LIBERTY VARIABLE INVESTMENT TRUST
PROSPECTUS DATED JUNE 1, 2000
Liberty Value Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Colonial U.S. Growth & Income Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Newport Tiger Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
Liberty Newport Japan Opportunities Fund, Variable Series
Liberty Select Value Fund, Variable Series
Rydex Financial Services Fund, Variable Series
Rydex Health Care Fund, Variable Series
Liberty S&P 500 Index Fund, Variable Series
CLASS B SHARES
Trust shares are available only through variable annuity contracts and variable
life insurance policies of participating insurance companies.
* * * *
This Prospectus must be accompanied by a prospectus for your variable annuity
contract or variable life insurance policy. Retain both prospectuses for future
reference.
* * * *
Although trust shares have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved 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
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INSURED NO BANK GUARANTEE
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE TRUST 3
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THE FUNDS 3
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Each of these sections discusses the following
topics: Investment Goals, Primary Investment Strategies,
Primary Investment Risks and Performance History
Liberty Value Fund, Variable Series.................................................................................. 4
Colonial Small Cap Value Fund, Variable Series....................................................................... 6
Colonial U.S. Growth & Income Fund, Variable Series.................................................................. 8
Colonial Strategic Income Fund, Variable Series......................................................................10
Colonial High Yield Securities Fund, Variable Series.................................................................13
Liberty All-Star Equity Fund, Variable Series........................................................................16
Newport Tiger Fund, Variable Series..................................................................................19
Crabbe Huson Real Estate Investment Fund, Variable Series............................................................21
Liberty Newport Japan Opportunities Fund, Variable Series............................................................22
Liberty Select Value Fund, Variable Series...........................................................................23
Rydex Financial Services Fund, Variable Series.......................................................................24
Rydex Health Care Fund, Variable Series..............................................................................25
Liberty S&P 500 Index Fund, Variable Series..........................................................................26
TRUST MANAGEMENT ORGANIZATIONS 28
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The Trustees.........................................................................................................28
Investment Advisor: Liberty Advisory Services Corp..................................................................28
Investment Sub-Advisors and Portfolio Managers.......................................................................28
Rule 12b-1 Plan......................................................................................................32
Mixed and Shared Funding.............................................................................................32
OTHER INVESTMENT STRATEGIES AND RISKS 33
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U.S. Government Securities...........................................................................................33
Structure Risk.......................................................................................................33
Zero Coupon Bonds....................................................................................................33
Convertible Securities...............................................................................................33
Derivative Strategies................................................................................................33
Equity Risk..........................................................................................................34
Pricing Risk.........................................................................................................34
Early Closing Risk...................................................................................................34
Temporary Defensive Strategies.......................................................................................34
FINANCIAL HIGHLIGHTS 35
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SHAREHOLDER INFORMATION 43
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Purchases and Redemptions............................................................................................43
How the Funds Calculate Net Asset Value..............................................................................43
Dividends and Distributions..........................................................................................43
Tax Consequences.....................................................................................................43
Other Class of Shares................................................................................................43
</TABLE>
2
<PAGE>
THE TRUST
---------
Liberty Variable Investment Trust (Trust) includes seventeen separate mutual
funds (Funds), each with its own investment goals and strategies. This
Prospectus contains information about thirteen of the Funds in the Trust.
Liberty Advisory Services Corp. (LASC) is the investment advisor to each Fund.
LASC has appointed an investment sub-advisor (Sub-Advisor) for each Fund, and
all of the Sub-Advisors are affiliates of LASC. Each Fund has the following
Sub-Advisor:
<TABLE>
<CAPTION>
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FUND SUB-ADVISOR
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<S> <C>
Liberty Value Fund, Variable Series (Value Fund) Colonial Management Associates, Inc.
(formerly Colonial Growth and Income Fund) (Colonial)
Colonial Small Cap Value Fund, Variable Series (Small Cap Fund)
Colonial U.S. Growth & Income Fund, Variable Series (U.S. Growth & Income
Fund) (formerly Colonial U.S. Stock Fund, Variable Series)
Colonial Strategic Income Fund, Variable Series (Strategic Income Fund)
Colonial High Yield Securities Fund, Variable Series (High Yield Fund)
Liberty Select Value Fund, Variable Series (Select Value Fund)
Rydex Financial Services Fund, Variable Series (Financial Services Fund)
Rydex Health Care Fund, Variable Series (Health Care Fund)
Liberty S&P 500 Index Fund, Variable Series (S&P 500 Fund)
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Newport Tiger Fund, Variable Series (Tiger Fund) Newport Fund Management, Inc.
Liberty Newport Japan Opportunities Fund, Variable Series (Newport)
(Japan Opportunities Fund)
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Liberty All-Star Equity Fund, Variable Series (All-Star Equity Fund) Liberty Asset Management Company (LAMCO)
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Crabbe Huson Real Estate Investment Fund, Variable Series (Real Estate Fund) Crabbe Huson Group, Inc.
(Crabbe Huson)
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</TABLE>
Other Funds may be added to or deleted from the Trust from time to time. Each
Fund offers two classes of shares-Class A and Class B shares. Each share class
has its own expense structure.
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 underwriter of
the Funds is Liberty Funds Distributor, Inc. (LFD). LFD is an affiliate 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.
THE FUNDS
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DEFINING CAPITALIZATION
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A company's market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the financial
markets, companies generally are sorted into one of three capitalization-based
categories: large capitalization (large cap); medium capitalization (midcap); or
small capitalization (small cap). In defining a company's market capitalization,
we use capitalization-based categories as they are defined by Lipper, Inc.
According to Lipper, Inc, as of December, 1999, large-cap companies had market
capitalizations greater than $9.0 billion, midcap companies had market
capitalizations between $2.2 and 9.0 billion, and small-cap companies had market
capitalizations less than $2.2 billion. These amounts are subject to change.
3
<PAGE>
LIBERTY VALUE FUND, VARIABLE SERIES
-----------------------------------
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks primarily income and long-term capital growth and, secondarily,
preservation of capital.
PRIMARY INVESTMENT STRATEGIES
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The Fund invests in both U.S. and foreign common stocks. In selecting stocks for
the Fund, Colonial invests primarily in "value" stocks. Colonial generally
selects stocks which, when purchased, fall into one of the following categories:
1. Companies whose current business activities provide earnings,
dividends or assets that represent above average value;
2. Companies which have a record of consistent earnings growth that may
provide above average stability or value in turbulent markets; or
3. Companies with anticipated business growth prospects that represent
above average value.
Colonial assesses whether a company's prospects are "above average." Colonial
makes this judgment subjectively, based upon available information.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
4
<PAGE>
THE FUNDS Liberty Value Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year,
5 years and the life of the Fund. The Fund's return is compared to the Standard
& Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance
of a selection of widely held common stocks. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in indices. The Fund's return is also
compared to the average return of the funds included in the Lipper Growth &
Income - Annuities Funds category average (Lipper Average). This Lipper Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. As with
all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(1)
1994 -0.76%
1995 30.03%
1996 17.89%
1997 28.97%
1998 11.13%
1999 5.55%
The Fund's year-to-date total return through March 31, 2000 was -1.59%.
For period shown in bar chart:
Best quarter: 4th quarter 1998, +16.92%
Worst quarter: 3rd quarter 1998, -13.57%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(1)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
<S> <C> <C> <C> <C>
Fund (%) 7/1/93 5.55 18.32 14.52
-------------------------------------------------------------------------------------------------
S&P Index (%) N/A 21.03 28.54 22.46(2)
-------------------------------------------------------------------------------------------------
Lipper Average (%) N/A 14.63 21.86 17.74(2)
</TABLE>
(1) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(2) Performance information is from June 30, 1993.
5
<PAGE>
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
INVESTMENT GOAL
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The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in small
capitalization stocks of U.S. companies. These are stocks with market
capitalizations of less than the market capitalization of the stock in the
Russell 2000 Index that has the largest capitalization at the time of purchase.
The remainder of the Fund's assets may be invested in other stocks, or in bonds
that are rated or considered by the advisor to be investment-grade. In managing
the Fund, Colonial uses a value investing strategy that focuses on buying stocks
cheaply when they are undervalued or "out of favor." Colonial buys stocks that
have attractive current prices, consistent operating performance and/or
favorable future growth prospects. Colonial's strategy uses fact-based
quantitative analysis supported by fundamental business and financial analysis.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Smaller companies are more likely than larger companies to have limited product
lines, operating histories, markets or financial resources. They may depend
heavily on a small management team. Stocks of smaller companies may trade less
frequently, may trade in smaller volumes and may fluctuate more sharply in price
than stocks of larger companies. In addition, they may not be widely followed by
the investment community, which can lower the demand for their stock.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
6
<PAGE>
THE FUNDS Colonial Small Cap Value Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows the Fund's performance by illustrating the Fund's
calendar year total returns for its Class A shares. The performance table
following the bar chart shows how the Fund's average annual returns compare with
those of a broad measure of market performance for 1 year and the life of the
Fund. The Fund's return is compared to the Russell 2000 Index (Russell Index),
an unmanaged index that tracks the performance of small-capitalization stocks
traded on the New York Stock Exchange, American Stock Exchange and the NASDAQ.
Unlike the Fund, indices are not investments, do not incur fees or expenses and
are not professionally managed. It is not possible to invest directly in
indices. The Fund's return is also compared to the average return of the funds
included in the Lipper Small Cap-Annuities Funds category average (Lipper
Average). This Lipper Average, which is calculated by Lipper, Inc., is composed
of funds with similar investment objectives to the Fund. Sales charges are not
reflected in the Lipper Average. The chart and table are intended to illustrate
some of the risks of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends and
distributions. Performance results include the effect of expense reduction
arrangements, if any. If these arrangements were not in place, then the
performance results would have been lower. Any expense reduction arrangements
may be discontinued at any time. As with all mutual funds, past performance does
not predict the Fund's future performance. The Fund's performance results do not
reflect the cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy..
CALENDAR YEAR TOTAL RETURNS(2)
[BAR GRAPH]
1999 6.34%
The Fund's year-to-date total return through March 31, 2000 was +1.43%.
For period shown in bar chart:
Best quarter: 2nd quarter 1999, +16.78%
Worst quarter: 1st quarter 1999, -13.27%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(2)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
<S> <C> <C> <C>
Fund (%) 5/19/98 6.34 (4.85)
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Russell Index (%) N/A 21.26 4.01(3)
-----------------------------------------------------------------------------------
Lipper Average (%) N/A 37.57 12.97(3)
</TABLE>
(2) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(3) Performance information is from April 30, 1998.
7
<PAGE>
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks long-term growth and income.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in large
capitalization stocks. These are stocks with market capitalizations of greater
than $3 billion at the time of purchase. Up to 10% of the Fund's assets may be
invested in debt securities.
In selecting debt securities for the Fund, Colonial may invest in:
- debt securities that are convertible into common stock;
- corporate debt securities rated investment-grade by at least two
nationally recognized rating organizations (investment grade stocks
have a rating of BBB or higher by Standard & Poor's Ratings Services
or Baa or higher by Moody's Investors Service, Inc.); and
- debt securities issued or guaranteed by the U.S. government.
In managing the Fund, Colonial uses a value investing strategy that focuses on
buying stocks cheaply when they are undervalued or "out of favor." Colonial buys
stocks that have attractive current prices, consistent operating performance
and/or favorable future growth prospects. Colonial's strategy uses quantitative
analysis supported by fundamental business and financial analyses.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Because the Fund may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
Interest rate risk is the risk of a change 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.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
8
<PAGE>
THE FUNDS Colonial U.S. Growth & Income Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year,
5 years and the life of the Fund. The Fund's return is compared to the Standard
& Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance
of a selection of widely held common stocks. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in indices. The Fund's return is also
compared to the average return of the funds included in the Lipper Growth &
Income - Annuities Funds category average (Lipper Average). This Lipper Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. If these
arrangements were not in place, then the performance results would have been
lower. Any expense reduction arrangements may be discontinued at any time. As
with all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(5)
[BAR GRAPH]
1995 29.70%
1996 21.84%
1997 32.23%
1998 20.15%
1999 12.00%
The Fund's year-to-date total return through March 31, 2000 was +0.40%.
For period shown in bar chart:
Best quarter: 4th quarter 1998, +21.79%
Worst quarter: 3rd quarter 1998, -14.16%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(5)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
<S> <C> <C> <C> <C>
Fund (%) 7/5/94 12.00 22.97 21.64
--------------------------------------------------------------------------------------------------
S&P Index (%) N/A 21.03 28.54 26.73(6)
--------------------------------------------------------------------------------------------------
Lipper Average (%) N/A 14.63 21.86 20.42(6)
</TABLE>
(5) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(6) Performance information is from June 30, 1994.
9
<PAGE>
COLONIAL STRATEGIC INCOME FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks as high a level of current income as is consistent with prudent
risk and maximizing total return.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund seeks to achieve its investment goals by investing in:
- debt securities issued by the U.S. government;
- debt securities issued by foreign governments; and
- lower-rated corporate debt securities.
Colonial allocates the Fund's investments among these types of securities at any
given time based on its estimate of the expected performance and risk of each
type of investment.
The Fund pursues its investment goals by investing a portion of its assets in
lower-rated corporate debt securities. These securities have the following
ratings:
- BB through C by Standard & Poor's Ratings Services;
- Ba through D by Moody's Investors Service, Inc.;
- a comparable rating by another nationally recognized rating service; or
- the security is unrated and Colonial believes it to be comparable in
quality to securities having such ratings as noted above.
The Fund may invest in securities issued or guaranteed by foreign governments or
foreign companies, including securities issued in emerging market countries.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Interest rate risk is the risk of a change 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.
Because the Fund may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
10
<PAGE>
THE FUNDS Colonial Strategic Income Fund, Variable Series
Foreign securities are subject to special risks. Foreign markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which are
sometimes referred to as emerging markets. For example, political and economic
structures in these countries may be new and developing rapidly, which may cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluations, which could hurt their economies
and securities markets.
Lower-rated debt securities involve greater risk of loss due to credit
deterioration and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities. Lower-rated debt
securities have the added risk that the issuer of the security may default and
not make payment of interest or principal.
11
<PAGE>
THE FUNDS Colonial Strategic Income Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year,
5 years and the life of the Fund. The Fund's return is compared to the Lehman
Brothers Government/Corporate Bond Index (Lehman Index), an unmanaged index that
tracks the performance of a selection of U.S. government agency, Treasury and
investment-grade corporate bonds. Unlike the Fund, indices are not investments,
do not incur fees or expenses and are not professionally managed. It is not
possible to invest directly in indices. The Fund's return is also compared to
the average return of the funds included in the Lipper General Bonds - Annuities
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
The chart and table are intended to illustrate some of the risks of investing in
the Fund by showing the changes in the Fund's performance. All returns include
the reinvestment of dividends and distributions. Performance results include the
effect of expense reduction arrangements, if any. If these arrangements were not
in place, then the performance results would have been lower. Any expense
reduction arrangements may be discontinued at any time. As with all mutual
funds, past performance does not predict the Fund's future performance. The
Fund's performance results do not reflect the cost of insurance and separate
account charges which are imposed under your VA contract or VLI policy.
CALENDAR YEAR TOTAL RETURNS(7)
[BAR GRAPH]
1995 18.30%
1996 9.83%
1997 9.11%
1998 6.03%
1999 1.78%
The Fund's year-to-date total return through March 31, 2000 was -0.10%.
For period shown in bar chart:
Best quarter: 1st quarter 1995, +5.62%
Worst quarter: 1st quarter 1997, -1.00%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(7)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR 5 YEARS LIFE OF THE
DATE FUND
<S> <C> <C> <C> <C>
Fund (%) 7/5/94 1.78 8.88 8.26
--------------------------------------------------------------------------------------------------
Lehman Index (%) N/A (2.15) 7.61 7.06(8)
--------------------------------------------------------------------------------------------------
Lipper Average (%) N/A 0.76 7.84 7.03(8)
</TABLE>
(7) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(8) Performance information is from June 30, 1994.
12
<PAGE>
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks current income and total return.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund pursues its investment goals by investing primarily in lower-rated
corporate debt securities. These securities have the following ratings:
- BB through C by Standard & Poor's Ratings Services;
- Ba through D by Moody's Investors, Service, Inc.;
- a comparable rating by another nationally recognized rating service; or
- the security is unrated and Colonial believes it to be comparable in
quality to securities having such ratings as noted above.
Although the Fund will invest primarily in debt securities, the Fund may invest
in equity securities to seek capital appreciation. Equity securities include
common stocks, preferred stocks, warrants and debt securities convertible into
common stocks. Additionally, the Fund may invest in securities issued or
guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Interest rate risk is the risk of a change 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.
Because the Fund may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
Lower-rated debt securities involve greater risk of loss due to credit
deterioration and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities. Lower-rated debt
securities have the added risk that the issuer of the security may default and
not make payment of interest or principal.
13
<PAGE>
THE FUNDS Colonial Hugh Yield Securities Fund, Variable Series
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which are
sometimes referred to as emerging markets. For example, political and economic
structures in these countries may be new and developing rapidly, which may cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluations, which could hurt their economies
and securities markets.
14
<PAGE>
THE FUNDS Colonial Hugh Yield Securities Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows the Fund's performance by illustrating the Fund's
calendar year total return for its Class A shares. The performance table
following the bar chart shows how the Fund's average annual returns compare with
those of a broad measure of market performance for 1 year and the life of the
Fund. The Fund's return is compared to the CS First Boston Global High Yield
Index (CS Index), an unmanaged index that tracks the performance of high yield
bond funds. Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. The Fund's return is also compared to the average return of
the funds included in the Lipper High Current Yield - Annuities Funds category
average (Lipper Average). This Lipper Average, which is calculated by Lipper,
Inc., is composed of funds with similar investment objectives to the Fund. Sales
charges are not reflected in the Lipper Average. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. Performance results include the effect of expense
reduction arrangements, if any. If these arrangements were not in place, then
the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time. As with all mutual funds, past
performance does not predict the Fund's future performance. The Fund's
performance results do not reflect the cost of insurance and separate account
charges which are imposed under your VA contract or VLI policy.
CALENDAR YEAR TOTAL RETURNS(9)
[BAR GRAPH]
1999 1.65%
The Fund's year-to-date total return through March 31, 2000 was -1.36%.
For period shown in bar chart:
Best quarter: 1st quarter 1999, +3.11%
Worst quarter: 3rd quarter 1999, -1.90%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(9)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
<S> <C> <C> <C>
Fund (%) 5/19/98 1.65 (0.59)
--------------------------------------------------------------------------------------
CS Index (%) N/A 3.28 0.06(10)
--------------------------------------------------------------------------------------
Lipper Average (%) N/A 4.04 (0.28)(10)
</TABLE>
(9) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(10) Performance information is from April 30, 1998.
15
<PAGE>
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks total investment return, comprised of long-term capital
appreciation and current income, through investment primarily in a diversified
portfolio of equity securities.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in equity and equity
related securities, which include common stocks, bonds convertible into stocks,
warrants and other rights to purchase stocks.
The Fund's sub-advisor, LAMCO, utilizes a multi-manager concept. LAMCO allocates
the Fund's portfolio assets on an approximately equal basis among a number of
independent investment management organizations (Portfolio Managers). There are
five Portfolio Managers as of the date of this prospectus, each of which employs
a different investment style. LAMCO attempts to rebalance the portfolio among
the Portfolio Managers so as to maintain an approximately equal allocation of
the portfolio among them throughout all market cycles.
In LAMCO's opinion, the multi-manager concept provides advantages over the use
of a single manager for the following reasons:
- Most equity investment management firms consistently employ a distinct
investment "style" which causes them to emphasize stocks with
particular characteristics;
- Because of changing investor preferences, any given investment style
will move into and out of market favor and will result in better
investment performance under certain market conditions, but less
successful performance under other conditions;
- Consequently, by allocating the Fund's portfolio on an approximately
equal basis among Portfolio Managers employing different styles, the
impact of any one style on investment performance will be diluted, and
the investment performance of the total portfolio will be more
consistent and less volatile over the long term than if a single style
were employed throughout the entire period; and
- More consistent performance at a given annual rate of return over time
produces a higher rate of return for the long term than more volatile
performance having the same average annual rate of return.
The Fund's current Portfolio Managers and investment styles are as follows:
- J.P. Morgan Investment Management Inc. uses a value approach by
investing in companies that are diversified across all sectors and
that are undervalued relative to the firm's projected growth rates.
- Oppenheimer Capital uses a value approach by investing in companies
that exhibit the ability to generate excess cash flow while earning
high returns on invested capital.
- Boston Partners Asset Management, L.P. uses a value approach by
investing in companies with low price-to-earnings and price-to-book
ratios where a catalyst for positive change has been identified.
- Westwood Management Corporation uses a growth approach by investing in
growth companies selling at reasonable valuations based on the firm's
earnings projections which are not yet reflected in consensus
estimates.
- TCW Investment Management Company incorporates secular growth trends
and uses a "bottom-up" approach by investing in primarily large-cap
companies that have distinct business model advantages.
LAMCO continuously monitors the performance and investment styles of the Fund's
Portfolio Managers and from time to time may recommend changes of Portfolio
Managers based on factors such as:
- Changes in a Portfolio Manager's investment style or a departure by a
Portfolio Manager from the investment style for which it had been
selected;
- A deterioration in a Portfolio Manager's performance relative to that
of other investment management firms practicing a similar style; or
- Adverse changes in its ownership or personnel.
16
<PAGE>
THE FUNDS Liberty All-Star Equity Fund, Variable Series
LAMCO also may recommend Portfolio Manager changes to change the mix of
investment styles employed by the Fund's Portfolio Managers. The Board of
Trustees must approve all Portfolio Manager changes. LAMCO is also the manager
of Liberty All-Star Equity Fund, a multi-managed, closed-end fund and Liberty
All-Star Growth & Income Fund, a multi-managed open-ended fund. These funds have
the same investment objective and investment program as the Fund, and currently
have the same Portfolio Managers. LAMCO expects that these funds will make
corresponding changes if and when Portfolio Managers are changed in the future.
The Fund will remain substantially fully invested during periods when stock
prices generally rise and also during periods when they generally decline. The
Fund is intended to be a long-term investment vehicle and is not designed to
provide a means of speculating on short-term stock market movements.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Interest rate risk is the risk of a change 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.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the Portfolio Managers' assessment of a
company's prospects is wrong, the price of its stock may not approach the value
the Portfolio Managers have placed on it.
17
<PAGE>
THE FUNDS Liberty All-Star Equity Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year
and the life of the Fund. The Fund's return is compared to the Russell 3000
Index (Russell Index), a capitalization weighted total return index which is
comprised of 3000 of the largest capitalized U.S. domiciled companies whose
common stock is traded in the United States on the New York Stock Exchange,
American Stock Exchange and NASDAQ. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in indices. The Fund's return is also
compared to the average return of the funds included in the Lipper Growth &
Income - Annuities Funds category average (Lipper Average). This Lipper Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. If these
arrangements were not in place, then the performance results would have been
lower. Any expense reduction arrangements may be discontinued at any time. As
with all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(11)
[BAR GRAPH]
1998 18.67%
1999 8.47%
The Fund's year-to-date total return through March 31, 2000 was +5.21%.
For the period shown in bar chart:
Best quarter: 4th quarter 1998, +18.67%
Worst quarter: 3rd quarter 1998, -12.05%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(11)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
<S> <C> <C> <C>
Fund (%) 11/17/97 8.47 13.05
-------------------------------------------------------------------------------------
Russell Index (%) N/A 20.90 23.85(12)
-------------------------------------------------------------------------------------
Lipper Average (%) N/A 14.63 16.24(12)
</TABLE>
(11) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(12) Performance information is from October 30, 1997.
18
<PAGE>
NEWPORT TIGER FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in stocks of
companies located in the ten Tiger countries of Asia. The Tigers of Asia are
Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, India, Indonesia,
The People's Republic of China and the Philippines. In selecting investments for
the Fund, Newport typically purchases stocks of quality growth companies.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Because the Fund's investments are concentrated in the ten Tiger countries of
Asia, the Fund is particularly susceptible to regional risks. Events in any one
Tiger country may impact the other countries in the Asian region as a whole. As
a result events in the region will generally have a greater effect on the Fund
than if the Fund were more geographically diversified, which may result in
greater losses and volatility.
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which are
sometimes referred to as emerging markets. For example, political and economic
structures in these countries may be new and developing rapidly, which may cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluations, which could hurt their economies
and securities markets.
19
<PAGE>
THE FUNDS Newport Tiger Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year
and the life of the Fund. The Fund's return is compared to the Morgan Stanley
Capital International EAFE GDP Index (MSCI Index), a broad-based, unmanaged
index that tracks the performance of foreign stocks. Unlike the Fund, indices
are not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in indices. The Fund's return is
also compared to the average return of the funds included in the Lipper
Pacific-Region-Annuities Funds category average (Lipper Average). This Lipper
Average, which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. As with
all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(13)
[BAR GRAPH]
1996 11.73%
1997 -31.14%
1998 -6.43%
1999 68.01%
The Fund's year-to-date total return through March 31, 2000 was +1.91%.
For the period shown in bar chart:
Best quarter: 4th quarter 1998, +37.93%
Worst quarter: 2nd quarter 1998, -28.81%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(13)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
<S> <C> <C> <C>
Fund (%) 5/1/95 68.01 7.31
-------------------------------------------------------------------------------------
MSCI Index (%) N/A 31.00 15.72(14)
-------------------------------------------------------------------------------------
Lipper Average (%) N/A 79.74 4.24(14)
</TABLE>
(13) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(14) Performance information is from April 30, 1995.
20
<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.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
The Fund may invest in equity real estate investment trusts (REITs). REITs are
entities which either own properties or make construction or mortgage loans.
Equity REITs may also include operating or finance companies. 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. In addition,
although the Fund does not invest directly in real estate, a REIT investment by
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.
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. If Crabbe Huson's assessment of a company's prospects
is wrong, the price of its stock may not approach the value Crabbe Huson has
placed on it.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
Because the Fund has not completed one full calendar year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
The Fund's return is compared to the NAREIT Equity Index, an unmanaged index
that tracks the performance of all equity real estate investment trusts that
trade on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ. Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices.
21
<PAGE>
LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks capital appreciation.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests substantially all of its assets
in stocks of companies whose principal activities are in Japan. Newport will
determine where a company's principal activities are located by considering its
country of organization, the principal trading market for its stock, the source
of its revenues and the location of its assets. The Fund invests in stocks of
well-established companies with histories of consistent earnings growth in
industries with attractive or improving prospects.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Because the Fund's investments are concentrated in Japan, the value of the
Fund's shares is susceptible to country concentration risks. The political,
economic and market conditions within Japan and movements in the currency
exchange rates between Japan and the U.S. may cause the value of the Fund's
shares to fluctuate more widely than the value of the shares of a fund that
invests in companies located in a number of different countries. The Fund's
concentration in Japan may also result in greater losses to the Fund than if the
Fund were more geographically diversified.
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
22
<PAGE>
LIBERTY SELECT VALUE FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests, under normal market conditions, primarily in middle
capitalization stocks.
In managing the Fund, Colonial uses a value investing strategy that focuses on
buying stocks cheaply when they are undervalued or "out of favor." Colonial buys
stocks that have attractive current prices, consistent operating performance
and/or favorable future growth prospects. Colonial's strategy uses fact-based,
quantitative analysis supported by fundamental business and financial analyses.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
Smaller companies are more likely than larger companies to have limited product
lines, operating histories, markets or financial resources. They may depend
heavily on a small management team. Stocks of smaller companies may trade less
frequently, may trade in smaller volumes and may fluctuate more sharply in price
than stocks of larger companies. In addition, they may not be widely followed by
the investment community, which can lower the demand for their stock.
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
23
<PAGE>
RYDEX FINANCIAL SERVICES FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks capital appreciation.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests in companies that are involved in the financial services sector
(Financial Services Companies). The Fund invests substantially all of its assets
in equity securities of Financial Services Companies that are traded in the
United States. Financial Services Companies include commercial banks, savings
and loan associations, insurance companies, brokerage companies or other
investment related companies. Under SEC regulations, the Fund may not invest
more than 5% of its total assets in the equity securities of any company that
derives more than 15% of its revenues from brokerage or investment management
activities.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Since the Fund invests in the securities of a limited number of issuers
conducting business in the financial services sector, it is subject to
concentration risk. Concentration risk is the risk that the securities of
issuers in the financial services sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. Financial Services
Companies are subject to extensive governmental regulation, which may limit both
the amounts and types of loans and other financial commitments they can make,
and the rates and fees they can charge. Profitability is largely dependent on
the availability and cost of capital, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
borrowers also can negatively impact the sector.
As a non-diversified mutual fund, the Fund is allowed to invest a greater
percentage of its total assets in the securities of a single issuer. This may
concentrate issuer risk and, therefore the Fund may have an increased risk of
loss compared to a similar diversified mutual fund.
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
24
<PAGE>
RYDEX HEALTH CARE FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks capital appreciation.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests in companies that are involved in the health care industry
(Health Care Companies). The Fund invests substantially all of its assets in
equity securities of Health Care Companies that are traded in the United States.
Health Care Companies include pharmaceutical companies, companies involved in
research and development of pharmaceutical products and services, companies
involved in the operation of health care facilities, and other companies
involved in the design, manufacture, or sale of health care-related products or
services.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Since the Fund invests in the securities of a limited number of issuers
conducting business in the health care sector, it is subject to concentration
risk. Concentration risk is the risk that the securities of issuers in the
health care sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Health Care Companies may fluctuate widely due to government regulation and
approval of their products and services, which can have a significant effect on
their price and availability. Furthermore, the types of products or services
produced or provided by these companies may quickly become obsolete. Moreover,
liability for products that are later alleged to be harmful or unsafe may be
substantial, and may have a significant impact on a Health Care Company's market
value and/or share price.
As a non-diversified mutual fund, the Fund is allowed to invest a greater
percentage of its total assets in the securities of a single issuer. This may
concentrate issuer risk and, therefore the Fund may have an increased risk of
loss compared to a similar diversified mutual fund.
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
25
<PAGE>
LIBERTY S&P 500 INDEX FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks capital appreciation by matching the performance of a benchmark
index that measures the investment returns of stocks of large U.S. companies.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund employs a passive management strategy designed to match, as closely as
possible, the performance of the Standard & Poor's 500 Composite Stock Price
Index (S&P 500(R))(15), which is comprised of stocks of large U.S. companies.
The Fund invests at least 80% of its assets in the stocks that make up the S&P
500. The Fund may also invest in stock index futures and options.
Although a security may be included in the S&P 500, State Street may exclude or
remove the security if adverse market conditions exist.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Because the Fund primarily invests in equity securities, it is subject to equity
risk. The equity markets are volatile, and the value of the Fund's securities
and futures and options contracts may fluctuate drastically from day-to-day.
This volatility may cause the value of your investment in the Fund to decrease.
Tracking Error Risk. There are several reasons that the Fund's performance may
not track the S&P 500 exactly:
Unlike the S&P 500 Index, the Fund incurs administrative expenses and
transaction costs in trading stocks.
The composition of the S&P 500 and the stocks held by the Fund may occasionally
diverge.
The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and magnitude
of cash outflows to investors selling shares could require large ready reserves
of uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" S&P 500.
(15) "Standard & Poor's(R)" and "S&P 500(R)" are trademarks of The McGraw-Hill
Companies, Inc., and have been licensed for use by Liberty Funds
Distributor, Inc. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding
the advisability of investing in the Fund. Please see the Statement of
Additional Information which sets forth certain additional disclaimers and
limitations of liabilities on behalf of Standard & Poor's.
26
<PAGE>
THE FUNDS Liberty S&P 500 Index Fund, Variable Series
Futures and Options Risk. The Fund may invest, to a limited extent, in stock
index futures or options, which are types of derivatives. The Fund will not use
these derivatives for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment. The Fund invests in derivatives to
keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. Risks associated with derivatives
include but are not limited to:
- the risk that the derivative is not well correlated with the security for
which it is acting as a substitute;
- the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; and
- the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
If the Fund invests in futures contracts and options on futures contracts for
non-hedging purposes, the margin and premiums required to make those investments
will not exceed 5% of the Fund's net asset value after taking into account
unrealized profits and losses on the contracts. Futures contracts and options on
futures contracts used for non-hedging purposes involve greater risks than stock
investments.
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
27
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
------------------------------
THE TRUSTEES
--------------------------------------------------------------------------------
The business of the Trust and the Funds is supervised by the Trust's Board of
Trustees. The Statement of Additional Information contains 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 Funds. 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, 2000, LASC managed over $853 million in assets. LASC designates
the Trust's Sub-Advisors, evaluates and monitors Sub-Advisors' performance and
investment programs and recommends to the Board of Trustees whether
Sub-Advisors' contracts should be continued or modified and whether to remove,
replace or add 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 the 1999 fiscal year, the Trust paid LASC management fees at the following
annual rates of the average daily net assets of each specified Fund:
<TABLE>
<CAPTION>
<S> <C>
Liberty Value Fund, Variable Series 0.65%
Colonial Small Cap Value Fund, Variable Series 0.80% (16)
Colonial U.S. Growth & Income Fund, Variable Series 0.80%
Colonial Strategic Income Fund, Variable Series 0.65%
Colonial High Yield Securities Fund, Variable Series 0.60% (17)
Liberty All-Star Equity Fund, Variable Series 0.80%
Newport Tiger Fund, Variable Series 0.90%
Crabbe Huson Real Estate Investment Fund, Variable Series 1.00% (18)
</TABLE>
(16) The Small Cap Fund's advisor has voluntarily agreed to waive its management
fee and reimburse other expenses so that total expenses of the Fund
(excluding interest, taxes, 12b-1, brokerage and extraordinary expenses) do
not exceed 1.00%. As a result the actual management fee paid to the advisor
for the 1999 fiscal year was 0.00%.
(17) The High Yield Fund's advisor has voluntarily agreed to waive its
management fee and reimburse other expenses so that total expenses of the
Fund (excluding interest, taxes, 12b-1, brokerage and extraordinary
expenses) do not exceed 0.80%. As a result the actual management fee paid
to the advisor for the 1999 fiscal year was 0.12%.
(18) The Real Estate Fund's advisor has voluntarily agreed to waive its
management fee and reimburse other expenses so that total expenses of the
Fund (excluding interest, taxes, 12b-1, brokerage and extraordinary
expenses) do not exceed 1.20%. As a result the actual management fee paid
to the advisor for the 1999 fiscal year was 0.00%.
The Liberty Newport Japan Opportunities Fund, Variable Series, Liberty Select
Value Fund, Variable Series, Rydex Financial Services Fund, Variable Series,
Rydex Health Care Fund, Variable Series and Liberty S&P 500 Index Fund, Variable
Series commenced investment operations on May 30, 2000. For LASCs 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:
<TABLE>
<CAPTION>
<S> <C>
Liberty Newport Japan Opportunities Fund, Variable Series 1.20%
Liberty Select Value Fund, Variable Series 0.70%
Rydex Financial Services Fund, Variable Series 0.85%
Rydex Health Care Fund, Variable Series 1.00%
Liberty S&P 500 Index Fund, Variable Series 0.40%
</TABLE>
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.
28
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
COLONIAL
Colonial, an investment advisor since 1931, is the Sub-Advisor of each of the
Value Fund, Small Cap Fund, U.S. Growth & Income Fund, Strategic Income Fund,
High Yield Fund, Select Value Fund, Financial Services Fund, Health Care Fund
and S&P 500 Fund. Colonial's principal business address is One Financial Center,
Boston, Massachusetts 02111. As of March 31, 2000, Colonial managed over $15.7
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:
<TABLE>
<CAPTION>
<S> <C>
Liberty Value Fund, Variable Series 0.45%
Colonial Small Cap Value Fund, Variable Series 0.60%
Colonial U.S. Growth & Income Fund, Variable Series 0.60%
Colonial Strategic Income Fund, Variable Series 0.45%
Colonial High Yield Securities Fund, Variable Series 0.40%
Liberty Select Value Fund, Variable Series 0.50%
Rydex Financial Services Fund, Variable Series 0.65%
Rydex Health Care Fund, Variable Series 0.80%
Liberty S&P 500 Index Fund, Variable Series 0.20%
</TABLE>
Colonial also provides transfer agency, pricing and record keeping services for
the Funds under separate agreements.
Scott Schermerhorn, a senior vice president of Colonial, has managed the Value
Fund since November, 1999. Mr. Schermerhorn has managed various other funds at
Colonial since October, 1998. From May, 1996 to October, 1998, Mr. Schermerhorn
was the head of the value team at Federated Investors, where he managed the
American Leader Fund, Federated Stock Trust and Federated Stock and Bond Fund,
as well as other institutional accounts. From February, 1990 to May, 1996, Mr.
Schermerhorn was a portfolio manager and a member of the growth and income team
at J&W Seligman.
James P. Haynie, a senior vice president of Colonial, has co-managed the Small
Cap Fund since 1993.
Michael Rega, a vice president of Colonial, has co-managed the Small Cap Fund
since 1996. He was an analyst at Colonial from 1993 to 1996.
Mark Stoeckle has managed the U.S. Growth & Income Fund since December, 1996.
Mr. Stoeckle is a senior vice president of Colonial. Prior to joining Colonial
in October, 1996, Mr. Stoeckle was a portfolio manager at Massachusetts
Financial Services Company from January, 1993 to October, 1996.
Carl C. Ericson has managed the Strategic Income Fund since its inception in
July, 1994. He also has co-managed the High Yield Fund since January, 1999. Mr.
Ericson, a senior vice president of Colonial and director of Colonial's Taxable
Fixed Income Group, has managed various other Colonial taxable income funds
since 1985.
Scott B. Richards, a senior vice president of Colonial, has co-managed the High
Yield Fund since May, 1999. Prior to joining Colonial he was employed with State
Street Research & Management Company as a vice president and a portfolio manager
from January, 1994 to May, 1999.
James P. Haynie, a senior vice president of Colonial, is a co-manager of the
Select Value Fund. He has been employed by Colonial since 1993 and has managed
other funds Colonial advises since that time.
Michael Rega, a vice president of Colonial, is a co-manager of the Select Value
Fund. He has been employed by Colonial since 1993 as an analyst or co-manager of
other funds Colonial advises.
Colonial will use Newport's trading facilities when buying or selling foreign
securities for the Funds' portfolios. Newport executes all trades under its own
procedures.
29
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
Colonial is a manager of other investment managers which Colonial recommends to
the Board of Trustees for appointment pursuant to portfolio management
agreements among the Trust, Colonial and the Portfolio Managers. The management
agreements permit each Portfolio Manager to have full investment discretion and
authority over investment of a portion of the Fund's assets that they
sub-advise.
Colonial's investment advisory business is managed together with the mutual
funds and institutional investment advisory businesses of its affiliate, Stein
Roe. Colonial is part of a larger business unit that includes several separate
legal entities known as Liberty Funds Group LLC (LFG). The LFG business unit and
Stein Roe are managed by a single management team. Stein Roe, Colonial and the
other LFG entities also share personnel, facilities and systems that may be used
in providing administrative or operational services to the Fund. Stein Roe and
Colonial are registered investment advisors. Colonial, the other entities that
make up LFG and Stein Roe are subsidiaries of Liberty Financial Companies, Inc.
PADCO ADVISORS II, INC.
PADCO Advisors II, Inc. (PADCO), an investment advisor since 1993, is the
Portfolio Manager to the Financial Services Fund and the Health Care Fund.
PADCO's principal business address is 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852. As of March 31, 2000, PADCO managed over $8 billion
in assets.
Out of the management fees it receives from LASC, Colonial pays PADCO a fee at
the following annual rates of average daily net assets of each specified Fund:
<TABLE>
<CAPTION>
<S> <C>
Rydex Financial Services Fund, Variable Series 0.50% (19)
Rydex Health Care Fund, Variable Series 0.50% (19)
</TABLE>
(19) When the combined assets of both the Financial Services Fund and Health
Care Fund reach $300 million, the annual fee for each Fund will be reduced
to 0.45% of the average daily net assets thereafter.
Each Fund is managed by a team and no one person is responsible for making
investment decisions for a specific Fund. A more complete description of PADCO
is included in the Statement of Additional Information.
STATE STREET GLOBAL ADVISORS
State Street Global Advisors (State Street), the investment division of State
Street Bank and Trust Company since 1978, is the Portfolio Manager to the S&P
500 Fund. State Street's principal business address is Two International Place,
Boston, Massachusetts 02110. As of March 31, 2000, State Street managed over
$723 billion in assets.
Out of the management fees it receives from LASC, Colonial pays State Street a
fee at the annual rate of $25,000 on average daily net assets up to $50 million
and 0.05% on average daily net assets thereafter.
Tom O'Brien, a principal of State Street, is manager of the S&P 500 Fund. A more
complete description of State Street is included in the Statement of Additional
Information.
LAMCO AND LAMCO'S PORTFOLIO MANAGERS
LAMCO, an investment advisor since 1985, is the Sub-Advisor of the All-Star
Equity Fund. LAMCO's principal address is 600 Atlantic Avenue, 23rd Floor,
Boston, Massachusetts 02210. As of March 31, 2000, LAMCO managed over $1.8
billion in assets.
LASC, out of the management fees it receives from the Trust, pays LAMCO a
sub-advisory fee at the annual rate of 0.60% of the average daily net assets of
the All-Star Equity Fund.
LAMCO is a manager of other investment managers which LAMCO recommends to the
Board of Trustees for appointment pursuant to portfolio management agreements
among the Trust, LAMCO and the Portfolio Managers. The management agreements
permit each Portfolio Manager to have full investment discretion and authority
over investment of a portion of the Fund's assets.
Out of the management fees it receives from LASC, LAMCO pays each Portfolio
Manager a fee at the annual rate of 0.30% of the average daily net assets of the
portion of the Fund's assets assigned to that Portfolio Manager.
30
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
No one individual at LAMCO is responsible for LAMCO's investment management of
the All-Star Equity Fund. The following individuals who work for the indicated
Portfolio Managers manage a portion of All-Star Equity Fund's assets:
- Henry D. Cavanna, Managing Director of J.P. Morgan Investment Management,
Inc.
- John Lindenthal, Managing Director of Oppenheimer Capital
- Mark Donovan, Chairman, Equity Strategy Committee, of Boston Partners Asset
Management, L.P.
- Susan M. Byrne, President and Chief Executive Officer of Westwood
Management Corp.
- Glen E. Bickerstaff, Managing Director - U.S. Equities of TCW Investment
Management Company
A more complete description of each Portfolio Manager is included in the
Statement of Additional Information. The Trust and LAMCO have received an
exemptive order from the SEC that permits the All-Star Equity Fund to change
Portfolio Managers without a vote of the shareholders. Information regarding any
new Portfolio Manager is sent to holders of VA contracts and VLI policies within
90 days following the effective date of the change.
NEWPORT
Newport, an investment advisor since 1987, is the Sub-Advisor of the Tiger Fund
and Japan Opportunities Fund. Newport's principal address is 580 California
Street, Suite 1960, San Francisco, California 94104. As of March 31, 2000,
Newport managed over $1.4 billion in assets.
LASC, out of the management fees it receives from the Trust, pays Newport a
sub-advisory fee at the annual rate of 0.70% and 1.00% of the average daily net
assets of the Tiger Fund and Japan Opportunities Fund, respectively.
Thomas R. Tuttle and Lynda Couch, president and a managing director,
respectively, of Newport, co-manage the Fund. Mr. Tuttle has co-managed other
Newport Funds since November, 1995. Mr. Tuttle has been an officer of Newport
since 1984. Ms. Couch has managed other Newport Funds since April, 1995. Ms.
Couch has been an officer of Newport since 1994.
David Smith, a senior vice president of Newport and its immediate parent,
Newport Pacific Management, Inc., is the manager for the Japan Opportunities
Fund and has managed various other funds or accounts on behalf of Newport since
October, 1994.
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. As of March 31, 2000, Crabbe Huson managed over $267
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.
Michael B. Stokes has managed the Real Estate Fund since its inception in June,
1999. 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.
31
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
RULE 12b-1 PLAN
--------------------------------------------------------------------------------
The Trust has adopted a plan for and on behalf of the Funds' Class B shares in
accordance with Rule 12b-1 (Plan) under the Investment Company Act of 1940. The
Plan allows the Fund to pay fees for the sale and distribution of their Class B
shares. Under the plan, each Fund pays the distributor a distribution fee of
0.25% of the average daily net assets attributable to the Funds' Class B shares.
Because these fees are an ongoing expense, over time they increase the cost of
an investment and the shares may cost more than shares that are not subject to a
distribution fee.
MIXED AND SHARED FUNDING
--------------------------------------------------------------------------------
The Trust serves as the funding medium for VA contracts and VLI policies of
Participating Insurance Companies, including those of Keyport, Independence Life
& Annuity Company and Keyport Benefit Life Insurance Company, each of which is a
wholly owned subsidiary of Keyport, and Liberty Life Assurance Company of
Boston, 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.
32
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
The primary investment strategies of each Fund and the associated risks are
described above in each Fund's individual description. This section describes
other investments a Fund may make and the risks associated with them. In seeking
to achieve its goals, each Fund may invest in various types of securities and
engage in various investment techniques which are not the principal 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'
Statement of Additional Information, which you may obtain free of charge (see
back cover). Approval by a Fund's shareholders is not required to modify or
change any of a Fund's investment goals or investment strategies.
U.S. GOVERNMENT SECURITIES
--------------------------------------------------------------------------------
(Strategic Income Fund) The Fund will invest in U.S. government securities,
including U.S. Treasuries and securities of various U.S. government agencies.
Agency securities include mortgage-backed securities, which represent interests
in pools of mortgages. The Fund has flexibility to vary its allocation among
different types of U.S. government securities based upon the Sub-Advisor's
judgment of which types of securities will outperform others. In selecting
investments for the Fund, the Sub-Advisor considers a security's expected
income, together with its potential to rise or fall in price.
STRUCTURE RISK
--------------------------------------------------------------------------------
(Strategic Income Fund, U.S. Growth & Income Fund, High Yield Fund) Structure
risk is the risk that an event will occur (such as a security being prepaid or
called) that alters the security's cash flows. Prepayment risk is a particular
type of structure risk that is present in a Fund because of its investments in
mortgage-backed securities and asset-backed securities. Prepayment risk is the
possibility that asset-backed securities may be prepaid if the underlying debt
securities are prepaid. Prepayment risk for mortgage-backed securities is the
possibility that, as interest rates fall, homeowners are more likely to
refinance their home mortgages. When mortgages are refinanced, the principal on
mortgage-backed securities is paid earlier than expected. In an environment of
declining interest rates, asset-backed securities and mortgage-backed securities
may offer less potential for gain than other debt securities. During periods of
rising interest rates, these securities have a high risk of declining in price
because the declining prepayment rates effectively increase the maturity of the
security. In addition, the potential impact of prepayment on the price of a
security may be difficult to predict and result in greater volatility.
ZERO COUPON BONDS
--------------------------------------------------------------------------------
(Strategic Income Fund, High Yield Fund) Zero coupon bonds do not pay interest
in cash on a current basis, but instead accrue interest over the life of the
bond. As a result, these securities are issued at a deep discount. The value of
these securities may fluctuate more than similar securities that pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the Fund and
distributed to its shareholders..
CONVERTIBLE SECURITIES
--------------------------------------------------------------------------------
(U.S. Growth & Income Fund, High Yield Fund) Convertible securities are
preferred stocks or bonds that pay a fixed dividend or interest payment and are
convertible into common stocks at a specified price or conversion ratio. The
risk of investing in convertible securities is the value of the underlying
securities will fluctuate.
DERIVATIVE STRATEGIES
--------------------------------------------------------------------------------
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, commonly referred to as derivatives, involve the
use of financial instruments whose value depends on, or are derived from, the
value of an underlying security, index or currency. A Fund may use these
strategies to adjust the Fund's sensitivity to changes in interest rates or for
other hedging purposes (e.g., attempting to offset a potential loss in one
position by establishing an interest in an opposite position). Derivative
strategies involve the risk that they may exaggerate a loss, potentially losing
more money than the actual cost of the derivative, or limit a potential gain.
Also, with some derivative strategies there is the risk that the other party to
the transaction may fail to honor its contract terms, causing a loss to a Fund.
33
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
ADDITIONAL EQUITY RISK
--------------------------------------------------------------------------------
The Funds may invest in publicly and privately issued equity securities,
including common and preferred stocks, warrants, and rights, as well as
instruments that attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives in general are subject
to market risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities in
which the Funds invest will cause the net asset value of the Funds to fluctuate.
An investment in the Funds may be more suitable for long-term investors who can
bear the risk of short-term principal fluctuations.
PRICING RISK
--------------------------------------------------------------------------------
The Funds securities are valued at their stated market value if price quotations
are available and, if not, by the method that most accurately reflects their
current worth in the judgment of the Board of Trustees. This procedure implies
an unavoidable risk that our prices are higher or lower than the prices that the
securities might actually command if we were to sell them. If we have valued the
securities too highly, you may end up paying too much for Fund shares when you
buy. If we underestimate securities prices, you may not receive the full market
value for your Fund shares when you sell.
EARLY CLOSING RISK
--------------------------------------------------------------------------------
The normal close of trading of securities listed on the National Association of
Securities Dealers Automated Quotations system and the New York Stock Exchange
is 4:00 P.M., Eastern time. Unanticipated early closings may result in a Fund
being unable to sell or buy securities on that day. If an exchange closes early
on a day when one or more of the Funds needs to execute a high volume of
securities trades late in a trading day, a Fund might incur substantial trading
losses.
TEMPORARY DEFENSIVE STRATEGIES
--------------------------------------------------------------------------------
With the exception of the All-Star Equity Fund, each Fund's Sub-Advisor may
determine that adverse market conditions make it desirable to temporarily
suspend the Fund's normal investment activities. During such times, a Fund may,
but is not required to, invest in cash or high-quality, short-term debt
securities, without limit.
(High Yield Fund) If necessary, the Fund has the ability to invest 100% of its
assets in higher-rated securities, if, in Colonial's opinion, economic
conditions create a situation where yield spreads narrow between lower- and
higher-rated securities.
Taking a temporary defensive position may prevent a Fund from achieving its
investment goals.
34
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance. Information is shown for the Funds' last five fiscal
years, (or shorter period if a Fund commenced operations less than five years
ago) which run from January 1 to December 31. Because the Class B shares
commenced investment operations on June 1, 2000, the Financial Highlights shown
are for the Funds' Class A shares, the oldest existing Fund class. Certain
information reflects financial results for a single Fund share. This information
is included in the Funds' financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports, along with
the Funds' financial statements, is included in the Funds' annual report. The
Funds' total returns presented below do not reflect the cost of insurance and
other insurance company separate account charges which vary with the VA
contracts and VLI policies. You can request a free annual report by writing
Keyport Financial Services Corp. (see back cover for address) or by calling or
writing the Participating Insurance Company which issued your VA contract or VLI
policy.
LIBERTY VALUE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 16.39 15.34 13.96 12.60 10.03
-------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.17 0.20 0.28 0.28 0.29
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on
investments 0.69 1.50 3.75 1.98 2.72
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.86 1.70 4.03 2.26 3.01
-------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.15) (0.18) (0.27) (0.28) (0.25)
-------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.00) (0.01) --- ---
-------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains (3.85) (0.47) (2.37) (0.62) (0.19)
-------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains (0.07) (0.00) --- --- ---
-------------------------------------------------------------------------------------------------------------------------
Total distributions (4.07) (0.65) (2.65) (0.90) (0.44)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 13.18 16.39 15.34 13.96 12.60
-------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b) 5.55 11.13 28.97 17.89 30.03
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 197,523 149,820 106,909 93,247 71,070
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) 0.73 0.76 0.79 0.79 0.81
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (c) 0.99 1.24 1.77 2.02 2.51
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 172 28 60 24 79
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
35
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 8.59 10.00
----------------------------------------------------------------------------------------------------
Net investment income (a) 0.02 0.08
----------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments 0.52 (1.41)
----------------------------------------------------------------------------------------------------
Total from investment operations 0.54 (1.33)
----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.01) (0.07)
----------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.01)
----------------------------------------------------------------------------------------------------
Total distributions (0.01) (0.08)
----------------------------------------------------------------------------------------------------
Net asset value, end of year 9.12 8.59
----------------------------------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%)(b)(c) 6.34 (13.25)**
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 3,817 1,782
----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.00 1.00*
----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.23 1.41*
----------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 74 51**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 19, 1998 to December
31, 1998.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the manager not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 3.66% and
4.32% (annualized), respectively..
36
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 18.79 16.29 14.22 12.36 10.27
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.14 0.16 0.20 0.19 0.21
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.07 3.12 4.37 2.52 2.84
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.21 3.28 4.57 2.71 3.05
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.18) (0.17) (0.16)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- --- (0.01) --- ---
------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains on (1.04) (0.64) (2.30) (0.68) (0.80)
investments
------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains --- (0.02) (0.01) --- ---
------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.15) (0.78) (2.50) (0.85) (0.96)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 19.85 18.79 16.29 14.22 12.36
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b) 12.00 20.15 32.23 21.84 29.70(c)
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 212,355 146,239 96,715 60,855 43,017
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 0.88 0.90 0.94 0.95 1.00(e)
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.69 0.88 1.19 1.39 1.72(c)
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 101 64 63 77 115
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, this ratio would have been 1.07%.
37
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL STRATEGIC INCOME FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 11.08 11.15 11.04 10.99 9.79
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.95 0.91 0.90 0.92 0.55
----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses)
on investments and foreign currency transactions (0.75) (0.24) 0.11 0.16 1.24
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.20 0.67 1.01 1.08 1.79
----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.84) (0.72) (0.79) (0.96) (0.56)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.02) (0.05) --- ---
----------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains --- --- (0.05) (0.07) (0.03)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains --- --- (0.01) --- ---
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.84) (0.74) (0.90) (1.03) (0.59)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.44 11.08 11.15 11.04 10.99
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b) 1.78 6.03 9.11(c) 9.83(c) 18.30(c)
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 170,702 118,985 73,175 53,393 48,334
----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (e) 0.75 0.78 0.80(d) 0.80(d) 0.84(d)
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (e) 8.57 7.92 7.86(c) 8.13(c) 8.08(c)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 35 50 94 114 281
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 0.82%, 0.86%
and 0.94%, respectively.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
38
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 9.31 10.00
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.88 0.48
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses (0.72) (0.74)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.16 (0.26)
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.62) (0.43)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.00)
------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.62) (0.43)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 8.85 9.31
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b)(c) 1.65 (2.57)**
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 15,358 5,915
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 0.80 0.80*
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (c)(d) 9.36 7.93*
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 16 23**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 19, 1998 to December
31, 1998.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 1.28% and
1.84% (annualized), respectively.
39
<PAGE>
FINANCIAL HIGHLIGHTS
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
Year Ended December 31, December 31,
1999 1998 1997***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 11.90 10.07 10.00
--------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.06 0.06 0.01
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 0.94 1.82 0.07
--------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 1.88 0.08
--------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.01)
--------------------------------------------------------------------------------------------------------------
Dividends form net realized gains on investments (0.38) --- ---
--------------------------------------------------------------------------------------------------------------
Total distributions (0.43) (0.05) (0.01)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 12.47 11.90 10.07
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%)(b) 8.47 18.67(c) 0.80**(c)
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 80,095 44,870 22,228
--------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 0.95 1.00(e) 1.00*(e)
--------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.47 0.54(c) 0.83*(c)
--------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 75 70 1**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations November 17, 1997 to
December 31, 1997.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 1.04% and
1.45% (annualized), respectively.
40
<PAGE>
FINANCIAL HIGHLIGHTS
NEWPORT TIGER FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
Years Ended December 31, December 31,
1999 1998 1997 1996 1995***
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 1.57 1.71 2.52 2.28 2.00
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.03 0.03 0.03 0.03 0.01
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments 1.04 (0.14) (0.81) 0.24 0.29
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 (0.11) (0.78) 0.27 0.30
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.02) (0.03) (0.02) (0.02) (0.01)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- --- (0.01) --- (0.01)
Total distributions (0.02) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 2.62 1.57 1.71 2.52 2.28
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%)(b) 68.01 (6.43) (31.14) 11.73 15.00**
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 46,125 23,655 24,934 34,642 18,977
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) 1.21 1.30 1.25 1.27 1.75*
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 1.65 2.16 1.14 1.20 0.89*
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 12 16 27 7 12**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 1, 1995 to December
31, 1995.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
41
<PAGE>
FINANCIAL HIGHLIGHTS
CRABBE HUSON REAL ESTATE INVESTMENT FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
December 31,
1999***
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 10.00
--------------------------------------------------------------------------------------------
Net investment income (a) 0.31
--------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments (1.70)
--------------------------------------------------------------------------------------------
Total from investment operations (1.39)
--------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22)
--------------------------------------------------------------------------------------------
Return of capital (0.05)
--------------------------------------------------------------------------------------------
Total distributions (0.27)
--------------------------------------------------------------------------------------------
Net asset value, end of period ($) 8.34
--------------------------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%)(b)(c) (13.80)**
--------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 2,180
--------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.45*
--------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 5.90*
--------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 57**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations June 1, 1999 to December
31, 1999.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Manager not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, this ratio would have been 4.25%
(annualized).
42
<PAGE>
SHAREHOLDER INFORMATION
-----------------------
PURCHASES AND REDEMPTIONS The Participating Insurance Companies place daily
orders to purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders of their VA
contracts and VLI policies and certain other terms of those contracts and
policies. The Trust issues and redeems shares at 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 Each share price is its NAV next
determined. Each Fund determines the NAV for each share class by dividing each
class's total net assets by the number of that class's total net assets by the
number of that class's shares outstanding. The NAV is determined at the close of
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. We value 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 may also value a security at fair value when events have occurred after the
last available market price and before the close of the NYSE that materially
affect the security's price. In the case of foreign securities, this could
include events occurring after the close of the foreign market and before the
close of the NYSE.
A Fund's foreign securities may trade on days when the NYSE is closed for
trading, and therefore the NAV of a Fund's shares may change on days when
Participating Insurance Companies may not purchase or redeem shares.
DIVIDENDS AND DISTRIBUTIONS Each Fund intends to declare and distribute, as
income 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 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 income 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.
OTHER CLASS OF SHARES The Funds also offer an additional class of shares, Class
A shares, which are not available in this prospectus. Your particular VA
contract or VLI policy may not offer these shares.
43
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Funds' investments in the Funds'
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance over their last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Funds and the securities in which they invest. The Statement
of Additional Information 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 and the Statement of Additional Information,
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 Edgar database on the Securities and Exchange Commission internet site 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
electronic request at the e-mail address [email protected] or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Variable Investment Trust : 811-07556
Liberty Value Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Colonial U.S. Growth & Income Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Newport Tiger Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
Liberty Newport Japan Opportunities Fund, Variable Series
Liberty Select Value Fund, Variable Series
Rydex Financial Services Fund, Variable Series
Rydex Health Care Fund, Variable Series
Liberty S&P 500 Index Fund, Variable Series
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
PROSPECTUS DATED JUNE 1, 2000
Colonial Small Cap Value Fund, Variable Series
Colonial U.S. Growth & Income Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Newport Tiger Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
CLASS B SHARES
Trust shares are available only through variable annuity contracts and variable
life insurance policies of participating insurance companies.
* * * *
This Prospectus must be accompanied by a prospectus for your variable annuity
contract or variable life insurance policy. Retain both prospectuses for future
reference.
* * * *
Although trust shares have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
--------------------------------------
NOT FDIC MAY LOSE VALUE
-----------------------
INSURED NO BANK GUARANTEE
--------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE TRUST 3
-----------------------------------------------------------------------------------------------------------------------
THE FUNDS 3
-----------------------------------------------------------------------------------------------------------------------
Each of these sections discusses the following
topics: Investment Goals, Primary Investment Strategies,
Primary Investment Risks and Performance History
Colonial Small Cap Value Fund, Variable Series....................................................................... 4
Colonial U.S. Growth & Income Fund, Variable Series.................................................................. 6
Colonial High Yield Securities Fund, Variable Series................................................................. 8
Liberty All-Star Equity Fund, Variable Series........................................................................11
Newport Tiger Fund, Variable Series..................................................................................14
Crabbe Huson Real Estate Investment Fund, Variable Series............................................................16
TRUST MANAGEMENT ORGANIZATIONS 17
-----------------------------------------------------------------------------------------------------------------------
The Trustees.........................................................................................................17
Investment Advisor: Liberty Advisory Services Corp..................................................................17
Investment Sub-Advisors and Portfolio Managers.......................................................................17
Rule 12b-1 Plan......................................................................................................19
Mixed and Shared Funding.............................................................................................20
OTHER INVESTMENT STRATEGIES AND RISKS 21
-----------------------------------------------------------------------------------------------------------------------
Structure Risk.......................................................................................................21
Zero Coupon Bonds....................................................................................................21
Convertible Securities...............................................................................................21
Derivative Strategies................................................................................................21
Temporary Defensive Strategies.......................................................................................21
FINANCIAL HIGHLIGHTS 22
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER INFORMATION 28
-----------------------------------------------------------------------------------------------------------------------
Purchases and Redemptions............................................................................................28
How the Funds Calculate Net Asset Value..............................................................................28
Dividends and Distributions..........................................................................................28
Tax Consequences.....................................................................................................28
Other Class of Shares................................................................................................28
</TABLE>
2
<PAGE>
THE TRUST
---------
Liberty Variable Investment Trust (Trust) includes seventeen separate mutual
funds (Funds), each with its own investment goals and strategies. This
Prospectus contains information about six of the Funds in the Trust. Liberty
Advisory Services Corp. (LASC) is the investment advisor to each Fund. LASC has
appointed an investment sub-advisor (Sub-Advisor) for each Fund, and all of the
Sub-Advisors are affiliates of LASC. Each Fund has the following Sub-Advisor:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND SUB-ADVISOR
---- -----------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Colonial Small Cap Value Fund, Variable Series (Small Cap Fund) Colonial Management Associates, Inc.
Colonial U.S. Growth & Income Fund, Variable Series (U.S. Growth & Income (Colonial)
Fund) (formerly Colonial U.S. Stock Fund, Variable Series)
Colonial High Yield Securities Fund, Variable Series (High Yield Fund)
------------------------------------------------------------------------------------------------------------------------------------
Newport Tiger Fund, Variable Series (Tiger Fund) Newport Fund Management, Inc.
(Newport)
------------------------------------------------------------------------------------------------------------------------------------
Liberty All-Star Equity Fund, Variable Series (All-Star Equity Fund) Liberty Asset Management Company
(LAMCO)
------------------------------------------------------------------------------------------------------------------------------------
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. Each
Fund offers two classes of shares-Class A and Class B shares. Each share class
has its own expense structure.
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 underwriter of
the Funds is Liberty Funds Distributor, Inc. (LFD). LFD is an affiliate 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.
THE FUNDS
---------
DEFINING CAPITALIZATION
--------------------------------------------------------------------------------
A company's market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the financial
markets, companies generally are sorted into one of three capitalization-based
categories: large capitalization (large cap); medium capitalization (midcap); or
small capitalization (small cap). In defining a company's market capitalization,
we use capitalization-based categories as they are defined by Lipper, Inc.
According to Lipper, Inc, as of December, 1999, large-cap companies had market
capitalizations greater than $9.0 billion, midcap companies had market
capitalizations between $2.2 and 9.0 billion, and small-cap companies had market
capitalizations less than $2.2 billion. These amounts are subject to change.
3
<PAGE>
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in small
capitalization stocks of U.S. companies. These are stocks with market
capitalizations of less than the market capitalization of the stock in the
Russell 2000 Index that has the largest capitalization at the time of purchase.
The remainder of the Fund's assets may be invested in other stocks, or in bonds
that are rated or considered by the advisor to be investment-grade. In managing
the Fund, Colonial uses a value investing strategy that focuses on buying stocks
cheaply when they are undervalued or "out of favor." Colonial buys stocks that
have attractive current prices, consistent operating performance and/or
favorable future growth prospects. Colonial's strategy uses fact-based
quantitative analysis supported by fundamental business and financial analysis.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Smaller companies are more likely than larger companies to have limited product
lines, operating histories, markets or financial resources. They may depend
heavily on a small management team. Stocks of smaller companies may trade less
frequently, may trade in smaller volumes and may fluctuate more sharply in price
than stocks of larger companies. In addition, they may not be widely followed by
the investment community, which can lower the demand for their stock.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
4
<PAGE>
THE FUNDS Colonial Small Cap Value Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows the Fund's performance by illustrating the Fund's
calendar year total returns for its Class A shares. The performance table
following the bar chart shows how the Fund's average annual returns compare with
those of a broad measure of market performance for 1 year and the life of the
Fund. The Fund's return is compared to the Russell 2000 Index (Russell Index),
an unmanaged index that tracks the performance of small-capitalization stocks
traded on the New York Stock Exchange, American Stock Exchange and the NASDAQ.
Unlike the Fund, indices are not investments, do not incur fees or expenses and
are not professionally managed. It is not possible to invest directly in
indices. The Fund's return is also compared to the average return of the funds
included in the Lipper Small Cap-Annuities Funds category average (Lipper
Average). This Lipper Average, which is calculated by Lipper, Inc., is composed
of funds with similar investment objectives to the Fund. Sales charges are not
reflected in the Lipper Average. The chart and table are intended to illustrate
some of the risks of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends and
distributions. Performance results include the effect of expense reduction
arrangements, if any. If these arrangements were not in place, then the
performance results would have been lower. Any expense reduction arrangments may
be discontinued at any time. As with all mutual funds, past performance does not
predict the Fund's future performance. The Fund's performance results do not
reflect the cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy..
CALENDAR YEAR TOTAL RETURNS(1)
[BAR GRAPH]
1999 6.34%
The Fund's year-to-date total return through March 31, 2000 was +1.43%.
For period shown in bar chart:
Best quarter: 2nd quarter 1999, +16.78%
Worst quarter: 1st quarter 1999, -13.27%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(1)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
<S> <C> <C> <C>
Fund (%) 5/19/98 6.34 (4.85)
-----------------------------------------------------------------------------------
Russell Index (%) N/A 21.26 4.01(2)
-----------------------------------------------------------------------------------
Lipper Average (%) N/A 37.57 12.97(2)
</TABLE>
(1) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(2) Performance information is from April 30, 1998.
5
<PAGE>
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks long-term growth and income.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in large
capitalization stocks. These are stocks with market capitalizations of greater
than $3 billion at the time of purchase. Up to 10% of the Fund's assets may be
invested in debt securities.
In selecting debt securities for the Fund, Colonial may invest in:
- debt securities that are convertible into common stock;
- corporate debt securities rated investment-grade by at least two nationally
recognized rating organizations (investment grade stocks have a rating of
BBB or higher by Standard & Poor's Ratings Services or Baa or higher by
Moody's Investors Service, Inc.); and
- debt securities issued or guaranteed by the U.S. government.
In managing the Fund, Colonial uses a value investing strategy that focuses on
buying stocks cheaply when they are undervalued or "out of favor." Colonial buys
stocks that have attractive current prices, consistent operating performance
and/or favorable future growth prospects. Colonial's strategy uses quantitative
analysis supported by fundamental business and financial analyses.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Because the Fund may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
Interest rate risk is the risk of a change 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.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If Colonial's assessment of a company's
prospects is wrong, the price of its stock may not approach the value Colonial
has placed on it.
6
<PAGE>
THE FUNDS Colonial U.S. Growth & Income Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year,
5 years and the life of the Fund. The Fund's return is compared to the Standard
& Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance
of a selection of widely held common stocks. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in indices. The Fund's return is also
compared to the average return of the funds included in the Lipper Growth &
Income - Annuities Funds category average (Lipper Average). This Lipper Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. If these
arrangements were not in place, then the performance results would have been
lower. Any expense reduction arrangements may be discontinued at any time. As
with all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(3)
[BAR GRAPH]
1995 29.70%
1996 21.84%
1997 32.23%
1998 20.15%
1999 12.00%
The Fund's year-to-date total return through March 31, 2000 was +0.40%.
For period shown in bar chart:
Best quarter: 4th quarter 1998, +21.79%
Worst quarter: 3rd quarter 1998, -14.16%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(3)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
<S> <C> <C> <C> <C>
Fund (%) 7/5/94 12.00 22.97 21.64
-------------------------------------------------------------------------------------------------
S&P Index (%) N/A 21.03 28.54 26.73(4)
-------------------------------------------------------------------------------------------------
Lipper Average (%) N/A 14.63 21.86 20.42(4)
</TABLE>
(3) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(4) Performance information is from June 30, 1994.
7
<PAGE>
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks current income and total return.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund pursues its investment goals by investing primarily in lower-rated
corporate debt securities. These securities have the following ratings:
- BB through C by Standard & Poor's Ratings Services;
- Ba through D by Moody's Investors, Service, Inc.;
- a comparable rating by another nationally recognized rating service; or
- the security is unrated and Colonial believes it to be comparable in
quality to securities having such ratings as noted above.
Although the Fund will invest primarily in debt securities, the Fund may invest
in equity securities to seek capital appreciation. Equity securities include
common stocks, preferred stocks, warrants and debt securities convertible into
common stocks. Additionally, the Fund may invest in securities issued or
guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Interest rate risk is the risk of a change 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.
Because the Fund may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
Lower-rated debt securities involve greater risk of loss due to credit
deterioration and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities. Lower-rated debt
securities have the added risk that the issuer of the security may default and
not make payment of interest or principal.
8
<PAGE>
THE FUNDS Colonial High Yield Securities Fund, Variable Series
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which are
sometimes referred to as emerging markets. For example, political and economic
structures in these countries may be new and developing rapidly, which may cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluations, which could hurt their economies
and securities markets.
9
<PAGE>
THE FUNDS Colonial High Yield Securities Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows the Fund's performance by illustrating the Fund's
calendar year total return for its Class A shares. The performance table
following the bar chart shows how the Fund's average annual returns compare with
those of a broad measure of market performance for 1 year and the life of the
Fund. The Fund's return is compared to the CS First Boston Global High Yield
Index (CS Index), an unmanaged index that tracks the performance of high yield
bond funds. Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. The Fund's return is also compared to the average return of
the funds included in the Lipper High Current Yield - Annuities Funds category
average (Lipper Average). This Lipper Average, which is calculated by Lipper,
Inc., is composed of funds with similar investment objectives to the Fund. Sales
charges are not reflected in the Lipper Average. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. Performance results include the effect of expense
reduction arrangements, if any. If these arrangements were not in place, then
the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time. As with all mutual funds, past
performance does not predict the Fund's future performance. The Fund's
performance results do not reflect the cost of insurance and separate account
charges which are imposed under your VA contract or VLI policy.
CALENDAR YEAR TOTAL RETURNS(5)
[BAR GRAPH]
1999 1.65%
The Fund's year-to-date total return through March 31, 2000 was -1.36%.
For period shown in bar chart:
Best quarter: 1st quarter 1999, +3.11%
Worst quarter: 3rd quarter 1999, -1.90%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(5)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
<S> <C> <C> <C>
Fund (%) 5/19/98 1.65 (0.59)
--------------------------------------------------------------------------------------
CS Index (%) N/A 3.28 0.06(6)
--------------------------------------------------------------------------------------
Lipper Average (%) N/A 4.04 (0.28)(6)
</TABLE>
(5) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(6) Performance information is from April 30, 1998.
10
<PAGE>
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks total investment return, comprised of long-term capital
appreciation and current income, through investment primarily in a diversified
portfolio of equity securities.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in equity and equity
related securities, which include common stocks, bonds convertible into stocks,
warrants and other rights to purchase stocks.
The Fund's sub-advisor, LAMCO, utilizes a multi-manager concept. LAMCO allocates
the Fund's portfolio assets on an approximately equal basis among a number of
independent investment management organizations (Portfolio Managers). There are
five Portfolio Managers as of the date of this prospectus, each of which employs
a different investment style. LAMCO attempts to rebalance the portfolio among
the Portfolio Managers so as to maintain an approximately equal allocation of
the portfolio among them throughout all market cycles.
In LAMCO's opinion, the multi-manager concept provides advantages over the use
of a single manager for the following reasons:
- Most equity investment management firms consistently employ a distinct
investment "style" which causes them to emphasize stocks with particular
characteristics;
- Because of changing investor preferences, any given investment style will
move into and out of market favor and will result in better investment
performance under certain market conditions, but less successful
performance under other conditions;
- Consequently, by allocating the Fund's portfolio on an approximately equal
basis among Portfolio Managers employing different styles, the impact of
any one style on investment performance will be diluted, and the investment
performance of the total portfolio will be more consistent and less
volatile over the long term than if a single style were employed throughout
the entire period; and
- More consistent performance at a given annual rate of return over time
produces a higher rate of return for the long term than more volatile
performance having the same average annual rate of return.
The Fund's current Portfolio Managers and investment styles are as follows:
- J. P. Morgan Investment Management Inc. uses a value approach by investing
in companies that are diversified across all sectors and that are
undervalued relative to the firm's projected growth rates.
- Oppenheimer Capital uses a value approach by investing in companies that
exhibit the ability to generate excess cash flow while earning high returns
on invested capital.
- Boston Partners Asset Management, L.P. uses a value approach by investing
in companies with low price-to-earnings and price-to-book ratios where a
catalyst for positive change has been identified.
- Westwood Management Corporation uses a growth approach by investing in
growth companies selling at reasonable valuations based on the firm's
earnings projections which are not yet reflected in consensus estimates.
- TCW Investment Management Company incorporates secular growth trends and
uses a "bottom-up" approach by investing in primarily large-cap companies
that have distinct business model advantages.
LAMCO continuously monitors the performance and investment styles of the Fund's
Portfolio Managers and from time to time may recommend changes of Portfolio
Managers based on factors such as:
- Changes in a Portfolio Manager's investment style or a departure by a
Portfolio Manager from the investment style for which it had been selected;
- A deterioration in a Portfolio Manager's performance relative to that of
other investment management firms practicing a similar style; or
- Adverse changes in its ownership or personnel.
11
<PAGE>
THE FUNDS Liberty All-Star Equity Fund, Variable Series
LAMCO also may recommend Portfolio Manager changes to change the mix of
investment styles employed by the Fund's Portfolio Managers. The Board of
Trustees must approve all Portfolio Manager changes. LAMCO is also the manager
of Liberty All-Star Equity Fund, a multi-managed, closed-end fund and Liberty
All-Star Growth & Income Fund, a multi-managed open-ended fund. These funds have
the same investment objective and investment program as the Fund, and currently
have the same Portfolio Managers. LAMCO expects that these funds will make
corresponding changes if and when Portfolio Managers are changed in the future.
The Fund will remain substantially fully invested during periods when stock
prices generally rise and also during periods when they generally decline. The
Fund is intended to be a long-term investment vehicle and is not designed to
provide a means of speculating on short-term stock market movements.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
Interest rate risk is the risk of a change 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.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the Portfolio Managers' assessment of a
company's prospects is wrong, the price of its stock may not approach the value
the Portfolio Managers have placed on it.
12
<PAGE>
THE FUNDS Liberty All-Star Equity Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year
and the life of the Fund. The Fund's return is compared to the Russell 3000
Index (Russell Index), a capitalization weighted total return index which is
comprised of 3000 of the largest capitalized U.S. domiciled companies whose
common stock is traded in the United States on the New York Stock Exchange,
American Stock Exchange and NASDAQ. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in indices. The Fund's return is also
compared to the average return of the funds included in the Lipper Growth &
Income - Annuities Funds category average (Lipper Average). This Lipper Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. If these
arrangements were not in place, then the performance results would have been
lower. Any expense reduction arrangements may be discontinued at any time. As
with all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(7)
[BAR GRAPH]
1998 18.67%
1999 8.47%
The Fund's year-to-date total return through March 31, 2000 was +5.21%.
For the period shown in bar chart:
Best quarter: 4th quarter 1998, +18.67%
Worst quarter: 3rd quarter 1998, -12.05%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(7)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
<S> <C> <C> <C>
Fund (%) 11/17/97 8.47 13.05
-------------------------------------------------------------------------------------
Russell Index (%) N/A 20.90 23.85(8)
-------------------------------------------------------------------------------------
Lipper Average (%) N/A 14.63 16.24(8)
</TABLE>
(7) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(8) Performance information is from October 31, 1997.
13
<PAGE>
NEWPORT TIGER FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in stocks of
companies located in the ten Tiger countries of Asia. The Tigers of Asia are
Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, India, Indonesia,
The People's Republic of China and the Philippines. In selecting investments for
the Fund, Newport typically purchases stocks of quality growth companies.
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 prevent the Fund from achieving its goal. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the value
of foreign securities without a change in the intrinsic value of those
securities. 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. 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.
Because the Fund's investments are concentrated in the ten Tiger countries of
Asia, the Fund is particularly susceptible to regional risks. Events in any one
Tiger country may impact the other countries in the Asian region as a whole. As
a result events in the region will generally have a greater effect on the Fund
than if the Fund were more geographically diversified, which may result in
greater losses and volatility.
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which are
sometimes referred to as emerging markets. For example, political and economic
structures in these countries may be new and developing rapidly, which may cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluations, which could hurt their economies
and securities markets.
14
<PAGE>
THE FUNDS Newport Tiger Fund, Variable Series
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns compare with those of a broad measure of market performance for 1 year
and the life of the Fund. The Fund's return is compared to the Morgan Stanley
Capital International EAFE GDP Index (MSCI Index), a broad-based, unmanaged
index that tracks the performance of foreign stocks. Unlike the Fund, indices
are not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in indices. The Fund's return is
also compared to the average return of the funds included in the Lipper
Pacific-Region-Annuities Funds category average (Lipper Average). This Lipper
Average, which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Fund. Sales charges are not reflected in the Lipper
Average. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. Performance
results include the effect of expense reduction arrangements, if any. As with
all mutual funds, past performance does not predict the Fund's future
performance. The Fund's performance results do not reflect the cost of insurance
and separate account charges which are imposed under your VA contract or VLI
policy.
CALENDAR YEAR TOTAL RETURNS(9)
[BAR GRAPH]
1996 11.73%
1997 -31.14%
1998 -6.43%
1999 68.01%
The Fund's year-to-date total return through March 31, 2000 was +1.91%.
For the period shown in bar chart:
Best quarter: 4th quarter 1998, +37.93%
Worst quarter: 2nd quarter 1998, -28.81%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(9)
<TABLE>
<CAPTION>
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
<S> <C> <C> <C>
Fund (%) 5/1/95 68.01 7.31
-------------------------------------------------------------------------------------
MSCI Index (%) N/A 31.00 15.72(10)
-------------------------------------------------------------------------------------
Lipper Average (%) N/A 79.74 4.24(10)
</TABLE>
(9) Because the Class B shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares, the
oldest existing fund class.
(10) Performance information is from April 30, 1995.
15
<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.
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 prevent the Fund from achieving its goals. It is possible to lose money by
investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions. Market risk includes
interest rate risk.
The Fund may invest in equity real estate investment trusts (REITs). REITs are
entities which either own properties or make construction or mortgage loans.
Equity REITs may also include operating or finance companies. 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. In addition,
although the Fund does not invest directly in real estate, a REIT investment by
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.
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. If Crabbe Huson's assessment of a company's prospects
is wrong, the price of its stock may not approach the value Crabbe Huson has
placed on it.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
Because the Fund has not completed one full calendar year of investment
performance, information related to the Fund's performance has not been included
in this prospectus.
The Fund's return is compared to the NAREIT Equity Index, an unmanaged index
that tracks the performance of all equity real estate investment trusts that
trade on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ. Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices.
16
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
------------------------------
THE TRUSTEES
--------------------------------------------------------------------------------
The business of the Trust and the Funds is supervised by the Trust's Board of
Trustees. The Statement of Additional Information contains 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 Funds. 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, 2000, LASC managed over $853 million in assets. LASC designates
the Trust's Sub-Advisors, evaluates and monitors Sub-Advisors' performance and
investment programs and recommends to the Board of Trustees whether
Sub-Advisors' contracts should be continued or modified and whether to remove,
replace or add 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 the 1999 fiscal year, the Trust paid LASC management fees at the following
annual rates of the average daily net assets of each specified Fund:
<TABLE>
<CAPTION>
<S> <C> <C>
Colonial Small Cap Value Fund, Variable Series 0.80% (11)
Colonial U.S. Growth & Income Fund, Variable Series 0.80%
Colonial High Yield Securities Fund, Variable Series 0.60% (12)
Liberty All-Star Equity Fund, Variable Series 0.80%
Newport Tiger Fund, Variable Series 0.90%
Crabbe Huson Real Estate Investment Fund, Variable Series 1.00% (13)
</TABLE>
(11) The Small Cap Fund's advisor has voluntarily agreed to waive its management
fee and reimburse other expenses so that total expenses of the Fund
(excluding interest, taxes, 12b-1, brokerage and extraordinary expenses) do
not exceed 1.00%. As a result the actual management fee paid to the advisor
for the 1999 fiscal year was 0.00%.
(12) The High Yield Fund's advisor has voluntarily agreed to waive its
management fee and reimburse other expenses so that total expenses of the
Fund (excluding interest, taxes, 12b-1, brokerage and extraordinary
expenses) do not exceed 0.80%. As a result the actual management fee paid
to the advisor for the 1999 fiscal year was 0.12%.
(13) The Real Estate Fund's advisor has voluntarily agreed to waive its
management fee and reimburse other expenses so that total expenses of the
Fund (excluding interest, taxes, 12b-1, brokerage and extraordinary
expenses) do not exceed 1.20%. As a result the actual management fee paid
to the advisor for the 1999 fiscal year was 0.00%.
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
Small Cap Fund, U.S. Growth & Income Fund and High Yield Fund. Colonial's
principal business address is One Financial Center, Boston, Massachusetts 02111.
As of March 31, 2000, Colonial managed over $15.7 billion in assets.
17
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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:
<TABLE>
<CAPTION>
<S> <C>
Colonial Small Cap Value Fund, Variable Series 0.60%
Colonial U.S. Growth & Income Fund, Variable Series 0.60%
Colonial High Yield Securities Fund, Variable Series 0.40%
</TABLE>
Colonial also provides transfer agency, pricing and record keeping services for
the Funds under separate agreements.
James P. Haynie, a senior vice president of Colonial, has co-managed the Small
Cap Fund since 1993.
Michael Rega, a vice president of Colonial, has co-managed the Small Cap Fund
since 1996. He was an analyst at Colonial from 1993 to 1996.
Mark Stoeckle has managed the U.S. Growth & Income Fund since December, 1996.
Mr. Stoeckle is a senior vice president of Colonial. Prior to joining Colonial
in October, 1996, Mr. Stoeckle was a portfolio manager at Massachusetts
Financial Services Company from January, 1993 to October, 1996.
Carl C. Ericson has co-managed the High Yield Fund since January, 1999. Mr.
Ericson, a senior vice president of Colonial and director of Colonial's Taxable
Fixed Income Group, has managed various other Colonial taxable income funds
since 1985.
Scott B. Richards, a senior vice president of Colonial, has co-managed the High
Yield Fund since May, 1999. Prior to joining Colonial he was employed with State
Street Research & Management Company as a vice president and a portfolio manager
from January, 1994 to May, 1999.
Colonial will use Newport's trading facilities when buying or selling foreign
securities for the Funds' portfolios. Newport executes all trades under its own
procedures.
Colonial's investment advisory business is managed together with the mutual
funds and institutional investment advisory businesses of its affiliate, Stein
Roe & Farnham Incorporated (Stein Roe). Colonial is part of a larger business
unit that includes several separate legal entities known as Liberty Funds Group
LLC (LFG). The LFG business unit and Stein Roe are managed by a single
management team. Stein Roe, Colonial and the other LFG entities also share
personnel, facilities and systems that may be used in providing administrative
or operational services to the Fund. Stein Roe and Colonial are registered
investment advisors. Colonial, the other entities that make up LFG and Stein Roe
are subsidiaries of Liberty Financial Companies, Inc.
LAMCO AND LAMCO'S PORTFOLIO MANAGERS
LAMCO, an investment advisor since 1985, is the Sub-Advisor of the All-Star
Equity Fund. LAMCO's principal address is 600 Atlantic Avenue, 23rd Floor,
Boston, Massachusetts 02210. As of March 31, 2000, LAMCO managed over $1.8
billion in assets.
LASC, out of the management fees it receives from the Trust, pays LAMCO a
sub-advisory fee at the annual rate of 0.60% of the average daily net assets of
the All-Star Equity Fund.
LAMCO is a manager of other investment managers which LAMCO recommends to the
Board of Trustees for appointment pursuant to portfolio management agreements
among the Trust, LAMCO and the Portfolio Managers. The management agreements
permit each Portfolio Manager to have full investment discretion and authority
over investment of a portion of the Fund's assets.
Out of the management fees it receives from LASC, LAMCO pays each Portfolio
Manager a fee at the annual rate of 0.30% of the average daily net assets of the
portion of the Fund's assets assigned to that Portfolio Manager.
18
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
No one individual at LAMCO is responsible for LAMCO's investment management of
the All-Star Equity Fund. The following individuals who work for the indicated
Portfolio Managers manage a portion of All-Star Equity Fund's assets:
- Henry D. Cavanna, Managing Director of J.P. Morgan Investment Management,
Inc.
- John Lindenthal, Managing Director of Oppenheimer Capital
- Mark Donovan, Chairman, Equity Strategy Committee, of Boston Partners Asset
Management, L.P.
- Susan M. Byrne, President and Chief Executive Officer of Westwood
Management Corp.
- Glen E. Bickerstaff, Managing Director - U.S. Equities of TCW Investment
Management Company
A more complete description of each Portfolio Manager is included in the
Statement of Additional Information. The Trust and LAMCO have received an
exemptive order from the SEC that permits the All-Star Equity Fund to change
Portfolio Managers without a vote of the shareholders. Information regarding any
new Portfolio Manager is sent to holders of VA contracts and VLI policies within
90 days following the effective date of the change.
NEWPORT
Newport, an investment advisor since 1987, is the Sub-Advisor of the Tiger Fund.
Newport's principal address is 580 California Street, Suite 1960, San Francisco,
California 94104. As of March 31, 2000, Newport managed over $1.4 billion in
assets.
LASC, out of the management fees it receives from the Trust, pays Newport a
sub-advisory fee at the annual rate of 0.70% of the average daily net assets of
the Tiger Fund.
Thomas R. Tuttle and Lynda Couch, president and a managing director,
respectively, of Newport, co-manage the Fund. Mr. Tuttle has co-managed other
Newport Funds since November, 1995. Mr. Tuttle has been an officer of Newport
since 1984. Ms. Couch has managed other Newport Funds since April, 1995. Ms.
Couch has been an officer of Newport since 1994.
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. As of March 31, 2000, Crabbe Huson managed over $267
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.
Michael B. Stokes has managed the Real Estate Fund since its inception in June,
1999. 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.
RULE 12b-1 PLAN
--------------------------------------------------------------------------------
The Trust has adopted a plan for and on behalf of the Funds' Class B shares in
accordance with Rule 12b-1 (Plan) under the Investment Company Act of 1940. The
Plan allows the Funds to pay fees for the sale and distribution of their Class B
shares. Under the plan, each Fund pays the distributor a distribution fee of
0.25% of the average daily net assets attributable to the Funds' Class B shares.
Because these fees are an ongoing expense, over time they increase the cost of
an investment and the shares may cost more than shares that are not subject to a
distribution fee.
19
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
MIXED AND SHARED FUNDING
--------------------------------------------------------------------------------
The Trust serves as the funding medium for VA contracts and VLI policies of
Participating Insurance Companies, including those of Keyport, Independence Life
& Annuity Company and Keyport Benefit Life Insurance Company, each of which is a
wholly owned subsidiary of Keyport, and Liberty Life Assurance Company of
Boston, 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.
20
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
-------------------------------------
The primary investment strategies of each Fund and the associated risks are
described above in each Fund's individual description. This section describes
other investments a Fund may make and the risks associated with them. In seeking
to achieve its goals, each Fund may invest in various types of securities and
engage in various investment techniques which are not the principal 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'
Statement of Additional Information, which you may obtain free of charge (see
back cover). Approval by a Fund's shareholders is not required to modify or
change any of a Fund's investment goals or investment strategies.
STRUCTURE RISK
--------------------------------------------------------------------------------
(U.S. Growth & Income Fund, High Yield Fund) Structure risk is the risk that an
event will occur (such as a security being prepaid or called) that alters the
security's cash flows. Prepayment risk is a particular type of structure risk
that is present in a Fund because of its investments in mortgage-backed
securities and asset-backed securities. Prepayment risk is the possibility that
asset-backed securities may be prepaid if the underlying debt securities are
prepaid. Prepayment risk for mortgage-backed securities is the possibility that,
as interest rates fall, homeowners are more likely to refinance their home
mortgages. When mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of declining
interest rates, asset-backed securities and mortgage-backed securities may offer
less potential for gain than other debt securities. During periods of rising
interest rates, these securities have a high risk of declining in price because
the declining prepayment rates effectively increase the maturity of the
security. In addition, the potential impact of prepayment on the price of a
security may be difficult to predict and result in greater volatility.
ZERO COUPON BONDS
--------------------------------------------------------------------------------
(High Yield Fund) Zero coupon bonds do not pay interest in cash on a current
basis, but instead accrue interest over the life of the bond. As a result, these
securities are issued at a deep discount. The value of these securities may
fluctuate more than similar securities that pay interest periodically. Although
these securities pay no interest to holders prior to maturity, interest on these
securities is reported as income to the Fund and distributed to its
shareholders.
CONVERTIBLE SECURITIES
--------------------------------------------------------------------------------
(U.S. Growth & Income Fund, High Yield Fund) Convertible securities are
preferred stocks or bonds that pay a fixed dividend or interest payment and are
convertible into common stocks at a specified price or conversion ratio. The
risk of investing in convertible securities is the value of the underlying
securities will fluctuate.
DERIVATIVE STRATEGIES
--------------------------------------------------------------------------------
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, commonly referred to as derivatives, involve the
use of financial instruments whose value depends on, or are derived from, the
value of an underlying security, index or currency. A Fund may use these
strategies to adjust the Fund's sensitivity to changes in interest rates or for
other hedging purposes (e.g., attempting to offset a potential loss in one
position by establishing an interest in an opposite position). Derivative
strategies involve the risk that they may exaggerate a loss, potentially losing
more money than the actual cost of the derivative, or limit a potential gain.
Also, with some derivative strategies there is the risk that the other party to
the transaction may fail to honor its contract terms, causing a loss to a Fund.
TEMPORARY DEFENSIVE STRATEGIES
--------------------------------------------------------------------------------
With the exception of the All-Star Equity Fund, each Fund's Sub-Advisor may
determine that adverse market conditions make it desirable to temporarily
suspend the Fund's normal investment activities. During such times, a Fund may,
but is not required to, invest in cash or high-quality, short-term debt
securities, without limit.
(High Yield Fund) If necessary, the Fund has the ability to invest 100% of its
assets in higher-rated securities, if, in Colonial's opinion, economic
conditions create a situation where yield spreads narrow between lower- and
higher-rated securities.
Taking a temporary defensive position may prevent a Fund from achieving its
investment goals.
21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
The financial highlights tables are intended to help you understand the Funds'
financial performance. Information is shown for the Funds' last five fiscal
years, (or shorter period if a Fund commenced operations less than five years
ago) which run from January 1 to December 31. Because the Class B shares
commenced investment operations on June 1, 2000, the Financial Highlights shown
are for the Funds' Class A shares, the oldest existing Fund class. Certain
information reflects financial results for a single Fund share. This information
is included in the Funds' financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports, along with
the Funds' financial statements, is included in the Funds' annual report. The
Funds' total returns presented below do not reflect the cost of insurance and
other insurance company separate account charges which vary with the VA
contracts and VLI policies. You can request a free annual report by writing
Keyport Financial Services Corp. (see back cover for address) or by calling or
writing the Participating Insurance Company which issued your VA contract or VLI
policy.
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 8.59 10.00
----------------------------------------------------------------------------------------------------
Net investment income (a) 0.02 0.08
----------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments 0.52 (1.41)
----------------------------------------------------------------------------------------------------
Total from investment operations 0.54 (1.33)
----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.01) (0.07)
----------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.01)
----------------------------------------------------------------------------------------------------
Total distributions (0.01) (0.08)
----------------------------------------------------------------------------------------------------
Net asset value, end of year 9.12 8.59
----------------------------------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%) (b)(c) 6.34 (13.25)**
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 3,817 1,782
----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.00 1.00*
----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.23 1.41*
----------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 74 51**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 19, 1998 to December
31, 1998.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the manager not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 3.66% and
4.32% (annualized), respectively..
22
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 18.79 16.29 14.22 12.36 10.27
----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.14 0.16 0.20 0.19 0.21
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.07 3.12 4.37 2.52 2.84
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.21 3.28 4.57 2.71 3.05
----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.18) (0.17) (0.16)
----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- --- (0.01) --- ---
----------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains on (1.04) (0.64) (2.30) (0.68) (0.80)
investments
----------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains --- (0.02) (0.01) --- ---
----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.15) (0.78) (2.50) (0.85) (0.96)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 19.85 18.79 16.29 14.22 12.36
----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b) 12.00 20.15 32.23 21.84 29.70(c)
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 212,355 146,239 96,715 60,855 43,017
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 0.88 0.90 0.94 0.95 1.00(e)
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.69 0.88 1.19 1.39 1.72(c)
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 101 64 63 77 115
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, this ratio would have been 1.07%.
23
<PAGE>
FINANCIAL HIGHLIGHTS
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 9.31 10.00
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.88 0.48
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses (0.72) (0.74)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.16 (0.26)
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.62) (0.43)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- (0.00)
------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.62) (0.43)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 8.85 9.31
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b)(c) 1.65 (2.57)**
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 15,358 5,915
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 0.80 0.80*
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (c)(d) 9.36 7.93*
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 16 23**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 19, 1998 to December
31, 1998.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 1.28% and
1.84% (annualized), respectively.
24
<PAGE>
FINANCIAL HIGHLIGHTS
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
December
Year Ended December 31, 31,
1999 1998 1997***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 11.90 10.07 10.00
--------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.06 0.06 0.01
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 0.94 1.82 0.07
--------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 1.88 0.08
--------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.01)
--------------------------------------------------------------------------------------------------------------
Dividends form net realized gains on investments (0.38) --- ---
--------------------------------------------------------------------------------------------------------------
Total distributions (0.43) (0.05) (0.01)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 12.47 11.90 10.07
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%)(b) 8.47 18.67(c) 0.80**(c)
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 80,095 44,870 22,228
--------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 0.95 1.00(e) 1.00*(e)
--------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.47 0.54(c) 0.83*(c)
--------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 75 70 1**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations November 17, 1997 to
December 31, 1997.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 1.04% and
1.45% (annualized), respectively.
25
<PAGE>
FINANCIAL HIGHLIGHTS
NEWPORT TIGER FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
Years Ended December 31, December 31,
1999 1998 1997 1996 1995***
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 1.57 1.71 2.52 2.28 2.00
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.03 0.03 0.03 0.03 0.01
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments 1.04 (0.14) (0.81) 0.24 0.29
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 (0.11) (0.78) 0.27 0.30
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.02) (0.03) (0.02) (0.02) (0.01)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income --- --- (0.01) --- (0.01)
Total distributions (0.02) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 2.62 1.57 1.71 2.52 2.28
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%)(b) 68.01 (6.43) (31.14) 11.73 15.00**
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 46,125 23,655 24,934 34,642 18,977
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) 1.21 1.30 1.25 1.27 1.75*
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 1.65 2.16 1.14 1.20 0.89*
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 12 16 27 7 12**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 1, 1995 to December
31, 1995.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
26
<PAGE>
FINANCIAL HIGHLIGHTS
CRABBE HUSON REAL ESTATE INVESTMENT FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Period Ended
December 31,
1999***
PER SHARE OPERATING PERFORMANCE:
<S> <C>
Net asset value, beginning of period ($) 10.00
--------------------------------------------------------------------------------------------
Net investment income (a) 0.31
--------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments (1.70)
--------------------------------------------------------------------------------------------
Total from investment operations (1.39)
--------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22)
--------------------------------------------------------------------------------------------
Return of capital (0.05)
--------------------------------------------------------------------------------------------
Total distributions (0.27)
--------------------------------------------------------------------------------------------
Net asset value, end of period ($) 8.34
--------------------------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%)(b)(c) (13.80)**
--------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 2,180
--------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.45*
--------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 5.90*
--------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 57**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations June 1, 1999 to December
31, 1999.
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Manager not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, this ratio would have been 4.25%
(annualized).
27
<PAGE>
SHAREHOLDER INFORMATION
PURCHASES AND REDEMPTIONS The Participating Insurance Companies place daily
orders to purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders of their VA
contracts and VLI policies and certain other terms of those contracts and
policies. The Trust issues and redeems shares at 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 Each share price is its NAV next
determined. Each Fund determines the NAV for each share class by dividing each
class's total net assets by the number of that class's total net assets by the
number of that class's shares outstanding. The NAV is determined at the close of
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. We value 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 may also value a security at fair value when events have occurred after the
last available market price and before the close of the NYSE that materially
affect the security's price. In the case of foreign securities, this could
include events occurring after the close of the foreign market and before the
close of the NYSE.
A Fund's foreign securities may trade on days when the NYSE is closed for
trading, and therefore the NAV of a Fund's shares may change on days when
Participating Insurance Companies may not purchase or redeem shares.
DIVIDENDS AND DISTRIBUTIONS Each Fund intends to declare and distribute, as
income 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 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 income 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.
OTHER CLASS OF SHARES The Funds also offer an additional class of shares, Class
A shares, which are not available in this prospectus. Your particular VA
contract or VLI policy may not offer these shares.
28
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Funds' investments in the Funds'
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance over their last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Funds and the securities in which they invest. The Statement
of Additional Information 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 and the Statement of Additional Information,
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 Edgar database on the Securities and Exchange Commission internet site 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
electronic request at the e-mail address [email protected] or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Variable Investment Trust : 811-07556
Colonial Small Cap Value Fund, Variable Series
Colonial U.S. Growth & Income Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Newport Tiger Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
