reserve Plaza Liberty Financial Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210
- --------------------------------------------------------------------------------------------------------------
Kevin M. Carome Secretary Since August 1993, Associate General
Federal Reserve Plaza Counsel and Vice President (since February
600 Atlantic Avenue 1995), Liberty Financial Companies, Inc.;
Boston, MA 02210 General Counsel, Stein Roe & Farnham
Incorporated (January 1998 to present)
==============================================================================================================
</TABLE>
As indicated in the above table, certain Trustees and officers of the
Trust also hold positions with LFC, Keyport, LASC, KFSC, Colonial, Stein Roe,
Newport, LAMCO 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.
Compensation Table
- --------------------------------------------------------------------------------
Total Compensation
From the Trust and
Affiliated Investment
Name of Trustee Aggregate 1997 Compensation* Companies in 1997**
- --------------- --------------------------- ---------------------
Richard R. Christensen
John A. Bacon Jr. $12,500 $33,500
Salvatore Macera 12,500 33,500
Dr. Thomas E. Stitzel 12,500 33,500
S-23
<PAGE>
- --------------------
* Consists of Trustee fees in the amount of (i) a $5,000 annual retainer, (ii)
a $1,500 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 Participating Insurance Companies on behalf of the owners
of VA contracts and VLI policies or by the general account of Keyport. At March
31, 1998 the general account of Keyport owned of record 100% of Liberty All-Star
Equity Fund, Variable Series and 96.22% of Tiger Fund. As of that date,
Keyport's general account owned of record less than 25% of the outstanding
shares of the other Funds. (Small Cap Value Fund and High Yield Securities Fund
had not commenced operations as of that date). At all meetings of shareholders
of the Funds, Participating Insurance Companies will vote the shares held of
record by sub-accounts 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 Participating Insurance Company and Keyport
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). No Participating Insurance Company has informed the Trust
that it knows of any owner of a VA contract or VLI policy issued by it which on
March 31, 1998 owned beneficially 5% or more of the outstanding shares of any
Fund.
Custodians
As of the date of this SAI, Boston Safe Deposit and Trust Company, One
Boston Place, Boston, Massachusetts 02108, is custodian of the securities and
cash owned by the U.S. Stock Fund, Growth & Income Fund, Strategic Income Fund
and International Fund for Growth. The Board of Trustees has approved the
appointment of The Chase Manhattan Bank, 3 MetroTech Center, 8th Floor,
Brooklyn, New York 11245, to become custodian for these Funds. This change is
expected to be made on or about May 15, 1998. Chase Manhattan Bank is custodian
for the other Funds. The custodians are responsible for holding all securities
and cash of each Fund they serve, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Fund, and performing
other administrative duties, all as directed by persons authorized by the Trust.
The custodians do 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 custodians and may be entered
into the Federal Reserve Book Entry system, or the security
S-24
<PAGE>
depository system of the Depository Trust Company or other securities depository
systems. Portfolio securities purchased outside the U.S. are maintained in the
custody of various foreign branches of the custodians and/or third party
subcustodians, including foreign banks and foreign securities depositories.
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 will be no greater than
100%. The portfolio turnover rates of the Funds are shown under "Financial
Highlights" in the Prospectus.
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.
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.
S-25
<PAGE>
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.
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., Eastern 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 holidays: New Year's Day, Martin Luther King
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.
S-26
<PAGE>
Each of Colonial, Stein Roe, Newport and each of LAMCO's Portfolio
Managers (each an "Adviser") 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 its Adviser 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 the Adviser 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.
Subject to such policy of always seeking best execution, and subject to
the additional matters described below regarding each of International Fund For
Growth and All-Star Fund, securities transactions of the Funds may be executed
by broker-dealers who also provide research services (as defined below) to an
Adviser, the Funds or other accounts as to which such Adviser exercises
investment discretion. Such Adviser may use all, some or none of such research
services in providing investment advisory services to each of its clients,
including the Fund(s) it advises. To the extent that such services are used by
the Advisers, they tend to reduce their expenses. It is not possible to assign
an exact dollar value for such services.
Subject to such policies as the Board of Trustees may determine, each
of the Advisers 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). An
Adviser placing a brokerage transaction 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 applicable
Fund and all its other clients.
S-27
<PAGE>
Certain of the other accounts of any of the Advisers may have
investment objectives and programs that are similar to those of the Funds.
Accordingly, occasions may arise when each of the Advisers 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, the Adviser 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 applicable rules 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 the Advisers 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.
Additional Matters Pertaining to International Fund For Growth. The
portfolio manager for the International Fund For Growth is David Harris, who is
jointly employed by Colonial and Stein Roe (each of which is an indirect wholly
owned subsidiary of LFC). Colonial utilizes the trading facilities of Stein Roe
to place all orders on behalf of the International Fund For Growth for the
purchase and sale of portfolio securities, futures contracts and foreign
currencies. The International Fund For Growth and the other accounts advised by
Mr. Harris sometimes invest in the same securities and sometimes enter into
similar transactions utilizing futures contracts and foreign currencies. In
certain cases, purchases and sales on behalf of the Fund and such other accounts
will be bunched and executed on an aggregate basis. In such cases, each
participating account (including the International Fund For Growth) will receive
the average price at which the trade is executed. Where less than the desired
aggregate amount is able to be purchased or sold, the actual amount purchased or
sold will be allocated among the participating accounts (including the
International Fund For Growth) in proportion to the amounts desired to be
purchased or sold by each. Although in some cases these practices could have a
detrimental effect on the price or volume of the securities, futures or
currencies as far as the International Fund For Growth is concerned, Colonial
believes that in most cases these practices should produce better executions. It
is the opinion of Colonial that the advantages of these practices outweigh the
disadvantages, if any, which might result from them.
Portfolio transactions on behalf of the International Fund For Growth
may be executed by broker-dealers who provide research services to Colonial or
Stein Roe which are used in the investment management of such Fund or other
accounts over which Colonial or Stein Roe exercise investment discretion. Such
transactions will be effected in accordance with the policies described above.
No portfolio transactions on behalf of the Fund will be directed to a
broker-dealer in consideration of the broker-dealer's provision of research
services to Colonial, or to Colonial and Stein Roe, unless a determination is
made that such research assists Colonial in its investment management of the
International Fund For Growth or other accounts over which Colonial exercises
investment discretion.
Additional Matters Pertaining to All-Star Fund. The Portfolio
Management Agreements with LAMCO's Portfolio Managers provide that LAMCO has the
right to request that transactions
S-28
<PAGE>
giving rise to brokerage commissions, in amounts to be agreed upon from time to
time between LAMCO and the Portfolio Manager, be executed by brokers and dealers
(to be agreed upon from time to time between LAMCO and the Portfolio Manager)
which provide research products and services to LAMCO or to All-Star Fund or
other accounts managed by LAMCO (collectively with All-Star Fund, "LAMCO
Clients"). The commissions paid on such transactions may exceed the amount of
commissions another broker would have charged for effecting that transaction.
Research products and services made available to LAMCO through brokers and
dealers executing transactions for LAMCO Clients involving brokerage commissions
include performance and other qualitative and quantitative data relating to
investment managers in general and the Portfolio Managers in particular; data
relating to the historic performance of categories of securities associated with
particular investment styles; mutual fund portfolio and performance data; data
relating to portfolio manager changes by pension plan fiduciaries; quotation
equipment; and related computer hardware and software, all of which research
products and services are used by LAMCO in connection with its selection and
monitoring of portfolio managers (including the Portfolio Managers) for LAMCO
Clients, the assembly of a mix of investment styles appropriate to LAMCO's
Clients' investment objectives, and the determination of overall portfolio
strategies.
LAMCO from time to time reaches understandings with each of the
Portfolio Managers as to the amount of the All-Star Fund portfolio transactions
initiated by such Portfolio Manager that are to be directed to brokers and
dealers which provide research products and services to LAMCO. These amounts may
differ among the Portfolio Managers based on the nature of the markets for the
types of securities managed by them and other factors.
These research products and services are used by LAMCO in connection
with its management of LAMCO Clients' portfolios, regardless of the source of
the brokerage commissions. In instances where LAMCO receives from broker-dealers
products or services which are used both for research purposes and for
administrative or other non-research purposes, LAMCO makes a good faith effort
to determine the relative proportions of such products or services which may be
considered as investment research, based primarily on anticipated usage, and
pays for the costs attributable to the non-research usage in cash.
The table below shows information on brokerage commissions paid by each
Fund during the periods indicated. (Strategic Income Fund did not pay
commissions on any of its transactions; All-Star Fund commenced operations on or
about November 17, 1997; Small Cap Value Fund and High Yield Securities Fund
will commence operations on or about May 19, 1998.)
S-29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Growth and Global International U.S. Stock Tiger Fund All-Star Fund
Income Fund Utilities Fund Fund For Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total amount of $76,021 $108,414 $59,920 $80,839 $110,960 $18,207
brokerage commissions
paid during 1997
- ------------------------------------------------------------------------------------------------------------------------------
Amount of such $22,718 $3,394 $0 $3,640 $0 $0
commissions paid to
brokers or dealers
who supplied research
services
- ------------------------------------------------------------------------------------------------------------------------------
Amount of commissions $22,718 $3,394 $0 $3,640 $0 $0
paid to brokers or
dealers that were
allocated to such
brokers or dealers
because of research
services provided to
the Fund
- ------------------------------------------------------------------------------------------------------------------------------
Total amount of $35,863 $22,345 $92,485 $75,253 $109,515 $0
brokerage commissions
paid during 1996
- ------------------------------------------------------------------------------------------------------------------------------
Total amount of $110,453 $24,902 $52,394 $81,150 $129,019 $0
brokerage commissions
paid during 1995
- ------------------------------------------------------------------------------------------------------------------------------
</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. The money market instruments that may be
used by each Fund may include:
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
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<PAGE>
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.
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
S-31
<PAGE>
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.
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.
S-32
<PAGE>
Investments in Less Developed Countries
International Fund For Growth's investments in foreign securities may
include investments in countries whose economies or securities markets are
considered by Colonial 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 May 1, 1998, the following
countries were considered by Colonial to be emerging market countries:
<TABLE>
<CAPTION>
=====================================================================================================================
Europe and
Asia Latin America the Middle East Africa
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
India Argentina Czech Republic South Africa
- ---------------------------------------------------------------------------------------------------------------------
Indonesia Brazil Egypt
- ---------------------------------------------------------------------------------------------------------------------
Korea Chile Greece
- ---------------------------------------------------------------------------------------------------------------------
Pakistan Colombia Hungary
- ---------------------------------------------------------------------------------------------------------------------
Philippines Mexico Israel
- ---------------------------------------------------------------------------------------------------------------------
Sri Lanka Peru Jordan
- ---------------------------------------------------------------------------------------------------------------------
Taiwan Venezuela Portugal
- ---------------------------------------------------------------------------------------------------------------------
Thailand Russia
- ---------------------------------------------------------------------------------------------------------------------
Turkey
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Tiger Fund invests primarily in companies located in the Tiger
countries of East Asia, which include Indonesia, Korea, the Philippines, Taiwan
and Thailand.
Foreign Currency Transactions
Each of International Fund For Growth, Tiger Fund, Global Utilities
Fund, Strategic Income Fund and 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. International Fund For
Growth, Global Utilities Fund, and Strategic Income Fund also may buy and sell
currency futures contracts and options thereon for such hedging purposes. Global
Utilities Fund and 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
S-33
<PAGE>
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 its 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.
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)
S-34
<PAGE>
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 International Fund For Growth, Global Utilities Fund, Strategic
Income Fund and 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. (Tiger
Fund may not invest in currency futures contracts.)
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
S-35
<PAGE>
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.
Global Utilities Fund and Strategic Income Fund will only purchase or
write currency options when Stein Roe or 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.
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.
S-36
<PAGE>
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.
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
Each of Global Utilities Fund, International Fund For Growth and
All-Star Fund may purchase and sell options on individual securities.
S-37
<PAGE>
Writing covered options.
A Fund may write covered call options and covered put options on
securities held in its portfolio when, in the opinion of the Adviser, such
transactions are consistent with the Fund's investment objective and policies.
Call options written by the Fund give the purchaser the right to buy the
underlying securities from the Fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the Fund at a
stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an offsetting option. The Fund realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
costs) is less or more than the premium received from writing the option.
Because increases in the market price of a call option generally reflect
increases in the market price of the security underlying the option, any loss
resulting from a closing purchase transaction may be offset in whole or in part
by unrealized appreciation of the underlying security.
If a Fund writes a call option but does not own the underlying
security, and then it writes a put option, the Fund may be required to deposit
cash or securities with its broker as "margin" or collateral for its obligation
to buy or sell the underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements
S-38
<PAGE>
currently imposed by the Federal Reserve Board and by stock exchanges and other
self-regulatory organizations.
Purchasing put options.
A Fund may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the life of the put option since the Fund, as holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. For a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the Fund will reduce any
profit it might otherwise have realized from appreciation of the underlying
security by the premium paid for the put option and by transaction costs.
Purchasing call options.
A Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
Over-the-Counter (OTC) options.
The Staff of the Division of Investment Management of the Securities
and Exchange Commission has taken the position that OTC options purchased by a
Fund and assets held to cover OTC options written by the Fund are illiquid
securities. Although the Staff has indicated that it is continuing to evaluate
this issue, pending further developments, a Fund will enter into OTC options
transactions only with primary dealers in U.S. Government Securities and, in the
case of OTC options written by the Fund, only pursuant to agreements that will
assure that the Fund will at all times have the right to repurchase the option
written by it from the dealer at a specified formula price. The Fund will treat
the amount by which such formula price exceeds the amount, if any, by which the
option may be "in the money" as an illiquid investment. It is the present policy
of the Fund not to enter into any OTC option transaction if, as a result, more
than 15% of the Fund's net assets would be invested in (i) illiquid investments
(determined under the foregoing formula) relating to OTC options written by the
Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not
readily marketable and (iv) repurchase agreements maturing in more than seven
days.
S-39
<PAGE>
Risk factors in options transactions.
The successful use of a Fund's options strategies depends on the
ability of its Adviser to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time, unless
the Fund exercises the option or enters into a closing sale transaction with
respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding the
lack of a change in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when its Adviser deems it desirable to do
so. Although the Fund will take an option position only if the Adviser believes
there is a liquid secondary market for the option, there is no assurance that
the Fund will be able to effect closing transactions at any particular time or
at an acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events -- such as volume in excess of trading or clearing capability
- -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit a Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options
purchased or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
("OCC") or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because
of time differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on
S-40
<PAGE>
days when U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Futures Contracts and Related Options
Each of Global Utilities Fund, International Fund For Growth, Strategic
Income Fund and All-Star Fund may buy and sell certain future contracts (and in
certain cases related options), to the extent and for the purposes specified in
the Prospectus.
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 a 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
S-41
<PAGE>
the long and short positions in the futures contract more or less valuable, a
process known as "marking to market."
A 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.
A 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
A 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.
A 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.
S-42
<PAGE>
Risks of transactions in futures contracts and related options
Successful use of futures contracts by a Fund is subject its Adviser'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 a 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.
To reduce or eliminate a hedge position held by a 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.
Index futures contracts and related options; associated risks
An index futures contract is a contract to buy or sell units of an
index at a specified future date at a price agreed upon when the contract is
made. Entering into a contract to buy units of an index is commonly referred to
as buying or purchasing a contract or holding a long position in the index.
Entering into a contract to sell units of an index is commonly referred to as
selling a contract or holding a short position. A unit is the current value of
the index. A Fund may enter into stock index future contracts, debt index
futures contracts, or other index futures contracts (e.g., an interest
S-43
<PAGE>
rate futures contract), as specified in the Prospectus. A Fund may also purchase
and sell options on index futures contracts, to the extent specified in the
Prospectus.
There are several risks in connection with the use by a Fund of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Fund's
Adviser will attempt to reduce this risk by selling, to the extent possible,
futures on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Fund's portfolio
securities sought to be hedged.
Successful use of index futures by a Fund for hedging purposes is also
subject to its Adviser's ability to predict correctly movements in the direction
of the market. It is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities subject to the hedge held in the
Fund's portfolio may decline. If this occurs, the Fund would lose money on the
futures and also experience a decline in the value in its portfolio securities.
However, while this could occur to a certain degree, over time the value of the
Fund's portfolio should tend to move in the same direction as the market indices
which are intended to correlate to the price movements of the portfolio
securities sought to be hedged. It is also possible that, if the Fund has hedged
against the possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices increase instead, the
Fund will lose part or all of the benefit of the increased values of those
securities that it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the securities of the portfolio being hedged, the prices of index futures
may not correlate perfectly with movements in the underlying index due to
certain market distortions. First, all participants in the futures markets are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the index and futures markets. Second, margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets, and as a result the futures markets may attract more speculators than
the securities markets. Increased participation by speculators in the futures
markets may also cause temporary price distortions. Due to the possibility of
price distortions in the futures markets and also because of the imperfect
correlation between movements in the index and movements in the prices of index
futures, even a correct forecast of general market trends by a Fund's Adviser
may still not result in a successful hedging transaction.
Options on index futures are similar to options on securities except
that options on index futures give the purchaser the right, in return for the
premium paid, to assume a position in an index futures contract (a long position
if the option is a call and a short position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option,
S-44
<PAGE>
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
Securities Loans
Each of Global Utilities Fund, U.S. Stock Fund and All-Star Fund 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 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.
S-45
<PAGE>
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 in
the case of Growth and Income Fund and Global Utilities Fund; May 1, 1994, in
the case of International Fund For Growth; July 5, 1994 in the case of U.S.
Stock Fund and Strategic Income Fund; May 1, 1995, in the case of Tiger Fund;
and November 17, 1997 in the case of All-Star Fund) through December 31, 1997
were:
<TABLE>
<CAPTION>
===============================================================================================================
Fund Total Return Total Return Average Annual
Percentage Total Return
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income Fund $2,060 106.04% 17.40%
- ---------------------------------------------------------------------------------------------------------------
Global Utilities Fund $1,635 63.50% 11.53%
- ---------------------------------------------------------------------------------------------------------------
International Fund For Growth $1,017 1.65% 0.45%
- ---------------------------------------------------------------------------------------------------------------
U.S. Stock Fund $2,181 118.14% 25.00%
- ---------------------------------------------------------------------------------------------------------------
Strategic Income Fund $1,433 43.32% 10.84%
- ---------------------------------------------------------------------------------------------------------------
Tiger Fund $885 (11.52)% (4.47)%
- ---------------------------------------------------------------------------------------------------------------
All-Star Fund $1,008 0.80% N/A
===============================================================================================================
</TABLE>
The figures contained in this "Investment Performance" section assume
reinvestment of all dividends and distributions. They are not necessarily
indicative of future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although information such as that shown above is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. The Funds'
total returns do not reflect the cost of insurance and other insurance company
separate account charges which vary with the VA contracts and VLI policies
offered through the separate accounts of the Participating Insurance Companies.
S-46
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the Trust's independent accountants. The
financial statements as of December 31, 1997 or for the fiscal years or periods
ended December 31, 1997 and December 31, 1996 incorporated by reference in this
SAI have been so incorporated, and the schedule of financial highlights for the
periods ended December 31, 1997 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 Trust and Report of Independent
Accountants appearing in the December 31, 1997 Annual Report of the Trust are
incorporated in this SAI by reference.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
The following financial statements for each of the Funds in the Trust
(other than Liberty All-Star Equity Fund, Variable Series ("All-Star Fund")) are
incorporated by reference into Part B of this filing from the Registrant's
December 31, 1997 Annual Report:
Independent Accountants' Report
Schedule of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the year or period ended December 31, 1997
Statement of Changes in Net Assets for the years or periods ended
December 31, 1997 and 1996
Financial Highlights for the years or periods ended December 31, 1997
and 1996
(b) Exhibits.
1. Agreement and Declaration of Trust (1)
2. By-Laws (1)
3. Not Applicable
4. Not Applicable
5(a)(i). Management Agreement between the Trust, on behalf of each
of Colonial Growth and Income Fund, Variable Series
("GIF") (under its former name "Colonial-Keyport Growth
and Income Fund") and Stein Roe Global Utilities Fund,
Variable Series ("GUF") (under its former name
"Colonial-Keyport Utilities Fund"), and Liberty Advisory
Services Corp. ("LASC") (2)(8)
5(a)(ii). Management Agreement between the Trust, on behalf of each
of Colonial International Fund For Growth, Variable
Series ("IFFG") (under its former name "Colonial-Keyport
International Fund For Growth"), Colonial U.S. Stock
Fund, Variable Series ("USSF") (under its former name
"Colonial-Keyport U.S. Fund For Growth") and Colonial
Strategic Income Fund, Variable Series ("SIF") (under its
former name "Colonial-Keyport Strategic Income Fund"),
and LASC. (3)(8)
C-1
<PAGE>
5(a)(iii) Amendment No. 1 to Management Agreements listed as
Exhibits 5(a)(i) and 5(a)(ii). (5)(8)
5(a)(iv). Management Agreement between the Trust, on behalf of
Newport Tiger Fund, Variable Series ("NTF") (under its
former name "Newport-Keyport Tiger Fund"), and LASC.
(5)(8)
5(a)(v) Management and Sub-Advisory Agreement between the Trust,
on behalf of All-Star Fund, LASC and Liberty Asset
Management Company ("LAMCO").(9)
5(a)(vi) Management Agreement between the Trust, on behalf of each
of Colonial Small Cap Value Fund, Variable Series ("SCV")
and Colonial High Yield Securities Fund, Variable Series
("HYS"), and LASC. (10)
5(b)(i). [deleted]
5(b)(ii). Sub-Advisory Agreement among the Trust, on behalf of the
GIF, LASC and Colonial Management Associates, Inc.
("Colonial"). (2)(8)
5(b)(iii). Sub-Advisory Agreement among the Trust, on behalf of GUF,
LASC and Stein Roe & Farnham Incorporated ("Stein Roe").
(10)
5(b)(iv). Sub-Advisory Agreement among the Trust, on behalf of
IFFG, LASC and Colonial. (3)(8)
5(b)(v). [deleted]
5(b)(vi). Sub-Advisory Agreement among the Trust, on behalf of
USSF, LASC and Colonial. (4)(8)
5(b)(vii). [deleted]
5(b)(viii). Sub-Advisory Agreement among the Trust, on behalf of SIF,
LASC and Colonial. (4)(8)
5(b)(ix). Sub-Advisory Agreement among the Trust, on behalf of NTF,
LASC and Newport Fund Management, Inc. ("Newport").
(5)(8)
5(b)(x) Form of Portfolio Management Agreement among the Trust,
on behalf of All-Star Fund, LAMCO and LAMCO's Portfolio
Managers.(9)
5(b)(xi) Sub-Advisory Agreement among the Trust, on behalf of SCV,
LASC and Colonial. (10)
C-2
<PAGE>
5(b)(xii) Sub-Advisory Agreement among the Trust, on behalf of HYS,
LASC and Colonial. (10)
6(a). Underwriting Agreement between the Trust and Keyport
Financial Services Corp. ("KFSC") (2)
6(b) Amendment No. One to KFSC Underwriting Agreement. (9)
6(c) Underwriting Agreement between the Trust and Colonial
Investment Services Inc. (now Liberty Financial
Investments, Inc. "LFII"). (9)
7. Not Applicable
8. Form of Custody Agreement between the Trust and The Chase
Manhattan Bank
9(a)(i). Joinder and Release Agreement with Respect to Transfer
Agency Agreement dated as of January 3, 1995 among the
Trust, Liberty Investment Services, Inc. and Colonial
Investors Service Center, Inc. (including form of
Transfer Agency Agreement and Amendment No. One thereto)
(5)(8)
9(a)(ii). Amendment No. Two to Transfer Agency Agreement (5)(8)
9(a)(iii). Amendment No. Three to Transfer Agency Agreement (9)
9(b). Participation Agreement among the Trust, Keyport
Financial Services Corp., Keyport Life Insurance Company,
and Liberty Life Assurance Company of Boston (2)(8)
9(c)(i). Pricing and Bookkeeping Agreement between the Trust and
Colonial (2)(8)
9(c)(ii). Amendment No. One to Pricing and Bookkeeping
Agreement (3)(8)
9(c)(iii). Amendment No. Two to Pricing and Bookkeeping
Agreement (5)(8)
9(c)(iv) Amendment No. Three to Pricing and Bookkeeping
Agreement (9)
10. Opinion and consent of counsel as to the legality of the
securities being registered (included with annual Rule
24f-2 Notices)
11. Consent of Independent Accountants
12. Not Applicable
13. Not Applicable
C-3
<PAGE>
14. Not applicable
15. Not applicable
16. Calculation of Total Returns (7)
17. Financial Data Schedules
18. Not applicable
19(a). Power of Attorney executed by each Trustee of the Trust
pertaining to this Registration Statement (6)
19(b). [deleted]
(1) Incorporated by reference to Keyport Variable Investment Trust,
Registration Statement on Form N-1A (33-59216) (the "Registration
Statement"), as filed with the SEC on March 8, 1993.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement, as filed with the SEC on June 11, 1993.
(3) Incorporated by reference to Post-Effective Amendment No. 3 to the
Registration Statement, as filed with the SEC on April 27, 1994.
(4) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement, as filed with the SEC on May 4, 1994.
(5) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement, as filed on April 27, 1995.
(6) Contained on Signature Pages to Post-Effective Amendment No. 3 to
the Registration Statement, as filed with the SEC on April 27, 1994
(and incorporated therefrom by reference).
(7) Incorporated by reference to Post-Effective Amendment No. 8 to this
Registration Statement filed April, 1997.
(8) Note: The name of the Trust was changed to "Liberty Variable
Investment Trust" on or before the effective date of this amendment.
Agreements designated by this note (8) were entered into under the
Trust's original name ("Keyport Variable Investment Trust"). In
addition, the name of LASC also changed as of the date from its former
name to "Keyport Advisory Services Corp."
C-4
<PAGE>
(9) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement filed August 29, 1997.
(10) Incorporated by reference to Post-Effective Amendment No. 11 filed
March 3, 1998
Item 25. Persons Controlled by or Under Common Control with Registrant.
Shares of the Trust registered pursuant to this Registration Statement
will be offered and sold to Keyport Life Insurance Company ("Keyport"), a stock
life insurance company organized under the laws of Rhode Island, and to certain
of its separate investment accounts and certain of the respective separate
investment accounts of Liberty Life Assurance Company of Boston ("Liberty
Life"), a stock life insurance company organized as a Massachusetts corporation,
and Independence Life & Annuity Company, a stock life insurance company
organized under the laws of Rhode Island (formerly known as "Crown America Life
Insurance Company" and thereafter formerly known as "Keyport America Life
Insurance Company") ("Independence"). Shares of the Registrant may in the future
be sold to other separate accounts of Keyport, Liberty Life, Independence or
other life insurance companies as the funding medium for other insurance
contracts and policies in addition to the currently offered contracts and
policies. The purchasers of insurance contracts and policies issued in
connection with such accounts will have the right to instruct Keyport, Liberty
Life and Independence with respect to the voting of the Registrant's shares held
by their respective separate accounts. Subject to such voting instruction
rights, Keyport, Liberty Life, Independence and their respective separate
accounts directly control the Registrant.
KFSC and LFII, the Trust's principal underwriters, LASC, the Trust's
investment manager, Colonial, LASC's sub-adviser with respect to GIF, IFFG, USSF
and SIF, Stein Roe, LASC's sub-adviser with respect to GUF, Newport, LASC's
sub-adviser with respect to NTF, LAMCO, LASC's sub-adviser with respect to
All-Star, Keyport and Independence are each wholly owned indirect subsidiaries
of Liberty Financial Companies, Inc. ("Liberty Financial"), Boston,
Massachusetts. Liberty Mutual Insurance Company ("Liberty Mutual"), Boston,
Massachusetts, as of March 31, 1998 owned, indirectly, approximately 72.3% of
the combined voting power of the outstanding voting stock of Liberty Financial
(with the balance being publicly-held). Liberty Life is a 90%-owned subsidiary
of Liberty Mutual.
Item 26. Number of Holders of Securities.
As of March 31, 1998, the number of holders of shares of beneficial
interest of each Fund of the Trust was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Growth and Income Fund 12
Global Utilities Fund 10
International Fund For Growth 10
U.S. Stock Fund 10
Strategic Income Fund 13
Tiger Fund 10
All-Star Fund
C-5
<PAGE>
Item 27. Indemnification.
Article Tenth of the Agreement and Declaration of Trust of Registrant
(Exhibit 1), which Article is incorporated herein by reference, provides that
Registrant shall provide indemnification of its trustees and officers (including
each person who serves or has served at Registration's request as a director,
officer, or trustee of another organization in which Registrant has any interest
as a shareholder, creditor or otherwise) ("Covered Persons") under specified
circumstances.
Section 17(h) of the 1940 Act provides that neither the Agreement and
Declaration of Trust nor the By-Laws of Registrant, nor any other instrument
pursuant to which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or officer of
Registrant against any liability to Registrant or its shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. In accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
To the extent required under the 1940 Act:
(i) Article Tenth does not protect any person against any liability to
Registrant or to its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office;
(ii) in the absence of a final decision on the merits by a court or
other body before whom a proceeding was brought that a Covered Person was not
liable by reason of willful misfeasance, bad, faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office, no
indemnification is permitted under Article Tenth unless a determination that
such person was not so liable is made on behalf of Registrant by (a) the vote of
a majority of the trustees who are neither "interested persons" of Registrant,
as defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested, non-party trustees"), or (b) an independent legal counsel as
expressed in a written opinion; and
(iii) Registrant will not advance attorney's fees or other expenses
incurred by a Covered Person in connection with a civil or criminal action, suit
or proceeding unless Registrant receives an undertaking by or on behalf of the
Covered Person to repay the advance (unless it is ultimately determined that he
is entitled to indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses arising by reason
of any lawful advances, or (c) a majority of the disinterested, non-party
trustees of Registrant or an independent legal counsel as expressed in a written
opinion, determine, based on a review of readily-available facts (as opposed to
a full trail-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
C-6
<PAGE>
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with Article Tenth as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction not to
have acted in good faith in the reasonable belief that such Covered Person's
action was in, or not opposed to, the best interests of Registrant or to have
been liable to Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Article Tenth also provides that its indemnification provisions are not
exclusive.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment manager, and
persons affiliated with them are insured against certain expenses in connection
with the defense of actions, suits, or proceedings, and certain liabilities that
might be imposed as a result of such actions, suits, or proceedings. Registrant
will not pay any portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to Registrant or
its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office or (2) protect its investment manager or
principal underwriter, if any, against any liability to Registrant or its
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence, in the performance of its
duties, or by reason of its reckless disregard of its duties and obligations
under its contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by the insurance
company.
In addition, LASC, Registrant's investment manager, maintains
investment advisory professional liability insurance to insure it, for the
benefit of the Trust and its non-interested trustees, against loss arising out
of any error, omission, or breach of any duty owed to the Trust or any Fund by
the investment manager.
C-7
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
Certain information pertaining to business and other connections of the
Registrant's investment manager, LASC, Colonial, the sub-adviser to each of GIF,
IFFG, USSF and SIF, Stein Roe, the sub-adviser to GUF, Newport, the sub-adviser
to NTF, and LAMCO, the sub-adviser to All-Star, and each of J.P. Morgan
Investment Management, Inc., Oppenheimer Capital, Palley-Needelman Asset
Management, Inc., Westwood Management Corp., Wilke-Thompson Capital Management,
Inc. and Boston Partners Asset Management, L.P., each of which firms has or will
serve as a Portfolio Manager to LAMCO, is incorporated herein by reference to
the section of the Prospectus captioned "TRUST MANAGEMENT ORGANIZATIONS" and to
the section of the Statement of Additional Information captioned "INVESTMENT
MANAGEMENT AND OTHER SERVICES."
Set forth below is a list of each director and officer of LASC, and
each director and certain officers of Colonial, Newport, LAMCO, and each of
LAMCO's Portfolio Managers indicating each business, profession, vocation, or
employment of a substantial nature in which each such person has been, at any
time during the past two fiscal years, engaged for his or her own account or in
the capacity of director, officer, partner, or trustee.
LASC
LASC is a direct wholly owned subsidiary of Keyport. Keyport is a
direct wholly owed subsidiary of SteinRoe Services, Inc. ("SSI"). SSI is a
direct wholly owned subsidiary of Liberty Financial. As stated above, Liberty
Financial is an indirect majority owned subsidiary of Liberty Mutual.
<TABLE>
<CAPTION>
===========================================================================================================
<S> <C>
Name and Current Position with Adviser Other Positions During Past Two Fiscal Years
- ---------------------- -------------------- ---------------------------------------------------------------
John W. Rosensteel President and Director and President and Chief Executive Officer of Keyport
Chairman of the and Chairman of the Board of KFSC
Board of Directors
- ---------------------- -------------------- ---------------------------------------------------------------
Paul H. LeFevre, Jr. Senior Vice Senior Vice President-Chief Financial Officer of Keyport
President and
Director
- ---------------------- -------------------- ---------------------------------------------------------------
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
====================== ==================== ===============================================================
<S> <C>
Name and Current Position with Adviser Other Positions During Past Two Fiscal Years
- ---------------------- -------------------- ---------------------------------------------------------------
William L. Dixon Vice President Vice President-Compliance of Keyport and KFSC
- ---------------------- -------------------- ---------------------------------------------------------------
Stewart R. Morrison Vice President Vice President-Investments of Keyport
- ---------------------- -------------------- ---------------------------------------------------------------
Francis E. Reinhart Senior Vice Senior Vice President-Chief Administrative Officer of Keyport
President and Vice President-Administration of KFSC
- ---------------------- -------------------- ---------------------------------------------------------------
James J. Klopper Vice President and Vice President, Counsel and Assistant Secretary of Keyport;
Director Clerk of KFSC
====================== ==================== ===============================================================
</TABLE>
The business address of LASC and each individual listed in the
foregoing table is c/o Keyport Life Insurance Company, 125 High Street, Boston,
Massachusetts 02110.
Colonial
Colonial is a direct wholly owned subsidiary of The Colonial Group,
Inc. ("TCG"). TCG is a direct wholly owned subsidiary of Liberty Financial.
<TABLE>
<CAPTION>
====================================================================================== =============================
<S> <C>
Name and Current Position with Colonial Other Positions During Past
Two Fiscal Years
- -------------------------------------------------------------------------------------- -----------------------------
Harold W. Cogger Chairman of the Board President and Chief
Executive Officer
- -------------------------------------------------------------------------------------- -----------------------------
Nancy L. Conlin Director, Senior Vice President and General Counsel Vice President and Counsel
- -------------------------------------------------------------------------------------- -----------------------------
Stephen E. Gibson Director, President and Chief Executive Officer Managing Director/Marketing
of Putnam Mutual Funds, Inc.
- -------------------------------------------------------------------------------------- -----------------------------
Timothy J. Jacoby Senior Vice President and Treasurer Senior Vice President,
Fidelity Accounting and
Custody Services, Inc.
- -------------------------------------------------------------------------------------- -----------------------------
Davey S. Scoon Director, Executive Vice President Same
====================================================================================== =============================
</TABLE>
C-9
<PAGE>
The business address of Colonial and each individual listed in the
foregoing table is c/o Colonial Management Associates, Inc., One Financial
Place, Boston, Massachusetts 02111.
Newport
Newport is a direct wholly owned subsidiary of Newport Pacific
Management, Inc. ("Newport Pacific"). Newport Pacific is a direct wholly owned
subsidiary of Liberty Newport Holdings, Ltd. ("LNH"). LNH is a direct wholly
owned subsidiary of Liberty Financial.
<TABLE>
<CAPTION>
========================= =========================== ==============================================================
<S> <C> <C>
Positions and Offices Other Positions During Past Two Fiscal Years
Name with Newport
========================= =========================== ==============================================================
John M. Mussey President and Director Similar positions with Newport Pacific
- ------------------------- --------------------------- --------------------------------------------------------------
Kenneth R. Leibler Director President and Chief Executive Officer and Director of
Liberty Financial
- ------------------------- --------------------------- --------------------------------------------------------------
Lindsay Cook Director and Senior Vice Executive Vice President of Liberty Financial since
President February, 1997; Senior Vice President of Liberty Financial
prior thereto
- ------------------------- --------------------------- --------------------------------------------------------------
Thomas R. Tuttle Senior Vice President Similar position with Newport Pacific
- ------------------------- --------------------------- --------------------------------------------------------------
Pamela Frantz Executive Vice President, Similar positions with Newport Pacific
Treasurer and Secretary
- ------------------------- --------------------------- --------------------------------------------------------------
Linda Couch Vice President Similar position with Newport Pacific
========================= =========================== ==============================================================
</TABLE>
The principal business address of Newport and Messrs. Mussey and Tuttle
and Mss. Frantz and Couch is 580 California Street, Suite 1960, San Francisco,
California 94104. The principal address of each other person listed in the
preceding table is 600 Atlantic Avenue, Suite 2400, Boston, Massachusetts 02210.
J.P. Morgan Investment Management, Inc.
J.P. Morgan Investment Management, Inc. is a wholly-owned subsidiary
of J.P. Morgan & Co., Incorporated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ---------------------------------------
<S> <C>
Other Positions During Past
Name and Current Position with Adviser Two Fiscal Years
--------------------------------------
- ------------------------------------- --------------------------------------- ---------------------------------------
Frederick A. Nelson, III Managing Director --
- ------------------------------------- --------------------------------------- ---------------------------------------
Henry D. Cavanna Managing Director --
- ------------------------------------- --------------------------------------- ---------------------------------------
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------------------- ---------------------------------------
<S> <C>
William B. Peterson Managing Director --
- ------------------------------------- --------------------------------------- ---------------------------------------
William M. Riegel Managing Director --
- ------------------------------------- --------------------------------------- ---------------------------------------
Timothy J. Devlin Vice President Vice President, Mitchell
Hutchins Asset Management,
Inc.
- ------------------------------------- --------------------------------------- ---------------------------------------
Patrick Jakobson Vice President --
- ------------------------------------- --------------------------------------- ---------------------------------------
</TABLE>
The principal business address of such firm and each such person is
552 Fifth Avenue, New York, New York 10036.
Oppenheimer Capital
Oppenheimer Capital is a wholly-owned subsidiary of PIMCO Advisers L.P.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C>
Name and Current Position with Adviser Other Positions During Past
-------------------------------------- Two Fiscal Years
- ----------------------------------------- ---------------------------------- ----------------------------------------
George Long Chairman, Chief Executive --
Officer & Chief Investment
Officer
- ----------------------------------------- ---------------------------------- ----------------------------------------
Frank LeCates Managing Director, Director --
of Research
- ----------------------------------------- ---------------------------------- ----------------------------------------
Pierre Daviron President, Oppenheimer --
Capital International
- ----------------------------------------- ---------------------------------- ----------------------------------------
Robert Bluestone Managing Director, Fixed --
Income Management
- ----------------------------------------- ---------------------------------- ----------------------------------------
Joseph M. Rusbarsky Managing Director, Client --
Relations & Marketing
- ----------------------------------------- ---------------------------------- ----------------------------------------
Julius A. Nicolai Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
John G. Lindenthal Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Herbert S. Fitzgibbon Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Kenneth H. Mortenson Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Philip T. Rodilosso Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Eugene Vesell Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Dick Glasebrook Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Eileen P. Rominger Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Linda Ferrante Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Tom Rackley Managing Director --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Johnathan K. Greenburg Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------- ---------------------------------- ----------------------------------------
<S> <C> <C>
Jeffrey Tarnoff Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Colin Glinsman Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
David Santry Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Thomas Scerbo Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Jeff Whittington Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Irv Rotkowitz Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Sandra Birnbaum Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Mary Ann Schreiber Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Paul Doane Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Geoff Mullen Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Brad Goldman Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Michael Borkan Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Malcolm Bishop Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Evan Weston Senior Vice President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
</TABLE>
The business address of such firm and each such person is Oppenheimer
Tower, World Financial Center, New York, New York 10281.
Palley-Needelman Asset Management, Inc.
The firm is owned by Mr. Palley and Mr. Needlemen (see below).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ----------------------------------------
<S> <C>
Other Positions During Past
Name and Current Position with Adviser Two Fiscal Years
- ----------------------------------------- ---------------------------------- ----------------------------------------
Roger B. Palley Director and President --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Chester J. Needleman Director and Chief Executive --
Officer
- ----------------------------------------- ---------------------------------- ----------------------------------------
David M. Graham Senior Vice President and --
Research Director
- ----------------------------------------- ---------------------------------- ----------------------------------------
Gary W. Lisenbee Principal and Senior --
Portfolio Manger
- ----------------------------------------- ---------------------------------- ----------------------------------------
</TABLE>
The business address of such firm and each such person is 800 Newport
Center Drive, Suite 450, Newport Beach, Newport Beach, California 92660.
Boston Partners Asset Management, L.P.
The firm is owned by its 39 partners. Desmond S. Heathwood is the sole
General Partner. Its and his address is One Financial Center, Boston,
Massachusetts 02111.
C-12
<PAGE>
Westwood Management Corp.
The firm is owned by Southwest Securities Group, Inc.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ----------------------------------------
<S> <C>
Other Positions During Past
Name and Current Position with Adviser Two Fiscal Years
- ----------------------------------------- ---------------------------------- ----------------------------------------
Susan M. Byrne Director, President, Chief Director of each of Southwest
Executive Officer and Securities Group, Inc. and
Treasurer Westwood Trust
- ----------------------------------------- ---------------------------------- ----------------------------------------
Jacquiline L. Finney Secretary and Assistant --
Treasurer
- ----------------------------------------- ---------------------------------- ----------------------------------------
</TABLE>
The address of such firm and each such person is 300 Crescent Court,
Suite 1320, Dallas, Texas 75201.
Wilke/Thompson Capital Management, Inc.
The firm is employee owned. Mr. Thompson (see below) owns the
controlling interest.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ----------------------------------------
<S> <C>
Name and Current Position with Adviser Other Positions During Past
Two Fiscal Years
- ----------------------------------------- ---------------------------------- ----------------------------------------
Mark A. Thompson Director, Chairman --
and Principal Investment
Officer
- ----------------------------------------- ---------------------------------- ----------------------------------------
Anthony L. Ventura Director, President and Partner of Wessels, Arnold &
Chief Executive Officer Henderson
- ----------------------------------------- ---------------------------------- ----------------------------------------
Dona L. Feick Portfolio Manager --
- ----------------------------------------- ---------------------------------- ----------------------------------------
Stephen M. Kensinger Portfolio Manager --
- ----------------------------------------- ---------------------------------- ----------------------------------------
</TABLE>
The business address of such firm and each such person is 3800 Norwest
Center, 90 South Seventh M. Street, Minneapolis, Minnesota 55402.
Item 29. Principal Underwriters
(a) KFSC and LFII act as principal underwriters of the Registrant's
shares on a best-efforts basis.
KFSC also acts as principal underwriter for the following investment
companies:
SteinRoe Variable Investment Trust
Special Venture Fund, Variable Series
Growth Stock Fund, Variable Series
Balanced Fund, Variable Series
Mortgage Securities Fund, Variable Series
Money Market Fund, Variable Series
C-13
<PAGE>
LFII also acts as principal underwriter for the following investment
companies:
Colonial Trust I
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Tax-Managed Growth Fund
Colonial Trust II
Colonial Government Money Market Fund
Colonial Intermediate U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Newport Japan Fund
Colonial Newport Tiger Cub Fund
Newport Greater China Fund
Colonial Trust III
Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial Strategic Balance Fund
Colonial International Fund For Growth
Colonial Trust IV
Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial High Yield Municipal Fund
Colonial Utilities Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Municipal Money Market Fund
Colonial Trust V
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Massachusetts Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
C-14
<PAGE>
Colonial Ohio Tax-Exempt Fund
Colonial Trust VI
Colonial U.S. Stock Fund
Colonial Small Cap Value Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Aggressive Growth Fund
Colonial Trust VII
Colonial Newport Tiger Fund
Colonial Intermediate High Income Fund
Colonial InterMarket Income Trust I
Colonial Municipal Income Trust
Colonial High Income Municipal Trust
Colonial Investment Grade Municipal Trust
LFC Utilities Trust
Colonial Global Utilities Fund
Liberty Newport World Portfolio
Global Opportunity Fund
Newport Tiger Fund
Newport Pacific Fund
Stein Roe Latin America Fund
(b) Set forth below is information concerning each director and officer
of KFSC.
<TABLE>
<CAPTION>
- ------------------------------ --------------------------------------------- ------------------------------
<S> <C> <C>
Name and Principal Positions and Offices Positions and Offices with
Business Address* with Underwriter the Registrant
- ------------------------------ --------------------------------------------- ------------------------------
John W. Rosensteel Chairman and President None
- ------------------------------ --------------------------------------------- ------------------------------
William L. Dixon Vice President - Compliance None
- ------------------------------ --------------------------------------------- ------------------------------
Francis E. Reinhart Vice President - Administration None
and Director
- ------------------------------ --------------------------------------------- ------------------------------
James J. Klopper Clerk None
- ------------------------------ --------------------------------------------- ------------------------------
Donald A. Truman Assistant Clerk None
- ------------------------------ --------------------------------------------- ------------------------------
</TABLE>
- ------------------
* The principal business address of KFSC and each person listed in the table is
c/o Keyport Life Insurance Company, 125 High Street, Boston, Massachusetts
02110.
C-15
<PAGE>
Set forth below is information concerning each director and officer of
LFII.
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Positions and Officers with the
Name and Principal Business Address* Positions with Underwriter Registrant
- --------------------------------------- -------------------------------------- --------------------------------------
Stephen E. Gibson Chairman of the Board None
- --------------------------------------- -------------------------------------- --------------------------------------
James Tambone Chief Executive Officer None
- --------------------------------------- -------------------------------------- --------------------------------------
Lou Tasiopoulos President None
- --------------------------------------- -------------------------------------- --------------------------------------
Kevin O'Shea Managing Director None
- --------------------------------------- -------------------------------------- --------------------------------------
C. Frazier Evans Managing Director None
- --------------------------------------- -------------------------------------- --------------------------------------
John Bartlett Managing Director None
- --------------------------------------- -------------------------------------- --------------------------------------
Marilyn Karagiannis Managing Director None
- --------------------------------------- -------------------------------------- --------------------------------------
Elizabeth Clapp Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Bryan Eckelman Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
David Feldman Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Stephen A. Gerolkoulis Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Keith H. VanEtten Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Cynthia Erickson Zarker Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Cynthia Davey Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Thomas Harrington Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Joseph Hodgkins Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
David W. Kelson Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Gregory McCombs Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Ann R. Moberly Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Christopher Reed Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Michael W. Scott Regional Senior Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Judith Anderson Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Debra Babbitt Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Beth Brown Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Stacy Burtman Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Patrick Campbell Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Marian Desilets Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Steve DiMaio Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Christopher Downey Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Cynthia Jones Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Mary McKenzie Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Catherne Menchin Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Patrick Morner Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Kevin Nolin Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Frank Quirk Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Rebecca Scarlott Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Lou Sideropoulos Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Deborah Young Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Rick Ballou Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Gregory Carroll Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Daniel Chrzanowski Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Andrew Crossfield Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
James Devaney Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
John Donovan Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Kim P. Emerson Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Robert Fifield Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Matthew Goldberg Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Brian Guenard Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Terry M. Kelley Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Andrew Nerney Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Tracy Predmore Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
David Schulman Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Darren Smith Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Eric Studer Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
R. Andrew Sutton Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Brian Tuttle Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Paul Villanova Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Valerie Wess Regional Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Linda Brandon Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Diana Castagna Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Donna Donovan Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Thomas Gariepy Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Douglas Geer Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Leslie Moon Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Linda Raftery Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Peter Tufts Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
John Vaccaro Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
John Ziolkowski Assistant Vice President None
- --------------------------------------- -------------------------------------- --------------------------------------
Philip J. Iudice, Jr. Treasurer and Chief Financial Officer None
- --------------------------------------- -------------------------------------- --------------------------------------
Nancy L. Conlin Clerk and Director None
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
C-17
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Kevin S. Jacobs Assistant Clerk None
- --------------------------------------- -------------------------------------- --------------------------------------
John W. Reading Assistant Clerk None
- --------------------------------------- -------------------------------------- --------------------------------------
Davey S. Scoon Director None
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
- -------------
* LFII's address is One Financial Center, Boston, MA 02111.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following entities prepare, maintain, and preserve the records
required by Section 31(a) of the Investment Company Act of 1940 (the "1940 Act")
for the Registrant. These services are provided to the Registrant through
written agreements between the parties to the effect that such services will be
provided to the Registrant for such periods prescribed by the rules and
regulations of the Securities and Exchange Commission under the 1940 Act and
such records are the property of the entity required to maintain and preserve
such records and will be surrendered promptly on request.
At May 1, 1999, Boston Safe Deposit and Trust Company, One Boston
Place, Boston, MA 02108, serves as custodian for the Registrant with respect to
the US Stock, Growth, Strategic Income, and International Fund for Growth Funds;
The Chase Manhattan Bank, 3 Chase Metro Tech Center, 8th Floor, Brooklyn, New
York 11745, serves as custodian for the Fund; and in such respective capacities,
such custodian banks keep records regarding securities and other assets in
custody and in transfer, bank statements, canceled checks, financial books and
records, and other records relating to their duties in their respective
capacities as custodians. The Chase Manhattan Bank, 3 Chase Metro Tech Center,
8th Floor, Brooklyn, New York 11245 will become custodian for all of the Funds
on or about May 15, 1998. The Chase Manhattan Bank will become custodian for all
of the Funds on or about May 15, 1998. Colonial Investors Service Center, Inc.,
One Financial Center, Boston, MA 02111, serves as the transfer agent and
dividend disbursing agent for the Registrant, and in such capacities is
responsible for records regarding each shareholder's account and all
disbursements made to shareholders. In addition, LASC, pursuant to its Fund
Management Agreements with the Registrant with respect to the Trust, has
delegated to (i) Colonial, One Financial Center, Boston, Massachusetts 02111,
and (ii) Liberty Financial Companies, Inc., 600 Atlantic Avenue, Boston,
Massachusetts 02210, the obligation to maintain the records required pursuant to
such agreements. Colonial also maintains all records pursuant to its Pricing and
Bookkeeping Agreement with the Trust. KFSC, 125 High Street, Boston,
Massachusetts 02110, and LFII, One Financial Center, Boston, MA 02111, serve as
principal underwriters for the Trust, and in such capacity each such firm
maintains all records required pursuant to its Underwriting Agreement with the
Registrant.
C-18
<PAGE>
Item 31. Management Services
LASC, pursuant to its Fund Managed Agreements with the Trust, has
delegated its duties thereunder to provide certain administrative services to
the Trust to Colonial and Liberty Financial.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston, and Commonwealth of Massachusetts on the
27th day of April, 1998.
LIBERTY VARIABLE INVESTMENT TRUST
(Registrant)
By: /s/ RICHARD R. CHRISTENSEN*
---------------------------
Richard R. Christensen
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ RICHARD R. CHRISTENSEN* President and Trustee April 27, 1998
- --------------------------- (Principal Executive Officer)
Richard R. Christensen
/s/ TIMOTHY J. JACOBY Treasurer (Principal April 27, 1998
- --------------------- Financial and Accounting Officer)
Timothy J. Jacoby
/s/ JOHN A. BACON JR.* Trustee April 27, 1998
- ----------------------
John A. Bacon Jr.
/s/ SALVATORE MACERA* Trustee April 27, 1998
- ---------------------
Salvatore Macera
/s/ THOMAS E. STITZEL* Trustee April 27, 1998
- ----------------------
Thomas E. Stitzel
By:/s/ KEVIN M. CAROME
-------------------
Attorney-in-Fact
C-20
[Chase logo]
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective August 17, 1997, and is between THE CHASE
MANHATTAN BANK ("Bank") and each of the trusts on behalf of each of the funds
set forth in Schedule A hereto (with each fund a "Customer").
It is hereby agreed as follows:
1. Customer Accounts.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by Bank or its Subcustodian (as defined in
Section 3) for the account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for
any and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft or
check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian
Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
<PAGE>
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule B
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
B. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of customers
of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject to
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
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(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion, may
advance Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by Bank on similar
loans.
(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are actually
received by Bank and reconciled to the Account.
(i) Bank, upon oral or written notice to Customer, may reverse
credits or debits made to the Accounts in its discretion if the related
transaction fails to settle within a reasonable period, determined by
Bank in its discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6
are returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that Bank or Subcustodian is
actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for
definitive Securities.
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(d) Appoint brokers and agents for any transaction for which Bank has
received Instructions involving the Securities, including, without limitation,
Affiliates of Bank or any Subcustodian.
(e) Issue statements to Customer, at times mutually agreed
upon, identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom and based on information which Customer knew or reasonably
should have known as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
Provided that Bank has acted in accordance with the standard of care in
Section 12(a) hereof, all collections of funds or other property paid or
distributed in respect of Securities in the Custody Account shall be made at the
risk of Customer. Provided that Bank has acted in accordance with the standard
of care in Section 12(a) hereof, Bank shall have no liability for any loss
occasioned by delay in the actual receipt of notice by Bank or by its
Subcustodians of any payment, redemption or other transaction regarding
Securities in the Custody Account in respect of which Bank has agreed to take
any action hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), Bank
shall give Customer prompt notice of such Corporate Actions to the extent that
Bank has received actual notice of the Corporate Action from the relevant issuer
or issuer's agent or as to which notice is published in publications routinely
utilized by Bank for this purpose.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split is received which bears an expiration
date, Bank shall endeavor to obtain Instructions from Customer or its Authorized
Person (as defined in Section 10 hereof), but if Instructions are not received
in time for Bank to take timely action, or actual notice of such Corporate
Action was received too late to seek Instructions, Bank is authorized but need
not sell such rights entitlement or fractional interest and to credit the
Deposit Account with the proceeds, if Bank, in good faith, deems such action to
be appropriate in which case it shall be held harmless
for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Securities for the benefit of Customer which Bank believes
may be available to such Customer.
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(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of Securities
(A) a declaration of its identity and place of residence and (B)
certain other documentation (pro forma copies of which are available
from Bank). Customer acknowledges that, if Bank does not receive such
declarations, documentation and information, additional United Kingdom
taxation shall be deducted from all income received in respect of
Securities issued outside the United Kingdom and that U.S. non-resident
alien tax or U.S. backup withholding tax shall be deducted from U.S.
source income. Customer shall provide to Bank such documentation and
information as it may require in connection with taxation, and warrants
that, when given, this information shall be true and correct in every
respect, not misleading in any way, and contain all material
information. Customer undertakes to notify Bank immediately if any such
information requires updating or amendment.
(iii) Provided that Bank has acted in accordance with the
standard of care in Section 12(a) hereof, Bank shall not be liable to
Customer or any third party for any taxes, fines or penalties payable
by Bank or Customer, and shall be indemnified accordingly, whether
these result from the inaccurate completion of documents by Customer or
any third party acting as agent for Customer, or as a result of the
provision to Bank or any third party of inaccurate or misleading
information or the withholding of material information by Customer or
any other third party, or as a result of any delay of any revenue
authority or any other matter beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from
any cash received or credited to the Deposit Account any taxes or
levies required by any revenue or governmental authority for whatever
reason in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect
to taxation levied by the revenue authorities of the countries notified
to Customer from time to time and Bank may, by notifi cation in
writing, at its absolute discretion, supplement or amend the markets in
which the tax reclaim services are offered. Other than as expressly
provided in this sub-clause, Bank shall have no responsibility with
regard to Customer's tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Securities and/or Cash held for
Customer.
(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank (which
may be Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would
have been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Securities
to cease to be registered in the name of any such nominee and to be registered
in the name of Customer. In the event that any Securities registered in a
nominee name are called for partial redemption by the issuer, Bank may allot the
called portion to the respective beneficial holders of such class of security in
any manner Bank deems to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from any liability arising
directly or indirectly from their status as a mere record holder of Securities
in the Custody Account.
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10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make available
to Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties
as are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. Bank shall be
liable to Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of such Assets to the same extent that Bank would be
liable to Customer if Bank were holding such Assets in New York. In the
event of any loss to Customer by reason of the failure of Bank or its
Subcustodian to utilize reasonable care (including, but not limited to,
as respects corporate actions), Bank shall be liable to Customer only
to the extent of Customer's direct damages, to be determined based on
the market value of the property which is the subject of the loss at
the date of discovery of such loss and without reference to any special
conditions or circumstances. Bank shall have no liability whatsoever
for any consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions contemplated hereby and the
relationship established hereby even if Bank has been advised as to the
possibility of the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not
be responsible for any act, omission, default or the solvency of any
broker or agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
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<PAGE>
(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or
omission was in good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the genuineness of any document
which it believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including, but
not limited to, losses resulting from malfunction, interruption of or
error in the transmission of information caused by any machines or
system or interruption of communication facilities, abnormal operating
conditions, nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which
prevent the orderly execution of securities transactions or affect the
value of Assets; except that, with respect to the failure of machines,
systems, interruption of communication facilities or abnormal operating
conditions on Bank or a Subcustodian's premises or otherwise within the
control of Bank or a Subcustodian, Bank shall not be so excused to the
extent that such failure was on account of Bank's or the Subcustodian's
(as the case may be) negligence (such as a failure to have had routine
maintenance performed or to have selected equipment reasonably suitable
for the purposes contemplated hereby given, in the case of
Subcustodians, local market practices with respect to such matters).
Bank confirms that it has in place back-up procedures, periodically
tested by it, that would permit continued operation of its Brooklyn,
New York and Bournemouth, England data centers in the event of a
failure of its systems or equipment.
(viii) Neither party shall be liable to the other for any loss
due to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war (whether declared or undeclared)
or terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party
to which Securities are delivered or payments are made pursuant hereto;
and
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(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons issuing Instructions shall
bear any responsibility to review such confirmations against
Instructions issued to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act in the
same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set forth
in Schedule C hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, such as,
but not limited to, scrip and stamp fees, legal fees registration fees, and
other costs that Bank pays on behalf of Customer. Bank shall have a lien on and
is authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof upon oral or written notice to Customer.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, subject to Instructions (which may
be standing Instructions) Bank is authorized to enter into spot or forward
foreign exchange contracts with Customer and may also provide foreign exchange
through its subsidiaries, Affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank, its
subsidiary, Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law; Successors and Assigns, Captions THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either
party, but shall bind the successors in interest of Customer and Bank. The
captions given to the sections and subsections of this Agreement are for
convenience of reference only and are not to be used to interpret this
Agreement.
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(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
____ Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
X Investment Company assets subject to certain U.S.
Securities and Exchange Commission rules and regulations;
____ Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A-C, and the following Rider(s) [Check applicable rider(s)]:
____ ERISA
X INVESTMENT COMPANY
____ PROXY VOTING
X SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent to the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Global Investor Services, Investment
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Management Group (Colonial Relationship Manager) and to The Chase Manhattan
Bank, 3 Chase MetroTech Center, 8th floor, Brooklyn, N.Y. 11245, Attention:
Colonial Service Manager; and (b) Customer: [Fund name} c/o Colonial Management
Associates, Inc., One Financial Center, Boston, MA 02111. Att; Fund Accounting.
(j) Termination. This Agreement may be terminated by Customer or Bank
by giving ninety (90) days written notice to the other, provided that such
notice to Bank shall specify the names of the persons to whom Bank shall deliver
the Assets in the Accounts. If notice of termination is given by Bank, Customer
shall, within ninety (90) days following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to the persons so
specified, after deducting any amounts which Bank determines in good faith to be
owed to it under Section 13, an explanation for any such deductions shall be
furnished to Customer. If within ninety (90) days following receipt of a notice
of termination by Bank, Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall deliver the Assets, Bank,
at its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions hereof, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to Bank.
(k) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information held by
any person by imputation or information of which Bank is not aware by virtue of
a "Chinese Wall" arrangement. If Bank becomes aware of confidential information
which in good faith it feels inhibits it from effecting a transaction hereunder
Bank may refrain from effecting it.
(l) Year 2000. Bank confirms that it is aware of the problem that may
be presented for certain computer systems by use of date fields and the like on
and after January 1, 2000 and that Bank has developed and is implementing a plan
to help assure that Bank's systems as the same relate to services provided
hereunder will be unaffected by such problems.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first-above written.
CUSTOMER
- --------
Trust Series
- ----- ------
Colonial Trust I Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Tax-Managed Growth Fund
Colonial Trust II Colonial Government Money Market Fund
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Newport Tiger Cub Fund
Colonial Newport Japan Fund
Newport Greater China Fund
Colonial Trust III Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial International Fund for Growth
Colonial Strategic Balanced Fund
Colonial Trust IV Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial High Yield Municipal Fund
Colonial Utilities Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Trust V Colonial Massachusetts Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
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Colonial Trust VI Colonial U.S. Stock Fund
Colonial Small Cap Value Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Trust VII Colonial Newport Tiger Fund
Colonial Intermediate High Income Fund
Colonial InterMarket Income Trust I
Colonial Municipal Income Trust
Colonial High Income Municipal Trust
Colonial Investment Grade Municipal Trust
Keyport Variable
Investment Trust Colonial-Keyport Growth and Income Fund
Colonial-Keyport Utilities Fund
Colonial-Keyport International Fund for Growth
Colonial-Keyport U.S. Stock Fund
Colonial-Keyport Strategic Income Fund
Newport-Keyport Tiger Fund
Liberty All-Star Equity Fund, Variable Series
By:
--------------------------------------
Michael H. Koonce
Date:
--------------------------------------
Liberty All-Star Growth Fund, Inc.
Liberty All-Star Equity Fund
By:
--------------------------------------
Timothy J. Jacoby
Date:
-------------------------------------
THE CHASE MANHATTAN BANK
By:
--------------------------------------
Date:
--------------------------------------
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Schedule A
August 17, 1997
Trust Series
Colonial Trust I Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Tax-Managed Growth Fund
Colonial Trust II Colonial Government Money Market Fund
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Newport Tiger Cub Fund
Colonial Newport Japan Fund
Newport Greater China Fund
Colonial Trust III Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial International Fund for Growth
Colonial Strategic Balanced Fund
Colonial Trust IV Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial High Yield Municipal Fund
Colonial Utilities Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Trust V Colonial Massachusetts Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
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Colonial Trust VI Colonial U.S. Stock Fund
Colonial Small Cap Value Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Trust VII Colonial Newport Tiger Fund
Colonial Intermediate High Income Fund
Colonial InterMarket Income Trust I
Colonial Municipal Income Trust
Colonial High Income Municipal Trust
Colonial Investment Grade Municipal Trust
Liberty All-Star Growth Fund, Inc.
Liberty All-Star Equity Fund
Keyport Variable
Investment Trust Colonial-Keyport Growth and Income Fund
Colonial-Keyport Utilities Fund
Colonial-Keyport International Fund for Growth
Colonial-Keyport U.S. Stock Fund
Colonial-Keyport Strategic Income Fund
Newport-Keyport Tiger Fund
Liberty All-Star Equity Fund, Variable Series
14
<PAGE>
Schedule C
Colonial Funds
Global Custody Fee Schedule
April 17, 1997
Domestic Custody Services
Asset Based Fees Waived
Domestic Custody Transaction Fees
$ 5.00 per DTC or Fed Book Entry transaction
$ 7.00 per PTC transaction
$12.00 per Physical transaction
$25.00 per Future or Option Wire
$ 5.00 per Money Transfer
$ 4.00 per P&I - MBS
$ 7.00 per deliver and receive of block traded Repurchase Agreement
Note:
[bullet] Private placements that settle in physical form are priced
separately from those issues that settle in DTC or Cedel. The latter,
which are 144A eligible issues, are priced as any other DTC or Cedel
eligible issue.
[bullet] With respect to our global custody fees, you could also incur
out-or-pocket expenses which are charged at cost. these expenses can
include but are not limited to scrip and stamp fees, registration fees,
and legal fees. Photocopying an courier charges will not be charged to
Colonial.
[bullet] All out-of-pocket expenses are itemized and billed on a monthly basis,
as and when received.
[bullet] Within our global fee schedule, basis point charges are annualized and
based on month end market values
15
<PAGE>
STATE OF MASSACUSETTS)
: ss.
COUNTY OF UNITED STATES OF AMERICA)
On this 3rd day of October, 1997, before me personally came Michael H.
Koonce, to me known, who being by me duly sworn, did depose and say that he
resides in Hingham, Massachusetts at 36 Brewster Road, that he is Secretary of
Colonial Trust I through VII and Vice President of Keyport Variable Investment
Trust, two of the entities described in and which executed the foregoing
instrument; that he knows the seal of said entities, that the seal affixed to
said instrument is such seal, that it was so affixed by order of said entity,
and that he signed his name thereto by like order.
Sworn to before me this 3rd
day of October, 1997.
Notary
<PAGE>
STATE OF MASSACUSETTS)
: ss.
COUNTY OF UNITED STATES OF AMERICA)
On this 3rd day of October, 1997, before me personally came Timothy J.
Jacoby, to me known, who being by me duly sworn, did depose and say that he
resides in Concord, Massachusetts at 67 Authors Road, that he is Treasurer of
Liberty All-Star Growth Fund, Inc. and Liberty All-Star Equity Fund, two of the
entities described in and which executed the foregoing instrument; that he knows
the seal of said entities, that the seal affixed to said instrument is such
seal, that it was so affixed by order of said entity, and that he signed his
name thereto by like order.
Sworn to before me this 3rd
day of October, 1997.
Notary
2
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of , 199 , before me personally came ,
to me known, who being by me duly sworn, did depose and say that he/she resides
in at ; that he/she is a Vice President of THE CHASE MANHATTAN BANK,
the corporation described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the Board
of Directors of said corporation, and that he/she signed his/her name thereto by
like order.
Sworn to before me this
day of , 199 .
Notary
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Each of the Trusts on behalf of each of the Funds set
forth in Schedule A to the Global Custody Agreement
effective August 17, 1997
The following modifications are made to the Agreement:
A. Add a new Section 15 to the Agreement as follows:
"15. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
'Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's 'Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2)), both for the purpose of selecting Eligible Foreign Custodians
(as that term is defined in SEC rule 17f-5(a)(1), and as the same may be amended
from time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order) to hold Assets and of evaluating the contractual arrangements
with such Eligible Foreign Custodians (as set forth in SEC rule 17f-5(c)(2));
provided that, the term Eligible Foreign Custodian shall not include any
'Compulsory Depository.' A Compulsory Depository shall mean a securities
depository or clearing agency the use of which is compulsory because: (1) its
use is required by law or regulation, (2) securities cannot be withdrawn from
the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Chase as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement
of Assets with particular Eligible Foreign Custodians and of any
material change in the arrangements with such Eligible Foreign
Custodians, with such reports to be provided to Customer's Board at
such times as the Board deems reasonable and appropriate based on the
circumstances of Customer's foreign custody arrangements (and until
further notice from Customer such reports shall be provided not less
than quarterly with respect to the placement of Assets with particular
Eligible Foreign Custodians and with reasonable promptness upon the
occurrence of any material change in the arrangements with such
Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets,
including, without limitation, those factors set forth in SEC rule 17f-
5(c)(1)(i)-(iv);
<PAGE>
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodians that is a
securities depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Assets based on the
standards applicable to custodians in the relevant market. In making
this determination, Bank shall consider the provisions of Rule
17f-5(c)(2), together with whether Bank shall be liable to Customer for
any loss which shall occur as the result of the failure of the Eligible
Foreign Custodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that Bank would be liable
to Customer if Bank were holding such Assets in New York; and
(v) have established a system to monitor the continued appropriateness
of maintaining Assets with particular Eligible Foreign Custodians and
of the governing contractual arrangements; it being understood,
however, that in the event that Bank shall have determined that the
existing Eligible Foreign Custodian in a given country would no longer
afford Assets reasonable care and that no other Eligible Foreign
Custodian in that country would afford reasonable care, Bank shall
promptly so advise Customer and shall then act in accordance with the
Instructions of Customer with respect to the disposition of the
affected Assets.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed
and maintained in Bank's custody are subject to the Investment Company Act of
1940, as amended (the '1940 Act'), as the same may be amended from time to time;
(2) its Board: (i) has determined that it is reasonable to rely on Bank to
perform as Customer's Foreign Custody Manager (ii) or its investment advisor
shall have determined that Customer may maintain Assets in each country in which
Customer's Assets shall be held hereunder and determined to accept the risks
arising therefrom (including, but not limited to, a country's financial
infrastructure (and including any Compulsory Depository operating in such
country), prevailing custody and settlement practices, laws applicable to the
safekeeping and recovery of Assets held in custody, and the likelihood of
nationalization, currency controls and the like)."
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
B an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with respect to
the selection thereof. Bank shall notify Customer in the event that it elects
not to add any such entity."
C. Add the following language to the end of Section 3 of
the Agreement:
"The term Subcustodian as used herein shall mean the following:
(a) a 'U.S. Bank,' which shall mean a U.S. bank as defined
in SEC rule 17f-5(a)(7);
(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other than the United States, that is regulated as such by
that country's government or an agency thereof, (ii) a majority-owned
direct or indirect subsidiary of a U.S. bank or bank holding company
which subsidiary is incorporated or organized under the laws of a
country other than the United States; (iii) a securities depository or
clearing agency,
2
<PAGE>
incorporated or organized under the laws of a country other than the
United States, that acts as a system for the central handling of
securities or equivalent book-entries in that country and that is
regulated by a foreign financial regulatory authority as defined under
section 2(a)(5) of the 1940 Act, (iv) a securities depository or
clearing agency organized under the laws of a country other than the
United States to the extent acting as a transnational system for the
central handling of securities or equivalent book-entries, and (v) any
other entity that shall have been so qualified by exemptive order, rule
or other appropriate action of the SEC.
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall include neither any Eligible Foreign Custodian as to which
Bank has not acted as Foreign Custody Manager nor any Compulsory Depository."
D. Insert the following language at the beginning of the second
sentence of Section 12(a)(i):
"Except with respect to those countries as to which the parties may
from time to time agree in writing otherwise,".
E. In recognition of the fact that compliance with amended Rule 17f-5
is in an early stage of development and of the importance to Bank of the
relationship between Bank and Customer, Bank hereby agrees that, if prior to
June 15, 1998, Bank makes any material change to this rider for its mutual fund
customers, Customer shall be given the option of continuing to operate under
this rider or pursuant to the changed rider. Customer shall promptly notify Bank
of whether or not it elects to operate pursuant to the changed rider, and if it
does so elect, such election shall be effective on and after the date that Bank
receives such notice.
3
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Argentina Caja de Valores Equity, Corporate & Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Australia Austraclear Ltd. Corporate Debt, Money Market &
Semi-Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register System)
- ----------------------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer System)
- ----------------------------------------------------------------------------------------------------------------------------------
Austria Oesterreichische Knotrolbank AG Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Belgium CIK Equity + Corporate Debt
(Caisse Interprofessionnelle de
Depots et de Virements de Titres)
- ----------------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Belgique Treasury Bills + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ----------------------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ----------------------------------------------------------------------------------------------------------------------------------
Canada CDS Equity, Corporate + Government Debt
(Canadian Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------------------
China, SSCCRC Equity
Shanghai (Shanghai Securities Central Clearing and
Registration Corp.)
- ----------------------------------------------------------------------------------------------------------------------------------
China, SSCC Equity
Shenzhen (Shenzhen Securities Registration Co., Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Czech SCP Equity + Long-Term Government Debt
Republic (Securities Center)
- ----------------------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Dlluhopisu or Short-Term
Bond Market)
- ----------------------------------------------------------------------------------------------------------------------------------
Denmark VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------------------
Egypt Misr Clearing & Sec. Dep. Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Estonia EVK Equity
(Estonian Central Depository for Securities Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Euromarket Cedel & Euroclear Euro-Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Finland CSR Equity + Government Debt
(Central Share Registry Finland)
- ----------------------------------------------------------------------------------------------------------------------------------
Helsinki Money Market Center Ltd. Money Market
- ----------------------------------------------------------------------------------------------------------------------------------
France SICOVAM Equity + Corporate Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
France SATURNE Government Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------------------
Germany DKV Equity, Corporate + Government Debt
(Deutscher Kassenverein)
- ----------------------------------------------------------------------------------------------------------------------------------
Greece Apothetirio Titlon A.E. Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of Greece Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Hong Kong CCASS Equity
(Central Clearing and Settlement System)
- ----------------------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Moneymarkets Unit)
- ----------------------------------------------------------------------------------------------------------------------------------
Hungary Keler Ltd. Equity + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Ireland CREST Equity
- ----------------------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
- ----------------------------------------------------------------------------------------------------------------------------------
Israel TASE Clearing House Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing House)
- ----------------------------------------------------------------------------------------------------------------------------------
Italy Monte Titoli Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of Italy Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Japan Bank of Japan Registered Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Latvia LCD Equity + Government Debt
(Latvian Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
Lebanon Midclear Equity
(Custodian and Clearing Center of Lebanon and the
Middle East)
- ----------------------------------------------------------------------------------------------------------------------------------
Luxembourg Cedel Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Malaysia MCD Equity
(Malaysian Central Depository Snd Bhd)
- ----------------------------------------------------------------------------------------------------------------------------------
Mauritius CDS Equity
(Central Depository System)
- ----------------------------------------------------------------------------------------------------------------------------------
Mexico Indeval Equity, Corporate + Government Debt
(Institucion para el Deposito de Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
Morocco Maroclear Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Bank Al'Maghrib Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Netherlands NECIGEF/KAS Associate NV Equity, Corp. + Govt. D
- ----------------------------------------------------------------------------------------------------------------------------------
De Nederlandsche Bank N.V. Money Market
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Netherlands NIEC Premium Bonds
(Nederlands Interpforessioneel
Effectencentrum B.V.)
- ----------------------------------------------------------------------------------------------------------------------------------
2
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
New Zealand Austraclear New Zealand Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Norway VPS Equity, Corporate + Government Debt
(Verdipapirsentralen)
- ----------------------------------------------------------------------------------------------------------------------------------
Oman NONE
- ----------------------------------------------------------------------------------------------------------------------------------
Pakistan CDC Equity
(Central Depository Company of Pakistan Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Peru CAVALI Equity
(Caja de Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
Philippines PCD Equity
(Philippine Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
Poland NDS Equity, Long-Term Government Debt +
Vouchers
(National Securities Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
CRT Treasury-Bills
(Central Registry of Treasury-Bills)
- ----------------------------------------------------------------------------------------------------------------------------------
Portugal Interbolsa Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Romania SNCDD - RASDAQ Equity
(National Company for Clearing, Settlement
and Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------------------
Budapest Stock Exchange Registry Equity
- ----------------------------------------------------------------------------------------------------------------------------------
National Bank of Romania Treasury-Bills
- ----------------------------------------------------------------------------------------------------------------------------------
Russia MICEX GKO's
(Moscow Interbank Currency Exchange) (Gosudarstvennye Kratkosrochnye
Obyazatelstva
[T-Bills])
OFZ's
(Obligatsyi Federalnogo Zaima [Federal
Loan Bonds])s
- ----------------------------------------------------------------------------------------------------------------------------------
Singapore CDP Equity + Corporate Debt and Malaysian
equities (Central Depository Pte. Ltd.) traded on CLOB
- ----------------------------------------------------------------------------------------------------------------------------------
Monetary Authority of Government Debt
Singapore
- ----------------------------------------------------------------------------------------------------------------------------------
Slovak SCP Equity + Government Debt
Republic (Stredisko Cennych Papiru)
- ----------------------------------------------------------------------------------------------------------------------------------
National Bank of Slovakia Treasury-Bills
- ----------------------------------------------------------------------------------------------------------------------------------
So. Africa CD Corporate + Government Debt
(Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
So. Korea KSD Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Spain SCLV Equity + Corporate Debt.
(Servicio de Compensacion y Liquidacion de Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
CBEO Government Debt
(Central Book Entry Office)
- ----------------------------------------------------------------------------------------------------------------------------------
Sri Lanka CDS Equity
(Central Depository System (Private) Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
3
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
Sweden VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- ----------------------------------------------------------------------------------------------------------------------------------
Switzerland SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan TSCD Equity + Government Debt
(Taiwan Securities Central Depository Co., Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Thailand TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Tunisia STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle pour la
Compensation et le Depot des Valeurs Mobilieres)
- ----------------------------------------------------------------------------------------------------------------------------------
Ministry of Finance Government Debt tradable on the stock
exchange (BTNBs)
- ----------------------------------------------------------------------------------------------------------------------------------
Central Bank of Tunisia Government Debt not tradable on the
stock exchange
(BTCs)
- ----------------------------------------------------------------------------------------------------------------------------------
Turkey Takas Bank Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Central Bank of Turkey Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
United CREST Equity + Corp. Debt
Kingdom
- ----------------------------------------------------------------------------------------------------------------------------------
CMO Sterling CDs & CP
(Central Moneymarket Office)
- ----------------------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- ----------------------------------------------------------------------------------------------------------------------------------
United States DTC Equity + Corporate Debt
(Depository Trust Company)
- ----------------------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- ----------------------------------------------------------------------------------------------------------------------------------
Fed Book-Entry Government Debt.
- ----------------------------------------------------------------------------------------------------------------------------------
Zambia LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
And
EACH OF THE TRUSTS ON BEHALF OF EACH OF THE FUNDS SET
FORTH IN SCHEDULE A TO THE GLOBAL CUSTODY AGREEMENT
dated August 17, 1997
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received by
Bank or provided to Bank by its Subcustodians or third parties, and (b)
voting by Bank of proxies based on Customer directions. Original proxy
materials or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be summarized and
translated from such non-English materials as have been made available
to Bank or its Subcustodian. In this respect Bank's only obligation is
to provide information from sources it believes to be reliable and/or
to provide materials summarized and/or translated in good faith. Bank
reserves the right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by Customer, backup
information relative to Notifications, such as annual reports,
explanatory material concerning resolutions, management recommendations
or other material relevant to the exercise of proxy voting rights shall
be provided as available, but without translation.
3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be liable for
any losses or other consequences that may result from reliance by
Customer upon Notifications where Bank prepared the same in good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with
regard to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations
or practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
<PAGE>
6. Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions
received from all customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall
in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and shall not
directly or indirectly compete with Bank or diminish the market for
Proxy Services by provision of such information, in whole or in part,
for compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished
to Bank in accordance with ss.10 of the Agreement. Proxy Services fees
shall be as set forth in ss.13 of the Agreement or as separately
agreed.
2
<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH EACH OF THE TRUSTS ON BEHALF OF
EACH OF THE FUNDS SET FORTH IN SCHEDULE A
TO THE GLOBAL CUSTODY AGREEMENT
DATED AUGUST 17, 1997
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent provisions
of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by Bank for this purpose.
<PAGE>
Schedule B
August, 1997
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
- ------- ------------- ------------------
<S> <C> <C>
ARGENTINA The Chase Manhattan Bank The Chase Manhattan Bank
Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais Bank
Julius Tandler Platz - 3 Vienna
A - 1011, Vienna
AUSTRIA
BAHRAIN The British Bank of the Middle East National Bank of Bahrain
PO Box 57 Manama
Manama
BAHRAIN
BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
<PAGE>
BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BERMUDA The Bank of Bermuda Ltd The Bank of Bermuda Ltd
6 Front Street Hamilton
Hamilton
BERMUDA
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, The Chase Manhattan Bank,
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
<PAGE>
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CYPRUS Barclays Bank plc Barclays Bank plc,
Cyprus Offshore Banking Unit Nicosia
2nd & 3rd Floor
88 Dighenis Akritas Avenue
PO Box 7320
1644 Nicosia
CYPRUS
CZECH REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK
ECUADOR Citibank, N.A. Citibank N.A.,
Juan Leon Mera Quito
130 y Patria
Quito
ECUADOR
EGYPT National Bank of Egypt National Bank of Egypt
1187, Corniche El-Nile Plaza Cairo
Cairo
EGYPT
ESTONIA HansaBank Tallinna Bank
Not 17f-5 eligible Liivalaia 8 Tallinn
EE0100 Tallinn
ESTONIA
<PAGE>
EUROBONDS Cedel Bank S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking
LUXEMBOURG Division London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank Ltd Merita Bank Ltd
2598 Custody Services Helsinki
Fabianinkatu 29B
Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Manhattan Bank A.G. Chase Bank A.G.
60284 Frankfurt am Main Frankfurt
GERMANY
GHANA Barclays Bank of Ghana Ltd Barclays Bank
Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank,
GREECE London A/c No. 040/7/921578-68
<PAGE>
HONG KONG The Chase Manhattan Bank, The Chase Manhattan Bank,
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Szabadsag ter 7-9 Budapest
Budapest V
H-1051
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
<PAGE>
ITALY Banque Paribas, The Chase Manhattan Bank,
2 Piazza San Fedele Milan
20121 Milan
ITALY
JAPAN The Fuji Bank Ltd The Chase Manhattan Bank
6-7 Nihonbashi-Kabutocho Tokyo
Chuo-Ku
Tokyo
JAPAN
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya
LATVIA Hansabank - Latvija Hansabank - Latvija
Not 17f-5 Kalku iela 26 Latvia
Riga, LV 1050
Latvia
LEBANON The British Bank of the Middle East The Chase Manhattan Bank
Ras-Beirut Branch New York
PO Box 11-1380
Abdel Aziz,
Ras-Beirut
Lebanon
LUXEMBOURG Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg
<PAGE>
MALAYSIA The Chase Manhattan Bank, The Chase Manhattan Bank,
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking Corporation Ltd Hongkong and
Curepipe Road Shanghai Banking
Curepipe Corporation Ltd.
MAURITIUS Curepipe
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
Prolongacion Paseo de la Reforma no. 600,
PB Colonia Santa Fe Pena Blanca
01210 Mexico D.F.
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
NAMIBIA Standard Bank Namibia Ltd Standard Corporate &
Mutual Platz - 3rd Floor Merchant Bank
P.O.Box 3327 South Africa
Windhoek
NAMIBIA
NETHERLANDS ABN AMRO N.V. Generale Bank
Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
<PAGE>
NORWAY Den Norske Bank Den Norske Bank
Stranden 21 Oslo
PO Box 1171 Sentrum
N-0107 Oslo
NORWAY
OMAN The British Bank of the Middle East Oman Arab Bank
Bait Al Falaj Ruwi, Muscat
Main Office
Ruwi, Muscat
SULTANATE OF OMAN
PAKISTAN Citibank N.A. Citibank N.A.
AWT Plaza Karachi
11 Chundrigar Road
Karachi 74200
PAKISTAN
Deutsche Bank A.G. Deutsche Bank A.G.
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
33/F Tektite Tower B Manila
Exchange Road
Ortigas Center
Pasig City
PHILIPPINES
POLAND Bank Handlowy W. Warszawie. S.A. Bank Handlowy W. Warszawie S.A..
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
<PAGE>
PORTUGAL Banco Espirito Santo e Comercial de Lisboa Banco Nacional Ultra
Servico de Gestaode Titulos Marino
R. Mouzinho da Silveira, 36 r/c Lisbon
1200 Lisbon
PORTUGAL
ROMANIA ING Bank ING Bank
World Trade Centre Bucharest
Bld. Expozitiei Nr. 2
78334 Bucharest
Romania
RUSSIA Chase Manhattan Bank International ("CMBI") The Chase Manhattan Bank
1st Tverskaya - Yamskaya, 23 New York
125047 Moscow A/C The Chase Manhattan
Russia London
(US$ Nostro Account)
SHANGHAI (CHINA) The Hongkong and Shanghai Citibank
Banking Corporation Limited New York
5/F. Marine Tower
1 Pudong Avenue
Shanghai 200120
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank
Banking Corporation Limited Hong Kong
1st Floor
Century Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, The Chase Manhattan Bank,
Custody Services Dept Singapore
150 Beach Road
34th Floor, Gateway West
SINGAPORE 189720
SLOVAK REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
<PAGE>
SOUTH AFRICA The Standard Bank of South Africa Limited The Standard Bank of
Standard Corporate and Merchant Bank Division South Africa Ltd
46 Marshall Street Standard Corporate and
Johannesburg 2001 Merchant Bank
SOUTH AFRICA South Africa
SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank Chase Manhattan Bank,
Paseo de la Castellana, 51 Madrid
28046 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWAZILAND Stanbic Bank Swaziland Ltd Standard Corporate and
Stanbic House Merchant Bank
P.O. Box A294, Swazi Plaza South Africa
Mbabane
Swaziland
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Sergels Torg 2 Stockholm
S-106 40
Stockholm
SWEDEN
SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
<PAGE>
TAIWAN The Chase Manhattan Bank, No correspondent Bank
14th Floor,
2, Tun Hwa S. Road Sec. 1
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, The Chase Manhattan Bank,
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
Not 17f-5 70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
TUNISIA
TURKEY The Chase Manhattan Bank, The Chase Manhattan Bank,
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
TURKEY
U.K. The Chase Manhattan Bank, The Chase Manhattan Bank,
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, The Chase Manhattan Bank,
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
<PAGE>
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
2nd Floor Harare
3 Anchor House
Jason Mayo Avenue
Harare
ZIMBABWE
</TABLE>
<PAGE>
COLONIAL FUNDS
GLOBAL CUSTODY FEE SCHEDULE
APRIL 17, 1997
- ------------------------------------------------------------------------------
COUNTRY BASIS POINTS TRANSACTION FEES
- ------------------------------------------------------------------------------
ARGENTINA 35 1st 100mm $100.00
- ------------------------------------------------------------------------------
30 next 200mm
- ------------------------------------------------------------------------------
25 over 300mm
- ------------------------------------------------------------------------------
AUSTRALIA 5 $30.00
- ------------------------------------------------------------------------------
AUSTRIA 10 $50.00
- ------------------------------------------------------------------------------
BANGLADESH 35 $100.00
- ------------------------------------------------------------------------------
BELGIUM 10 $50.00
- ------------------------------------------------------------------------------
BOTSWANA 35 $100.00
- ------------------------------------------------------------------------------
BRAZIL 35 1st 100mm $100.00
- ------------------------------------------------------------------------------
30 next 200mm
- ------------------------------------------------------------------------------
25 over 300mm
- ------------------------------------------------------------------------------
CANADA 6 $35.00
- ------------------------------------------------------------------------------
CEDEL 3 $25.00
- ------------------------------------------------------------------------------
CHILE 35 $100.00
- ------------------------------------------------------------------------------
CHINA(SHANGHAI) 35 $100.00
- ------------------------------------------------------------------------------
CHINA(SHENZHEN) 35 $100.00
- ------------------------------------------------------------------------------
COLOMBIA 35 $100.00
- ------------------------------------------------------------------------------
CYPRUS 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
CZECH REPUBLIC 35 $100.00
- ------------------------------------------------------------------------------
DENMARK 7 $50.00
- ------------------------------------------------------------------------------
ECUADOR 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
EGYPT 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
FINLAND 10 $50.00
- ------------------------------------------------------------------------------
EURO CD'S 3 $25.00
- ------------------------------------------------------------------------------
FRANCE 6 $30.00
- ------------------------------------------------------------------------------
GHANA 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
GERMANY 6 $30.00
- ------------------------------------------------------------------------------
GREECE 35 $100.00
- ------------------------------------------------------------------------------
HONG KONG 6 $50.00
- ------------------------------------------------------------------------------
Page 1
<PAGE>
COLONIAL FUNDS
GLOBAL CUSTODY FEE SCHEDULE
APRIL 17, 1997
- ------------------------------------------------------------------------------
HUNGARY 35 $100.00
- ------------------------------------------------------------------------------
INDIA 35 $100.00
- ------------------------------------------------------------------------------
INDONESIA 25 1st 200mm $100.00
- ------------------------------------------------------------------------------
20 over 200mm
- ------------------------------------------------------------------------------
IRELAND 8 $35.00
- ------------------------------------------------------------------------------
ISRAEL 35 $100.00
- ------------------------------------------------------------------------------
ITALY 10 $50.00
- ------------------------------------------------------------------------------
JAMACIA/T&T 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
JAPAN 4 $35.00
- ------------------------------------------------------------------------------
JORDAN 35 $100.00
- ------------------------------------------------------------------------------
KENYA 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
KOREA 11 $75.00
- ------------------------------------------------------------------------------
LUXEMBOURG 8 $35.00
- ------------------------------------------------------------------------------
MALAYSIA 6 $50.00
- ------------------------------------------------------------------------------
MAURITIUS 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
MEXICO 12 $75.00
- ------------------------------------------------------------------------------
MOROCCO 35 $100.00
- ------------------------------------------------------------------------------
NEPAL 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
NETHERLANDS 6 $30.00
- ------------------------------------------------------------------------------
NEW ZEALAND 10 $50.00
- ------------------------------------------------------------------------------
NORWAY 10 $50.00
- ------------------------------------------------------------------------------
PAKISTAN 35 $100.00
- ------------------------------------------------------------------------------
PERU 35 $100.00
- ------------------------------------------------------------------------------
PHILIPPINES 25 1st 200mm $100.00
- ------------------------------------------------------------------------------
20 over 200mm
- ------------------------------------------------------------------------------
POLAND 35 $100.00
- ------------------------------------------------------------------------------
PORTUGAL 35 $100.00
- ------------------------------------------------------------------------------
SINGAPORE 5 $50.00
- ------------------------------------------------------------------------------
SLOVAKIA 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
SLOVENIA 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
Page 2
<PAGE>
COLONIAL FUNDS
GLOBAL CUSTODY FEE SCHEDULE
APRIL 17, 1997
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
SOUTH AFRICA 13 $75.00
- ------------------------------------------------------------------------------
SPAIN 11 $75.00
- ------------------------------------------------------------------------------
SRI LANKA 35 $100.00
- ------------------------------------------------------------------------------
SWEDEN 10 $50.00
- ------------------------------------------------------------------------------
SWITZERLAND 6 $30.00
- ------------------------------------------------------------------------------
TAIWAN 35 $100.00
- ------------------------------------------------------------------------------
THAILAND 8 $75.00
- ------------------------------------------------------------------------------
TUNISIA 35 $100.00
- ------------------------------------------------------------------------------
TURKEY 35 $100.00
- ------------------------------------------------------------------------------
UK 6 $35.00
- ------------------------------------------------------------------------------
URUGUAY 35 $100.00
- ------------------------------------------------------------------------------
VENEZUELA 35 $100.00
- ------------------------------------------------------------------------------
VIETNAM 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
ZAMBIA 50 1st 100mm $150.00
- ------------------------------------------------------------------------------
45 next 200mm
- ------------------------------------------------------------------------------
40 over 300mm
- ------------------------------------------------------------------------------
ZIMBABWE 35 $100.00
- ------------------------------------------------------------------------------
Note: In countries where tiered pricing applies, the calculation is based on
daily net assets in aggregate of the Colonial/Newport and Stein Roe Funds.
Page 3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 12
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 13, 1998, relating to the financial statements and
financial highlights appearing in the December 31, 1997 Annual Report of Liberty
Variable Investment Trust, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the headings
"Independent Accountants and Financial Statements" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 27, 1998
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<NAME> COLONIAL GROWTH AND INCOME FUND, VARIABLE SERIES
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 16
<TOTAL-ASSETS> 110313
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<OTHER-ITEMS-LIABILITIES> 1044
<TOTAL-LIABILITIES> 3403
<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 6679
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<ACCUMULATED-NET-GAINS> 40
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26830
<NET-ASSETS> 106909
<DIVIDEND-INCOME> 1485
<INTEREST-INCOME> 903
<OTHER-INCOME> 0
<EXPENSES-NET> 735
<NET-INVESTMENT-INCOME> 1653
<REALIZED-GAINS-CURRENT> 14224
<APPREC-INCREASE-CURRENT> 7164
<NET-CHANGE-FROM-OPS> 23041
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1645)
<DISTRIBUTIONS-OF-GAINS> (14189)
<DISTRIBUTIONS-OTHER> (31)
<NUMBER-OF-SHARES-SOLD> 1875
<NUMBER-OF-SHARES-REDEEMED> (2625)
<SHARES-REINVESTED> 1040
<NET-CHANGE-IN-ASSETS> 13662
<ACCUMULATED-NII-PRIOR> 12
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 735
<AVERAGE-NET-ASSETS> 93153
<PER-SHARE-NAV-BEGIN> 13.960
<PER-SHARE-NII> 0.280
<PER-SHARE-GAIN-APPREC> 3.750
<PER-SHARE-DIVIDEND> (0.270)
<PER-SHARE-DISTRIBUTIONS> (2.370)
<RETURNS-OF-CAPITAL> (0.010)
<PER-SHARE-NAV-END> 15.340
<EXPENSE-RATIO> 0.79
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<AVG-DEBT-PER-SHARE> 0
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<SERIES>
<NUMBER> 2
<NAME> STEIN ROE GLOBAL UTILITIES FUND, VARIABLE SERIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 48918
<INVESTMENTS-AT-VALUE> 55546
<RECEIVABLES> 3311
<ASSETS-OTHER> 2457
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 61322
<PAYABLE-FOR-SECURITIES> 6576
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143
<TOTAL-LIABILITIES> 6719
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47498
<SHARES-COMMON-STOCK> 4580
<SHARES-COMMON-PRIOR> 4476
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 47
<ACCUMULATED-NET-GAINS> 524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6628
<NET-ASSETS> 54603
<DIVIDEND-INCOME> 2117
<INTEREST-INCOME> 171
<OTHER-INCOME> 0
<EXPENSES-NET> (394)
<NET-INVESTMENT-INCOME> 1894
<REALIZED-GAINS-CURRENT> 10661
<APPREC-INCREASE-CURRENT> (100)
<NET-CHANGE-FROM-OPS> 12455
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1833)
<DISTRIBUTIONS-OF-GAINS> (5470)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 529
<NUMBER-OF-SHARES-REDEEMED> (1042)
<SHARES-REINVESTED> 617
<NET-CHANGE-IN-ASSETS> 6696
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (16)
<OVERDIST-NET-GAINS-PRIOR> (4709)
<GROSS-ADVISORY-FEES> 310
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 394
<AVERAGE-NET-ASSETS> 47785
<PER-SHARE-NAV-BEGIN> 10.700
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 2.620
<PER-SHARE-DIVIDEND> (0.480)
<PER-SHARE-DISTRIBUTIONS> (1.380)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.920
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<SERIES>
<NUMBER> 4
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, VARIABLE SERIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 970
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<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 30654
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 54
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32932
<SHARES-COMMON-STOCK> 17226
<SHARES-COMMON-PRIOR> 13597
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (172)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (345)
<ACCUM-APPREC-OR-DEPREC> (1816)
<NET-ASSETS> 30600
<DIVIDEND-INCOME> 505
<INTEREST-INCOME> 146
<OTHER-INCOME> 0
<EXPENSES-NET> (406)
<NET-INVESTMENT-INCOME> 248
<REALIZED-GAINS-CURRENT> 1180
<APPREC-INCREASE-CURRENT> (2416)
<NET-CHANGE-FROM-OPS> (988)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (248)
<DISTRIBUTIONS-OF-GAINS> (1216)
<DISTRIBUTIONS-OTHER> (353)
<NUMBER-OF-SHARES-SOLD> 10248
<NUMBER-OF-SHARES-REDEEMED> (7607)
<SHARES-REINVESTED> 987
<NET-CHANGE-IN-ASSETS> 4007
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 43
<OVERDISTRIB-NII-PRIOR> (3)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 271
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 403
<AVERAGE-NET-ASSETS> 30062
<PER-SHARE-NAV-BEGIN> 1.960
<PER-SHARE-NII> 0.020
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> (0.020)
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<EXPENSE-RATIO> 1.34
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<AVG-DEBT-PER-SHARE> 0
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<PERIOD-END> DEC-31-1997
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<OTHER-ITEMS-LIABILITIES> 583
<TOTAL-LIABILITIES> 950
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<PAID-IN-CAPITAL-COMMON> 71561
<SHARES-COMMON-STOCK> 6565
<SHARES-COMMON-PRIOR> 4838
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23)
<ACCUMULATED-NET-GAINS> (78)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1715
<NET-ASSETS> 73175
<DIVIDEND-INCOME> 118
<INTEREST-INCOME> 5209
<OTHER-INCOME> 0
<EXPENSES-NET> 492
<NET-INVESTMENT-INCOME> 4835
<REALIZED-GAINS-CURRENT> (557)
<APPREC-INCREASE-CURRENT> 1205
<NET-CHANGE-FROM-OPS> 5483
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5131)
<DISTRIBUTIONS-OF-GAINS> (336)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2535
<NUMBER-OF-SHARES-REDEEMED> (1299)
<SHARES-REINVESTED> 491
<NET-CHANGE-IN-ASSETS> 19766
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (6)
<OVERDIST-NET-GAINS-PRIOR> (11)
<GROSS-ADVISORY-FEES> 400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507
<AVERAGE-NET-ASSETS> 61531
<PER-SHARE-NAV-BEGIN> 11.040
<PER-SHARE-NII> 0.900
<PER-SHARE-GAIN-APPREC> 0.110
<PER-SHARE-DIVIDEND> (0.840)
<PER-SHARE-DISTRIBUTIONS> (0.060)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.150
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<NAME> COLONIAL US STOCK FUND, VARIABLE SERIES
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<NET-INVESTMENT-INCOME> 932
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<DISTRIBUTIONS-OF-INCOME> (932)
<DISTRIBUTIONS-OF-GAINS> (11726)
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<NUMBER-OF-SHARES-SOLD> 1714
<NUMBER-OF-SHARES-REDEEMED> (824)
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<TABLE> <S> <C>
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<CIK> 0000898445
<NAME> LIBERTY VARIABLE INVESTMENT TRUST
<SERIES>
<NUMBER> 7
<NAME> NEWPORT TIGER FUND, VARIABLE SERIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<ACCUMULATED-NII-CURRENT> (63)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3286)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4619)
<NET-ASSETS> 24934
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<EXPENSES-NET> (421)
<NET-INVESTMENT-INCOME> 385
<REALIZED-GAINS-CURRENT> (3346)
<APPREC-INCREASE-CURRENT> (8620)
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<NUMBER-OF-SHARES-REDEEMED> (4695)
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<NET-CHANGE-IN-ASSETS> (9708)
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
`<ARTICLE> 6
<CIK> 0000898445
<NAME> LIBERTY VARIABLE INVESTMENT TRUST
<SERIES>
<NUMBER> 8
<NAME> LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<OTHER-ITEMS-LIABILITIES> 26
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<EXPENSES-NET> (25)
<NET-INVESTMENT-INCOME> 21
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 142
<NET-CHANGE-FROM-OPS> 159
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<DISTRIBUTIONS-OF-INCOME> (21)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 37
<AVERAGE-NET-ASSETS> 20622
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.010
<PER-SHARE-GAIN-APPREC> 0.070
<PER-SHARE-DIVIDEND> (0.010)
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<PER-SHARE-NAV-END> 10.070
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
