Registration Nos: 33-59216
811-7556
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. 18 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 19 / X /
(Check appropriate box or boxes)
LIBERTY VARIABLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address of
Agent for Service Copy to
Nancy L. Conlin, Esq. John M. Loder, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110-2624
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b).
/ X / On June 1, 1999 pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(1).
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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 18, 1993 under the
Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 Notice with respect
to the fiscal year ended December 31, 1996 was filed on or about February 28,
1997.
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
Cross Reference Sheet Pursuant to Rule 481(a)
(Colonial International Horizons Fund, Variable Series)
(Colonial Global Equity Fund, Variable Series)
(Crabbe Huson Real Estate Investment Fund, Variable Series)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Front Cover Page; Back Cover Page
2. The Funds; Other Investment
Strategies and Risks
3. Not Applicable
4. The Funds
5. Not Applicable
6. Trust Management Organizations
7. Shareholder Information
8. The Trust
9. Not Applicable
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
PROSPECTUS dated June 1, 1999
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
Trust shares available only through variable annuity contracts and variable life
insurance policies of participating insurance companies.
* * * *
This Prospectus must be accompanied by a prospectus for your variable annuity
contract or variable life insurance policy. Retain both prospectuses for future
reference.
* * * *
Although trust shares have been registered with the Securities and Exchange
Commission (SEC), the SEC has not approved any shares offered in this prospectus
or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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Not FDIC May Lose Value
Insured No Bank Guarantee
- ----------------------------- --------------------------
<PAGE>
TABLE OF CONTENTS
THE TRUST 3
THE FUNDS 4
Each of these sections discusses the following
topics: Investment Goals, Primary Investment Strategies
and Primary Investment Risks
Colonial International Horizons Fund, Variable Series........................4
Colonial Global Equity Fund, Variable Series.................................5
Crabbe Huson Real Estate Investment Fund, Variable Series....................6
TRUST MANAGEMENT ORGANIZATIONS 7
The Trustees.................................................................7
Investment Advisor: Liberty Advisory Services Corp...........................7
Investment Sub-Advisors and Portfolio Managers...............................7
Distribution Plan............................................................8
OTHER INVESTMENT STRATEGIES AND RISKS 9
Temporary Defensive Measures.................................................9
Derivatives..................................................................9
Year 2000 Compliance.........................................................9
SHAREHOLDER INFORMATION 10
Purchases and Redemptions...................................................10
How the Funds Calculate Net Asset Value....................................10
Dividends and Distributions.................................................10
Tax Consequences............................................................10
<PAGE>
THE TRUST
Liberty Variable Investment Trust ("Trust") includes twelve separate mutual
funds, each with its own investment goal and strategies. This Prospectus
contains information about three of the Funds ("Funds") in the Trust. Liberty
Advisory Services Corp. ("LASC") is the investment advisor to each Fund. LASC
has appointed a Sub-Advisor for each Fund, all of which are affiliates of LASC.
Each Fund is sub-advised by the following Sub-Advisor:
<TABLE>
<CAPTION>
Fund Sub-Advisor
<S> <C>
Colonial International Horizons Fund, Variable Series (International Horizons Fund) Colonial Management Associates, Inc.
Colonial Global Equity Fund, Variable Series (Global Equity Fund) ("Colonial")
Crabbe Huson Real Estate Investment Fund, Variable Series (Real Estate Fund) Crabbe Huson Group, Inc.
("Crabbe Huson")
</TABLE>
Other Funds may be added to or deleted from the Trust from time to time.
The Trust's Funds are investment options under variable annuity contracts ("VA
contracts") and variable life insurance policies ("VLI policies") issued by life
insurance companies ("Participating Insurance Companies"). Some (but not all)
Participating Insurance Companies are affiliated with the investment advisor to
the Funds. Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA contracts and
of VLI policies invest in sub-accounts of those separate accounts through
instructions they give to their insurance company. The principal underwriters of
the Funds are Keyport Financial Services Corp. ("KFSC") and Liberty Funds
Distributor, Inc. ("LFD"). KFSC serves as principal underwriter of the shares of
the portfolios of the Trust with respect to the sale of shares to Participating
Insurance Companies that are affiliated with LASC and LFD serves as principal
underwriter with respect to the sale of shares to Participating Insurance
Companies that are not affiliated with LASC. KFSC and LFD are affiliates of
LASC.
The prospectuses of the Participating Insurance Companies' separate accounts
describe which Funds are available to the purchasers of their VA contracts and
VLI policies. The Trust assumes no responsibility for those prospectuses.
<PAGE>
THE FUNDS
COLONIAL INTERNATIONAL HORIZONS FUND, VARIABLE SERIES
INVESTMENT GOALS
The Fund seeks long-term growth and preservation of capital purchasing power.
PRIMARY INVESTMENT STRATEGIES
The Fund invests primarily in non-U.S. equity securities which Colonial believes
will provide superior long-term growth. Colonial generally selects stocks of
companies in industries and markets that it believes will react favorably to
inflation in the U.S. economy. Inflation sensitive companies in which the Fund
may invest include:
* companies engaged in the development and processing of natural
resources, and
* companies engaged in consumer oriented businesses.
The Fund is a non-diversifed mutual fund and, although it generally will not, it
may invest more than 5% of its total assets in the securities of one company.
Additional strategies that are not primary investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
PRIMARY INVESTMENT RISKS
The primary risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could cause you to lose money by investing in the Fund or prevent the Fund from
achieving its goals.
Additionally, as a non-diversified mutual fund, the Fund is allowed to invest a
greater percentage of its total net assets in the securities of a single
company. Therefore, the Fund may have an increased risk of loss compared to a
similar diversified mutual fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions. Credit risk is the
risk that the price of a security will fall due to unfavorable changes in the
financial condition of the company which issued the security.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. The liquidity of foreign securities may be more limited than
domestic securities, which means that the Fund may at times be unable to sell
foreign securities at desirable prices. Fluctuations in currency exchange rates
may impact the value of foreign securities. Brokerage commissions, custodial
fees and other fees are generally higher for foreign investments. In addition,
foreign governments may impose withholding taxes which would reduce the amount
of income available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions; less publicly
available information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or nationalization of the
company or its assets.
<PAGE>
COLONIAL GLOBAL EQUITY FUND, VARIABLE SERIES
INVESTMENT GOAL
The Fund seeks long-term growth by investing primarily in global equity
securities.
PRIMARY INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests primarily in both U.S. and
foreign equity securities. The Fund may invest in companies of any size,
including small capitalization stocks. The Fund may also invest in high quality
U.S. and foreign government debt securities. The Fund generally diversifies its
holdings across several different countries and regions.
The Fund may invest up to 10% of its assets in shares of other investment
companies. Investing in investment companies may involve payment of duplicate
fees because the Fund, as a shareholder, will indirectly pay a portion of the
other investment company's expenses.
Additional strategies that are not primary investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
PRIMARY INVESTMENT RISKS
The primary risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could cause you to lose money by investing in the Fund or prevent the Fund from
achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions. Credit risk is the
risk that the price of a security will fall due to unfavorable changes in the
financial condition of the company which issued the security.
Interest rate risk is the risk of a decline or increase in the price of a bond
when interest rates increase or decline. In general, if interest rates rise,
bond prices fall; and if interest rates fall, bond prices rise. Changes in the
values of bonds usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares. Interest rate risk is
generally greater for bonds with longer maturities.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. The liquidity of foreign securities may be more limited than
domestic securities, which means that the Fund may at times be unable to sell
foreign securities at desirable prices. Fluctuations in currency exchange rates
may impact the value of foreign securities. Brokerage commissions, custodial
fees and other fees are generally higher for foreign investments. In addition,
foreign governments may impose withholding taxes which would reduce the amount
of income available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions; less publicly
available information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or nationalization of the
company or its assets.
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND, VARIABLE SERIES
INVESTMENT GOALS
The Fund seeks to provide growth of capital and current income.
PRIMARY INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 75% of its total
assets in equity securities of real estate investment trusts (REITs) and other
real estate industry companies. In managing the Fund, the sub-advisor follows a
basic value contrarian approach in selecting securities for its portfolio.
The contrarian approach puts primary emphasis on security price, balance sheet
and cash flow analysis and on the relationship between the market price of a
security and its estimated intrinsic value as a share of an ongoing business.
The basic value contrarian approach is based on Crabbe Huson's belief that the
securities of many companies often sell at a discount from the securities'
estimated intrinsic value. The Fund attempts to identify and invest in such
undervalued securities in the hope that their market price will rise to their
estimated intrinsic value.
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate related loans or interest. The Fund's REIT
investments will consist primarily of equity REITs which invest the majority of
their assets directly in real estate and derive income primarily from rents.
Other real estate industry companies in which the Fund may invest are companies
that derive at least 50% of their revenues or profits from either (a) the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or (b) products or services
related to the real estate industry, such as building supplies or mortgage
servicing.
Additional strategies that are not primary investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
PRIMARY INVESTMENT RISKS
The primary risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could cause you to lose money by investing in the Fund or could prevent the Fund
from achieving its goals.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions. Credit risk is the
risk that the price of a security will fall due to unfavorable changes in the
financial condition of the company which issued the security.
Investing in REITs involves certain unique risks in addition to those risks
associated with the real estate industry in general. The prices of equity REITs
are affected by changes in the value of the underlying property owned by the
REITs. REITs are subject to heavy cash flow dependency and default by borrowers.
A REIT must distribute 95% of its taxable income to qualify for beneficial
federal tax treatment. If a REIT is unable to qualify, then it would be taxed as
a corporation and distributions to shareholders would be reduced. In addition,
although the Fund does not invest directly in real estate, an investment in the
Fund is subject to certain of the risks associated with the ownership of real
estate. These risks include possible declines in the value of real estate, risks
related to general and local economic conditions, possible lack of availability
of mortgage funds, and changes in interest rates.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
THE TRUSTEES
The business of the Trust and the Funds is supervised by the Trust's Board of
Trustees. The Statement of Additional Information (SAI) contains names of and
biographical information on the Trustees.
INVESTMENT ADVISOR: LIBERTY ADVISORY SERVICES CORP.
LASC, located at 125 High Street, Boston Massachusetts 02110, is the investment
advisor to the Trust. LASC is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc. ("LFC"). LASC has been an investment advisor since
1993. As of March 31, 1999, LASC managed over $727 million in assets. LASC
designates the Trust's Sub-Advisors, evaluates and monitors the Sub-Advisors'
performance and investment programs and recommends to the Board of Trustees
whether the Sub-Advisors' contracts should be continued or modified and the
addition or deletion of Sub-Advisors. LASC also has the responsibility of
administering the Trust's operations, which it may delegate, at its own expense,
to certain affiliates. LASC has delegated its administrative responsibilities to
Colonial in accordance with this authority.
For its services as investment advisor, the Trust pays LASC a management fee at
the following annual rates of the average daily net assets of each specified
Fund:
Colonial International Horizons Fund, Variable Series 0.95%
Colonial Global Equity Fund, Variable Series 0.95%
Crabbe Huson Real Estate Investment Fund, Variable Series 1.00%
INVESTMENT SUB-ADVISORS AND PORTFOLIO MANAGERS
The Sub-Advisors manage the assets of the Funds under the supervision of LASC
and the Board of Trustees. Each Sub-Advisor determines which securities and
other instruments are purchased and sold for the Fund(s) it sub-advises. Each
Sub-Advisor is an indirect wholly-owned subsidiary of LFC.
Colonial
Colonial, an investment advisor since 1931, is the Sub-Advisor of each of the
International Horizons Fund and Global Equity Fund. Colonial's principal
business address is One Financial Center, Boston, Massachusetts 02111. As of
March 31, 1999, Colonial managed over $16.7 billion in assets.
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 each specified Fund:
Colonial International Horizons Fund, Variable Series 0.75%
Colonial Global Equity Fund, Variable Series 0.75%
Colonial also provides transfer agency, pricing and record keeping services for
the Funds under separate agreements.
Gita Rao, a Senior Vice President of Colonial, manages both the International
Horizons Fund and Global Equity Fund. Ms. Rao has managed various other Colonial
funds since 1995. Prior to joining Colonial, she was a global equity analyst at
Fidelity Management & Research Company from 1994 to 1995 and a Vice President in
the domestic equity research group at Kidder, Peabody and Company from 1991 to
1994.
<PAGE>
Colonial's investment advisory business is managed together with the mutual
funds and institutional investment advisory business of its affiliate, Stein Roe
& Farnham Incorporated ("Stein Roe") by a combined management team of employees
from both companies. Stein Roe also shares personnel, facilities and systems
with Colonial that may be used in providing administrative services to the Fund.
Both Colonial and Stein Roe are subsidiaries of LFC.
Crabbe Huson
Crabbe Huson, an investment advisor since 1980, is the Sub-Advisor of the Real
Estate Fund. Crabbe Huson's principal address is 121 S.W. Morrison, Suite 1400,
Portland, Oregon 97204. Crabbe Huson as of March 31, 1999, Crabbe Huson managed
over $434 million in assets.
LASC, out of the management fees it receives from the Trust, pays Crabbe Huson
a sub-advisory fee at the annual rate of 0.80% of the average daily net assets
of the Real Estate Fund.
John E. Maack has co-managed the Real Estate Fund since its inception. Mr.
Maack has been employed by Crabbe Huson as a portfolio manager and securities
analyst since 1988.
Michael B. Stokes has co-managed the Real Estate Fund since its inception. Mr.
Stokes joined Crabbe Huson in August, 1996. Prior to joining Crabbe Huson, he
was a financial analyst for Salomon Brothers from July, 1994 to June, 1996.
Affiliated Broker/Dealer
Colonial can use the services of AlphaTrade Inc., an affiliated broker-dealer,
when buying or selling equity securities for a fund's portfolio, pursuant to
procedures adopted by the Board of Trustees.
DISTRIBUTION PLAN
The Trust has adopted a plan of distribution for and on behalf
of the Funds in accordance with Rule 12b-1 ("Plan") under the Investment Company
Act of 1940. Under the plan, the Trust pays the distributor a distribution fee
of 0.25% of the average daily net assets attributable to the Fund's shares.
Because these fees are an ongoing expense, over time they increase the cost of
an investment and the shares may cost more than shares that are not subject to a
distribution fee.
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
Each Fund's primary investments and its risks are described above in its
individual description This section describes other investments a Fund may make
that are not primary strategies and the risks associated with them. In seeking
to achieve its goal, each Fund may invest in various types of securities and
engage in various investment techniques which are not the principle focus of the
Fund and therefore are not described in this prospectus. These types of
securities and investment practices are identified and discussed in the Funds'
SAI, which you may obtain free of charge (see back cover). Approval by the
Funds' shareholders is not required to modify or change any of the Funds'
investment goals or investment strategies.
TEMPORARY DEFENSIVE MEASURES
Each Fund's Sub-Advisor may determine that adverse market conditions make it
desirable to temporarily suspend a Fund's normal investment activities. During
such times, as a temporary defensive strategy, a Fund may, but is not required
to, invest in cash or high quality, short-term debt securities, without limit.
Taking a temporary defensive position may prevent a Fund from achieving its
investment objective.
DERIVATIVES
Each Fund may enter into a number of hedging strategies, including those that
employ futures and options, to gain or reduce exposure to particular securities
or markets. These strategies may involve the use of financial instruments,
commonly referred to as derivatives, whose values depend on, or are derived
from, the value of an underlying security, an index or a currency. A Fund may
use derivatives for hedging purposes (attempting to offset a potential loss in
one position by establishing an interest in an opposite position). Derivatives
involve the risk that they may exaggerate a loss, potentially losing more money
than the actual cost of the security, or limit a potential gain. Also, with some
derivatives there is the risk that the other party to the transaction may fail
to honor its contract terms, causing a loss to a Fund.
Year 2000 Compliance
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by LASC, the Sub-Advisors and other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." LASC,
the Sub-advisors, the Funds' distributors and transfer agent ("Liberty
Companies") are taking steps that they believe are reasonably designed to
address the Year 2000 Problem, including communicating with vendors who furnish
services, software and systems to the Funds, to provide that date-related
information and data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the Liberty Companies, are in the
process of making Year 2000 modifications to their software and systems and
believe that such modifications will be completed on a timely basis prior to
January 1, 2000. However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and after January
1, 2000 will be timely made or that services to the Fund will not be adversely
affected. Some of the Funds invest in emerging markets in developing countries
and some reports indicate that developing countries may be behind other
countries with respect to Year 2000 Compliance.
<PAGE>
SHAREHOLDER INFORMATION
Purchase and Redemptions The Participating Insurance Companies place daily
orders to purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders of their VA
contracts and VLI policies and certain other terms of those contracts and
policies. The Trust issues and redeems shares at net asset value ("NAV") without
imposing any selling commissions, sales charge or redemption charge. Shares
generally are sold and redeemed at their NAV next determined after receipt of
purchase or redemption requests from Participating Insurance Companies. The
right of redemption may be suspended or payment postponed whenever permitted by
applicable law and regulations.
How the Funds Calculate Net Asset Value NAV is the difference between the value
of a fund's assets and liabilities divided by the number of shares outstanding.
The NAV is determined at the close of regular trading on the New York Stock
Exchange ("NYSE"), usually 4:00 p.m. Eastern time, on each business day that the
NYSE is open (typically Monday through Friday).
To calculate NAV on a given day, we value each stock listed or traded on a stock
exchange at its latest sale price on that day. If there are no sales on that
day, we value the security at the most recent quoted bid price. A Fund values
each over-the-counter security or National Association of Securities Dealers
Automated Quotation (Nasdaq) security as of the last sales price of that day. We
value other over-the-counter securities that have reliable quotes at the latest
quoted bid price.
We value long-term debt obligations and securities convertible into common stock
at fair value. Pricing services provide the Funds with the value of the
securities. When the price of a security is not available, including days when
we determine that the sale or bid price of the security does not reflect that
security's market value, we will value the security at a fair value determined
in good faith under procedures established by the Board of Trustees.
We value a security at fair value when events have occurred after the last
available market price and before the close of the NYSE that materially affect
the security's price. In the case of foreign securities, this could include
events occurring after the close of the foreign market and before the close of
the NYSE.
The Fund's foreign securities may trade on days when the NYSE is closed for
trading and Participating Insurance Companies may not purchase or redeem shares.
Dividends and Distributions Each Fund intends to declare and distribute, as
dividends or capital gain 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
investment advisory and administrative fees). Income dividends will be declared
and distributed annually. All net short-term and long-term capital gains of each
Fund realized during the fiscal year are declared and distributed periodically,
no less frequently than annually. All dividends and distributions are reinvested
in additional shares of the Fund at NAV, as of the record date for the
distributions.
Tax Consequences Each Fund is treated as a separate entity for federal income
tax purposes and has elected or intends to elect to be treated, and intends to
qualify each year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code (the "Code"). Each Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders to qualify as a regulated investment
company. As a regulated investment company, a Fund will not be subject to
federal income tax on any net investment income and net realized capital gains
that are distributed to its shareholders as required under the Code.
In addition, each Fund follows certain portfolio diversification requirements
imposed by the Code on separate accounts of insurance companies relating to the
tax-deferred status of VA contracts and VLI policies. More specific information
on these diversification requirements is contained in the prospectus that
describes a particular VA contract or VLI policy.
<PAGE>
FOR MORE INFORMATION
You may wish to read the SAI for more information on the Funds and the
securities in which they invest. The SAI is incorporated into this prospectus by
reference, which means that it is considered to be part of this prospectus.
You can get free copies of reports, the SAI, or request other information and
discuss your questions about the Funds by writing or calling:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02111
1-800-437-4466
or by calling or writing the Participating Insurance Company which issued your
VA contract or VLI policy.
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Funds by visiting the following
location, and you can obtain copies upon payment of a duplicating fee, by
writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Investment Company Act file number:
Liberty Variable Investment Trust: 811-07556
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
Cross Reference Sheet Pursuant to Rule 481(a)
(Colonial Growth and Income Fund, Variable Series)
(Stein Roe Global Utilities Fund, Variable Series)
(Colonial Small Cap Value Fund, Variable Series)
(Colonial U.S. Stock Fund, Variable Series)
(Colonial Strategic Income Fund, Variable Series)
(Colonial High Yield Securities Fund, Variable Series)
(Liberty All-Star Equity Fund, Variable Series)
(Colonial International Fund for Growth, Variable Series)
(Newport Tiger Fund, Variable Series)
(Colonial International Horizons Fund, Variable Series)
(Colonial Global Equity Fund, Variable Series)
(Crabbe Huson Real Estate Investment Fund, Variable Series)
Location or Caption in
Item Number of Form N-1A Statement of Additional
Information
Part B
10. Cover Page; Table of Contents
11. Organization and History
12. Investment Restrictions; Other
Considerations; Description
of Certain Investments
13. Investment Management and
Other Services; More Facts
About Trust
14. More Facts About Trust
15. Investment Management and
Other Services
16. Other Considerations
17. More Facts About Trust
18. Other Considerations
19. More Facts About Trust
20. Other Considerations
21. Investment Performance
22. Independent Accountants and
Financial Statements
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
Colonial Growth and Income Fund, Variable Series
Stein Roe Global Utilities Fund, Variable Series
Colonial International Fund for Growth, Variable Series
Colonial U.S. Stock Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1999, Revised June 1, 1999
The Statement of Additional Information ("SAI") is not a Prospectus,
but should be read in conjunction with the Trust's Prospectuses, dated May 1,
1999 and June 1, 1999 and any supplements thereto, which may be obtained at no
charge by calling Keyport Financial Services Corp. ("KFSC") 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, 1999, Revised June 1, 1999.
<PAGE>
S-3
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
ORGANIZATION AND HISTORY....................................................S-3
INVESTMENT MANAGEMENT AND OTHER SERVICES................................. S-3
General......................................................... S-3
Trust Charges and Expenses...................................... S-6
INVESTMENT RESTRICTIONS.....................................................S-7
Colonial Growth and Income Fund, Variable Series................ S-8
Stein Roe Global Utilities Fund, Variable Series................ S-9
Colonial International Fund for Growth, Variable Series ........ S-10
Colonial U.S. Stock Fund, Variable Series....................... S-11
Colonial Strategic Income Fund, Variable Series................. S-12
Newport Tiger Fund, Variable Series............................. S-13
Liberty All-Star Equity Fund, Variable Series................... S-14
Colonial Small Cap Value Fund, Variable Series.................. S-16
Colonial High Yield Securities Fund, Variable Series............ S-17
Colonial International Horizons Fund, Variable Series........... S-
Colonial Global Equity Fund, Variable Series.................... S-
Crabbe Huson Real Estate Investment Fund, Variable Series....... S-
MORE FACTS ABOUT THE TRUST .................................................S-18
Mixed and Shared Funding........................................ S-18
Organization.................................................... S-19
Trustees and Officers........................................... S-20
Principal Holders of Securities................................. S-26
Custodians...................................................... S-26
OTHER CONSIDERATIONS .......................................................S-27
Portfolio Turnover.............................................. S-27
Suspension of Redemptions....................................... S-27
Valuation of Securities......................................... S-28
Portfolio Transactions.......................................... S-29
DESCRIPTION OF CERTAIN INVESTMENTS....................................... S-33
Money Market Instruments........................................ S-33
Investments in Less Developed Countries......................... S-35
Foreign Currency Transactions................................... S-36
Options on Securities........................................... S-40
Futures Contracts and Related Options........................... S-43
Passive Foreign Investment Companies............................ S-
Securities Loans .................................................S-47
INVESTMENT PERFORMANCE .................................................S-47
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS............................S-49
<PAGE>
ORGANIZATION AND HISTORY
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"); 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 Equity Fund"); Colonial Small Cap Value Fund, Variable Series
("Small Cap Fund"), Colonial High Yield Securities Fund, Variable Series ("High
Yield Fund"), Colonial International Horizons Fund, Variable Series,
("International Horizons Fund"), Colonial Global Equity Fund, Variable Series
("Global Equity Fund") and Crabbe Huson Real Estate Investment Fund, Variable
Series ("Real Estate Fund"). The Trust may add or delete Funds from time to
time. The Trust commenced operations on July 1, 1993.
The 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
owners may differ. Additional information regarding such differing interests and
related risks are described below under "MORE FACTS ABOUT THE TRUST--Mixed and
Shared Funding."
INVESTMENT MANAGEMENT AND OTHER SERVICES
General
Liberty Advisory Services Corp. ("LASC") serves as Manager pursuant to
investment advisory agreements between the Trust on behalf 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 December 31,
1998, approximately 71.95% 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, U.S. Stock Fund, Strategic Income Fund, Small Cap Fund, High
Yield Fund, International Horizons Fund and Global Equity 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") with
Newport Fund Management, Inc. ("Newport"). Newport is an indirect wholly owned
subsidiary of LFC.
LASC and the Trust, on behalf of the Real Estate Fund, have entered
into a separate Sub-Advisory Agreement (the "Crabbe Huson Sub-Advisory
Agreement," collectively, with the Colonial Sub-Advisory Agreements, the Stein
Roe Sub-Advisory Agreement and the Newport Sub-Advisory Agreement, the
"Sub-Advisory Agreements":) with Crabbe Huson Group, Inc. ("Crabbe Huson").
Crabbe Huson is an indirect wholly owned subsidiary of LFC.
Liberty Asset Management Company ("LAMCO") sub-advises All-Star Equity
Fund pursuant to the Management Agreement for such Fund (to which LAMCO is a
party). All-Star Equity 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 Equity Fund,
LAMCO and such Portfolio Manager.
All-Star Equity Fund's current Portfolio Managers are:
J.P. Morgan Investment Management Inc.
Oppenheimer Capital
Boston Partners Asset Management, L.P.
Westwood Management Corp.
Wilke/Thompson Capital Management, Inc.
LASC. 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: Paul H. LeFevre, Jr.
(principal executive officer), Stewart R. Morrison, and Mark R. Tully. Mr.
LeFevre also is a director of KFSC, the principal underwriter for shares of the
Funds sold to Participating Insurance Companies (as such term is defined in
the Prospectus) that are affiliated with Keyport.
Colonial. Liberty Funds Group LLC ("LFG"), One Financial Center,
Boston, Massachusetts 02111, owns all of the outstanding common stock of
Colonial. LFG is an indirect wholly-owned subsidiary of LFC. The directors
and principal executive officer of Colonial are Nancy L. Conlin, Stephen E.
Gibson (principal executive officer) and Joseph R. Palombo.
Stein Roe. 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. and Thomas W. Butch (principal executive officer).
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 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 officer of Newport are John M. Mussey (principal executive
officer), Kenneth R. Leibler, and Lindsay Cook.
Crabbe Huson. Crabbe Huson, 121 S.W. Morrison, Suite 1400,
Portland, Oregon 97204, is a wholly owned subsidiary of LFC. The directors
and principal executive officer of Crabbe Huson are Kenneth R. Leibler,
James E. Crabbe (principal executive officer) and Lindsay Cook.
LAMCO and 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, Lindsay Cook, C. Allen Merritt, Jr.
and William R. Parmentier (principal executive officer).
As of the date of this SAI, the following entities serve as LAMCO's
Portfolio Managers for All-Star Equity Fund:
o J.P. Morgan Investment Management, Inc. J.P. Morgan
Investment Management Inc. ("J.P. Morgan"), an investment
advisor since 1984, is located at 522 Fifth Avenue, New York,
New York 10036, is a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated, a New York Stock Exchange ("NYSE")
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. Kenneth W.
Anderson, Jeff M. Garrity, John W. Schmidlin, Gilbert Van
Hassel and Hendrick Van Riel and Ms. Isabel H. Sloane. As of
March 31, 1999, J.P. Morgan managed over $316 billion in
assets.
o Oppenheimer Capital. Oppenheimer Capital, an investment
advisor since 1969, is located at Oppenheimer Tower, 1 World
Financial Center, New York, New York 10281, is a Delaware
partnership and an indirect wholly-owned subsidiary of PIMCO
Advisors L.P. Oppenheimer Capital's Chief Operating Officer
(principal executive officer) is James McCaughan. As of
December 31, 1998, Oppenheimer Capital managed over $62
billion in assets.
o Boston Partners Asset Management, L.P. Boston Partners Asset
Management, L.P. ("Boston Partners"), an investment advisor
since 1995, is located at 28 State Street, 21st Floor, Boston,
Massachusetts 02109. The firm is owned by its partners.
Desmond J. Heathwood is the sole General Partner. As of March
31, 1999, Boston Partners managed over $15.2 billion in
assets.
o Westwood Management Corp. Westwood Management Corp.
("Westwood"), an investment advisor since 1983, is
located at 300 Crescent Court, Suite 1300, 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 Glatstein, and Patricia R.
Fraze. Westwood manages over $2.4 billion in assets.
o Wilke/Thompson Capital Management, Inc. Wilke/Thompson Capital
Management, Inc. ("Wilke/Thompson"), an investment advisor
since 1987, is located at 2950 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. As of March 31, 1999,
Wilke/Thompson managed over $1.1 billion in assets.
The Management Agreements, the Sub-Advisory Agreements and the
Portfolio Management Agreements provide that none of LASC, Colonial, Stein Roe,
Newport, Crabbe Huson, LAMCO or LAMCO's Portfolio Managers (collectively, the
"Advisors"), 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 LASC or such Advisor of its respective duties under such
agreements, except for liability resulting from willful misfeasance, bad faith
or gross negligence on the part of LASC or such Advisor, in the performance of
its respective duties or from reckless disregard by such Advisor 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 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 Equity Fund commenced
operations on November 15, 1997. Small Cap Fund and High Yield Fund commenced
operations on May 19, 1998. International Horizons Fund, Global Equity Fund and
Real Estate Fund commenced operations on June 1, 1999.
Management Fees. Each Fund listed below paid LASC management fees as
follows during each year in the three-year period ended December 31, pursuant to
the Management Agreements described in the Prospectus:
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Growth and Income Fund: $805,967 $605,151 $538,173
Global Utilities Fund: $390,383 $310,458 $315,944
International Fund: $369,574 $270,532 $224,146
U.S. Stock Fund: $1,027,590 $623,484 $418,745
Strategic Income Fund: $590,688 $384,347(1) $322,142
Tiger Fund: $192,901 $303,701 $258,891
All-Star Equity Fund: $243,070(2) $8,804(1) ----
Small Cap Fund: $0(2) ---- ----
High Yield Fund: $0(2) ---- ----
International Horizons Fund(3): ---- ---- ----
Global Equity Fund(3): ---- ---- ----
Real Estate Fund(3): ---- ---- ----
</TABLE>
(1) Reduced to reflect applicable expense limitations. If the limitations had
not been in effect, Strategic Income Fund and All-Star Equity Fund would have
paid fees of $399,569 and $20,337, respectively.
(2) Reduced to reflect applicable expense limitations. If the
limitations had not been in effect, All-Star Equity Fund, Small Cap Fund and
High Yield Fund would have paid fees of $255,783, $8,641 and $19,394,
respectively.
(3) International Horizons Fund, Global Equity Fund and Real Estate Fund did
not commence investment operations until June 1, 1999.
Certain Administrative Expenses. During each year in the three-year period ended
December 31, 1998 each Fund listed below made payments as follows to Colonial or
an affiliate thereof for pricing and bookkeeping services.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Growth and Income Fund: $53,025 $43,653 $40,025
Global Utilities Fund: $30,524 $27,071 $27,000
International Fund: $27,008 $27,000 $27,000
U.S. Stock Fund: $54,453 $39,024 $27,000
Strategic Income Fund: $41,331 $31,551 $27,000
Tiger Fund: $27,000 $27,000 $27,000
All-Star Equity Fund: $27,000 $3,225 ----
Small Cap Fund: $16,694 ---- ----
High Yield Fund: $16,694 ---- ----
International Horizons Fund(4): ---- ---- ----
Global Equity Fund(4): ---- ---- ----
Real Estate Fund(4): ---- ---- ----
</TABLE>
(4) International Horizons Fund, Global Equity Fund and Real Estate Fund did not
commence investment operations until June 1, 1999.
In addition, during each year in the three-year period ended December
31, each Fund listed below made payments as follows to Colonial or an affiliate
thereof for transfer agent services:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Growth and Income Fund: $7,500 $7,500 $7,500
Global Utilities Fund: $7,500 $7,500 $7,500
International Fund: $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: $7,500 $896 $7,500
All-Star Equity Fund: $7,500 ---- ----
Small Cap Fund: $4,637 ---- ----
High Yield Fund: $4,637 ---- ----
International Horizons Fund(5): ---- ---- ----
Global Equity Fund(5): ---- ---- ----
Real Estate Fund(5): ---- ---- ----
</TABLE>
(5) International Horizons Fund, Global Equity Fund and Real Estate Fund did not
commence investment operations until June 1, 1999.
Principal Underwriters
KFSC, 125 High Street, Boston, Massachusetts 02110, serves as the principal
underwriter of the shares of the portfolios of the Trust with respect to the
sale of shares to Participating Insurance Companies that are affiliated with
LASC.
Liberty Funds Distributor, Inc. (LFD), One Financial Center, Boston, MA 02111,
serves as the principal underwriter with respect to the sale of shares to
Participating Insurance Companies that are not affiliated with LASC. KFSC and
LFD are affiliates of LASC.
The Trustees have approved a Distribution Plan and Agreement (Plan) pursuant to
Rule 12b-1 under the 1940 Act for the International Horizons Fund, Global Equity
Fund and Real Estate Fund. Under the Plan, these Funds will pay the distributor
a monthly service fee at the aggregate annual rate of 0.25% of each Fund's
average daily net assets.The distributor may use the entire amount of such fees
to defray the cost of commissions and service fees paid to financial service
firms (FSFs) and for certain other purposes. Since the service fees are payable
regardless of the amount of the distributor's expenses, the distributor may
realize a profit from the fees.
The Plan authorizes any other payments by these Funds to the distributor and its
affiliates (including the Advisor) to the extent that such payments might be
construed to be indirect financing of the distribution of fund shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each Fund's shareholders.
The Plan will continue in effect from year to year so long as continuance is
specifically approved at least annually by a vote of the Trustees, including the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan (Independent Trustees), cast in person at a meeting called
for the purpose of voting on the Plan. The Plan may not be amended to increase
the fee materially without approval by vote of a majority of the outstanding
voting securities of the relevant class of shares and all material amendments of
the Plan must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the relevant Fund's shares, on 60 days' written notice to the
distributor. The continuance of the Plan will only be effective if the selection
and nomination of the Trustees who are not interested persons of the Trust is
effected by such disinterested Trustees.
Expense Limitations. LASC has agreed to reimburse all expenses,
including management fees, but excluding interest, taxes, 12b-1, 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 Equity
Fund and Small Cap Fund in excess of 1.00% of average daily net asset value per
annum, (ii) each of International Fund and Tiger Fund in excess of 1.75% of
average daily net asset value per annum, (iii) each of Strategic Income Fund and
High Yield Fund in excess of 0.80% of average daily net asset value per annum,
(iv) each of International Horizons Fund and Global Equity Fund in excess of
1.15% of average daily net asset value per annum, and (v) Real Estate Fund in
excess of 1.20% of average daily net asset value per annum, in each case for the
period from May 1, 1999 until April 30, 2000.
INVESTMENT RESTRICTIONS
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 Prospectuses 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. 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; 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 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;
3. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
4. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
5. Invest more than 15% of its net assets in illiquid assets.
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. 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. 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; and
5. 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;
3. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
4. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
5. Invest more than 15% of its net assets in illiquid assets.
International Fund
Fundamental Investment Policies. International 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. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
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
Other Investment Policies. As non-fundamental investment policies
of International 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;
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. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
7. 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 1940 Act) if the Fund would control such
person after such acquisition; or
8. 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.
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.
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. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; or
4. Invest more than 15% of its net assets in illiquid assets.
Tiger Fund
Fundamental Investment Policies. Tiger Fund may not:
1. Concentrate more than 25% of the Funds total assets in any
industry (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States
or any agency or instrumentality thereof) or with respect to
75% of the Fund's assets purchase the securities of any
issuer, if, as a result of such purchase, more than 5% of the
Fund's total assets would be invested in the securities of
such issuer;
2. Underwrite securities issued by others except when disposing
of portfolio securities;
3. Purchase and sell futures contracts and related options if the
total initial margin and premiums exceed 5% of its total
assets;
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);
and
7. Own real estate unless such real estate is acquired as the
result of owning securities and does not constitute more than
5% of total assets.
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;
4. Write or trade in put or call options;
5. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
6. Purchase securities on margin, but the Fund may utilize such
short-term credits as may be necessary for clearance of
purchases or sales of securities; or
7. Engage in short sales of securities.
All-Star Equity Fund
Fundamental Investment Policies. All-Star Equity 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 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 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 Equity 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 Fund
Fundamental Investment Policies. Small Cap 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
do 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 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.
High Yield Fund
Fundamental Investment Policies. High Yield 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. 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;
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 such purchase, the Fund would own more than 10%
of the outstanding voting shares of such issuer.
Other Investment Policies. As non-fundamental investment policies of
High Yield 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;
2. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its net assets in illiquid assets.
International Horizons Fund
Fundamental Investment Policies. International Horizons 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. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
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
Other Investment Policies. As non-fundamental investment policies of
International Horizons 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; and
3. Invest more than 15% of its net assets in illiquid assets.
Global Equity Fund
Fundamental Investment Policies. The Global Equity 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; and
6. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
Other Investment Policies. As non-fundamental investment policies
of the Global Equity 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;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its assets in illiquid assets.
Real Estate Fund
Fundamental Investment Policies. The Real Estate 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. 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; and
6. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets; provided that
the Fund may invest in securities that are secured by real
estate or interest therein and may purchase and sell
mortgage-related securities and may hold and sell real estate
acquired by the Fund as a result of the ownership of
securities.
Other Investment Policies. As non-fundamental investment policies
of the Real Estate 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;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its assets in illiquid assets.
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.
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 investment 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, ages 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). In
this SAI, the "Liberty Funds" means Liberty Funds Trust I, Liberty Funds Trust
II, Liberty Funds Trust III, Liberty Funds Trust IV, Liberty Funds Trust V,
Liberty Funds Trust VI, Liberty Funds Trust VII, Liberty Funds Trust VIII,
Liberty Variable Investment Trust, Colonial High Income Municipal Trust,
Colonial InterMarket Income Trust I, Colonial Intermediate High Income Fund,
Colonial Investment Grade Municipal Trust and Colonial Municipal Income Trust.
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
Robert J. Birnbaum (71) Trustee Consultant (formerly Special Counsel,
313 Bedford Road Dechert Price & Rhoads (law) from
Ridgewood, NJ 07450 September, 1988 to December, 1993).
Director or Trustee: Liberty Funds,
Liberty All-Star Equity Fund,
Liberty All-Star Growth Fund, Inc.,
The Emerging Germany Fund, Liberty
Funds Trust IX.
Tom Bleasdale (68) Trustee Retired (formerly Chairman of the Board and
11 Carriage Way Chief Executive Officer, Shore Bank & Trust
Danvers, MA 01923 Company (banking) from 1992 to 1993). Director
or Trustee: Liberty
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
Funds, Empire Company Limited.
</TABLE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
John V. Carberry* (51) Trustee Senior Vice President of LFC 1998-present
56 Woodcliff Road (formerly Managing Director, Salomon
Wellesley Hills, MA 02481 Brothers Inc.(investment banking)).
Director or Trustee: Liberty Funds, Liberty
All-Star Equity Fund, Liberty All-Star Growth
Fund, Inc., Liberty Funds Trust IX.
Lora S. Collins (63) Trustee Attorney (formerly Attorney with Kramer,
1175 Hill Road Levin, Naftalis & Frankel (law) from
Southold, NY 11971 September, 1986 to November, 1996).
Trustee: Liberty Funds.
James E. Grinnell (69) Trustee Private Investor since November, 1988.
22 Harbor Avenue Director or Trustee: Liberty Funds, Liberty
Marblehead, MA 01945 All-Star Equity Fund, Liberty All-Star
Growth Fund, Inc., Liberty Funds Trust IX.
Richard W. Lowry (62) Trustee Private Investor since August, 1987.
10701 Charleston Drive Director or Trustee: Liberty Funds, Liberty
Vero Beach, FL 32963 All-Star Equity Fund, Liberty All-Star
Growth Fund, Inc., Liberty Funds Trust IX.
Salvatore Macera (67) Trustee Private Investor (formerly Executive Vice
26 Little Neck Lane President of Itek Corp. and President of
New Seabury, MA 02649 Itek Optical & Electronic Industries, Inc.
(electronics)). Trustee: Liberty Funds.
William E. Mayer (58) Trustee Partner, Development Capital, LLC
500 Park Avenue, 5th Floor (investments); formerly Dean of the College
New York, NY 10022 of Business and Management, University of
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
Maryland (higher education) from October,
1992 to November, 1996. Director or Trustee:
LibertyFunds, Liberty All-Star Equity Fund,
Liberty All-Star Growth Fund, Inc., Liberty
Funds Trust IX, Hambrecht & Quist
Incorporated, Chart House Enterprises,
Johns Manville.
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
James L. Moody, Jr. (67) Trustee Retired (formerly Chairman of the Board,
16 Running Tide Road Hannaford Bros. Co. from May, 1984 to May,
Cape Elizabeth, ME 04407 1997). Director or Trustee: Liberty Funds,
Penobscot Shoe Co., Staples, Inc., UNUM
Corporation, IDEXX Laboratories, Inc.,
Empire Company Limited.
John J. Neuhauser (55) Trustee Dean of the School of Management, Boston
140 Commonwealth Avenue College (higher education) since September,
Chestnut Hill, MA 02167 1977. Director or Trustee: Liberty Funds,
Liberty All-Star Equity Fund, Liberty
All-Star Growth Fund, Inc., Liberty Funds
Trust IX, Hyde Athletic Industries, Inc.
Thomas E. Stitzel (63) Trustee Professor of Finance, College of Business,
2208 Tawny Woods Place Boise State University (higher education);
Boise, ID 83706 Business consultant and author. Trustee:
Liberty Funds.
Robert L. Sullivan (70) Trustee Retired Partner, KPMG Peat Marwick LLP
45 Sankaty Avenue (management consulting). Trustee:
Siasconset, MA 02564 LibertyFunds.
Anne-Lee Verville (53) Trustee Consultant (formerly General Manager,
359 Stickney Hill Road Global Education Industry from 1994 to 1997
Hopkinton, NH 03229 (global education)). Trustee: Liberty Funds.
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
Stephen E. Gibson (45) President President of the Liberty Funds since June,
One Financial Center 1998, Chairman of the Board since July,
Boston, MA 02111 1998, Chief Executive Officer and President
since December 1996 and Director, since
July, 1996 of Colonial (formerly Executive
Vice President from July, 1996 to
December, 1996); Chairman of the Board
since July, 1998, Director, Chief
Executive Officer and President of Liberty
Funds Group LLC ("LFG") since December,
1998 (formerly Chairman of the Board,
Director, Chief Executive Officer and
President of The Colonial Group, Inc.
("TCG") from December, 1996 to December,
1998); Assistant Chairman of Stein Roe
since August, 1998 (formerly Managing
Director of Marketing of Putnam
Investments, June, 1992 to July, 1996.).
Timothy J. Jacoby (45) Treasurer and Chief Treasurer and Chief Financial Officer of
One Financial Center Financial Officer the Liberty Funds; Senior Vice President,
Boston, MA 02111 Treasurer and Chief Financial Officer of
Colonial; Chief Financial Officer,
Treasurer and Vice President of LFG since
December, 1998 (formerly Chief Financial
Officer, Treasurer and Vice President of
TCG from July, 1997 to December, 1998)
formerly Senior Vice President, Fidelity
Accounting and Custody Services, Inc. and
Assistant Treasurer to the Fidelity Group
of Funds.
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
J. Kevin Connaughton (34) Controller and Chief Controller and Chief Accounting Officer of
One Financial Center Accounting Officer the Liberty Funds since February, 1998;
Boston, MA 02111 Vice President of Colonial since February,
1998 (formerly Senior Tax Manager, Coopers
& Lybrand, LLP from April, 1996 to
January, 1998; Vice President, 440
Financial Group/First Data Investor
Services Group from March, 1994 to April,
1996; Vice President, The Boston Company
(subsidiary of Mellon Bank) from December,
1993 to March, 1994; Assistant Vice
President and Tax Manager, The Boston
Company from March, 1992 to December, 1993).
Joseph R. Palombo (46) Vice President Vice President of the Liberty Funds since
One Financial Center April, 1999; Executive Vice President and
Boston, MA 02111 Director of Colonial since April, 1999;
Executive Vice President and Chief
Administrative Officer of LFG since April,
1999
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
(formerly Chief Operating Officer,
Putnam Investments from 1994 to 1998).
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
Positions(s) held Principal occupations
Name, Age and Address with the Trust during past five years
- --------------------- ----------------- ----------------------
<S> <C> <C>
Nancy L. Conlin (45) Secretary Director, Senior Vice President and General
One Financial Center Counsel, Colonial (April, 1998 to present);
Boston, MA 02111 Vice President and Counsel (February, 1994
to April, 1998).
</TABLE>
* As Trustee who is an "interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) of the Funds or the Advisor.
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, Crabbe Huson, 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 below sets forth (1) the aggregate compensation paid by the
Trust to the Trustees for 1998, and (ii) the amount of compensation paid to the
Trustees of the Trust in their capacities as Trustees of the Liberty Funds
Complex for service for 1998 (a):
Compensation Table
<TABLE>
<CAPTION>
Total Compensation From Liberty Funds Complex
Aggregate 1998 Compensation Paid to the Directors/Trustees For The
Trustee from the Trust(b) Calendar Year Ended December 31, 1998(c)
- ------- --------------------------- ---------------------------------------------
<S> <C> <C>
Robert J. Birnbaum $ 592 $124,429
Tom Bleasdale 592 115,000(e)
John V. Carberry 0(d) 0(d)
Lora S. Collins 592 97,429
James E. Grinnell 592 128,071
Richard W. Lowry 592 123,214
Salvatore Macera 10,393 25,250
William E. Mayer 296 113,286
James L. Moody, Jr. 592(f) 105,857(g)
John J. Neuhauser 599 130,323
Thomas E. Stitzel 10,393 25,250
Robert L. Sullivan 649 104,100
Anne-Lee Verville 592(f) 23,445(h)
</TABLE>
(a) The Liberty Funds Complex does not currently provide pension or
retirement plan benefits to the Trustees.
(b) Messrs. Birnbaum, Bleasdale, Carberry, Grinnell, Lowry, Mayer, Moody,
Neuhauser and Sullivan and Mmes. Collins and Verville joined the
Board of the Trustees of the Trust on December 17, 1998.
(c) At December 31, 1998, the Liberty Funds Complex consisted of 52
open-end and 5 closed-end management investment company portfolios
advised by the Administrator or its affiliates, Newport,
Crabbe Huson Group, Inc. and Stein Roe, nine funds of the Trust and the
closed-end Liberty All-Star Equity and Liberty All-Star Growth Fund,
Inc., Liberty Funds Trust IX advised by LAMCO, another
affiliate of the Administrator.
(d) Mr. Carberry does not receive compensation because he is an affiliated
Trustee and employee of LFC.
(e) Includes $52,000 payable in later years as deferred compensation.
(f) Total compensation of $592 is payable in later years as deferred
compensation.
(g) Total compensation of $105,857 is payable in later years as deferred
compensation.
(h) Total compensation of $23,445 is payable in later years as deferred
compensation.
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, 1999 the general account of Keyport owned of record 48% of All-Star Equity
Fund and 37% of Tiger Fund. At June 1, 1999 the general account of Keyport owned
of record 100% of International Horizons Fund, 100% of Global Equity Fund and
100% of Real Estate Fund. 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, 1999 owned beneficially 5% or more of the outstanding shares of any
Fund.
Custodians
The Chase Manhattan Bank, 270 Park Avenue Park Avenue, New York, NY
10017-2070, is custodian of the securities and cash owned by all of the Funds,
except the Real Estate Fund. State Street Bank & Trust Company, located at 225
Franklin Street, Boston, MA 02110, is custodian of the securities and cash owned
by the Real Estate Fund. The custodians are responsible for holding all
securities and cash of each Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Funds, and performing
other administrative duties, all as directed by persons authorized by the Trust.
The 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 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 Prospectuses.
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, International Horizons Fund and Global Equity Fund
may be expected to experience higher portfolio turnover rates if such Funds make
a change in its respective 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 NYSE is restricted or the NYSE is closed, other than
customary weekend and holiday closing, (ii) for any period during which an
emergency exists as a result of which disposal of securities or determination of
the net asset value of the Funds is not reasonably practicable, or (iii) for
such other periods as the SEC may by order permit for protection of shareholders
of the Funds.
Valuation of Securities
The assets of the Funds are valued as follows:
Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Colonial (the Trust's
pricing and bookkeeping agent) deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on Nasdaq are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost when such cost approximates market value
pursuant to procedures approved by the Trustees. The values of foreign
securities quoted in foreign currencies are translated into U.S. dollars at the
exchange rate as of 3:00 p.m. Eastern time. Portfolio positions for which there
are no such valuations and other assets are valued at fair value as determined
in good faith under the direction of the Trustees.
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
Jr., Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
NYSE. The values of these securities used in determining the net asset value are
computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds and U.S.
government securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
NYSE. Occasionally, events affecting the value of such securities may occur
between such times and the close of the NYSE which will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value following procedures approved by the Trustees.
Portfolio Transactions
The Trust has no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities with respect to
the Funds, and the Funds have no intention to deal exclusively with any
particular broker-dealer or group of broker-dealers.
Each of Colonial, Stein Roe, Newport, Crabbe Huson and each of LAMCO's
Portfolio Managers (each an "Advisor") 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 Advisor 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 Advisor 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,
International Horizons Fund, Global Equity Fund and All-Star Equity Fund,
securities transactions of the Funds may be executed by broker-dealers who also
provide research services (as defined below) to an Advisor, the Funds or other
accounts as to which such Advisor exercises investment discretion. Such advisor
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 Advisors, 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 Advisors 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
Advisor 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.
Certain of the other accounts of any of the Advisors may have
investment objectives and programs that are similar to those of the Funds.
Accordingly, occasions may arise when each of the Advisors 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 Advisor 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 Advisors 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, International
Horizons Fund and Global Equity Fund. The portfolio manager for the
International Fund, International Horizons Fund and Global Equity Fund is Gita
Rao, who is jointly employed by Colonial and Stein Roe (each of which is an
indirect wholly owned subsidiary of LFC). The Funds and the other accounts
advised by Ms. Rao 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 Funds and such other
accounts will be bunched and executed on an aggregate basis. In such cases, each
participating account (including the International Fund, International Horizons
Fund and Global Equity Fund) 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, International
Horizons Fund and Global Equity Fund) 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, International Horizons Fund and
Global Equity are 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,
International Horizons Fund and Global Equity Fund may be executed by
broker-dealers who provide research services to Colonial or Stein Roe which are
used in the investment management of such Funds 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 Funds 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,
International Horizons Fund, Global Equity Fund or other accounts over which
Colonial exercises investment discretion.
Additional Matters Pertaining to All-Star Equity Fund. The Portfolio
Management Agreements with LAMCO's Portfolio Managers provide that LAMCO has the
right to request that transactions 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 Equity Fund or other accounts managed by LAMCO
(collectively with All-Star Equity Fund, "LAMCO Clients") or as to which an
ongoing relationship will be a value to the Fund in managing its assets. 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 Equity 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. (All-Star Equity Fund commenced operations on
November 15, 1997; Small Cap Fund and High Yield Fund commenced operations on
May 19, 1998; International Horizons Fund, Global Equity Fund and Real Estate
Fund commenced operations on June 1, 1999.)
<TABLE>
<CAPTION>
Growth & Global International U.S. Tiger Fund All-Star High Yield Small Cap Strategic
Income Fund Utilities Fund Stock Fund Equity Fund Fund Income
Fund Fund Fund
----------- --------- ------------- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total amount of $86,453 $124,815 $66,549 $147,449 $ 36,508 $58,697 $0 $3,240 $0
brokerage commissions
paid during 1998
Total amount of $0 $0 $0 $0 $0 $84,729 $0 $0 $0
directed transactions
paid during 1998
Total amount of $0 $0 $0 $0 $0 $80 $0 $0 $0
commissions on directed
transactions paid
during 1998
Total amount of $17,178 $0 $0 $45,117 $0 $0 $0 $1,170 $0
brokerage commissions
paid during 1998 to (20%) (31%) (36%)
AlphaTrade Inc.
(% of total commission
paid)
Total amount of $76,021 $108,414 $59,920 $80,839 $110,960 $18,207 -- -- $0
brokerage commissions
paid during 1997
Total amount of $35,863 $22,345 $92,485 $75,253 $109,515 -- -- -- $0
brokerage commissions
paid during 1996
</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 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 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.
Investments in Less Developed Countries
International Fund and International Horizons Fund'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
International Fund's assets and up to 35% of the International Horizons Fund's
assets will be invested in such emerging market countries. As of May 1, 1999,
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>
China Argentina Czech Republic South Africa
Hong Kong Brazil Greece
India Chile Hungary
Indonesia Colombia Israel
South Korea Mexico Jordan
Malaysia Peru Poland
Pakistan Venezuela Russia
Philippines Turkey
</TABLE>
Under normal market conditions, the Tiger Fund invests primarily in
stocks of companies located in the nine Tiger countries of Asia. The Tigers of
Asia are Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand,
Indonesia, The People's Republic of China and the Philippines.
Foreign Currency Transactions
Each of International Fund, Tiger Fund, Global Utilities Fund,
Strategic Income Fund, International Horizons Fund, Global Equity 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, Global Utilities Fund, International
Horizons Fund, Global Equity 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 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) 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, Global Utilities Fund, Strategic Income
Fund, International Horizons Fund, Global Equity 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
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, International Horizons Fund, Global Equity 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.
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, International
Horizons Fund, Global Equity Fund, Real Estate Fund and All-Star Equity Fund may
purchase and sell options on individual securities.
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 sub-advisor, 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 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 SEC 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.
Risk factors in options transactions.
The successful use of a Fund's options strategies depends on the
ability of its sub-advisor 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 sub-advisor deems it desirable to
do so. Although the Fund will take an option position only if the sub-advisor
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 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, Strategic Income
Fund, International Horizons Fund, Global Equity Fund, Real Estate Fund and
All-Star Equity Fund may buy and sell certain future contracts (and in certain
cases related options), to the extent and for the purposes specified in the
Prospectuses.
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 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.
Risks of transactions in futures contracts and related options
Successful use of futures contracts by a Fund is subject its
sub-advisor'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 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
sub-advisor 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 sub-advisor'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
sub-advisor 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, 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, International Horizons
Fund, Global Equity Fund, Real Estate Fund and All-Star Equity 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 reinvested amount of dividends and
capital gains 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 (including distribution reinvestment shares) at
the end of a given period by the value of the share at the beginning of the
period and subtracting one.
Average Annual Total Return is a hypothetical Annual Rate of return
which if achieved annually would produce the same return as the cumulative total
return percentage calculated for the period.
It 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 "Ending
Redeemable Value," 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; July 5, 1994 in the case
of U.S. Stock Fund and Strategic Income Fund; May 1, 1995, in the case of Tiger
Fund; November 17, 1997 in the case of All-Star Equity Fund; and May 19,1998 in
the case of High Yield Fund and Small Cap Fund) through December 31, 1998 were:
<TABLE>
<CAPTION>
Fund Ending Cumulative Total Average Annual
Redeemable Value Return Percentage Total Return
- ---- ---------------- ----------------- --------------
<S> <C> <C> <C>
Colonial Growth and Income Fund, Variable Series $2,290 128.98% 16.23%
Stein Roe Global Utilities Fund, Variable Series 1,935 93.48 12.73
Colonial International Fund for Growth, Variable Series 1,148 14.82 3.00
Colonial U.S. Stock Fund, Variable Series 2,621 162.09 23.90
Colonial Strategic Income Fund, Variable Series 1,520 51.96 9.75
Newport Tiger Fund, Variable Series 828 (17.21) (5.01)
</TABLE>
S-50
<PAGE>
<TABLE>
<S> <C> <C> <C>
Liberty All-Star Equity Fund, Variable Series 1,196 19.62 17.29
Colonial High Yield Securities Fund, Variable Series 974 (2.57) --
Colonial Small Cap Value Fund, Variable Series 868 (13.25) --
</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'
performance numbers reflect all Fund expenses, net of any voluntary waiver of
expenses by the advisor, sub-advisor or their affiliates, but 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. If performance information
included the effect of these additional amounts, returns would be lower.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP are the Trust's independent accountants. The
financial statements as of December 31, 1998 and for the fiscal years or periods
ended December 31, 1998 and December 31, 1997 incorporated by reference in this
SAI have been so incorporated, and the schedules of financial highlights for the
periods ended December 31, 1998 have been included in the Prospectus, in
reliance upon the report of PricewaterhouseCoopers 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, 1998 Annual Report of the Trust are
incorporated in this SAI by reference.
<PAGE>
Part C. OTHER INFORMATION
Colonial International Horizons Fund, Variable Series (CIHF, VS)
Colonial Global Equity Fund, Variable Series (CGEF, VS)
Crabbe Huson Real Estate Investment Fund, Variable Series (CHREIF, VS)
Item 23. Exhibits:
(a) Agreement and Declaration of Trust(3)
(b) By-Laws(3)
(c) Not Applicable
(d)(1) Form of Sub-Advisory Agreement between the
Trust, on behalf of CSIF, VS, LASC and
Colonial
(d)(2)(i) Form of Management Agreement between the Trust,
with respect to CIHF, VS and LASC(1)
(d)(2)(ii) Form of Sub-Advisory Agreement between the
Trust, on behalf of CIHF, VS, LASC and
Colonial(1)
(d)(3)(i) Form of Management Agreement between the Trust,
with respect to CGEF, VS and LASC(1)
(d)(3)(ii) Form of Sub-Advisory Agreement between the
Trust, on behalf of CGEF, VS, LASC and
Colonial(1)
(d)(4)(i) Form of Management Agreement between the Trust,
with respect to CHREIF, VS and LASC(1)
(d)(4)(ii) Form of Sub-Advisory Agreement between the
Trust, on behalf of CHREIF, VS, LASC and
Crabbe Huson Group, Inc.(1)
(e)(1)(i) Underwriting Agreement between the Registrant
and Keyport Financial Services Corp.
("KFSC")(1)
(e)(1)(ii) Amendment No. 1 to KFSC Underwriting
Agreement(1)
(e)(2) Underwriting Agreement between the Registrant
and Liberty Funds Distributor, Inc. (LFDI)(3)
(e)(3) 12b-1 Plan Implementing Agreement between the
Registrant and KFSC
(e)(4) 12b-1 Plan Implementing Agreement between the
Registrant and LFDI
(f) Not applicable
(g)(1)(i) Global Custody Agreement with The
Chase Manhattan Bank - filed as Exhibit 8. in
Part C, Item 24(b) of Post-Effective Amendment
No 13 to the Registration Statement on Form
N-1A of Colonial Trust VI (File Nos. 33-45117
and 811-6529) and is hereby incorporated
by reference and made a part of this
Registration Statement
(g)(1)(ii) Amendment No. 5 to Appendix A of Custody
Agreement with the Chase Manhattan Bank
(g)(2) Form of Custody Agreement with State Street
Bank and Trust Company
(h)(1)(i) Form of Pricing and Bookkeeping Agreement
between the Trust and Colonial(3)
(h)(1)(ii) Amendment No. 1 to Pricing and Bookkeeping
Agreement(3)
(h)(1)(iii) Amendment No. 2 to Pricing and Bookkeeping
Agreement(3)
(h)(1)(iv) Amendment No. 3 to Pricing and Bookkeeping
Agreement(3)
(h)(2)(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 Liberty Funds Services, Inc.
("LFSI")(including form of Transfer Agency
Agreement and Amendment No. 1 thereto)(3)
(h)(2)(ii) Amendment No. 2 to Transfer Agency Agreement(3)
(h)(2)(iii) Amendment No. 3 to Transfer Agency Agreement(3)
(i) Opinion and consent of counsel as to the
legality of the securities being registered
(included with annual Rule 24f-2 Notices)
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m) Rule 12b-1 Distribution Plan
(n) Not applicable
(o) Not Applicable
Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale, John V. Carberry, Lora
S. Collins, James E. Grinnell, Richard W. Lowry, Salvatore Macera, William E.
Mayer, James L. Moody, Jr., John J. Neuhauser, Thomas E. Stitzel, Robert L.
Sullivan and Anne-Lee Verville - filed as Exhibit 15(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A of
Liberty Variable Investment Trust (File Nos. 33-59216 and 811-7556) and is
hereby incorporated by reference and made a part of this Registration Statement
(1) To be filed by amendment.
(2) Incorporated by reference to Post-Effective Amendment No. 9 to
the Registration Statement filed with the Commission via EDGAR on
or about August 29, 1997.
(3) Incorporated by reference to Post-Effective Amendment No. 17 to
the Registration Statement filed with the Commission via EDGAR on
or about April 16, 1999.
Item 24. Persons Controlled by or under Common Control with
Registrant
Shares of the Trust registered pursuant to this
Registration Statement will be offered and sold to
Keyport Life Insurance Company ("Keyport"), a stock
life insurance company organized under the laws of
Rhode Island, and to certain of its separate
investment accounts and 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 also 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 LFDI, the Trust's principal underwriters,
LASC, the Trust's investment manager, Colonial,
LASC's sub-adviser with respect to IHF and GEF,
Crabbe Huson, LASC's sub-adviser with respect
to REIF, are subsidiaries of Liberty Financial
Companies, Inc. ("Liberty Financial"), Boston,
Massachusetts. Liberty Mutual Insurance Company
("Liberty Mutual"), Boston, Massachusetts, as
of December 31, 1998 owned,
indirectly, approximately 71% 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 25. 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 trial-type inquiry), that there is
reason to believe that the Covered Person
ultimately will be found entitled
to indemnification.
Any approval of indemnification pursuant to Article
Tenth does not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in
accordance with Article Tenth as indemnification if
such Covered Person is subsequently adjudicated by a
court of competent jurisdiction not to have acted in
good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best
interests of Registrant or to have been liable to
Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of
such Covered Person's office.
Article Tenth also provides that its indemnification
provisions are not exclusive.
Insofar as indemnification for liabilities arising
under the 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 or 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 person 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 effort, omission, or breach of any duty
owed to the Trust or any Fund by the investment
manager.
Item 26. Business and Other Connections of Investment Adviser
Certain information pertaining to business and other
connections of the Registrant's investment manager,
LASC, Colonial, the sub-adviser to each of IHF and
GEF, Crabbe Huson, the sub-adviser to REIF, is
incorporated herein by reference to the section of
the Prospectus relating to IHF, GEF and REIF
captioned "TRUST MANAGEMENT ORGANIZATIONS" and to
the section of the Statement of Additional
Information relating to those
Funds 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 and Crabbe Huson
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.
Liberty Advisory Services, Inc.
Liberty Advisory Services, Inc. is a direct wholly
owned subsidiary of Keyport. Keyport is a direct
wholly owned 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>
Name and Current Position with Adviser Other Positions During
Past Two Fiscal Years
<S> <C> <C>
Paul H. LeFevre, Jr. President, Chief Executive President and Chief Executive
Officer and Chairman of the Board Officer (since November, 1998),
of Directors Executive Vice President, Senior
Vice President and Chief Financial
Officer (prior to November, 1998),
Keyport
Stewart R. Morrison Diector, Senior Vice President Senior Vice President and Chief
and Chief Investment Officer Investment Officer of Keyport
Mark R. Tully Director and Senior Vice President Senior Vice President and Chief
Sales Officer of Keyport
James J. Klopper Vice President and Clerk Vice President, Counsel and
Secretary of Keyport; Clerk of KFSC
Daniel C. Bryant Vice President Vice President and Assistant
Secretary of Keyport (since
December, 1997): Chief Legal
Counsel, Department of Business
Regulation, State of Rhode Island
(March, 1995 to November, 1997)
Jeffrey J. Whitehead Vice President and Treasurer Vice President and Treasurer of
Keyport
Jacob M. Herschler Vice President Vice President of Keyport
</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 Management Associates, Inc. (Colonial)
Colonial is a direct wholly owned subsidiary
of Liberty Funds Group LLC ("LFG"). LFG is a
indirect owned subsidiary of Liberty
Financial.
<TABLE>
<CAPTION>
Name and Current Position with Adviser Other Positions During
Past Two Fiscal Years
<S> <C> <C>
Stephen E. Gibson President, Chief Executive Director, CEO, President, Executive
Officer and Chairman of the Board Committee Member and Chairman of
of Directors the Board of Directors of LFG
Nancy L. Conlin Senior Vice President, General Vice President, Secretary and
Counsel and Director General Counsel of LFG
Timothy J. Jacoby Senior Vice President, Chief Vice President, Treasurer and Chief
Financial Officer and Treasurer Financial Officer of LFG
Joseph R. Palombo Executive Vice President and Vice President, Chief
Director Administrative Officer and Director
of LFG (formerly, Chief Operating
Officer of Putnam Investments)
</TABLE>
The business address of Colonial and each
individual listed in the foregoing table is
c/o Colonial Management Associates, Inc.,
One Financial Center, Boston, Massachusetts
02111.
Crabbe Huson Group, Inc.
The business and other connections of the officers,
directors of the Registrant's investment advisor, Crabbe
Huson Group, Inc., are listed on the Form ADV of Crabbe
Huson Group, Inc. as currently on file with the Commission
(File No. 801-15154), the text of which is incorporated
herein by reference: (a) Items 1 and 2 of Part 2, and (b)
Section 6, Business Background of each Schedule D.
Item 27. Principal Underwriters
(a) KFSC and LFDI 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
LFDI also acts as a principal underwriter
for the following investment companies:
For each series of Liberty Funds
Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds
Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty-Stein Roe Advisor Trust,
Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Investment
Trust, Stein Roe Floating Rate Income Fund, Stein Roe Institutional
Floating Rate Income Fund, SteinRoe Variable Investment Trust and
Stein Roe Trust.
(b) Set forth below is information
concerning each director and officer of
KFSC.
<TABLE>
<CAPTION>
Name and Current Position with Adviser* Other Positions During
Past Two Fiscal Years
<S> <C> <C>
Paul H. LeFevere President and Director None
Rogelio P. Zaplit Treasurer 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.
Francis E. Reinhart Director None
James J. Klopper Clerk and Director None
Donald A. Truman Assistant Clerk None
Set forth below is information concerning
each director and officer of LFDI.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Anetsberger, Gary Sr. V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Ballou, Rick Sr. V.P. None
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
Downey, Christopher V.P. None
Dupree, Robert V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Gariepy, Tom V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Gupta, Neeti V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Harris, Carla V.P. None
Hodgkins, Joseph Sr. V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Predmore, Tracy V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
VanEtten, Keith H. Sr. V.P. None
Walter, Heidi V.P. None
Wess, Valerie Sr. V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 28. 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.
The Chase Manhattan Bank, 3 Chase Metro
Tech Center, 8th Floor, Brooklyn, New York
11745, serves as custodian for all series
of the Trust, except for REIF. State
Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02111, serves
as custodian for REIF. In such capacity,
the 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 its duties as custodian.
Liberty Funds Services, Inc. (formerly
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 LFDI, 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.
Item 29. 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 30. Undertakings
Not Applicable
<PAGE>
******************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Liberty
Variable Investment Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that the instrument has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Liberty Variable Investment Trust,
certifies that it meets all of the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) and has duly caused this
Post-Effective Amendment No. 18 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 19 under the Investment Company Act of
1940, to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston, and The Commonwealth of Massachusetts on this 1st day of June,
1999.
LIBERTY VARIABLE INVESTMENT TRUST
By: STEPHEN E. GIBSON
Stephen E. Gibson, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in their capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
STEPHEN E. GIBSON President (chief June 1, 1999
- -----------------
Stephen E. Gibson Executive officer)
TIMOTHY J. JACOBY Treasurer and Chief Financial Officer June 1, 1999
- -----------------
Timothy J. Jacoby (principal financial officer)
J. Kevin connaughton Controller and Chief Accounting June 1, 1999
- --------------------
J. Kevin Connaughton Officer (principal accounting officer)
</TABLE>
<PAGE>
ROBERT J. BIRNBAUM* Trustee
Robert J. Birnbaum
TOM BLEASDALE* Trustee
Tom Bleasdale
JOHN V. CARBERRY* Trustee
John V. Carberry
LORA S. COLLINS* Trustee
Lora S. Collins
JAMES E. GRINNELL* Trustee
James E. Grinnell
RICHARD W. LOWRY* Trustee */s/ SUZAN M. BARRON
Richard W. Lowry Suzan M. Barron
Attorney-in-fact
For each Trustee
SALVATORE MACERA* Trustee June 1, 1999
Salvatore Macera
WILLIAM E. MAYER* Trustee
William E. Mayer
JAMES L. MOODY, JR. * Trustee
James L. Moody, Jr.
JOHN J. NEUHAUSER* Trustee
John J. Neuhauser
THOMAS E. STITZEL* Trustee
Thomas E. Stitzel
ROBERT L. SULLIVAN* Trustee
Robert L. Sullivan
ANNE-LEE VERVILLE* Trustee
Anne-Lee Verville
<PAGE>
EXHIBITS
(d)(3)(iv) Form of Sub-Advisory Agreement between the
Trust, on behalf of CSIF, VS, LASC and Colonial
(e)(3) 12b-1 Plan Implementing Agreement between the
Registrant and KFSC
(e)(4) 12b-1 Plan Implementing Agreement between the
Registrant and LFDI
(g)(1)(ii) Amendment No. 5 to Appendix A of Custody
Agreement with the Chase Manhattan Bank
(g)(2) Custody Agreement with State Street Bank and
Trust Company
(m) Rule 12b-1 Distribution Plan
COLONIAL-KEYPORT STRATEGIC INCOME FUND
COLONIAL MANAGEMENT SUB-ADVISORY AGREEMENT
AGREEMENT dated July 5,1994 among KEYPORT VARIABLE INVESTMENT TRUST, a
Massachusetts business trust (the "Trust"), with respect to COLONIAL-KEYPORT
STRATEGIC INCOME FUND (the "Fund"), KEYPORT ADVISORY SERVICES CORP., a
Massachusetts corporation ("Adviser"), and COLONIAL MANAGEMENT ASSOCIATES, INC.,
a Massachusetts corporation (the "Sub-Adviser").
In consideration of the promises and covenants herein, the parties
agree as follows:
1. The Sub-Adviser will manage the investment of the assets of the Fund
in accordance with its investment objective, policies and limitations set forth
in the Trust's prospectus and statement of additional information, as amended
from time to time, and will perform the other services herein set forth, subject
to the supervision of the Adviser and the Board of Trustees of the Trust.
2. In carrying out its investment management obligations, the
Sub-Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in
accordance with the procedures described in the Trust's prospectus and statement
of additional information; and
(c) report results to the Adviser and to the Board of Trustees.
3. The Sub-Adviser may delegate its investment responsibilities under
paragraph 2(b) with respect to the Fund to one or more persons or companies
registered as investment advisers under the Investment Adviser's Act of 1940, as
amended, or qualifying as a "bank" within the meaning of such Act and thereby
exempted from the requirement to be so registered ("Second-Tier Sub-Advisers"),
pursuant to an agreement among the Trust, such Fund, the Adviser, the
Sub-Adviser and such Second-Tier Sub-Adviser ("Second-Tier Sub-Advisory
Agreement"). Each Second-Tier Sub-Advisory Agreement may provide that the
Second-Tier Sub-Adviser, subject to the control and supervision of the Trustees,
the Adviser and the Sub-Adviser, shall have full investment discretion for the
Fund and the Fund's assets or any portion thereof specified by the Sub-Adviser.
Any selection of duties pursuant to this paragraph shall comply with any
applicable provisions of Section 15 of the Investment Company Act of 1940, as
amended ("the "1940 Act"), except to the extent permitted by any applicable
exemptive order of the Securities and Exchange Commission or similar relief. The
Sub-Adviser shall be solely responsible for paying the fees of each Second-Tier
Sub-Adviser from the fees it collects as provided in paragraph 5 below.
4. The Sub-Adviser shall be free to render similar services to others
so long as its services hereunder are not impaired thereby.
5. The Advisor shall pay the Sub-Adviser a monthly fee at the annual
rate of 0.45% of the average daily net assets of the Fund for managing the
investment of the assets of the Fund as provided in paragraph 1 above. Such fee
shall be paid in arrears on or before the 10th day of the next following
calendar month.
6. This Agreement shall become effective on the date first written
above, and (a) unless otherwise terminated, shall continue until June 7, 1995
and from year to year thereafter so long as approved annually in accordance with
the 1940 Act; (b) may be terminated without penalty on sixty days' written
notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Fund; (c)
shall automatically terminate in the event of its assignment; and (d) may be
terminated without penalty by the Sub-Adviser on sixty day's written notice to
the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of
the outstanding shares," "affiliated person" and "assignment" shall have their
respective meanings defined in the 1940 Act and exemptions and interpretations
issued by the Securities and Exchange Commission under the 1940 Act.
9. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Sub-Adviser, or reckless disregard of its obligations and
duties hereunder, the Sub-Adviser shall not be subject to any liability to the
Trust or the Fund, to any shareholder of the Trust or the Fund or to any other
person, firm or organization, for any act or omission in the course of or
connection with rendering services hereunder.
10. The Fund may use the name "Colonial," or any other name derived
from the name "Colonial," only for so long as this Agreement or any extension,
renewal, or amendment hereof remains in effect, including any similar agreement
with any organization that shall have succeeded to the business of the
Sub-Advisor. At such time as this Agreement or any extension, renewal or
amendment hereof, or each such other similar successor organization agreement
shall no longer be in effect, the Fund will cease to use any name derived from
the name "Colonial," any name similar thereto, or any other name indicating that
it is advised by or otherwise connected with the Sub-Adviser, or with any
organization which shall have succeeded to the Sub-Adviser's business as an
investment adviser.
11. The Sub-Adviser is hereby expressly put on notice of the limitation
of shareholder liability as set forth in the Declaration of Trust of the Trust
and agrees that obligations assumed by the Trust pursuant to this Agreement
shall be limited in an cases to the assets of the Fund. The Sub-Adviser further
agrees that it shall not seek satisfaction of any such obligation from the
shareholders of the Fund, nor from the Trustees or any individual Trustee of the
Trust.
COLONIAL-KEYPORT STRATEGIC INCOME FUND
By: KEYPORT VARIABLE INVESTMENT TRUST
By: Richard R. Christensen
Its President
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: Arthur O. Stern
Its
KEYPORT ADVISORY SERVICES CORP.
By: R. Baird
Its
12B-1 PLAN IMPLEMENTING AGREEMENT
Liberty Variable Investment Trust, a Massachusetts business trust (the
Trust), and Keyport Financial Services Corp., (KFSC) a Massachusetts
corporation, agree effective June 1, 1999:
1. 12B-1 PLAN. The Trust, on behalf of its Funds, has adopted a so-called
"Rule 12b-1 Plan" (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940 (the "Act"). Under the Rule, a Fund may, pursuant
to a Plan, pay KFSC a specified portion of its assets to be used for the
purposes specified in its Plan. A Plan shall continue in effect with respect to
a Fund only so long as specifically approved for that Fund at least annually as
provided in the Rule. A Plan may not be amended to increase materially any
service fee or distribution fee with respect to a Fund without such shareholder
approval as is required by the Rule or any applicable orders of the Securities
and Exchange Commission, and all material amendments of the Plan must be
approved in the manner described in the Rule. A Plan may be terminated with
respect to a Fund at any time as provided in the Rule without payment of any
penalty.
This Agreement shall apply to each Fund named in Appendix 1 as that
Appendix may be amended from time to time by the parties, in writing.
2. PAYMENTS, EXPENDITURES AND REPORTS.
A. Each Fund shall pay KFSC the amount then due KFSC under a Plan on
the 20th day of each month, or, if such day is not a business day, the next
business day thereafter, during the term of this Agreement.
B. KFSC shall expend the amounts paid to it by the Funds under a Plan
in its discretion, so long as such expenditures are consistent with the Rule,
the Plan, and any instructions KFSC may receive from the Trustees of the Trust.
C. KFSC shall make all reports required under the Act, the Rule or a
Plan to the Trustees of the Trusts, as provided in the Act, the Rule and any
Plan or as requested by the Trustees. If a participating insurance company (as
defined in the Plan) is an "affiliate" of KFSC (as that term is defined in the
Act), KFSC shall obtain comparable information from that participating company
and provide such information to the Trustees.
3. CONTINUATION; AMENDMENT; TERMINATION; NOTICE.
A. This Agreement (i) supersedes and replaces any contract or agreement
relating to the subject matter hereof in effect prior to the date hereof, (ii)
shall continue in effect as to the Trust or any Fund only so long as
specifically approved at least annually by the Trustees or shareholders of the
Trust or Fund and (iii) may be amended at any time by written agreement of the
parties, each in accordance with the Act and the Rule.
B. This Agreement (i) shall terminate immediately upon the effective
date of any later dated agreement relating to the subject matter hereof, and
(ii) may be terminated upon 60 days' notice without penalty by a vote of the
Trustees or by KFSC or otherwise in accordance with the Act, and (iii) will
terminate immediately in the event of its assignment (as defined in the Act).
Upon termination the obligations of the parties under this Agreement shall cease
except for unfulfilled obligations and liabilities arising prior to termination.
C. All notices required under this Agreement shall be in writing and
delivered to the office of the other party.
4. AGREEMENT AND DECLARATION OF TRUST. A copy of the document establishing
the Trust is filed with the Secretary of The Commonwealth of Massachusetts. As
to the Trust this Agreement is executed by officers not as individuals and is
not binding upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the relevant Fund.
Agreed:
LIBERTY VARIABLE INVESTMENT TRUST
By:
Nancy L. Conlin, Secretary
KEYPORT FINANCIAL SERVICES CORP.
By:
James Klopper, President
12B-1 PLAN IMPLEMENTING AGREEMENT
Liberty Variable Investment Trust, a Massachusetts business trust (the
Trust), and Liberty Funds Distributor, Inc., (LFDI) a Massachusetts
corporation, agree effective June 1, 1999:
1. 12B-1 PLAN. The Trust, on behalf of its Funds, has adopted a so-called
"Rule 12b-1 Plan" (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940 (the "Act"). Under the Rule, a Fund may, pursuant
to a Plan, pay LFDI a specified portion of its assets to be used for the
purposes specified in its Plan. A Plan shall continue in effect with respect to
a Fund only so long as specifically approved for that Fund at least annually as
provided in the Rule. A Plan may not be amended to increase materially any
service fee or distribution fee with respect to a Fund without such shareholder
approval as is required by the Rule or any applicable orders of the Securities
and Exchange Commission, and all material amendments of the Plan must be
approved in the manner described in the Rule. A Plan may be terminated with
respect to a Fund at any time as provided in the Rule without payment of any
penalty.
This Agreement shall apply to each Fund named in Appendix 1 as that
Appendix may be amended from time to time by the parties, in writing.
2. PAYMENTS, EXPENDITURES AND REPORTS.
A. Each Fund shall pay LFDI the amount then due LFDI under a Plan on
the 20th day of each month, or, if such day is not a business day, the next
business day thereafter, during the term of this Agreement.
B. LFDI shall expend the amounts paid to it by the Funds under a Plan
in its discretion, so long as such expenditures are consistent with the Rule,
the Plan, and any instructions LFDI may receive from the Trustees of the Trust.
C. LFDI shall make all reports required under the Act, the Rule or a
Plan to the Trustees of the Trusts, as provided in the Act, the Rule and any
Plan or as requested by the Trustees. If a participating insurance company (as
defined in the Plan) is an "affiliate" of LFDI (as that term is defined in the
Act), LFDI shall obtain comparable information from that participating company
and provide such information to the Trustees.
3. CONTINUATION; AMENDMENT; TERMINATION; NOTICE.
A. This Agreement (i) supersedes and replaces any contract or agreement
relating to the subject matter hereof in effect prior to the date hereof, (ii)
shall continue in effect as to the Trust or any Fund only so long as
specifically approved at least annually by the Trustees or shareholders of the
Trust or Fund and (iii) may be amended at any time by written agreement of the
parties, each in accordance with the Act and the Rule.
B. This Agreement (i) shall terminate immediately upon the effective
date of any later dated agreement relating to the subject matter hereof, and
(ii) may be terminated upon 60 days' notice without penalty by a vote of the
Trustees or by LFDI or otherwise in accordance with the Act, and (iii) will
terminate immediately in the event of its assignment (as defined in the Act).
Upon termination the obligations of the parties under this Agreement shall cease
except for unfulfilled obligations and liabilities arising prior to termination.
C. All notices required under this Agreement shall be in writing and
delivered to the office of the other party.
4. AGREEMENT AND DECLARATION OF TRUST. A copy of the document establishing
the Trust is filed with the Secretary of The Commonwealth of Massachusetts. As
to the Trust this Agreement is executed by officers not as individuals and is
not binding upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the relevant Fund.
Agreed:
LIBERTY VARIABLE INVESTMENT TRUST
By:
Nancy L. Conlin, Secretary
LIBERTY FUNDS DISTRIBUTOR, INC.
By:
President
<PAGE>
APPENDIX 1
Liberty Variable Investment Trust
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
Liberty Variable Investment Trust
By: Nancy L. Conlin, Secretary
LIBERTY FUNDS DISTRIBUTOR, INC.
By: President
Dated: June 1, 1999
AMENDMENT NO. 5 TO SCHEDULE A
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first-above written.
CUSTOMER
Trust Series
Liberty Funds Trust I Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Stein Roe Advisor Tax-Managed Growth Fund
Stein Roe Advisor Tax-Managed Value Fund
Liberty Funds Trust II Colonial Money Market Fund
Colonial Intermediate U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Newport Tiger Cub Fund
Newport Japan Opportunities Fund
Newport Greater China Fund
Liberty Funds Trust III Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial Global Utilities Fund
Colonial Strategic Balanced Fund
Liberty Funds 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 Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
Liberty Funds 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
Liberty Funds Trust VI Colonial U.S. Growth & Income Fund
Colonial Small Cap Value Fund
Colonial Value Fund
Newport Asia Pacific Fund
Liberty Funds 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
<PAGE>
Liberty All-Star Growth Fund, Inc.
Liberty All-Star Equity Fund
Liberty Variable Investment
Trust Colonial Growth and Income Fund, Variable Series
Stein Roe Global Utilities Fund, Variable Series
Colonial International Fund for Growth, Variable Series
Colonial U.S. Stock Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
By:
Nancy L. Conlin
June 1, 1999
THE CHASE MANHATTAN BANK
By:
Rosemary M. Stidmon
June 1, 1999
S:\FUNDS\GENERAL\CONTRACT\CHASE2.DOC
Page 2 of 2
Form of
CUSTODIAN CONTRACT
Between
-----------------------------------
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It....................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States................2
2.1 Holding Securities...........................................2
2.2 Delivery of Securities.......................................2
2.3 Registration of Securities...................................4
2.4 Bank Accounts................................................4
2.5 Availability of Federal Funds................................5
2.6 Collection of Income.........................................5
2.7 Payment of Fund Monies.......................................5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.........................................6
2.9 Appointment of Agents........................................7
2.10 Deposit of Fund Assets in U.S. Securities System.............7
2.11 Fund Assets Held in the Custodian's Direct
Paper System.................................................8
2.12 Segregated Account...........................................9
2.13 Ownership Certificates for Tax Purposes......................9
2.14 Proxies.....................................................10
2.15 Communications Relating to Portfolio
Securities..................................................10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...........................10
3.1 Appointment of Foreign Sub-Custodians.......................10
3.2 Assets to be Held...........................................10
3.3 Foreign Securities Systems..................................11
3.4 Holding Securities..........................................11
3.5 Agreements with Foreign Banking Institutions................11
3.6 Access of Independent Accountants of the Fund...............11
3.7 Reports by Custodian........................................11
3.8 Transactions in Foreign Custody Account.....................12
3.9 Liability of Foreign Sub-Custodians.........................12
3.10 Liability of Custodian......................................12
3.11 Reimbursement for Advances..................................12
3.12 Monitoring Responsibilities.................................13
3.13 Branches of U.S. Banks......................................13
3.14 Tax Law.....................................................14
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund................................................14
5. Proper Instructions..................................................14
6. Actions Permitted Without Express Authority..........................15
7. Evidence of Authority................................................15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income....................15
9. Records..............................................................16
10. Opinion of Fund's Independent Accountants............................16
11. Reports to Fund by Independent Public Accountants....................16
12. Compensation of Custodian............................................16
13. Responsibility of Custodian..........................................17
14. Effective Period, Termination and Amendment..........................18
15. Successor Custodian..................................................19
16. Interpretive and Additional Provisions...............................19
17. Additional Funds.....................................................20
18. Massachusetts Law to Apply...........................................20
19. Prior Contracts......................................................20
20. Reproduction of Documents............................................20
21. Shareholder Communications Election..................................20
<PAGE>
CUSTODIAN CONTRACT
This Contract between ______________, a business trust organized and
existing under the laws of The Commonwealth of Massachusetts, having its
principal place of business at _____________________ hereinafter called the
"Fund", and State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series,
_________________ (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio ; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to ___________________________________with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1997.
ATTEST
By
ATTEST STATE STREET BANK AND TRUST COMPANY
By
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of ____________ Trust
for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
Liberty Variable Investment Trust
Rule 12b-1 Distribution Plan
June 1, 1999
Liberty Variable Investment Trust, a Massachusetts business trust (the
Trust) hereby adopts the following distribution plan (the Plan) pursuant to Rule
12b-1 (the Rule) under the Investment Company Act of 1940 (Act) on behalf of the
specified Funds in the Trust, as follows:
I. COLONIAL INTERNATIONAL HORIZONS FUND, VARIABLE SERIES
COLONIAL GLOBAL EQUITY FUND, VARIABLE SERIES
CRABBE HUSON REAL ESTATE INVESTMENT FUND, VARIABLE SERIES
Each Fund shall pay a service fee at the annual rate of 0.25% of its
net assets.
II. Payments of Fees Under the Plan
Each Fund shall make all payments of service fees under this Plan to
the Distributor of Record (Liberty Funds Distributor, Inc. [LFDI] or Keyport
Financial Services Corp. [KFSC]) monthly, on the 20th day of each month or, if
such day is not a business day, on the next business day thereafter. No Fund
shall pay, nor shall a Distributor of Record be entitled to receive, any amount
under this Plan if such payment would result in a Distributor of Record
receiving amounts in excess of those permitted by applicable law or by rules of
the National Association of Securities is Dealers, Inc.
III. Use of Fees.
A Distributor of Record may pay part or all of the service fees it
receives from a Fund as reimbursements to a participating insurance company (a
Company) that has issued qualified variable annuity or variable life contracts
("Contracts") for which shares of the Trust serve as investment vehicles, and
that provides services to the owners of its Contracts. This provision does not
obligate a Distributor of Record to make any payments of service fees nor limit
the use that a Distributor of Record may make of the fees it receives.
IV. Reporting
The Distributor of Record shall provide to the Trust's Trustees, and
the Trustees shall review, at least quarterly, reports setting forth all Plan
expenditures, and the purposes for those expenditures. Amounts payable under
this paragraph are subject to any limitations on such amounts prescribed by
applicable laws or rules. If a Company is an "affiliate" of a Distributor of
Record (as that term is defined in the Act), that Distributor of Record shall
obtain comparable information from that Company and provide such information to
the Trustees.
V. Other Payments Authorized
Payments by the Trust to a Distributor of Record and its affiliates
(including Liberty Advisory Services Corp.) other than as set forth in Section I
which may be indirect financing of distribution costs are authorized by this
Plan.
<PAGE>
VI. Continuation; Amendment; Termination
This Plan shall continue in effect with respect to a Fund only so long
as specifically approved for that Fund at least annually as provided in the
Rule. The Plan may not be amended to increase materially the service fee with
respect to a Fund without such shareholder approval as is required by the Rule
and any applicable orders of the Securities and Exchange Commission, and all
material amendments of the Plan must be approved in the manner described in the
Rule. The Plan may be terminated with respect to any Fund at any time as
provided in the Rule without payment of any penalty. The continuance of the Plan
shall be effective only if the selection and nomination of the Trust's Trustees
who are not interested persons (as defined under the Act) of the Trust is
effected by such non-interested Trustees as required by the Rule.
Approved by the Trustees as of the date set
forth above:
By: _____________________________________
Nancy L. Conlin, Secretary of the Trust
