Registration Nos: 33-59216
811-7556
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 23 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 24 [ X ]
(Check appropriate box or boxes)
LIBERTY VARIABLE INVESTMENT TRUST
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(Exact Name of Registrant as Specified in Charter)
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
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(Address of Principal Executive Offices)
617-426-3750
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(Registrant's Telephone Number, including Area Code)
NAME AND ADDRESS OF
AGENT FOR SERVICE COPY TO
Nancy L. Conlin, Esq. John M. Loder, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ X ] Immediately upon filing pursuant to paragraph (b).
[ ] On (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1).
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
An indefinite number of shares of beneficial interest of all existing and
subsequently created series of the Trust under the Securities Act of 1933 were
registered by the Registration Statement filed on March 18, 1993 under the
Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 Notice with respect
to the fiscal year ended December 31, 1996 was filed on or about February 28,
1997.
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
PROSPECTUS DATED JUNE 1, 2000
Liberty Value Fund, Variable Series
Stein Roe Global Utilities 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
Colonial International Fund for Growth, Variable Series
Newport Tiger 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
INSURED NO BANK GUARANTEE
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<PAGE>
TABLE OF CONTENTS
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
Stein Roe Global Utilities Fund, Variable Series...............................6
Colonial Small Cap Value Fund, Variable Series.................................8
Colonial U.S. Growth & Income Fund, Variable Series...........................10
Colonial Strategic Income Fund, Variable Series...............................12
Colonial High Yield Securities Fund, Variable Series..........................15
Liberty All-Star Equity Fund, Variable Series.................................18
Colonial International Fund for Growth, Variable Series.......................21
Newport Tiger Fund, Variable Series...........................................23
TRUST MANAGEMENT ORGANIZATIONS 25
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The Trustees..................................................................25
Investment Advisor: Liberty Advisory Services Corp............................25
Investment Sub-Advisors and Portfolio Managers................................25
Rule 12b-1 Plan...............................................................28
Mixed and Shared Funding......................................................28
OTHER INVESTMENT STRATEGIES AND RISKS 29
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U.S. Government Securities....................................................29
Structure Risk................................................................29
Zero Coupon Bonds.............................................................29
Convertible Securities........................................................29
Derivative Strategies.........................................................29
Temporary Defensive Strategies................................................30
FINANCIAL HIGHLIGHTS 31
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SHAREHOLDER INFORMATION 40
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Purchases and Redemptions.....................................................40
How the Funds Calculate Net Asset Value.......................................40
Dividends and Distributions...................................................40
Tax Consequences..............................................................40
Other Classes of Shares.......................................................40
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 nine 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
------------------------------------------------------------------------------- ------------------------------------------------
<S> <C>
Liberty Value Fund, Variable Series (Value Fund) (formerly Colonial Growth Colonial Management Associates, Inc. (Colonial)
and Income Fund)
Colonial International Fund for Growth, Variable Series (International Fund)
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)
------------------------------------------------------------------------------- ------------------------------------------------
Stein Roe Global Utilities Fund, Variable Series (Global Utilities Fund) Stein Roe & Farnham Incorporated
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Newport Tiger Fund, Variable Series (Tiger Fund) Newport Fund Management, Inc.
------------------------------------------------------------------------------- ------------------------------------------------
Liberty All-Star Equity Fund, Variable Series (All-Star Equity Fund) Liberty Asset Management Company (LAMCO)
------------------------------------------------------------------------------- ------------------------------------------------
</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
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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
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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
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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)
[Bar Graph]
1999 5.55%
1998 11.13%
1997 28.97%
1996 17.89%
1995 30.03%
1994 -0.76%
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)
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
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)
(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.
<PAGE>
STEIN ROE GLOBAL UTILITIES FUND, VARIABLE SERIES
INVESTMENT GOALS
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The Fund seeks current income and long-term growth of capital and income.
PRIMARY INVESTMENT STRATEGIES
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Under normal market conditions, the Fund invests primarily in U.S. and foreign
securities of utility companies. Stein Roe diversifies the Fund's investments
among a number of developed countries and market sectors and will have exposure
to at least three countries, including the U.S. In selecting investments for the
Fund, Stein Roe looks primarily for stocks of larger utility companies with
established records.
Utility companies in which the Fund may invest include companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electricity, natural gas or other types of energy, or water or other sanitary
services. They also include companies engaged in telecommunications, including
telephone, telegraph, satellite, microwave and other communications media (but
excluding companies primarily engaged in public broadcasting, print media, cable
television or the Internet).
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.
Utility company securities are subject to special risks. These securities are
especially affected by changes in interest rates, as well as by general
competitive and market forces in the industry. As interest rates increase, the
value of securities of utility companies tends to decrease, and vice versa. In
addition, utility companies are affected by changes in government regulation. In
particular, the profitability of utilities may in the future be adversely
affected by increased competition resulting from deregulation.
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.
6
<PAGE>
THE FUNDS Stein Roe Global Utilities 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 Utilities Index (S&P Index), an unmanaged index that tracks the
performance of domestic utility stocks, and the Morgan Stanley Capital
International World Index ND (MSCI Index), an unmanaged index that tracks the
performance of global 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 Utilities 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(3)
[Bar Graph]
1999 28.63%
1998 18.33%
1997 28.75%
1996 6.53%
1995 35.15%
1994 -10.27%
The Fund's year-to-date total return through March 31, 2000 was +8.05%.
For period shown in bar chart:
Best quarter: 4th quarter 1999, +24.73%
Worst quarter: 1st quarter 1994, -8.91%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(3)
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
Fund (%) 7/1/93 28.63 23.06 15.04
--------------------- -------------- -------------- ------------- --------------
MSCI Index (%) N/A 24.93 19.76 16.86(4)
--------------------- -------------- -------------- ------------- --------------
S&P Index (%) N/A -8.88 13.66 9.11(4)
--------------------- -------------- -------------- ------------- --------------
Lipper Average (%) N/A 15.40 19.64 12.14(4)
(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, 1993.
7
<PAGE>
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
INVESTMENT GOAL
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The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
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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.
8
<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(5)
[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(5)
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
Fund (%) 5/19/98 6.34 (4.85)
---------------------------- -------------- -------------- -------------
Russell Index (%) N/A 21.26 4.01(6)
---------------------------- -------------- -------------- -------------
Lipper Average (%) N/A 37.57 12.97(6)
(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.
9
<PAGE>
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
INVESTMENT GOALS
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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.
10
<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(7)
[Bar Graph]
1999 12.00%
1998 20.15%
1997 32.23%
1996 21.84%
1995 29.70%
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(7)
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
Fund (%) 7/5/94 12.00 22.97 21.64
----------------------- -------------- ------------- ---------- ----------------
S&P Index (%) N/A 21.03 28.54 26.73(8)
----------------------- -------------- ------------- ---------- ----------------
Lipper Average (%) N/A 14.63 21.86 20.42(8)
(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.
11
<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.
12
<PAGE>
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 prinicpal.
13
<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(9)
[Bar Graph]
1999 1.78%
1998 6.03%
1997 9.11%
1996 9.83%
1995 18.30%
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(9)
INCEPTION 1 YEAR 5 YEARS LIFE OF THE
DATE FUND
Fund (%) 7/5/94 1.78 8.88 8.26
------------------------ ------------- ------------- ---------- ----------------
Lehman Index (%) N/A (2.15) 7.61 7.06(10)
------------------------ ------------- ------------- ---------- ----------------
Lipper Average (%) N/A 0.76 7.84 7.03(10)
(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 June 30, 1994.
14
<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.
15
<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.
16
<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(11)
[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(11)
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
Fund (%) 5/19/98 1.65 (0.59)
------------------------------ -------------- -------------- ----------------
CS Index (%) N/A 3.28 0.06(12)
------------------------------ -------------- -------------- ----------------
Lipper Average (%) N/A 4.04 (0.28)(12)
(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 April 30, 1998.
17
<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.
18
<PAGE>
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.
19
<PAGE>
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(13)
[Bar Graph]
1999 8.47%
1998 18.67%
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(13)
INCEPTION 1 YEAR LIFE OF THE
DATE FUND
Fund (%) 11/17/97 8.47 13.05
----------------------------- -------------- ------------- ----------------
Russell Index (%) N/A 20.90 23.85(14)
----------------------------- -------------- ------------- ----------------
Lipper Average (%) N/A 14.63 16.24(14)
(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 October 31, 1997.
20
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term capital growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in equity securities
of companies located outside the United States. The Fund may invest in equity
securities located in any foreign country, including emerging market countries.
The Fund may invest in companies of any size, including small capitalization
stocks. The Fund may also invest in high-quality foreign government debt
securities. The Fund generally diversifies its holdings across several different
countries and regions.
The Fund may invest up to 10% of its assets in shares of other investment
companies. Investing in investment companies may involve payment of duplicate
fees because the Fund, as a shareholder, will indirectly pay a portion of the
other investment company's expenses.
Additional strategies that are not primary investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
PRIMARY INVESTMENT RISKS
--------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could 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.
As a non-diversified mutual fund, the Fund is allowed to invest or hold greater
than 10% of outstanding voting securities of any issuer (more than 5% 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.
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.
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.
21
<PAGE>
THE FUNDS Colonial International Fund for Growth, 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 Morgan
Stanley Capital International EAFE Index (MSCI Index), an unmanaged index that
tracks the performance of international stocks by market capitalization. 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 International-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(15)
[Bar Graph]
1999 40.58%
1998 12.96%
1997 -3.27%
1996 5.61%
1995 5.85%
The Fund's year-to-date total return through March 31, 2000 was -1.08%.
For period shown in bar chart:
Best quarter: 4th quarter 1999, +23.31%
Worst quarter: 3rd quarter 1998, -16.04%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999(15)
INCEPTION LIFE OF THE
DATE 1 YEAR 5 YEARS FUND
Fund (%) 5/2/94 40.58 11.42 8.81
------------------------ ------------- ------------- ------------ --------------
MSCI Index (%) N/A 26.96 12.83 11.21(16)
------------------------ ------------- ------------- ------------ --------------
Lipper Average (%) N/A 43.23 17.36 14.16(16)
(15) 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.
(16) Performance information is from April 30, 1994.
22
<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.
23
<PAGE>
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(17)
[Bar Graph]
1999 68.01%
1998 -6.43%
1997 -31.14%
1996 11.73%
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(17)
INCEPTION LIFE OF THE
DATE 1 YEAR FUND
Fund (%) 5/1/95 68.01 7.31
---------------------------- -------------- -------------- ---------------
MSCI Index (%) N/A 31.00 15.72(18)
---------------------------- -------------- -------------- ---------------
Lipper Average (%) N/A 79.74 4.24(18)
(17) 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.
(18) Performance information is from April 30, 1995.
24
<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:
Liberty Value Fund, Variable Series 0.65%
Stein Roe Global Utilities Fund, Variable Series 0.65%
Colonial Small Cap Value Fund, Variable Series 0.80%(19)
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%(20)
Liberty All-Star Equity Fund, Variable Series 0.80%
Colonial International Fund for Growth, Variable Series 0.90%
Newport Tiger Fund, Variable Series 0.90%
(19) 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%.
(20) 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%.
25
<PAGE>
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
Value Fund, Small Cap Fund, U.S. Growth & Income Fund, Strategic Income Fund,
High Yield Fund and International 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:
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%
Colonial International Fund for Growth, Variable Series 0.70%
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.
Charles R. Roberts, a senior vice president of Colonial, has been the lead
manager for the International Fund since March, 2000. Mr. Roberts is also a
senior vice president of Newport and Newport Pacific Management, Inc. (Newport
Pacific), an affiliate of Colonial. Mr. Roberts has been employed with Newport
and Newport Pacific since November, 1998. Prior to joining Newport and Newport
Pacific, he managed the European component of institutional international equity
accounts at Progress Investment Management (Progress) since 1997. Prior to
joining Progress in 1997, he managed the European component of institutional
international equity accounts and was a member of the investment policy
committee at Sit/Kim International (Sit/Kim) since prior to 1994.
26
<PAGE>
Michael Ellis, a senior vice president of Colonial, has co-managed the
International Fund since March, 2000. Mr. Ellis is also a senior vice president
of Newport and Newport Pacific. Prior to joining Newport and Newport Pacific in
December, 1996, he was a vice president at Matthews International Capital
Management since September, 1991.
Deborah Snee, a Vice President of Colonial and Europe analyst at Colonial, Stein
Roe and Newport, has co-managed the International Fund since March, 2000. Prior
to working at Newport, Ms. Snee spent five years at Sit/Kim as an emerging
markets analyst.
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. 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.
STEIN ROE
Stein Roe, an investment advisor since 1932, is the Sub-Advisor of the Global
Utilities Fund. Stein Roe's principal address is One South Wacker Drive,
Chicago, Illinois 60606. As of March 31, 2000, Stein Roe managed over $20.5
billion in assets.
LASC, out of the management fees it receives from the Trust, pays Stein Roe a
sub-advisory fee at the annual rate of 0.45% of the average daily net assets of
the Global Utilities Fund.
Ophelia Barsketis, a senior vice president of Stein Roe, has co-managed the
Global Utilities Fund since November, 1997.
Deborah A. Jansen, a senior vice president and senior research analyst for
global and domestic equities and global economic forecasting for Stein Roe, has
co-managed the Global Utilities Fund since November, 1997.
Stein Roe will use Newport's trading facilities when buying or selling foreign
securities for the Fund's portfolio. Newport executes all trades under its own
procedures.
27
<PAGE>
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.
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.
28
<PAGE>
AFFILIATED BROKER/DEALER
Stein Roe and 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 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.
29
<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,
International 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
--------------------------------------------------------------------------------
(Global Utilities Fund, 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.
30
<PAGE>
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.
31
<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.
32
<PAGE>
STEIN ROE GLOBAL UTILITIES 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 ($) 13.76 11.92 10.70 10.50 8.11
-------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.28 0.24 0.46 0.46 0.46
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) 3.63 1.93 2.62 0.23 2.39
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.91 2.17 3.08 0.69 2.85
-------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) (0.21) (0.48) (0.49) (0.46)
-------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (0.01) -- -- --
-------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains on investments (0.29) (0.11) (1.38) -- --
-------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.33) (1.86) (0.49) (0.46)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 17.15 13.76 11.92 10.70 10.50
-------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%)(b) 28.63 18.33 28.75 6.53 35.15
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ($) 110,150 71,186 54,603 47,907 51,597
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) 0.77 0.82 0.83 0.81 0.83
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%)(c) 1.91 1.90 3.96 4.36 4.98
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 52 53 89 14 18
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
33
<PAGE>
COLONIAL SMALL CAP VALUE FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 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) ($) 3,817 1,782
----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.00 1.00*
----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.23 1.41*
----------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 74 51**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations May 19, 1998 to
December 31, 1998.
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the manager not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 3.66% and
4.32% (annualized), respectively..
34
<PAGE>
COLONIAL U.S. GROWTH & INCOME FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 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)
------------------------------------------------------------------------------------------------------------------------------
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%.
35
<PAGE>
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) ($) 170,702 118,985 73,175 53,393 48,334
----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (e) 0.75 0.78 0.80(d) 0.80(d) 0.84(d)
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (e) 8.57 7.92 7.86(c) 8.13(c) 8.08(c)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 35 50 94 114 281
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have (e) The
benefits derived from custody credits and directed brokerage
arrangements had no impact.
36
<PAGE>
COLONIAL HIGH YIELD SECURITIES FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1999 1998***
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 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.
37
<PAGE>
LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Year Ended December 31, Period Ended
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) ($) 80,095 44,870 22,228
--------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d) 0.95 1.00(e) 1.00*(e)
--------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.47 0.54(c) 0.83*(c)
--------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 75 70 1**
</TABLE>
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations November 17, 1997 to
December 31, 1997.
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Computed giving effect to Manager's expense limitation undertaking.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, these ratios would have been 1.04% and
1.45% (annualized), respectively.
38
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 2.00 1.78 1.96 1.97 1.88
----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.03 0.02 0.02 0.02 0.01
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on
investments 0.78 0.21 (0.08) 0.09 0.10
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.81 0.23 (0.06) 0.11 0.11
----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02) (0.00) (0.02) -- (0.02)
----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (0.01) (0.02) -- --
----------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains -- -- (0.08) (0.12) --
----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.01) (0.12) (0.12) (0.02)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 2.79 2.00 1.78 1.96 1.97
----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
Total investment return (%) (b) 40.58 12.96 (3.27) 5.61 5.85
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 82,071 52,468 30,600 26,593 22,764
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) 1.10 1.24 1.34 1.40 1.40
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (c) 1.14 0.77 0.82 0.84 0.75
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover ratio (%) 35 28 28 115 40
</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.
39
<PAGE>
NEWPORT TIGER FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
Years Ended December 31, Period Ended
December 31,
1999 1998 1997 1996 1995***
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ($) 1.57 1.71 2.52 2.28 2.00
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) 0.03 0.03 0.03 0.03 0.01
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) on investments 1.04 (0.14) (0.81) 0.24 0.29
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 (0.11) (0.78) 0.27 0.30
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.02) (0.03) (0.02) (0.02) (0.01)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.01) -- (0.01)
Total distributions (0.02) (0.03) (0.03) (0.03) (0.02)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 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.
40
<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 CLASSES 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.
41
<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
Stein Roe Global Utilities 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
Colonial International Fund for Growth, Variable Series
Newport Tiger Fund, Variable Series
42
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
PROSPECTUS DATED JUNE 1, 2000
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
CLASS A 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
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 International Horizons Fund, Variable Series......................... 4
Colonial Global Equity Fund, Variable Series.................................. 5
Crabbe Huson Real Estate Investment Fund, Variable Series..................... 6
TRUST MANAGEMENT ORGANIZATIONS 7
--------------------------------------------------------------------------------
The Trustees.................................................................. 7
Investment Advisor: Liberty Advisory Services Corp........................... 7
Investment Sub-Advisors and Portfolio Managers................................ 7
Mixed and Shared Funding...................................................... 9
OTHER INVESTMENT STRATEGIES AND RISKS 10
--------------------------------------------------------------------------------
Derivative Strategies.........................................................10
Temporary Defensive Strategies................................................10
FINANCIAL HIGHLIGHTS 11
--------------------------------------------------------------------------------
SHAREHOLDER INFORMATION 14
--------------------------------------------------------------------------------
Purchases and Redemptions.....................................................14
How the Funds Calculate Net Asset Value.......................................14
Dividends and Distributions...................................................14
Tax Consequences..............................................................14
Other Classes of Shares.......................................................14
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 three 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 International Horizons Fund, Variable Series (International Horizons Fund) Colonial Management Associates, Inc. (Colonial)
Colonial Global Equity Fund, Variable Series (Global Equity Fund)
------------------------------------------------------------------------------------ -----------------------------------------------
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 INTERNATIONAL HORIZONS FUND, VARIABLE SERIES
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its total
assets in non-U.S. equity securities of growth companies which Colonial believes
will provide superior long-term growth.
In selecting stocks for the Fund, Colonial will choose stocks of growth
companies with long-term, above average growth potential, in market segments
that are driving economic growth. Stock selection will target high quality
companies with proven management and low levels of debt.
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.
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.
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 company (and hold
greater than 10% of outstanding voting securities of any issuer). Therefore, the
Fund may have an increased risk of loss compared to a similar diversified mutual
fund.
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.
4
<PAGE>
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 Morgan Stanley Capital International EAFE
GDP Index, an unmanaged index that tracks the performance of equity securities
of developed countries outside North America. 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.
5
<PAGE>
COLONIAL GLOBAL EQUITY FUND, VARIABLE SERIES
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth by investing primarily in global equity
securities.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in both U.S. and
foreign equity securities. The Fund may invest in companies of any size,
including small capitalization stocks. The Fund may also invest in high quality
U.S. and foreign government debt securities. The Fund generally diversifies its
holdings across several different countries and regions.
The Fund may invest up to 10% of its assets in shares of other investment
companies. Investing in investment companies may involve payment of duplicate
fees because the Fund, as a shareholder, will indirectly pay a portion of the
other investment company's expenses.
Additional strategies that are not primary investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
PRIMARY INVESTMENT RISKS
--------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could 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. Market risk includes
interest rate risk.
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.
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.
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.
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 Morgan Stanley Capital International World
GDP Index, an unmanaged price index that tracks the performance of global
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.
6
<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.
7
<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:
Colonial International Horizons Fund, Variable Series 0.95% (1)
Colonial Global Equity Fund, Variable Series 0.95% (2)
Crabbe Huson Real Estate Investment Fund, Variable Series 1.00% (3)
(1) The International Horizons Fund's advisor has voluntarily agreed to
waive its management fee and reimburse other expenses so that the total
expenses of the Fund (excluding interest, taxes, 12b-1, brokerage and
extraordinary expenses) do not exceed 1.15%. As a result the actual
management fee paid to the advisor for the 1999 fiscal year was 0.00%.
(2) The Global Equity 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 1.15%. As a result the actual management fee
paid to the advisor for the 1999 fiscal year was 0.12%.
(3) 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
International Horizons Fund and Global Equity 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:
Colonial International Horizons Fund, Variable Series 0.75%
Colonial Global Equity Fund, Variable Series 0.75%
Colonial also provides transfer agency, pricing and record keeping services for
the Funds under separate agreements.
8
<PAGE>
Charles R. Roberts, a senior vice president of Colonial, has been the lead
manager for the International Horizons Fund since March, 2000. Mr. Roberts is
also a senior vice president of Newport Fund Management, Inc. (Newport) and
Newport Pacific Management, Inc. (Newport Pacific), an affiliate of Colonial.
Mr. Roberts has been employed with Newport and Newport Pacific since November,
1998. Prior to joining Newport and Newport Pacific, he managed the European
component of institutional international equity accounts at Progress Investment
Management (Progress) since 1997. Prior to joining Progress in 1997, he managed
the European component of institutional international equity accounts and was a
member of the investment policy committee at Sit/Kim International (Sit/Kim)
since prior to 1994.
Michael Ellis, a senior vice president of Colonial, has co-managed the
International Horizons Fund since March, 2000. Mr. Ellis is also a senior vice
president of Newport and Newport Pacific. Prior to joining Newport and Newport
Pacific in December, 1996, he was a vice president at Matthews International
Capital Management since September, 1991.
Deborah Snee, a Vice President of Colonial and Europe analyst at Colonial, Stein
Roe and Newport, has co-managed the International Fund and International
Horizons Fund since March, 2000. Prior to working at Newport, Ms. Snee spent
five years at Sit/Kim as an emerging markets analyst.
Ophelia Barsketis, a senior vice president of Colonial, has co-managed the
Global Equity Fund since March, 2000. Ms. Barsketis joined Stein Roe & Farnham
Incorporated (Stein Roe), an affiliate of Colonial, in 1983 and progressed
through a variety of equity analyst positions before assuming her current
responsibilities, which include managing other Stein Roe and Colonial funds.
Deborah A. Jansen, a senior vice president of Colonial and senior research
analyst for global and domestic equities and global economic forecasting for
Stein Roe, has co-managed the Global Equity Fund since March, 2000. Ms. Jansen
joined Stein Roe in 1987 and served as an associate economist and senior
economist before assuming her current responsibilities, which include managing
other Stein Roe and Colonial Funds. Ms. Jansen left Stein Roe in January, 1995
and returned to her position as a vice president in March, 1996. From June 5,
1995 through June 30, 1995, Ms. Jansen was a senior equity research analyst for
BancOne Investment Advisers Corporation.
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. 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.
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.
9
<PAGE>
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.
10
<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 the Funds' shareholders is not required to modify or
change any of the Funds' investment goals or investment strategies.
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
--------------------------------------------------------------------------------
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.
Taking a temporary defensive position may prevent a Fund from achieving its
investment goals.
11
<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 A shares
commenced investment operations on June 1, 2000, the Financial Highlights shown
are for the Funds' Class B 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 INTERNATIONAL HORIZONS FUND, VARIABLE SERIES
Period Ended
December 31,
1999***
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 10.00
---------------------------------------------------------------------------
Net investment income (a) 0.06
---------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency transactions 2.36
---------------------------------------------------------------------------
Total from investment operations 2.42
---------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05)
---------------------------------------------------------------------------
In excess of net investment income (0.06)
---------------------------------------------------------------------------
Total distributions (0.11)
---------------------------------------------------------------------------
Net asset value, end of period ($) 12.31
---------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%)(b)(c) 24.24**
---------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 7,707
---------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.40*
---------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (d) 0.85*
---------------------------------------------------------------------------
Portfolio turnover ratio (%) 1**
* 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
12
<PAGE>
(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 2.36%
(annualized).
13
<PAGE>
COLONIAL GLOBAL EQUITY FUND, VARIABLE SERIES
Period Ended
December 31,
1999***
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 10.00
-------------------------------------------------------------------------------
Net investment income (a) 0.04
-------------------------------------------------------------------------------
Net realized and unrealized losses on investments 1.22
-------------------------------------------------------------------------------
Total from investment operations 1.26
-------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05)
-------------------------------------------------------------------------------
Total distributions (0.05)
-------------------------------------------------------------------------------
Net asset value, end of period ($) 11.21
-------------------------------------------------------------------------------
TOTAL RETURN
Total investment return (%)(b)(c) 12.57**
-------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ($) 7,284
-------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (d)(e) 1.40*
-------------------------------------------------------------------------------
Ratio of net investment income to 0.55*
-------------------------------------------------------------------------------
Portfolio turnover ratio (%) 1**
* Annualized.
** Not Annualized.
*** For the period from the commencement of operations June 1, 1999 to
December 31, 1999.
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Manager not waived or reimbursed a portion of expenses, total
return would have been
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement from the Manager, this ratio would have been 2.23%
(annualized).
14
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND, VARIABLE SERIES
Period Ended
December 31,
1999***
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ($) 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**
* 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
(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).
15
<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 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 CLASSES OF SHARES The Funds also offer an additional class of shares,
Class B shares, which are not available in this prospectus. Your particular VA
contract or VLI policy may not offer these shares.
16
<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 International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
<PAGE>
LIBERTY VARIABLE INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
Liberty Value Fund, Variable Series
Stein Roe Global Utilities Fund, Variable Series
Colonial International Fund for Growth, Variable Series
Colonial U.S. Growth & Income Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Colonial International Horizons Fund, Variable Series
Colonial Global Equity Fund, Variable Series
Crabbe Huson Real Estate Investment Fund, Variable Series
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
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000, REVISED JUNE 1, 2000
The Statement of Additional Information ("SAI") is not a Prospectus,
but should be read in conjunction with the Trust's Prospectuses, dated May 1,
2000 and June 1, 2000, and any supplements thereto, which may be obtained at no
charge by calling Liberty Funds Distributor, Inc. ("LFD") at (800) 437-4466, or
by contacting the applicable Participating Insurance Company (as defined in the
Prospectus), or the broker-dealers offering certain variable annuity contracts
or variable life insurance policies issued by the Participating Insurance
Company.
The date of this SAI is May 1, 2000, Revised June 1, 2000.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
ORGANIZATION AND HISTORY......................................................3
INVESTMENT MANAGEMENT AND OTHER SERVICES......................................4
General..............................................................4
Trust Charges and Expenses...........................................8
INVESTMENT RESTRICTIONS ...................................................12
Liberty Value Fund, Variable Series..................................12
Stein Roe Global Utilities Fund, Variable Series.....................13
Colonial International Fund for Growth, Variable Series..............14
Colonial U.S. Growth & Income Fund, Variable Series..................16
Colonial Strategic Income Fund, Variable Series......................17
Newport Tiger Fund, Variable Series..................................18
Liberty All-Star Equity Fund, Variable Series........................19
Colonial Small Cap Value Fund, Variable Series.......................21
Colonial High Yield Securities Fund, Variable Series.................22
Colonial International Horizons Fund, Variable Series................23
Colonial Global Equity Fund, Variable Series.........................24
Crabbe Huson Real Estate Investment Fund, Variable Series............25
Liberty Newport Japan Opportunities Fund, Variable Series............26
Liberty Select Value Fund, Variable Series...........................27
Rydex Financial Services Fund, Variable Series.......................28
Rydex Health Care Fund, Variable Series..............................28
Liberty S&P 500 Index Fund, Variable Series..........................29
MORE FACTS ABOUT THE TRUST ...................................................30
Organization.........................................................30
Trustees and Officers................................................31
Principal Holders of Securities......................................37
Custodian............................................................38
OTHER CONSIDERATIONS ...................................................38
Portfolio Turnover...................................................38
Suspension of Redemptions............................................39
Valuation of Securities..............................................39
Portfolio Transactions...............................................40
Information About the Standard & Poor's 500 Composite................46
Stock Price Index ...................................................46
DESCRIPTION OF CERTAIN INVESTMENTS............................................46
Money Market Instruments.............................................47
Investments in Less Developed Countries..............................49
Foreign Currency Transactions........................................50
Options on Securities................................................54
Futures Contracts and Related Options................................57
Securities Loans ...................................................61
INVESTMENT PERFORMANCE ...................................................61
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS..............................63
2
<PAGE>
ORGANIZATION AND HISTORY
Liberty Variable Investment Trust (the "Trust"), a business trust
organized under the Laws of Massachusetts in 1993, is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust is permitted to offer separate series and different classes
of shares. The Trust currently offers two separate classes of shares, Class A
shares and Class B shares. Class B shares differ from Class A shares solely in
that Class B shares have a fee pursuant to Rule 12b-1 of the Investment Company
Act of 1940 which is used for certain shareholder services and distribution
expenses. Sales of shares of each class are made without a sales charge at each
Fund's per share net asset value.
The Trust currently offers seventeen Funds: Liberty Value Fund, Variable Series
("Value Fund"); Stein Roe Global Utilities Fund, Variable Series ("Global
Utilities Fund"); Colonial International Fund for Growth, Variable Series
("International Fund"); Colonial U.S. Growth & Income Fund, Variable Series
("U.S. Growth Fund"); Colonial Strategic Income Fund, Variable Series
("Strategic Income Fund"); Newport Tiger Fund, Variable Series ("Tiger Fund");
Liberty All-Star Equity Fund, Variable Series ("All-Star Equity Fund"); Colonial
Small Cap Value Fund, Variable Series ("Small Cap Fund"); Colonial High Yield
Securities Fund; Variable Series ("High Yield Fund"); Colonial International
Horizons Fund, Variable Series, ("International Horizons Fund"); Colonial Global
Equity Fund, Variable Series ("Global Equity Fund"); Crabbe Huson Real Estate
Investment Fund, Variable Series ("Real Estate Fund"); Liberty Newport Japan
Opportunities Fund, Variable Series ("Japan Opportunities 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") and Liberty S&P 500 Index Fund, Variable
Series ("500 Index Fund"). The Trust may add or delete Funds and/or classes from
time to time. The Trust commenced operations on July 1, 1993. Each Fund, except
the International Fund, International Horizons Fund, Financial Services Fund and
Health Care Fund is a diversified series of the Trust, each representing the
entire interest in a separate series of the Trust. The International Fund,
International Horizons Fund, Financial Services Fund and Health Care Fund are
non-diversified series of the Trust, each representing the entire interest in a
separate series of the Trust.
Effective November 15, 1997, the Trust changed its name from "Keyport Variable
Investment Trust" to its current name. Effective November 15, 1997, the Value
Fund changed its name from "Colonial-Keyport Growth and Income Fund" to Colonial
Growth and Income Fund, Variable Series. Effective June 1, 2000 the Value Fund
changed its name to its current name. Effective November 15, 1997, the Global
Utilities Fund changed its name from "Colonial-Keyport Utilities Fund" to its
current name. Effective November 15, 1997, the International Fund changed its
name from "Colonial-Keyport International Fund for Growth" to its current name.
Effective May 1, 1997, the U.S. Growth Fund changed its name from
"Colonial-Keyport U.S. Fund for Growth" to Colonial-Keyport U.S. Stock Fund.
Effective November 15, 1997, the U.S. Growth Fund changed its name from
"Colonial-Keyport U.S. Stock Fund" to Colonial U.S. Stock Fund, Variable Series.
Effective June 1, 1999, the U.S. Growth Fund changed its name from "Colonial
U.S. Stock Fund, Variable Series" to its current name. Effective November 15,
1997 the Strategic Income Fund changed its name from "Colonial-Keyport Strategic
Income Fund" to its
3
<PAGE>
current name. Effective November 15, 1997 the Tiger Fund changed its name from
"Newport-Keyport Tiger Fund" to its current name.
The Trustees of the Trust ("Board of Trustees") monitor events to identify any
material conflicts that may arise between the interests of the Participating
Insurance Companies or between the interests of owners of VA contracts and VLI
policies. The Trust currently does not foresee any disadvantages to the owners
of VA contracts and VLI policies arising from the fact that certain interests of
owners may differ. Additional information regarding such differing interests and
related risks are described in the Prospectus under MIXED AND SHARED FUNDING."
INVESTMENT MANAGEMENT AND OTHER SERVICES
GENERAL
Liberty Advisory Services Corp. ("LASC") serves as Manager pursuant to
investment advisory agreements between the Trust on behalf of the Funds and LASC
(the "Management Agreements"). LASC is a direct wholly owned subsidiary of
Keyport Life Insurance Company ("Keyport"), which is an indirect wholly owned
subsidiary of Liberty Financial Companies, Inc. ("LFC"). As of December 31,
1999, approximately 71.48% of the combined voting power of LFC's outstanding
voting stock was owned, indirectly, by Liberty Mutual Insurance Company
("Liberty Mutual").
LASC and the Trust, on behalf of each of the Value Fund, International
Fund, U.S. Growth Fund, Strategic Income Fund, Small Cap Fund, High Yield Fund,
International Horizons Fund, Global Equity Fund, Select Value Fund, Financial
Services Fund, Health Care Fund and 500 Index Fund have entered into separate
Sub-Advisory Agreements (the "Colonial Sub-Advisory Agreements") with Colonial
Management Associates, Inc. ("Colonial"). Colonial is an indirect wholly owned
subsidiary of LFC.
LASC and the Trust, on behalf of the Global Utilities Fund, have
entered into a separate Sub-Advisory Agreement (the "Stein Roe Sub-Advisory
Agreement") with Stein Roe & Farnham Incorporated ("Stein Roe"). Stein Roe is an
indirect wholly owned subsidiary of LFC.
LASC and the Trust, on behalf of each of the Tiger Fund and Japan
Opportunities Fund, have entered into a separate Sub-Advisory Agreement (the
"Newport Sub-Advisory Agreement") with Newport Fund Management, Inc.
("Newport"). Newport is an indirect wholly owned subsidiary of LFC.
LASC and the Trust, on behalf of the Real Estate Fund, have entered
into a separate Sub-Advisory Agreement (the "Crabbe Huson Sub-Advisory
Agreement," collectively, with the Colonial Sub-Advisory Agreements, the Stein
Roe Sub-Advisory Agreement and the Newport Sub-Advisory Agreement, the
"Sub-Advisory Agreements") with Crabbe Huson Group, Inc. ("Crabbe Huson").
Crabbe Huson is an indirect wholly owned subsidiary of LFC.
4
<PAGE>
Liberty Asset Management Company ("LAMCO") sub-advises All-Star Equity
Fund pursuant to the Management Agreement for such Fund (to which LAMCO is a
party). All-Star Equity Fund's investment program is based upon LAMCO's
multi-manager concept. LAMCO allocates the Fund's portfolio assets on an equal
basis among a number of independent investment management organizations
("Portfolio Managers") -- currently five in number -- each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Portfolio Managers so as to maintain an approximately equal allocation
of the portfolio among them throughout all market cycles. Each Portfolio Manager
provides these services under a Portfolio Management Agreement (the "Portfolio
Management Agreements") among the Trust, on behalf of All-Star Equity Fund,
LAMCO and such Portfolio Manager.
All-Star Equity Fund's current Portfolio Managers are:
J.P. Morgan Investment Management Inc.
Oppenheimer Capital
Boston Partners Asset Management, L.P.
Westwood Management Corp.
TCW Investment Management Company
PADCO Advisors II, Inc. ("PADCO") sub-advises the Financial Services
Fund and the Health Care Fund pursuant to the Management Agreement for such
Funds and a Portfolio Management Agreement among the Trust, on behalf of the
Financial Services Fund and the Health Care Fund, Colonial and PADCO.
State Street Global Advisors ("State Street") sub-advises the 500 Index
Fund pursuant to the Management Agreement for the 500 Index Fund and a Portfolio
Management Agreement among the Trust on behalf of the 500 Index Fund, Colonial
and State Street.
LASC. Keyport owns all of the outstanding common stock of LASC. LASC's
address is 125 High Street, Boston, Massachusetts 02110. The directors and
principal executive officer of LASC are: Philip K. Polkinghorn (principal
executive officer and director) and Stewart R. Morrison.
COLONIAL AND COLONIAL'S PORTFOLIO MANAGERS. Liberty Funds Group LLC
("LFG"), One Financial Center, Boston, Massachusetts 02111, owns all of the
outstanding common stock of Colonial. LFG is an indirect wholly-owned subsidiary
of LFC. The directors and principal executive officer of Colonial are Nancy L.
Conlin, Stephen E. Gibson (principal executive officer and director) and Joseph
R. Palombo.
As of the date of this SAI, the following entity serves as Colonial's
Portfolio Manager for the Financial Services Fund and the Health Care Fund:
PADCO ADVISORS II, INC. PADCO Advisors II, Inc. ("PADCO"), an
investment advisor since 1993, is located at 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852. The trustees and principal
executive officer of PADCO are Albert P. Viragh, Jr.
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(principal executive officer and trustee), Corey A. Colehour, J.
Kenneth Dalton, John O. Demaret, Patrick T. McCarville and Roger
Somers. Mr. Viragh owns a controlling interest in PADCO.
As of the date of this SAI, the following entity serves as Colonial's
Portfolio Manager for the 500 Index Fund:
STATE STREET GLOBAL ADVISORS. State Street Global Advisors ("State
Street"), the investment division of State Street Bank and Trust
Company since 1978, is located at Two International Place, 34th Floor,
Boston, Massachusetts 02110. State Street's principal executive officer
and chairman of the board is Nicholas A. Lopardo, and its principals
are John R. Serhant, Marc V. Simons and John R. Snow.
STEIN ROE. Stein Roe, One South Wacker Drive, Chicago, Illinois, 60606,
is an indirect wholly-owned subsidiary of LFC. The directors and principal
executive officer of Stein Roe are Gary L. Countryman, C. Allen Merritt, Jr. and
Stephen E. Gibson (principal executive officer).
NEWPORT. Newport Pacific Management, Inc. ("Newport Pacific"), 580
California Street, San Francisco, California 94104, owns 75.1% of the
outstanding common stock of Newport as of December 31, 1999. LFC owns the
balance. Liberty Newport Holdings, Ltd. ("LNH") owns all of the outstanding
common stock of Newport Pacific. LFC owns all of the outstanding stock of LNH.
The directors and principal executive officer of Newport are Thomas R. Tuttle
(principal executive officer), John M. Mussey and Lindsay Cook.
CRABBE HUSON. Crabbe Huson, 121 S.W. Morrison, Suite 1400, Portland,
Oregon 97204, is a wholly-owned subsidiary of LFC. The directors and principal
executive officer of Crabbe Huson are James E. Crabbe (principal executive
officer and director) and Lindsay Cook.
LAMCO AND LAMCO'S PORTFOLIO MANAGERS. LAMCO, 600 Atlantic Avenue, 23rd
Floor, Boston, Massachusetts 02210, is an indirect wholly owned-subsidiary of
LFC. The directors and principal executive officer of LAMCO are: John V.
Carberry, Lindsay Cook and William R. Parmentier (principal executive officer
and director).
As of the date of this SAI, the following entities serve as LAMCO's
Portfolio Managers for All-Star Equity Fund:
- J.P. MORGAN INVESTMENT MANAGEMENT, INC. J.P. Morgan Investment
Management Inc. ("J.P. Morgan"), an investment advisor since
1984, is located at 522 Fifth Avenue, New York, New York
10036, is a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated, a New York Stock Exchange ("NYSE") listed bank
holding company the principal banking subsidiary of which is
Morgan Guaranty Trust Company of New York. J.P. Morgan's
principal executive officer is Keith M. Schappert, and its
directors are Mr. Schappert and Messrs. Kenneth W. Anderson,
Ronald R. Dewhurst, Gerard W. Lillis, John W. Schmidlin,
Hendrick Van Riel and
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Ms. Isabel H. Sloane. As of March 31, 2000, J.P. Morgan
managed over $376 billion in assets.
- OPPENHEIMER CAPITAL. Oppenheimer Capital, an investment
advisor since 1969, is located at 1345 Avenue of the Americas,
New York, New York 10105, is a Delaware partnership and an
indirect wholly-owned subsidiary of PIMCO Advisors L.P.
Oppenheimer Capital's principal executive officer is Kenneth
Poovey. As of March 31, 2000, Oppenheimer Capital managed over
$45 billion in assets.
- BOSTON PARTNERS ASSET MANAGEMENT, L.P. Boston Partners Asset
Management, L.P. ("Boston Partners"), an investment advisor
since 1995, is located at 28 State Street, 21st Floor, Boston,
Massachusetts 02109. Boston Partners is owned by its partners.
Desmond J. Heathwood is the sole General Partner. As of March
31, 2000, Boston Partners managed over $9 billion in assets.
- WESTWOOD MANAGEMENT CORP. Westwood Management Corp.
("Westwood"), an investment advisor since 1983, is located at
300 Crescent Court, Suite 1300, Dallas, Texas 75201, is a
wholly owned subsidiary of Southwest Securities Group, Inc.
Westwood's principal executive officer is Susan M. Byrne and
its directors are Ms. Byrne, Brian Casey, Don A. Buchhotz,
David Glatstein, and Patricia R. Fraze. As of March 31, 2000,
Westwood managed over $2.5 billion in assets.
- TCW INVESTMENT MANAGEMENT COMPANY. TCW Investment Management
Company ("TCW"), located at 865 South Figueroa Street, Los
Angeles, California 90017, is a wholly-owned subsidiary of The
TCW Group, Inc. ("TCW Group"). Established in 1971, TCW
Group's direct and indirect subsidiaries, including TCW,
provide a variety of trust, investment management and
investment advisory services. Ownership of the TCW Group lies
approximately 95% with its employees and 5% with its
directors. Robert A. Day, who is Chairman of the Board of
Directors of TCW Group, may be deemed to be a control person
of TCW by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of the
TCW Group. As of March 31, 2000, TCW had over $75 million in
assets under management.
The Management Agreements, the Sub-Advisory Agreements and the
Portfolio Management Agreements provide that none of LASC, Colonial, Stein Roe,
Newport, Crabbe Huson, LAMCO or LAMCO's Portfolio Managers, PADCO or State
Street (collectively, the "Advisors"), nor any of their respective directors,
officers, stockholders (or partners of stockholders), agents, or employees shall
have any liability to the Trust or any shareholder of any Fund for any error of
judgment, mistake of law or any loss arising out of any investment, or for any
other act or omission in the performance by LASC or such Advisor of its
respective duties under such agreements, except for liability resulting from
willful misfeasance, bad faith or gross negligence on the part of LASC or such
Advisor, in the performance of its respective duties or from reckless disregard
by such Advisor of its respective obligations and duties thereunder.
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TRUST CHARGES AND EXPENSES
All-Star Equity Fund commenced operations on November 15, 1997. Small
Cap Fund and High Yield Fund commenced operations on May 19, 1998. International
Horizons Fund, Global Equity Fund and Real Estate Fund commenced operations on
June 1, 1999. Japan Opportunities Fund, Select Value Fund, Financial Services
Fund, Health Care Fund and 500 Index Fund commenced operations on May 30, 2000.
All charges and expenses shown are for Class A shares except for International
Horizons Fund, Global Equity Fund and Real Estate Fund. The charges and expenses
shown for those funds are for Class A shares. Class B shares of all the Funds,
except International Horizons Fund, Global Equity Fund and Real Estate Fund,
commenced investment operations on June 1, 2000. Class A shares of International
Horizons Fund, Global Equity Fund and Real Estate Fund commenced investment
operations on June 1, 2000.
MANAGEMENT FEES. Each Fund listed below paid LASC management fees as follows
during each year in the three-year period ended December 31, 1999, pursuant to
the Management Agreements described in the Prospectus:
1999 1998 1997
---------- ---------- --------
Value Fund: $1,157,822 $ 805,967 $605,151
Global Utilities Fund: $ 554,892 $ 390,383 $310,458
International Fund: $ 569,988 $ 369,574 $270,532
U.S. Growth Fund: $1,429,390 $1,027,590 $623,484
Strategic Income Fund: $ 971,490 $ 590,688 $384,347
Tiger Fund: $ 277,720 $ 192,901 $303,701
All-Star Equity Fund: $ 493,641 $ 243,070 $ 8,804
Small Cap Fund: $ 18,928 $ 0(2) --
High Yield Fund: $ 61,532 $ 0(2) --
International Horizons Fund: $ 27,964 -- --
Global Equity Fund: $ 31,164 -- --
Real Estate Fund: $ 11,210 -- --
CERTAIN ADMINISTRATIVE EXPENSES. During each year in the three-year period ended
December 31, 1999 each Fund listed below made payments as follows to Colonial or
an affiliate thereof for pricing and bookkeeping services.
1999 1998 1997
------- ------- --------
Value Fund: $74,390 $53,025 $43,653
Global Utilities Fund: $40,059 $30,524 $27,071
International Fund: $31,946 $27,008 $27,000
U.S. Growth Fund: $74,490 $54,453 $39,024
Strategic Income Fund: $63,800 $41,331 $31,551
Tiger Fund: $27,000 $27,000 $27,000
All-Star Equity Fund: $31,497 $27,000 $ 3,225
Small Cap Fund: $27,000 $16,694 --
High Yield Fund: $27,000 $16,694 --
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International Horizons Fund: $15,750 -- --
Global Equity Fund: $15,750 -- --
Real Estate Fund: $15,750 -- --
In addition, during each year in the three-year period ended December
31, 1999, each Fund listed below made payments as follows to Colonial or an
affiliate thereof for transfer agent services:
1999 1998 1997
------ ------ ------
Value Fund: $7,500 $7,500 $7,500
Global Utilities Fund: $7,500 $7,500 $7,500
International Fund: $7,500 $7,500 $7,500
U.S. Growth Fund: $7,500 $7,500 $7,500
Strategic Income Fund: $7,500 $7,500 $7,500
Tiger Fund: $7,500 $7,500 $7,500
All-Star Equity Fund: $7,500 $7,500 $ 896
Small Cap Fund: $7,500 $4,637 --
High Yield Fund: $7,500 $4,637 --
International Horizons Fund: $4,375 -- --
Global Equity Fund: $4,375 -- --
Real Estate Fund: $4,375 -- --
12b-1 FEES. Each Fund listed below paid LFD distribution fees as follows during
the year ended December 31, 1999, as described in the Prospectus:
International Horizons Fund: $6,601
Global Equity Fund: $7,044
Real Estate Fund: $2,415
EXPENSE LIMITATIONS. For the period from May 30, 2000 through April 30, 2001
LASC and LFD have agreed to reimburse all expenses, including management fees,
but excluding interest, taxes, brokerage and extraordinary expenses, incurred by
each of the following Funds in excess of the following percentages of average
daily net asset value per annum:
Value Fund: 1.00%
U.S. Growth Fund: 1.00%
Strategic Income Fund: 1.00%
Tiger Fund: 1.75%
All-Star Equity Fund: 1.00%
Small Cap Fund: 1.10%
High Yield Fund: 0.95%
Japan Opportunities Fund 1.85%
Select Value Fund 1.10%
Financial Services Fund 1.45%
Health Care Fund 1.60%
500 Index Fund 0.75%
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LFD will first reimburse the distribution fee of up to 0.25% to reach the above
stated limits on expenses. If additional reimbursement is needed to meet the
limits, LASC will then reimburse other expenses to the extent necessary to reach
the above stated limits. If additional reimbursement is still needed to reach
the expense limits, LASC will then waive a portion of its management fee to
reach the above stated limits.
LASC has voluntarily agreed to reimburse all expenses, including management
fees, but excluding interest, taxes, 12b-1, brokerage and extraordinary
expenses, incurred by each of the following Funds in excess of the following
percentages of average daily net asset value per annum:
Global Utilities Fund: 1.00%
International Fund: 1.75%
International Horizons Fund: 1.15%
Global Equity Fund: 1.15%
Real Estate Fund: 1.20%
These arrangements may be terminated by LASC at any time.
FEES OR EXPENSES WAIVED OR BORNE BY ADVISOR
1999 1998 1997
------- ------- -------
Strategic Income Fund: -- -- $15,222
All-Star Equity Fund: -- $12,713 $11,533
Small Cap Fund: $63,222 $36,072 --
High Yield Fund: $49,549 $33,929 --
International Horizons Fund: $28,328 -- --
Global Equity Fund: $27,096 -- --
Real Estate Fund: $31,663 -- --
PRINCIPAL UNDERWRITER
LFD, located at One Financial Center, Boston, MA 02111, serves as the principal
underwriter to the Funds. LFD is an affiliate of LASC.
The Trustees have approved a Distribution Plan and Agreement ("Plan") pursuant
to Rule 12b-1 under the 1940 Act for the Class B shares of the Funds. Under the
Plan, the Funds pay the distributor a monthly distribution fee at the aggregate
annual rate of up to 0.25% of each Fund's Class B share's average daily net
assets. The distributor has agreed to waive the fee for some of the Funds to an
amount so that the expenses of these Funds do not exceed the limits as described
above under Expense Limitations. The distributor may use the entire amount of
such fees to defray the cost of commissions and service fees paid to financial
service firms ("FSFs") and for certain other purposes. Since the distribution
fees are payable regardless of the amount of the distributor's expenses, the
distributor may realize a profit from the fees.
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The Plan authorizes any other payments by the Funds to the distributor and its
affiliates (including the Advisor) to the extent that such payments might be
construed to be indirect financing of the distribution of fund shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each Fund's shareholders.
The Plan will continue in effect from year to year so long as continuance is
specifically approved at least annually by a vote of the Trustees, including the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("Independent Trustees"), cast in person at a meeting called
for the purpose of voting on the Plan. The Plan may not be amended to increase
the fee materially without approval by vote of a majority of the outstanding
voting securities of the relevant class of shares, and all material amendments
of the Plan must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the relevant Fund's shares, on 60 days' written notice to the
distributor. The continuance of the Plan will only be effective if the selection
and nomination of the Trustees who are not interested persons of the Trust is
effected by such disinterested Trustees.
CODE OF ETHICS
The Funds, the Advisor, the Sub-Advisors and LFD have adopted Codes of Ethics
pursuant to the requirements of the Act. These Codes of Ethics permit personnel
subject to the Codes to invest in security is, including securities that may be
purchased or held by the Funds.
INVESTMENT RESTRICTIONS
The investment restrictions specified below with respect to each Fund
as "FUNDAMENTAL INVESTMENT POLICIES" have been adopted as fundamental investment
policies of each Fund. Such fundamental investment policies may be changed only
with the consent of a "majority of the outstanding voting securities" of the
particular Fund. As used in the Prospectuses and in this SAI, the term "majority
of the outstanding voting securities" means the lesser of (i) 67% of the voting
securities of a Fund present at a meeting where the holders of more than 50% of
the outstanding voting securities of a Fund are present in person or by proxy,
or (ii) more than 50% of the outstanding voting securities of a Fund. Shares of
each Fund will be voted separately on matters affecting only that Fund,
including approval of changes in the fundamental objectives, policies, or
restrictions of that Fund.
Total assets and net assets are determined at current value for
purposes of compliance with investment restrictions and policies. All percentage
limitations will apply at the time of investment and are not violated unless an
excess or deficiency occurs as a result of such investment. For purposes of the
diversification requirement of the Investment Company Act of 1940, as amended
(the "1940 Act"), the issuer with respect to a security is the entity whose
revenues support the security.
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VALUE FUND
FUNDAMENTAL INVESTMENT POLICIES. Value Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer; and
6. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
Value Fund which may be changed without a shareholder vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets;
3. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
4. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
5. Invest more than 15% of its net assets in illiquid assets.
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GLOBAL UTILITIES FUND
FUNDAMENTAL INVESTMENT POLICIES. Global Utilities Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer; and
5. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
Global Utilities Fund which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions (this restriction does
not apply to securities purchased on a when-issued basis or to
margin deposits in connection with futures or options
transactions);
2. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets;
3. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
4. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
5. Invest more than 15% of its net assets in illiquid assets.
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<PAGE>
INTERNATIONAL FUND
FUNDAMENTAL INVESTMENT POLICIES. International Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
6. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
International Fund which may be changed without a shareholder vote, the Fund may
not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities;
3. Invest more than 15% of its net assets in illiquid assets;
4. With respect to 75% of total assets, purchase any voting
security of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting
securities of such issuer;
5. Purchase puts, calls, straddles, spreads, or any combination
thereof if, as a result of such purchase, the Fund's aggregate
investment in such securities would exceed 5% of total assets;
6. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
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<PAGE>
7. Acquire any security issued by a person that, in its most
recent fiscal year, derived 15% or less of its gross revenues
from securities related activities (within the meaning of Rule
12d3-1 under the 1940 Act) if the Fund would control such
person after such acquisition; or
8. Acquire any security issued by a person that, in its most
recent fiscal year, derived more than 15% of its gross
revenues from securities related activities (as so defined)
unless (i) immediately after such acquisition of any equity
security, the Fund owns 5% or less of the outstanding
securities of that class of the issuer's equity securities,
(ii) immediately after such acquisition of a debt security,
the Fund owns 10% or less of the outstanding principal amount
of the issuer's debt securities, and (iii) immediately after
such acquisition, the Fund has invested not more than 5% of
its total assets in the securities of the issuer.
U.S. GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES. U.S. Growth Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry; and
5. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer;
6. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
7. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
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<PAGE>
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
U.S. Growth Fund which may be changed without a shareholder vote, the Fund may
not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities;
3. Invest more than 15% of its net assets in illiquid assets; or
4. Purchase or sell commodity contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets.
STRATEGIC INCOME FUND
FUNDAMENTAL INVESTMENT POLICIES. Strategic Income Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer;
6. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
7. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
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<PAGE>
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
Strategic Income Fund which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; or
4. Invest more than 15% of its net assets in illiquid assets.
TIGER FUND
FUNDAMENTAL INVESTMENT POLICIES. Tiger Fund may not:
1. Concentrate more than 25% of the Funds total assets in any
industry (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States
or any agency or instrumentality thereof) or with respect to
75% of the Fund's assets purchase the securities of any
issuer, if, as a result of such purchase, more than 5% of the
Fund's total assets would be invested in the securities of
such issuer or purchase the voting securities of an issuer if,
as a result of such purchase, the Fund would own more than 10%
of the outstanding voting shares of such issuer;
2. Underwrite securities issued by others except when disposing
of portfolio securities;
3. Purchase and sell futures contracts and related options if the
total initial margin and premiums exceed 5% of its total
assets;
4. Borrow amounts in excess of 5% of the Fund's net asset value,
and only from banks as a temporary measure for extraordinary
or emergency purposes and not for investment in securities. To
avoid the untimely disposition of assets to meet redemptions
it may borrow up to 20% of the net value of its assets to meet
redemptions. The Fund will not make other investments while
such borrowings referred to above in this item are
outstanding. The Fund will not mortgage, pledge or in any
other manner transfer, as security for indebtedness, any of
its assets. (Short-term credits necessary for the clearance of
purchases or sales of securities will not be deemed to be
borrowings by the Fund.);
5. Make loans, except that the Fund may: (a) acquire for
investment a portion of an issue of bonds, debentures, notes
or other evidences of indebtedness of a corporation
17
<PAGE>
or government; (b) enter into repurchase agreements, secured
by obligations of the United States or any agency or
instrumentality thereof;
6. Issue senior securities (except in accordance with 4 above);
and
7. Own real estate unless such real estate is acquired as the
result of owning securities and does not constitute more than
5% of total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of Tiger Fund
which may be changed without a shareholder vote, the Fund may not:
1. Invest in companies for the purpose of exercising control;
2. Invest in securities of other investment companies except by
purchase in the open market involving only customary broker's
commissions, or as part of a merger, consolidation, or
acquisition of assets;
3. Participate on a joint and several basis in any securities
trading account;
4. Write or trade in put or call options;
5. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
6. Purchase securities on margin, but the Fund may utilize such
short-term credits as may be necessary for clearance of
purchases or sales of securities; or
7. Engage in short sales of securities.
ALL-STAR EQUITY FUND
FUNDAMENTAL INVESTMENT POLICIES. All-Star Equity Fund may not:
1. Issue senior securities, except as permitted by (2) below;
2. Borrow money, except that it may borrow in an amount not
exceeding 7% of its total assets (including the amount
borrowed) taken at market value at the time of such borrowing,
and except that it may make borrowings in amounts up to an
additional 5% of its total assets (including the amount
borrowed) taken at market value at the time of such borrowing,
to obtain such short-term credits as are necessary for the
clearance of securities transactions, or for temporary or
emergency purposes, and may maintain and renew any of the
foregoing borrowings, provided that the Fund maintains asset
coverage of 300% with respect to all such borrowings;
18
<PAGE>
3. Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if
such pledging, mortgaging or hypothecating does not exceed 12%
of the Fund's total assets taken at market value at the time
of such pledge, mortgage or hypothecation. The deposit in
escrow of securities in connection with the writing of put and
call options and collateral arrangements with respect to
margin for future contracts are not deemed to be pledges or
hypothecation for this purpose;
4. Act as an underwriter of securities of other issuers, except
when disposing of securities;
5. Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-through and
collateralized mortgage obligations, or issued by companies
that invest in real estate or interests therein;
6. Make loans to other persons except for loans of portfolio
securities (up to 30% of total assets) and except through the
use of repurchase agreements, the purchase of commercial paper
or the purchase of all or a portion of an issue of debt
securities in accordance with its investment objective,
policies and restrictions, and provided that not more than 10%
of the Fund's assets will be invested in repurchase agreements
maturing in more than seven days;
7. Invest in commodities or in commodity contracts (except stock
index futures and options);
8. Purchase securities on margin (except to the extent that the
purchase of options and futures may involve margin and except
that it may obtain such short-term credits as may be necessary
for the clearance of purchases or sales of securities), or
make short sales of securities;
9. Purchase the securities of issuers conducting their principal
business activity in the same industry (other than securities
issued or guaranteed by the United States, its agencies and
instrumentalities) if, immediately after such purchase, the
value of its investments in such industry would comprise 25%
or more of the value of its total assets taken at market value
at the time of each investment;
10. Purchase securities of any one issuer, if
(a) more than 5% of the Fund's total assets taken at
market value would at the time be invested in the securities
of such issuer, except that such restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities or corporations sponsored
thereby, and except that up to 25% of the Fund's total assets
may be invested without regard to this limitation; or
19
<PAGE>
(b) such purchase would at the time result in more
than 10% of the outstanding voting securities of such issuer
being held by the Fund, except that up to 25% of the Fund's
total assets may be invested without regard to this
limitation;
11. Invest in securities of another registered investment company,
except (i) as permitted by the Investment Company Act of 1940,
as amended from time to time, or any rule or order thereunder,
or (ii) in connection with a merger, consolidation,
acquisition or reorganization;
12. Purchase any security, including any repurchase agreement
maturing in more than seven days, which is subject to legal or
contractual delays in or restrictions on resale, or which is
not readily marketable, if more than 10% of the net assets of
the Fund, taken at market value, would be invested in such
securities;
13. Invest for the purpose of exercising control over or
management of any company; or
14. Purchase securities unless the issuer thereof or any company
on whose credit the purchase was based, together with its
predecessors, has a record of at least three years' continuous
operations prior to the purchase, except for investments
which, in the aggregate, taken at cost do not exceed 5% of the
Fund's total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
All-Star Equity Fund which may be changed without a shareholder vote, the Fund
may not borrow in an amount in excess of 5% of its total assets (including the
amount borrowed).
SMALL CAP FUND
FUNDAMENTAL INVESTMENT POLICIES. Small Cap Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, it will not purchase additional portfolio
securities while borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing of
portfolio securities;
5. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
20
<PAGE>
6. Not concentrate more than 25% of its total assets in any one
industry or with respect to 75% of total assets purchase any
security (other than obligations of the U.S. government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer, or purchase voting securities of an issuer if,
as a result of purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
Small Cap Fund which may be changed, the Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities;
3. Purchase or sell commodity contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets; and
4. Invest more than 15% of its net assets in illiquid assets.
HIGH YIELD FUND
FUNDAMENTAL INVESTMENT POLICIES. High Yield Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing of
portfolio securities;
5. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
21
<PAGE>
6. Not concentrate more than 25% of its total assets in any one
industry or with respect to 75% of total assets purchase any
security (other than obligations of the U.S. Government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer, or purchase voting securities of an issuer if,
as a result of such purchase, the Fund would own more than 10%
of the outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
High Yield Fund which may be changed, the Fund may not:
1. Purchase securities on margin, but the Fund may receive
short-term credit to clear securities transactions and may
make initial or maintenance margin deposits in connection with
futures transactions;
2. Purchase or sell commodities contracts if the total initial
margin and premiums on the contracts would exceed 5% of its
total assets;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its net assets in illiquid assets.
INTERNATIONAL HORIZONS FUND
FUNDAMENTAL INVESTMENT POLICIES. International Horizons Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
6. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
22
<PAGE>
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
International Horizons Fund which may be changed without a shareholder vote, the
Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
GLOBAL EQUITY FUND
FUNDAMENTAL INVESTMENT POLICIES. The Global Equity Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Not concentrate more than 25% of its total assets in any one
industry;
5. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer; and
6. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Global Equity Fund, which may be changed without a shareholder vote, the
Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
23
<PAGE>
2. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets;
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its assets in illiquid assets.
REAL ESTATE FUND
FUNDAMENTAL INVESTMENT POLICIES. The Real Estate Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Concentrate more than 25% of its total assets in any one
industry;
5. With respect to 75% of total assets not purchase any security
(other than obligations of the U.S. Government and cash items
including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Fund would own more than 10% of
the outstanding voting shares of such issuer; and
6. Own real estate if it is acquired as the result of owning
securities and not more than 5% of total assets; provided that
the Fund may invest in securities that are secured by real
estate or interest therein and may purchase and sell
mortgage-related securities and may hold and sell real estate
acquired by the Fund as a result of the ownership of
securities.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Real Estate Fund, which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Purchase and sell futures contracts and related options if the
total initial margin and premiums required to establish
non-hedging positions exceed 5% of its total assets;
24
<PAGE>
3. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
4. Invest more than 15% of its assets in illiquid assets.
JAPAN OPPORTUNITIES FUND
FUNDAMENTAL INVESTMENT POLICIES. The Japan Opportunities Fund may:
1. Borrow from banks, other affiliated funds and other entities
to the extent permitted by applicable law, provided that the
Fund's borrowings shall not exceed 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by
law;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options as
long as the total initial margin and premiums on contracts do
not exceed 5% of total assets;
4. Not issue senior securities except as provided in paragraph 1
above;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans (a) through lending of securities, (b) through the
purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial
institutions, (c) through an interfund lending program with
other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33
1/3% of the value of its total assets (taken at market value
at the time of such loans) and (d) through repurchase
agreements;
7. Not concentrate more than 25% of its total assets in any one
industry or, with respect to 75% of total assets, purchase any
security (other than obligations of the U.S. government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more
than 10% of the outstanding voting shares of such issuer.
25
<PAGE>
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Japan Opportunities Fund, which may be changed without a shareholder vote,
the Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
SELECT VALUE FUND
FUNDAMENTAL INVESTMENT POLICIES. The Select Value Fund may:
1. Borrow from banks, other affiliated funds and other entities
to the extent permitted by applicable law, provided that the
Fund's borrowings shall not exceed 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by
law;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options as
long as the total initial margin and premiums on contracts do
not exceed 5% of total assets;
4. Not issue senior securities except as provided in paragraph 1
above;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans (a) through lending of securities, (b) through the
purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial
institutions, (c) through an interfund lending program with
other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33
1/3% of the value of its total assets (taken at market value
at the time of such loans) and (d) through repurchase
agreements;
7. Not concentrate more than 25% of its total assets in any one
industry or, with respect to 75% of total assets, purchase any
security (other than obligations of the U.S. government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more
than 10% of the outstanding voting shares of such issuer.
26
<PAGE>
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Select Value Fund, which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
FINANCIAL SERVICES FUND
FUNDAMENTAL INVESTMENT POLICIES. The Financial Services Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Concentrate more than 25% of its total assets in any one
industry;
5. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
6. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Financial Services Fund, which may be changed without a shareholder vote,
the Fund may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions; and
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities.
27
<PAGE>
HEALTH CARE FUND
FUNDAMENTAL INVESTMENT POLICIES. The Health Care Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets;
2. Underwrite securities issued by others only when disposing of
portfolio securities;
3. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments and
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements;
4. Concentrate more than 25% of its total assets in any one
industry;
5. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets; and
6. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the Health Care Fund, which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions; and
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities.
500 INDEX FUND
FUNDAMENTAL INVESTMENT POLICIES. The 500 Index Fund may:
1. Borrow from banks, other affiliated funds and other entities
to the extent permitted by applicable law, provided that the
Fund's borrowings shall not exceed 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by
law;
2. Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
28
<PAGE>
3. Purchase and sell futures contracts and related options as
long as the total initial margin and premiums on contracts do
not exceed 5% of total assets;
4. Not issue senior securities except as provided in paragraph 1
above;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans (a) through lending of securities, (b) through the
purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial
institutions, (c) through an interfund lending program with
other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33
1/3% of the value of its total assets (taken at market value
at the time of such loans) and (d) through repurchase
agreements;
7. Not concentrate more than 25% of its total assets in any one
industry or, with respect to 75% of total assets, purchase any
security (other than obligations of the U.S. government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more
than 10% of the outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES. As non-fundamental investment policies of
the 500 Index Fund, which may be changed without a shareholder vote, the Fund
may not:
1. Purchase securities on margin, but it may receive short-term
credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures
transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an equal
amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
MORE FACTS ABOUT THE TRUST
ORGANIZATION
The Trust is required to hold a shareholders' meeting to elect Trustees
to fill vacancies in the event that less than a majority of Trustees were
elected by shareholders. Trustees may also be removed by the vote of two-thirds
of the outstanding shares at a meeting called at the request of shareholders
whose interests represent 10% or more of the outstanding shares.
29
<PAGE>
The shares do not have cumulative voting rights, which means that the
holders of more than 50% of the shares of the Funds voting for the election of
Trustees can elect all of the Trustees, and, in such event, the holders of the
remaining shares will not be able to elect any Trustees.
The Funds are not required by law to hold regular annual meetings of
their shareholders and do not intend to do so. However, special meetings may be
called for purposes such as electing or removing Trustees or changing
fundamental investment policies.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Trust's shareholders are the separate accounts of Participating
Insurance Companies, and, in certain cases, the general account of Keyport.
However, the Trust's Declaration of Trust disclaims liability of the
shareholders, the Trustees, or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust (or
the applicable Fund thereof) and requires that notice of such disclaimer be
given in each agreement, obligation, or contract entered into or executed by the
Trust or the Board of Trustees. The Declaration of Trust provides for
indemnification out of the Trust's assets (or the applicable Fund) for all
losses and expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote because it is
limited to circumstances in which the disclaimer is inoperative and the Trust
itself is unable to meet its obligations. The risk to any one Fund of sustaining
a loss on account of liabilities incurred by another Fund is also believed to be
remote.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, together with information as to
their principal addresses, ages and business occupations during the last five
years, are shown below. An asterisk next to a name indicates that a Trustee is
considered an "interested person" of the Trust (as defined in the 1940 Act). In
this SAI, the "Liberty Funds" means Liberty Funds Trust I, Liberty Funds Trust
II, Liberty Funds Trust III, Liberty Funds Trust IV, Liberty Funds Trust V,
Liberty Funds Trust VI, Liberty Funds Trust VII, Liberty Funds Trust VIII,
Liberty Variable Investment Trust, Colonial High Income Municipal Trust,
Colonial InterMarket Income Trust I, Colonial Intermediate High Income Fund,
Colonial Investment Grade Municipal Trust, Colonial Municipal Income Trust,
Colonial Insured Municipal Fund, Colonial California Insured Municipal Fund,
Colonial New York Insured Municipal Fund, Liberty-Stein Roe Advisor Floating
Rate Advantage Fund and Colonial Investment Grade Bond Fund.
<TABLE>
<CAPTION>
======================================== ======================= =============================================
POSITIONS(S) HELD PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
======================================== ======================= =============================================
---------------------------------------- ----------------------- ---------------------------------------------
---------------------------------------- ----------------------- ---------------------------------------------
<S> <C> <C>
Tom Bleasdale (69) Trustee Retired (formerly Chairman of the Board and
102 Clubhouse Drive #275 Chief Executive Officer, Shore Bank &
Trust Naples, FL 34105 Company (banking) from 1992 to 1993).
---------------------------------------- ----------------------- ---------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
======================================== ======================= =============================================
POSITIONS(S) HELD PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
======================================== ======================= =============================================
<S> <C> <C>
Director or Trustee: Liberty Funds, Empire
Company Limited.
---------------------------------------- ----------------------- ---------------------------------------------
John V. Carberry* (52) Trustee Senior Vice President of LFC since 1998
56 Woodcliff Road (formerly Managing Director, Salomon
Wellesley Hills, MA 02481 Brothers (investment banking) from January,
1988 to January, 1998). Director or
Trustee: Liberty Funds, Liberty All-Star
Funds.
---------------------------------------- ----------------------- ---------------------------------------------
Lora S. Collins (64) Trustee Attorney (formerly Attorney with Kramer,
1175 Hill Road Levin, Naftalis & Frankel (law) from
Southold, NY 11971 September, 1986 to November, 1996).
Trustee: Liberty Funds.
---------------------------------------- ----------------------- ---------------------------------------------
James E. Grinnell (70) Trustee Private Investor since November, 1988.
22 Harbor Avenue Director or Trustee: Liberty Funds, Liberty
Marblehead, MA 01945 All-Star Funds.
---------------------------------------- ----------------------- ---------------------------------------------
Richard W. Lowry (63) Trustee Private Investor since August, 1987.
10701 Charleston Drive Director or Trustee: Liberty Funds, Liberty
Vero Beach, FL 32963 All-Star Funds.
---------------------------------------- ----------------------- ---------------------------------------------
Salvatore Macera (68) Trustee Private Investor (formerly Executive Vice
26 Little Neck Lane President and Director of Itek Corporation
New Seabury, MA 02649 (electronics) from 1975 to 1981).Director
or Trustee: Liberty Funds and Stein Roe
Variable Investment Trust.
---------------------------------------- ----------------------- ---------------------------------------------
William E. Mayer (59) Trustee Partner, Development Capital, LLC (venture
500 Park Avenue, 5th Floor capital) (formerly Dean, College of
New York, NY 10022 Business and Management, University of
Maryland (higher education) from October,
1992 to November, 1996). Director or
Trustee: Liberty Funds, Liberty All-Star
Funds, Johns Manville, Lee Enterprises,
Premier, Rosemore.
---------------------------------------- ----------------------- ---------------------------------------------
---------------------------------------- ----------------------- ---------------------------------------------
James L. Moody, Jr. (68) Trustee Retired (formerly Chairman of the Board,
16 Running Tide Road Hannaford Bros. Co. (food retailer) from
Cape Elizabeth, ME 04107 May, 1984 to May, 1997 and Chief Executive
Officer, Hannaford Bros. Co. from May, 1973
to May, 1992). Director or Trustee:
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
======================================== ======================= =============================================
POSITIONS(S) HELD PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
======================================== ======================= =============================================
<S> <C> <C>
Liberty Funds, Staples, Inc., UNUM
Provident Corporation, IDEXX Laboratories,
Inc., Empire Company Limited.
---------------------------------------- ----------------------- ---------------------------------------------
John J. Neuhauser (56) Trustee Dean of the School of Management, Boston
84 College Road College (higher education) since September,
Chestnut Hill, MA 02467 1977. Director or Trustee: Liberty Funds,
Liberty All-Star Funds, Saucony, Inc.
---------------------------------------- ----------------------- ---------------------------------------------
Thomas E. Stitzel (64) Trustee Business Consultant (formerly Professor of
2208 Tawny Woods Place Finance from 1975 to 1999 and Dean from
Boise, ID 83706 1977 to 1991, College of Business, Boise
State University (higher education),
Chartered Financial Analyst. Director or
Trustee: Liberty Funds, Stein Roe Variable
Investment Trust, Farmers and Merchants
State Bank.
---------------------------------------- ----------------------- ---------------------------------------------
Anne-Lee Verville (54) Trustee Consultant (formerly General Manager,
359 Stickney Hill Road Global Education Industry from 1994 to
Hopkinton, NH 03229 1997, and President, Applications Solutions
Division from 1991 to 1994, IBM Corporation
(global education and global
applications)). Director or Trustee:
Liberty Funds, Enesco Group, Inc., National
Skill Standards Board.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
======================================== ======================= =============================================
POSITIONS(S) HELD PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
======================================== ======================= =============================================
<S> <C> <C>
---------------------------------------- ----------------------- ---------------------------------------------
Stephen E. Gibson (46) President President of the Liberty Funds since June,
One Financial Center 1998, Chairman of the Board since July,
Boston, MA 02111 1998, Chief Executive Officer and President
since December, 1996 and Director since
July, 1996 of Colonial (formerly Executive
Vice President from July, 1996 to December,
1996); Director, Chief Executive Officer
and President of LFG since December, 1998
(formerly Director, Chief Executive Officer
and President of The Colonial Group, Inc.
("TCG") from December, 1996 to December,
1998); Assistant Chairman of Stein Roe
since August, 1998 (formerly Managing
Director of Marketing of Putnam
Investments, June, 1992 to July, 1996).
---------------------------------------- ----------------------- ---------------------------------------------
Pamela A. McGrath (46) Treasurer and Chief Treasurer and Chief Financial Officer of
One Financial Center Financial Officer the Liberty Funds and Liberty All-Star
Boston, MA 02111 Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG
since December, 1999; Chief Financial
Officer, Treasurer and Senior Vice
President of Colonial since December, 1999;
Director of Offshore Accounting for Putnam
Investments from May, 1998 to October 1999;
Managing Director of Scudder Kemper
Investments from October, 1984 to December,
1997.
---------------------------------------- ----------------------- ---------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
J. Kevin Connaughton (35) Controller and Chief Controller and Chief Accounting Officer of
One Financial Center Accounting Officer the Liberty Funds since February, 1998;
Boston, MA 02111 Controller since December, 1998 of Liberty
All-Star Funds; Vice President of Colonial
since February, 1998 (formerly Senior Tax
Manager, Coopers & Lybrand, LLP from April,
1996 to January, 1998; Vice President, 440
Financial Group/First Data Investor
Services Group from March, 1994 to April,
1996).
---------------------------------------- ----------------------- ---------------------------------------------
Joseph R. Palombo (46) Vice President Vice President of the Liberty Funds since
One Financial Center April, 1999; Executive Vice President and
Boston, MA 02111 Director of Colonial since April, 1999;
Executive Vice President and Chief
Administrative Officer of LFG since April,
1999 (formerly Chief Operating Officer,
Putnam Mutual Funds from 1994 to 1998).
---------------------------------------- ----------------------- ---------------------------------------------
Nancy L. Conlin (46) Secretary Secretary of the Liberty Funds since April,
One Financial Center 1998 (formerly Assistant Secretary from
Boston, MA 02111 July, 1994 to April, 1998); Director,
Senior Vice President, General Counsel,
Clerk and Secretary of Colonial since
April, 1998 (formerly Vice President,
Counsel, Assistant Secretary and Assistant
Clerk from July, 1994 to April, 1998); Vice
President - Legal, General Counsel and
Secretary of LFG since December, 1998
(formerly Vice President - Legal, General
Counsel, Secretary and Clerk of TCG from
April, 1998 to December, 1998; Assistant
Clerk from July, 1994 to April, 1998).
---------------------------------------- ----------------------- ---------------------------------------------
</TABLE>
* A Trustee who is an "interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) of the Funds or the Advisor.
As indicated in the above table, certain Trustees and officers of the
Trust also hold positions with LFC, Keyport, LASC, LFD, Colonial, Stein Roe,
Newport, Crabbe Huson, LAMCO and/or
34
<PAGE>
certain of their affiliates. Certain of the Trustees and officers of the Trust
hold comparable positions with certain other investment companies.
COMPENSATION OF TRUSTEES
The table below sets forth (1) the aggregate compensation paid by the
Trust to the Trustees for 1999, and (ii) the amount of compensation paid to the
Trustees of the Trust in their capacities as Trustees of the Liberty Funds
Complex for service for 1999 (a):
<TABLE>
<CAPTION>
COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM LIBERTY FUNDS COMPLEX
AGGREGATE 1999 COMPENSATION PAID TO THE TRUSTEES FOR THE CALENDAR YEAR
TRUSTEE FROM THE TRUST ENDED DECEMBER 31, 1999(b)
------- --------------------------- ---------------------------------------------
<S> <C> <C>
Robert J. Birnbaum(c) $ 7,807 $97,000
Tom Bleasdale 8,296(d) 103,000(e)
John V. Carberry(f) N/A N/A
Lora S. Collins 7,732 96,000
James E. Grinnell 8,048 100,000
Richard W. Lowry 7,813 97,000
Salvatore Macera 7,725 95,000
William E. Mayer 8,123 101,000
James L. Moody, Jr. 7,348(g) 91,000(h)
John J. Neuhauser 8,166 101,252
Thomas E. Stitzel 7,725 95,000
Robert L. Sullivan(i) 8,581 104,100
Anne-Lee Verville 7,745(j) 96,000(k)
</TABLE>
(a) The Liberty Funds Complex does not currently provide pension or retirement
plan benefits to the Trustees.
(b) At December 31, 1999, the Liberty Funds Complex consisted of 51 open-end
and 8 closed-end management investment portfolios in the Liberty Funds
Group-Boston and 12 open-end management investment portfolios in the
Liberty Variable Investment Trust (together, the "Liberty Funds Complex").
(c) Retired as Trustee of the Trust on December 31, 1999.
(d) Includes $4,109 payable in later years as deferred compensation.
(e) Includes $52,000 payable in later years as deferred compensation.
(f) Does not receive compensation because he is an affiliated Trustee and
employee of LFC.
(g) Total compensation of $7,348 for the fiscal year ended December 31, 1999
will be payable in later years as deferred compensation.
(h) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(i) Retired as Trustee of the Trust on April 30, 2000.
(j) Total compensation of $7,745 for the fiscal year ended December 31, 1999
will be payable in later years as deferred compensation.
35
<PAGE>
(k) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
For the fiscal year ended December 31, 1999, some of the Trustees received the
following compensation in their capacities as trustees or directors of the
Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and Liberty
Funds Trust IX (together, "Liberty All-Star Funds"):
TOTAL COMPENSATION FROM LIBERTY ALL-STAR FUNDS
TRUSTEE FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1999(l)
------- ------------------------------------------------
Robert J. Birnbaum(m) $25,000
John V. Carberry(m)(n) N/A
James E. Grinnell(m) 25,000
Richard W. Lowry(m) 25,000
William E. Mayer(m) 25,000
John J. Neuhauser(m) 25,000
(1) The Liberty All-Star Funds are advised by LAMCO. LAMCO is an indirect
wholly-owned subsidiary of LFC (an intermediate parent of LASC).
(m) Elected by the sole Trustee of Liberty Funds Trust IX on December 17, 1998.
(n) Does not receive compensation because he is an affiliated Trustee and
employee of LFC.
PRINCIPAL HOLDERS OF SECURITIES
All the shares of the Funds are held of record by sub-accounts of
separate accounts of Participating Insurance Companies on behalf of the owners
of VA contracts and VLI policies or by the general account of Keyport. At March
31, 2000 the general account of Keyport owned of record 32% of the Tiger Fund,
48% of the International Horizons Fund, 65% of the Global Equity Fund and 69% of
the Real Estate Fund. At May 30, 2000, the general account of Keyport owned of
record 100% of the Japan Opportunities Fund, Select Value Fund, Financial
Services Fund, Health Care Fund and 500 Index Fund. At all meetings of
shareholders of the Funds, Participating Insurance Companies will vote the
shares held of record by sub-accounts of their respective separate accounts as
to which instructions are received from the VA contract and VLI policy owners on
behalf of whom such shares are held only in accordance with such instructions.
All such shares as to which no instructions are received (as well as, in the
case of Keyport, all shares held by its general account) will be voted in the
same proportion as shares as to which instructions are received (with Keyport's
general account shares being voted in the proportions determined by instructing
owners of Keyport VA contracts and VLI policies). There is no requirement as to
the minimum level of instructions which must be received from policy and
contract owners. Accordingly, each Participating Insurance Company and Keyport
disclaims beneficial ownership of the shares of the Funds held of record by the
sub-accounts of their respective separate accounts (or, in the case of Keyport,
its general account). No Participating Insurance Company has informed the
36
<PAGE>
Trust that it knows of any owner of a VA contract or VLI policy issued by it
which on April 30, 2000 owned beneficially 5% or more of the outstanding shares
of any Fund.
CUSTODIAN
The Chase Manhattan Bank, 270 Park Avenue Park Avenue, New York, NY
10017-2070, is custodian of the securities and cash owned by all of the Funds.
The custodian is responsible for holding all securities and cash of each Fund,
receiving and paying for securities purchased, delivering against payment
securities sold, receiving and collecting income from investments, making all
payments covering expenses of the Funds, and performing other administrative
duties, all as directed by persons authorized by the Trust. The custodian does
not exercise any supervisory function in such matters as the purchase and sale
of portfolio securities, payment of dividends, or payment of expenses of the
Funds or the Trust. Portfolio securities of the Funds purchased in the U.S. are
maintained in the custody of the custodian and may be entered into the Federal
Reserve Book Entry system, or the security depository system of the Depository
Trust Company or other securities depository systems. Portfolio securities
purchased outside the U.S. are maintained in the custody of various foreign
branches of the custodian and/or third party subcustodians, including foreign
banks and foreign securities depositories.
OTHER CONSIDERATIONS
PORTFOLIO TURNOVER
Although no Fund purchases securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held by
any Fund and a Fund's annual portfolio turnover rate may vary significantly from
year to year. A 100% turnover rate would occur if all of the securities in the
portfolio were sold and either repurchased or replaced within one year. Although
the Funds cannot predict portfolio turnover rate, it is estimated that, under
normal circumstances, the annual rate for each Fund will be no greater than
100%. The portfolio turnover rates of the Funds are shown under "Financial
Highlights" in the Prospectuses.
If a Fund writes a substantial number of call or put options (on
securities or indexes) or engages in the use of futures contracts or options on
futures contracts (all referred to as "Collateralized Transactions"), and the
market prices of the securities underlying the Collateralized Transactions move
inversely to the Collateralized Transaction, there may be a very substantial
turnover of the portfolios. The Funds pay brokerage commissions in connection
with options and futures transactions and effecting closing purchase or sale
transactions, as well as for the purchases and sales of other portfolio
securities other than fixed income securities.
International Fund, International Horizons Fund and Global Equity Fund
may be expected to experience higher portfolio turnover rates if such Funds make
a change in their respective investments from one geographic sector (e.g.,
Europe; Japan; emerging Asian markets; etc.) to another geographic sector. Costs
will be greater if the change is from the sector in which the greatest
proportion of its assets are invested.
37
<PAGE>
The Value Fund, for the 1999 fiscal year, had a higher than usual
portfolio turnover rate. This was due to a change in portfolio manager and the
new manager selling off and re-positioning the Value Fund to reflect the new
strategies of the Fund.
SUSPENSION OF REDEMPTIONS
The right to redeem shares or to receive payment with respect to any
redemption of shares of the Funds may only be suspended (i) for any period
during which trading on the NYSE is restricted or the NYSE is closed, other than
customary weekend and holiday closing, (ii) for any period during which an
emergency exists as a result of which disposal of securities or determination of
the net asset value of the Funds is not reasonably practicable, or (iii) for
such other periods as the SEC may by order permit for protection of shareholders
of the Funds.
VALUATION OF SECURITIES
The assets of the Funds are valued as follows:
Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Colonial (the Trust's
pricing and bookkeeping agent) deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on Nasdaq are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost when such cost approximates market value
pursuant to procedures approved by the Trustees. The values of foreign
securities quoted in foreign currencies are translated into U.S. dollars at the
exchange rate as of 3:00 p.m. Eastern time. Portfolio positions for which there
are no such valuations and other assets are valued at fair value as determined
in good faith under the direction of the Trustees.
The net asset value of shares of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m., Eastern time, on
every day the NYSE is open for trading, except on days where both (i) the degree
of trading in a Fund's portfolio securities would not materially affect the net
asset value of that Fund's shares and (ii) no shares of a Fund were tendered for
redemption and no purchase order was received. The NYSE is open Monday through
Friday, except on the following holidays: New Year's Day, Martin Luther King
Jr., Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
NYSE. The values of these securities used in determining the net asset value are
computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds and U.S.
government securities) are
38
<PAGE>
determined based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the NYSE. Occasionally, events affecting
the value of such securities may occur between such times and the close of the
NYSE which will not be reflected in the computation of a Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value following
procedures approved by the Trustees.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to do business with any broker-dealer or
group of broker-dealers in executing transactions in securities with respect to
the Funds, and the Funds have no intention to deal exclusively with any
particular broker-dealer or group of broker-dealers.
Each of Colonial, Stein Roe, Newport, Crabbe Huson, PADCO, State Street
and each of LAMCO's Portfolio Managers, (each an "Advisor") places the
transactions of the Funds with broker-dealers selected by it and, if applicable,
negotiates commissions. Broker-dealers may receive brokerage commissions on
portfolio transactions, including the purchase and writing of options, the
effecting of closing purchase and sale transactions, and the purchase and sale
of underlying securities upon the exercise of options and the purchase or sale
of other instruments. The Funds from time to time may also execute portfolio
transactions with such broker-dealers acting as principals.
Except as described below in connection with commissions paid to a
clearing agent on sales of securities, it is each Fund's policy and the policy
of its Advisor always to seek best execution, which is to place the Fund's
transactions where the Fund can obtain the most favorable combination of price
and execution services in particular transactions or provided on a continuing
basis by a broker-dealer, and to deal directly with a principal market maker in
connection with over-the-counter transactions, except when the Advisor believes
that best execution is obtainable elsewhere. In evaluating the execution
services of, including the overall reasonableness of brokerage commissions paid
to, a broker-dealer, consideration is given to, among other things, the firm's
general execution and operational capabilities, and to its reliability,
integrity and financial condition.
Subject to such policy of always seeking best execution, and subject to
the additional matters described below regarding each of International Fund,
International Horizons Fund, Global Equity Fund, Japan Opportunities Fund, Tiger
Fund and All-Star Equity Fund, securities transactions of the Funds may be
executed by broker-dealers who also provide research services (as defined below)
to an Advisor, the Funds or other accounts as to which such Advisor exercises
investment discretion. Such advisor may use all, some or none of such research
services in providing investment advisory services to each of its clients,
including the Fund(s) it advises. To the extent that such services are used by
the Advisors, they tend to reduce their expenses. It is not possible to assign
an exact dollar value for such services.
Subject to such policies as the Board of Trustees may determine, each
of the Advisors may cause a Fund to pay a broker-dealer that provides brokerage
and research services to it an amount of
39
<PAGE>
commission for effecting a securities transaction, including the sale of an
option or a closing purchase transaction, for a Fund in excess of the amount of
commission that another broker-dealer would have charged for effecting that
transaction. As provided in Section 28(e) of the Securities Exchange Act of
1934, "brokerage and research services" include advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends and portfolio strategy and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). An Advisor placing a brokerage
transaction must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided to it by the executing broker-dealer viewed in terms of that particular
transaction or its overall responsibilities to the applicable Fund and all its
other clients.
Certain of the other accounts of any of the Advisors may have
investment objectives and programs that are similar to those of the Funds.
Accordingly, occasions may arise when each of the Advisors engages in
simultaneous purchase and sale transactions of securities that are consistent
with the investment objectives and programs of a Fund and such other accounts.
On those occasions, the Advisor will allocate purchase and sale transactions in
an equitable manner according to written procedures as approved by the Board of
Trustees. Such procedures may, in particular instances, be either advantageous
or disadvantageous to a Fund.
Consistent with applicable rules of the National Association of
Securities Dealers, Inc., and subject to seeking best execution and such other
policies as the Board of Trustees may determine, each of the Advisors may
consider sales of VA contracts and VLI policies as a factor in the selection of
broker-dealers to execute securities transactions for the Funds.
ADDITIONAL MATTERS PERTAINING TO HEALTH CARE FUND. The Health Care Fund
may invest in companies that are involved in the health care industry including
companies engaged in the design, manufacture, or sale of products or services
used for or in connection with health care or medicine. Companies in the health
care sector may include pharmaceutical companies; firms that design,
manufacture, sell or supply medical, dental, and optical products, hardware or
services; companies involved in biotechnology, medical diagnostic, and
biochemical research and development, as well as companies involved in the
operation of health care facilities.
ADDITIONAL MATTERS PERTAINING TO INTERNATIONAL FUND, INTERNATIONAL
HORIZONS FUND, GLOBAL EQUITY FUND AND GLOBAL UTILITIES FUND. The portfolio
managers for the International Fund and the International Horizons Fund are
Charles R. Roberts, Michael Ellis and Deborah Snee and for the Global Equity
Fund and Global Utilities Fund are Ophelia Barsketis and Deborah A. Jansen, all
of whom are jointly employed by Newport, Colonial and Stein Roe (each of which
is an indirect wholly owned subsidiary of LFC). The Funds and the other accounts
advised by these managers sometimes invest in the same securities and sometimes
enter into similar transactions utilizing futures contracts and foreign
currencies. In certain cases, purchases and sales on behalf of the Funds and
such other accounts will be bunched and executed on an aggregate basis. In such
cases, each participating account (including the International Fund,
International Horizons Fund, Global Equity Fund and Global Utilities Fund) will
receive the average price at which the trade is
40
<PAGE>
executed. Where less than the desired aggregate amount is able to be purchased
or sold, the actual amount purchased or sold will be allocated among the
participating accounts (including the International Fund, International Horizons
Fund, Global Equity Fund and Global Utilities Fund) in proportion to the amounts
desired to be purchased or sold by each. Although in some cases these practices
could have a detrimental effect on the price or volume of the securities,
futures or currencies as far as the International Fund, International Horizons
Fund, Global Equity Fund and Global Utilities Fund are concerned, Colonial and
Stein Roe believe that in most cases these practices should produce better
executions. It is the opinion of Colonial and Stein Roe that the advantages of
these practices outweigh the disadvantages, if any, which might result from
them.
Portfolio transactions on behalf of the International Fund,
International Horizons Fund, Global Equity Fund and Global Utilities Fund may be
executed by broker-dealers who provide research services to Colonial or Stein
Roe which are used in the investment management of such Funds or other accounts
over which Colonial or Stein Roe exercise investment discretion. Such
transactions will be effected in accordance with the policies described above.
No portfolio transactions on behalf of the Funds will be directed to a
broker-dealer in consideration of the broker-dealer's provision of research
services to Colonial and Stein Roe, unless a determination is made that such
research assists Colonial in its investment management of the International
Fund, International Horizons Fund, Global Equity Fund, Stein Roe in its
management of Global Utilities Fund or other accounts over which Colonial or
Stein Roe exercises investment discretion.
ADDITIONAL MATTERS PERTAINING TO ALL-STAR EQUITY FUND. The Portfolio
Management Agreements with LAMCO's Portfolio Managers provide that LAMCO has the
right to request that transactions giving rise to brokerage commissions, in
amounts to be agreed upon from time to time between LAMCO and the Portfolio
Manager, be executed by brokers and dealers (to be agreed upon from time to time
between LAMCO and the Portfolio Manager) which provide research products and
services to LAMCO or to All-Star Equity Fund or other accounts managed by LAMCO
(collectively with All-Star Equity Fund, "LAMCO Clients") or as to which an
ongoing relationship will be a value to the Fund in managing its assets. The
commissions paid on such transactions may exceed the amount of commissions
another broker would have charged for effecting that transaction. Research
products and services made available to LAMCO through brokers and dealers
executing transactions for LAMCO Clients involving brokerage commissions include
performance and other qualitative and quantitative data relating to investment
managers in general and the Portfolio Managers in particular; data relating to
the historic performance of categories of securities associated with particular
investment styles; mutual fund portfolio and performance data; data relating to
portfolio manager changes by pension plan fiduciaries; quotation equipment; and
related computer hardware and software, all of which research products and
services are used by LAMCO in connection with its selection and monitoring of
portfolio managers (including the Portfolio Managers) for LAMCO Clients, the
assembly of a mix of investment styles appropriate to LAMCO's Clients'
investment objectives, and the determination of overall portfolio strategies.
LAMCO from time to time reaches understandings with each of the
Portfolio Managers as to the amount of the All-Star Equity Fund portfolio
transactions initiated by such Portfolio Manager that are to be directed to
brokers and dealers which provide research products and services to
41
<PAGE>
LAMCO. These amounts may differ among the Portfolio Managers based on the nature
of the markets for the types of securities managed by them and other factors.
These research products and services are used by LAMCO in connection
with its management of LAMCO Clients' portfolios, regardless of the source of
the brokerage commissions. In instances where LAMCO receives from broker-dealers
products or services which are used both for research purposes and for
administrative or other non-research purposes, LAMCO makes a good faith effort
to determine the relative proportions of such products or services which may be
considered as investment research, based primarily on anticipated usage, and
pays for the costs attributable to the non-research usage in cash.
42
<PAGE>
The table below shows information on brokerage commissions paid by each
Fund during the periods indicated. (All-Star Equity Fund commenced operations on
November 15, 1997; Small Cap Fund and High Yield Fund commenced operations on
May 19, 1998; International Horizons Fund, Global Equity Fund and Real Estate
Fund commenced operations on June 1, 1999; and Japan Opportunities Fund, Select
Value Fund, Financial Services Fund, Health Care Fund and 500 Index Fund
commenced operations on May 30, 2000.)
<TABLE>
<CAPTION>
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Growth & Global International U.S. Growth Tiger Fund All-Star
Income Fund Utilities Fund Fund Fund Equity Fund
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total amount of brokerage $521,325 $171,492 $54,904 $250,696 $42,877 $ 101,560
commissions paid during
1999
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of directed $0 $0 $0 $0 $0 $ 10,533,313
transactions paid during
1999
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of $0 $0 $0 $0 $0 $ 12,038
commissions on directed
transactions paid during
1999
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of brokerage $210,205 $0 $ 180 $95,068 $0 $ 0
commissions paid during
1999 to AlphaTrade Inc. (40%) (0.5%) (38%)
(% of total commission
paid)
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of brokerage $ 86,453 $ 124,815 $ 66,549 $147,449 $36,508 $ 58,697
commissions paid during
1998
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of directed $0 $0 $0 $0 $0 $ 84,729
transactions paid during
1998
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of $0 $0 $0 $0 $0 $ 80
commissions on directed
transactions paid during
1998
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of brokerage $ 17,178 $0 $0 $ 45,117 $0 $0
commissions paid during (20%) (31%)
1998 to AlphaTrade Inc.
(% of total commission
paid)
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
Total amount of brokerage $ 76,021 $ 108,414 $ 59,920 $ 80,839 $110,960 $ 18,207
commissions paid during
1997
---------------------------- --------------- --------------- --------------- -------------- --------------- ---------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
High Yield Small Cap Fund Strategic International Global Equity Real Estate
Fund Income Fund Horizons Fund Fund Fund
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total amount of $0 $4,635 $1,563 $4,344 $4,530 $11,892
brokerage commissions
paid during 1999
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $0 $0 $0 $0 $0
directed transactions
paid during 1999
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $0 $0 $0 $0 $0
commissions on directed
transactions paid
during 1999
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $2,299 $0 $0 $0 $0
brokerage commissions
paid during 1999 to (50%)
AlphaTrade Inc.
(% of total commission
paid)
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $3,240 $0 -- -- --
brokerage commissions
paid during 1998
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $0 $0 -- -- --
directed transactions
paid during 1998
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $0 $0 -- -- --
commissions on directed
transactions paid
during 1998
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of $0 $1,170 $0 -- -- --
brokerage commissions (36%)
paid during 1998 to
AlphaTrade Inc.
(% of total commission
paid)
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
Total amount of -- -- $0 -- -- --
brokerage commissions
paid during 1997
------------------------- --------------- --------------- ---------------- --------------- ---------------- ---------------
</TABLE>
44
<PAGE>
The increase in brokerage commissions for the 1999 fiscal year is due
to a number of factors. The Value Fund had a large portfolio turnover rate due
to a new portfolio manager and new strategies. The Value Fund, U.S. Growth Fund
and All-Star Equity Fund had significant increases in assets causing more
securities to be purchased and, therefore, incurring more brokerage commissions.
* The Funds were not able to trade through AlphaTrade Inc. prior to 1998.
Information About the Standard & Poor's 500 Composite
The 500 Index Fund, Variable Series is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.,
("S&P"). S&P makes no representation or warranty, express or implied, to the
owners of the 500 Index Fund or any member of the public regarding the
advisability of investing in securities generally or in the 500 Index Fund
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Licensee is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Licensee or the 500 Index
Fund. S&P has no obligation to take the needs of the Licensee or the owners of
the 500 Index Fund into consideration in determining, composing or calculating
the S&P 500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the 500 Index Fund or the timing of
the issuance or sale of the 500 Index Fund or in the determination or
calculation of the equation by which the 500 Index Fund is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the 500 Index Fund.
Stock Price Index
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE 500 INDEX FUND,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which
may be made by one or more of the Funds.
45
<PAGE>
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, each Fund may invest in a variety of
high-quality money market instruments. The money market instruments that may be
used by each Fund may include:
UNITED STATES GOVERNMENT OBLIGATIONS. These consist of various types of
marketable securities issued by the U.S. Treasury, i.e., bills, notes and bonds.
Such securities are direct obligations of the U.S. Government and differ mainly
in the length of their maturity. Treasury bills, the most frequently issued
marketable government security, have a maturity of up to one year and are issued
on a discount basis.
UNITED STATES GOVERNMENT AGENCY SECURITIES. These consist of debt
securities issued by agencies and instrumentalities of the U.S. Government,
including the various types of instruments currently outstanding or which may be
offered in the future. Agencies include, among others, the Federal Housing
Administration, Government National Mortgage Association, Farmer's Home
Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities include,
for example, each of the Federal Home Loan Banks, the National Bank for
Cooperatives, the Federal Home Loan Mortgage Corporation, the Farm Credit Banks,
the Federal National Mortgage Association, and the United States Postal Service.
These securities are either: (i) backed by the full faith and credit of the U.S.
Government (e.g., U.S. Treasury bills); (ii) guaranteed by the U.S. Treasury
(e.g., Government National Mortgage Association mortgage-backed securities);
(iii) supported by the issuing agency's or instrumentality's right to borrow
from the U.S. Treasury (e.g., Federal National Mortgage Association Discount
Notes); or (iv) supported only by the issuing agency's or instrumentality's own
credit (e.g., securities issued by the Farmer's Home Administration).
BANK AND SAVINGS AND LOAN OBLIGATIONS. These include certificates of
deposit, bankers' acceptances, and time deposits. Certificates of deposit
generally are short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. Bankers acceptances are time drafts drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction (e.g., to finance the import, export, transfer, or storage of
goods). With a bankers' acceptance, the borrower is liable for payment as is the
bank, which unconditionally guarantees to pay the draft at its face amount on
the maturity date. Most bankers' acceptances have maturities of six months or
less and are traded in secondary markets prior to maturity. Time deposits are
generally short-term, interest-bearing negotiable obligations issued by
commercial banks against funds deposited in the issuing institutions. The Funds
will not invest in any security issued by a commercial bank or a savings and
loan association unless the bank or savings and loan association is organized
and operating in the United States, has total assets of at least one billion
dollars, and is a member of the Federal Deposit Insurance Corporation ("FDIC"),
in the case of banks, or insured by the FDIC in the case of savings and loan
associations; provided, however, that such limitation will not prohibit
investments in foreign branches of domestic banks which meet the foregoing
requirements. The Funds will not invest in time-deposits maturing in more than
seven days.
46
<PAGE>
SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper
(i.e., short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs). Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Also
included are non-convertible corporate debt securities (e.g., bonds and
debentures). Corporate debt securities with a remaining maturity of less than 13
months are liquid (and tend to become more liquid as their maturities lessen)
and are traded as money market securities. Each Fund may purchase corporate debt
securities having greater maturities.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. A
repurchase agreement is an instrument under which the investor (such as a Fund)
acquires ownership of a security (known as the "underlying security") and the
seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period,
unless the seller defaults on its repurchase obligations. The underlying
securities will consist only of securities issued by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities"). Repurchase
agreements are, in effect, collateralized by such underlying securities, and,
during the term of a repurchase agreement, the seller will be required to
mark-to-market such securities every business day and to provide such additional
collateral as is necessary to maintain the value of all collateral at a level at
least equal to the repurchase price. Repurchase agreements usually are for short
periods, often under one week, and will not be entered into by a Fund for a
duration of more than seven days if, as a result, more than 15% of the value of
that Fund's total assets would be invested in such agreements or other
securities which are illiquid.
The Funds will seek to assure that the amount of collateral with
respect to any repurchase agreement is adequate. As with any extension of
credit, however, there is risk of delay in recovery or the possibility of
inadequacy of the collateral should the seller of the repurchase agreement fail
financially. In addition, a Fund could incur costs in connection with
disposition of the collateral if the seller were to default. The Funds will
enter into repurchase agreements only with sellers deemed to be creditworthy
under creditworthiness standards approved by the Board of Trustees and only when
the economic benefit to the Funds is believed to justify the attendant risks.
The Board of Trustees believes these standards are designed to reasonably assure
that such sellers present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase agreement. The
Funds may enter into repurchase agreements only with commercial banks or
registered broker-dealers.
ADJUSTABLE RATE AND FLOATING RATE SECURITIES. Adjustable rate
securities (i.e., variable rate and floating rate instruments) are securities
that have interest rates that are adjusted periodically, according to a set
formula. The maturity of some adjustable rate securities may be shortened under
certain special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of
deposit) that provide for the adjustment of their interest rates on
predetermined dates or whenever a specific interest rate changes. A variable
rate instrument subject to a demand feature is considered to have a maturity
47
<PAGE>
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
Floating rate instruments (generally corporate notes, bank notes or
Eurodollar certificates of deposit) have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The interest rate is adjusted,
periodically (e.g. daily, monthly, semi-annually), to the prevailing interest
rate in the marketplace. The interest rate on floating rate securities is
ordinarily determined by reference to, or is a percentage of, a bank's prime
rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial paper
or bank certificates of deposit, an index of short-term interest rates or some
other objective measure. The maturity of a floating rate instrument is
considered to be the period remaining until the principal amount can be
recovered through demand.
INVESTMENTS IN LESS DEVELOPED COUNTRIES
International Fund's and International Horizons Fund's investments in
foreign securities may include investments in countries whose economies or
securities markets are considered by Colonial not to be highly developed
(referred to as "emerging market countries"). Normally no more than 40% of the
International Fund's assets and up to 35% of the International Horizons Fund's
assets will be invested in such emerging market countries. As of May 1, 2000,
the following countries were considered by Colonial to be emerging market
countries:
<TABLE>
<CAPTION>
============================= ============================= ============================ ============================
EUROPE AND
ASIA LATIN AMERICA THE MIDDLE EAST AFRICA
============================= ============================= ============================ ============================
<S> <C> <C> <C>
China Argentina Czech Republic South Africa
----------------------------- ----------------------------- ---------------------------- ----------------------------
Hong Kong Brazil Greece
----------------------------- ----------------------------- ---------------------------- ----------------------------
India Chile Hungary
----------------------------- ----------------------------- ---------------------------- ----------------------------
Indonesia Colombia Israel
----------------------------- ----------------------------- ---------------------------- ----------------------------
South Korea Mexico Jordan
----------------------------- ----------------------------- ---------------------------- ----------------------------
Malaysia Peru Poland
----------------------------- ----------------------------- ---------------------------- ----------------------------
Pakistan Venezuela Russia
----------------------------- ----------------------------- ---------------------------- ----------------------------
Philippines Turkey
----------------------------- ----------------------------- ---------------------------- ----------------------------
Sri Lanka
----------------------------- ----------------------------- ---------------------------- ----------------------------
Taiwan
----------------------------- ----------------------------- ---------------------------- ----------------------------
Thailand
============================= ============================= ============================ ============================
</TABLE>
Under normal market conditions, the Tiger Fund invests primarily in
stocks of companies located in the ten Tiger countries of Asia. The Tigers of
Asia are Hong Kong, India, Singapore,
48
<PAGE>
South Korea, Taiwan, Malaysia, Thailand, Indonesia, The People's Republic of
China and the Philippines.
FOREIGN CURRENCY TRANSACTIONS
Each of International Fund, Tiger Fund, Global Utilities Fund,
Strategic Income Fund, International Horizons Fund, Global Equity Fund and Value
Fund may engage in currency exchange transactions to protect against uncertainty
in the level of future currency exchange rates. These Funds may purchase foreign
currencies on a spot or forward basis in conjunction with their investments in
foreign securities and to hedge against fluctuations in foreign currencies.
International Fund, Global Utilities Fund, International Horizons Fund, Global
Equity Fund and Strategic Income Fund also may buy and sell currency futures
contracts and options thereon for such hedging purposes. Global Utilities Fund
and Strategic Income Fund also may buy options on currencies for hedging
purposes.
A Fund may engage in both "transaction hedging" and "position hedging."
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with purchases or sales of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payments is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. A
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and (if the Fund is so authorized) purchase
and sell foreign currency futures contracts.
For transaction hedging purposes a Fund which is so authorized may also
purchase exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. Over-the-counter options
are considered to be illiquid by the SEC staff. A put option on a futures
contract gives the Fund the right to assume a short position in the futures
contract until expiration of the option. A put option on a currency gives the
Fund the right to sell a currency at an exercise price until the expiration of
the option. A call option on a futures contract gives the Fund the right to
assume a long position in the futures contract until the expiration of the
option. A call option on a currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
When it engages in position hedging, a Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Fund
49
<PAGE>
expects to purchase, when the Fund holds cash or short-term investments). In
connection with position hedging, a Fund which is so authorized may purchase put
or call options on foreign currency and foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures contracts. A Fund may
enter into short sales of a foreign currency to hedge a position in a security
denominated in that currency. In such circumstances, the Fund will maintain in a
segregated account with its Custodian an amount of cash or liquid debt
securities equal to the excess of (i) the amount of foreign currency required to
cover such short sale position over (ii) the amount of such foreign currency
which could then be realized through the sale of the foreign securities
denominated in the currency subject to the hedge.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
if the market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which the Fund can achieve at
some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS
Each of International Fund, Global Utilities Fund, Strategic Income
Fund, International Horizons Fund, Global Equity Fund and Tiger Fund will enter
into such contracts only when cash or equivalents equal in value to either (i)
the commodity value (less any applicable margin deposits) or (ii) the difference
between the commodity value (less any applicable margin deposits) and the
aggregate market value of all equity securities denominated in the particular
currency held by the Fund have been deposited in a segregated account of the
Fund's custodian. A forward currency contract involves an obligation to purchase
or sell specific currency at a future date, which may be any fixed number of
days from the date of the contract as agreed by the parties, at a price set at
the time of the contract. In the case of a cancelable contract, the holder has
the unilateral right to cancel the contract at maturity by paying a specified
fee. The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers.
50
<PAGE>
A contract generally has no deposit requirement, and no commissions are charged
at any stage for trades. A currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Currency futures contracts
traded in the United States are designed and traded on exchanges regulated by
the Commodities Futures Trading Commission ("CFTC"), such as the New York
Mercantile Exchange. (Tiger Fund may not invest in currency futures contracts.)
Forward currency contracts differ from currency futures contracts in
certain respects. For example, the maturity date of a forward contract may be
any fixed number of days from the date of the contract agreed upon the parties,
rather than a predetermined date in a given month. Forward contracts may be in
any amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in currency futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Funds intend to purchase or sell currency futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments or variation margin.
CURRENCY OPTIONS
In general, options on currencies operate similarly to options on
securities and are subject to many risks similar to those applicable to currency
futures and forward contracts. Currency options are traded primarily in the
over-the-counter market, although options on currencies have recently been
listed on several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU"). The ECU is
composed of amounts of a number of currencies, and is the official medium of
exchange of the European Economic Community's European Monetary System.
Global Utilities Fund, International Horizons Fund, Global Equity Fund
and Strategic Income Fund will only purchase or write currency options when
Stein Roe or Colonial believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist for
a particular option at any specified time. Currency options are affected by all
of those factors which influence exchange rates and investments generally. To
the
51
<PAGE>
extent that these options are traded over the counter, they are considered to be
illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected
by complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the value of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate
which in turn reflects relative values of two currencies, the U.S. dollar and
the foreign currency in question. Because currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the exercise of currency options, investors may be disadvantaged by
having to deal in an odd-lot market for the underlying currencies in connection
with options at prices that are less favorable than for round-lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
VALUATIONS
There is no systematic reporting of last sale information for
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES
Settlement procedures relating to the Funds' investments in foreign
securities and to their foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not present in such
Funds' domestic investments, including foreign currency risks and local custom
and usage. Foreign currency transactions may also involve the risk that an
entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based on the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Funds at one rate, while
offering a lesser rate of exchange should the Funds desire to resell that
currency to the
52
<PAGE>
dealer. Foreign currency transactions may also involve the risk that an entity
involved in the settlement may not meet its obligations.
OPTIONS ON SECURITIES
Each of Global Utilities Fund, International Fund, International
Horizons Fund, Global Equity Fund, Real Estate Fund and All-Star Equity Fund may
purchase and sell options on individual securities.
WRITING COVERED OPTIONS.
A Fund may write covered call options and covered put options on
securities held in its portfolio when, in the opinion of the sub-advisor, such
transactions are consistent with the Fund's investment objective and policies.
Call options written by the Fund give the purchaser the right to buy the
underlying securities from the Fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the Fund at a
stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an offsetting option. The Fund realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
costs) is less or more than the premium received from writing the option.
Because increases in the market price of a call option generally reflect
increases in the market price of the security
53
<PAGE>
underlying the option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of the underlying
security.
If a Fund writes a call option but does not own the underlying
security, and then it writes a put option, the Fund may be required to deposit
cash or securities with its broker as "margin" or collateral for its obligation
to buy or sell the underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS.
A Fund may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the life of the put option since the Fund, as holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. For a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the Fund will reduce any
profit it might otherwise have realized from appreciation of the underlying
security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS.
A Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
OVER-THE-COUNTER ("OTC") OPTIONS.
The Staff of the Division of Investment Management of the SEC has taken
the position that OTC options purchased by a Fund and assets held to cover OTC
options written by the Fund are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, a Fund will enter into OTC options transactions only with primary
dealers in U.S. Government Securities and, in the case of OTC options written by
the Fund, only pursuant to agreements that will assure that the Fund will at all
times have the right to repurchase the option written by it from the dealer at a
specified formula price. The Fund will treat the amount by which such formula
price exceeds the amount, if any, by which the option may be "in the money" as
an illiquid investment. It is the present policy of the Fund not to enter into
any OTC option transaction if, as a result, more than 15% of the Fund's net
assets would be invested in (i)
54
<PAGE>
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the Fund, (ii) OTC options purchased by the Fund, (iii)
securities which are not readily marketable and (iv) repurchase agreements
maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS.
The successful use of a Fund's options strategies depends on the
ability of its sub-advisor to forecast interest rate and market movements
correctly.
When it purchases an option, the Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time, unless
the Fund exercises the option or enters into a closing sale transaction with
respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding the
lack of a change in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when its sub-advisor deems it desirable to
do so. Although the Fund will take an option position only if the sub-advisor
believes there is a liquid secondary market for the option, there is no
assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events -- such as volume in excess of trading or clearing capability
-- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit a Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options
purchased or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
("OCC") or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
55
<PAGE>
Special risks are presented by internationally-traded options. Because
of time differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current prices of the
underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Each of Global Utilities Fund, International Fund, Strategic Income
Fund, International Horizons Fund, Global Equity Fund, Real Estate Fund,
Financial Services Fund, Health Care Fund and All-Star Equity Fund may buy and
sell certain futures contracts (and in certain cases related options), to the
extent and for the purposes specified in the Prospectuses.
A futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial instrument
called for in the contract in a specified delivery month at a stated price. The
specific instruments delivered or taken at settlement date are not determined
until on or near that date. The determination is made in accordance with the
rules of the exchanges on which the futures contract was made. Futures contracts
are traded in the United States only on a commodity exchange or boards of trade
-- known as "contract markets" -- approved for such trading by the CFTC, and
must be executed through a futures commission merchant or brokerage firm which
is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying financial instruments, the contracts usually are
closed out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
Securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
56
<PAGE>
Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security or commodity fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking to market."
A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. The Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain. Such closing
transactions involve additional commission costs.
A Fund upon entering into futures contracts, in compliance with the
SEC's requirements, cash or liquid securities equal in value to the amount of
the Fund's obligation under the contract (less any applicable margin deposits
and any assets that constitute "cover" for such obligation), will be segregated
with the Fund's custodian.
OPTIONS ON FUTURES CONTRACTS
A Fund may purchase and write call and put options on futures contracts
it may buy or sell and enter into closing transactions with respect to such
options to terminate existing positions. The Fund may use such options on
futures contracts in lieu of purchasing and selling the underlying futures
contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. The Fund
will enter into written options on futures contracts only when, in compliance
with the SEC's requirements, cash or liquid securities equal in value to the
amount of the Fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the Fund's custodian.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
Successful use of futures contracts by a Fund is subject to its
sub-advisor's ability to predict correctly movements in the direction of
interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when
57
<PAGE>
the purchase of a call or put option on a futures contract would result in a
loss to the Fund when the purchase or sale of a futures contract would not, such
as when there is no movement in the prices of the hedged investments. The
writing of an option on a futures contract involves risks similar to those
relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not at times render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contacts or
options), would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
INDEX FUTURES CONTRACTS AND RELATED OPTIONS; ASSOCIATED RISKS
An index futures contract is a contract to buy or sell units of an
index at a specified future date at a price agreed upon when the contract is
made. Entering into a contract to buy units of an index is commonly referred to
as buying or purchasing a contract or holding a long position in the index.
Entering into a contract to sell units of an index is commonly referred to as
selling a contract or holding a short position. A unit is the current value of
the index. A Fund may enter into stock index future contracts, debt index
futures contracts, or other index futures contracts (e.g., an interest rate
futures contract), as specified in the Prospectus. A Fund may also purchase and
sell options on index futures contracts, to the extent specified in the
Prospectus.
There are several risks in connection with the use by a Fund of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Fund's
sub-advisor will attempt to reduce this risk by selling, to the extent possible,
futures on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Fund's portfolio
securities sought to be hedged.
58
<PAGE>
Successful use of index futures by a Fund for hedging purposes is also
subject to its sub-advisor's ability to predict correctly movements in the
direction of the market. It is possible that, where the Fund has sold futures to
hedge its portfolio against a decline in the market, the index on which the
futures are written may advance and the value of securities subject to the hedge
held in the Fund's portfolio may decline. If this occurs, the Fund would lose
money on the futures and also experience a decline in the value in its portfolio
securities. However, while this could occur to a certain degree, over time the
value of the Fund's portfolio should tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the securities of the portfolio being hedged, the prices of index futures
may not correlate perfectly with movements in the underlying index due to
certain market distortions. First, all participants in the futures markets are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the index and futures markets. Second, margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets, and as a result the futures markets may attract more speculators than
the securities markets. Increased participation by speculators in the futures
markets may also cause temporary price distortions. Due to the possibility of
price distortions in the futures markets and also because of the imperfect
correlation between movements in the index and movements in the prices of index
futures, even a correct forecast of general market trends by a Fund's
sub-advisor may still not result in a successful hedging transaction.
Options on index futures are similar to options on securities except
that options on index futures give the purchaser the right, in return for the
premium paid, to assume a position in an index futures contract (a long position
if the option is a call and a short position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
59
<PAGE>
SECURITIES LOANS
Each of Global Utilities Fund, U.S. Growth Fund, International Horizons
Fund, Global Equity Fund, Real Estate Fund and All-Star Equity Fund may make
loans of its portfolio securities amounting to not more than 30% of its total
assets. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities on
loan. This collateral is deposited with the Trust's custodian which segregates
and identifies these assets on its books as security for the loan. The borrower
pays to the Fund an amount equal to any dividends, interest or other
distributions received on securities lent. The borrower is obligated to return
identical securities on termination of the loan. The Fund retains all or a
portion of the interest received on investment of the cash collateral or
receives a fee from the borrower. Although voting rights or rights to consent
with respect to the loaned securities pass to the borrower, the Fund retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by the Fund if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. The Fund may also call such loans in order to sell the securities
involved. The Trust has adopted these policies, in part, so that interest,
dividends and other distributions received on the loaned securities, the
interest or fees paid by the borrower to the Fund for the loan, and the
investment income from the collateral will qualify under certain investment
limitations under Subchapter M of the Internal Revenue Code.
INVESTMENT PERFORMANCE
Each of the Funds may quote total return figures from time to time.
Total return on a per share basis is the reinvested amount of dividends and
capital gains received per share plus or minus the change in the net asset value
per share for a given period. Total return percentages may be calculated by
dividing the value of a share (including distribution reinvestment shares) at
the end of a given period by the value of the share at the beginning of the
period and subtracting one.
Average Annual Total Return is a hypothetical Annual Rate of return
which if achieved annually would produce the same return as the cumulative total
return percentage calculated for the period.
It is computed as follows:
ERV = P(1+T)n
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period (or
fractional portion thereof).
60
<PAGE>
For example, for a $1,000 investment in the Funds Class A shares,
except for International Horizons Fund, Global Equity Fund and Real Estate Fund,
Class B shares for these Funds, the "Ending Redeemable Value," the "Total Return
Percentage" and (where applicable) the "Average Annual Total Return" for the
life of each Fund listed below (the period from July 1, 1993 in the case of
Value Fund and Global Utilities Fund; May 2, 1994, in the case of International
Fund; July 5, 1994 in the case of U.S. Growth Fund and Strategic Income Fund;
May 1, 1995, in the case of Tiger Fund; November 17, 1997 in the case of
All-Star Equity Fund; May 19,1998 in the case of High Yield Fund and Small Cap
Fund and June 1, 1999 in the case of International Horizons Fund, Global Equity
Fund and Real Estate Fund) through December 31, 1999 were:
<TABLE>
<CAPTION>
================================================================= ================== ====================== ==================
Fund Ending Cumulative Total Average Annual
Redeemable Value Return Percentage Total Return
----------------------------------------------------------------- ------------------ ---------------------- ------------------
<S> <C> <C> <C>
Colonial Value Fund, Variable Series $2,417 141.68% 14.52%
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Stein Roe Global Utilities Fund, Variable Series 2,489 148.88 15.04
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial International Fund for Growth, Variable Series 1,614 61.42 8.81
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial U.S. Growth & Income Fund, Variable Series 2,935 193.53 21.64
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial Strategic Income Fund, Variable Series 1,547 54.67 8.26
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Newport Tiger Fund, Variable Series 1,391 39.09 7.31
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Liberty All-Star Equity Fund, Variable Series 1,298 29.76 13.05
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial High Yield Securities Fund, Variable Series 990 (0.96) (0.59)
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial Small Cap Value Fund, Variable Series 922 (7.75) (4.85)
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial International Horizons Fund, Variable Series 1,242 24.24 N/A
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Colonial Global Equity Fund, Variable Series 1,126 12.57 N/A
----------------------------------------------------------------- ------------------ ---------------------- ------------------
Crabbe Huson Real Estate Investment Fund, Variable Series 862 (13.80) N/A
================================================================= ================== ====================== ==================
</TABLE>
The figures contained in this "Investment Performance" section assume
reinvestment of all dividends and distributions. They are not necessarily
indicative of future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although information such as that shown above is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. The Funds'
performance numbers reflect all Fund expenses, including management fees,
interest, taxes, 12b-1, brokerage and extraordinary expenses, net of any
voluntary waiver of expenses by the advisor, sub-advisor or their affiliates,
but do not reflect the cost of insurance and other insurance company separate
account charges which vary with the VA contracts and VLI policies offered
through the separate accounts of the Participating Insurance Companies. If
performance information included the effect of these additional amounts, returns
would be lower.
61
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP are the Trust's independent accountants. The
financial statements as of December 31, 1999 and for the fiscal years or periods
ended December 31, 1999 and December 31, 1998 incorporated by reference in this
SAI have been so incorporated, and the schedules of financial highlights for the
periods ended December 31, 1999 have been included in the Prospectus, in
reliance upon the reports of PricewaterhouseCoopers LLP given on the authority
of said firm as experts in accounting and auditing.
The financial statements of the Trust and Report of Independent
Accountants appearing in the December 31, 1999 Annual Report of the Trust are
incorporated in this SAI by reference.
62
<PAGE>
PART C. OTHER INFORMATION
Liberty Value Fund, Variable Series (LVF)
Stein Roe Global Utilities Fund, Variable Series (SRGUF)
Colonial Small Cap Value Fund, Variable Series (CSCVF)
Colonial U.S. Growth & Income Fund, Variable Series (CUSG&IF)
Colonial Strategic Income Fund, Variable Series (CSIF)
Colonial High Yield Securities Fund, Variable Series (CHYSF)
Liberty All-Star Equity Fund, Variable Series (LASEF)
Colonial International Fund for Growth, Variable Series (CIFfG)
Newport Tiger Fund, Variable Series (NTF)
Colonial International Horizons Fund, Variable Series (CIHF)
Colonial Global Equity Fund, Variable Series (CGEF)
Crabbe Huson Real Estate Investment Fund, Variable Series (CHREIF)
Item 23. EXHIBITS:
<TABLE>
<S> <C>
(a) Amended and Restated Agreement and Declaration of Trust dated May 23, 2000
(b) Amended and Restated By-Laws dated October 28, 1999(6)
(c) Not Applicable
(d)(1)(i) Form of Management Agreement between Liberty Variable Investment Trust ("Trust"), with
respect to LVF, SRGUF and Liberty Advisory Services Corp. ("LASC")(1)
(d)(1)(ii) Amendment No. 1 to Management Agreements between the Trust, with respect to LVF,
SRGUF, CIFfG, CUSG&IF, CSIF and LASC(1)
(d)(1)(iii) Form of Expense Reimbursement Agreement between the Trust, with respect to LVF, CSCVF,
CUSG&IF, CSIF, CHYSF, LASEF, NTF, LNJOF, LSVF, RFSF, RHCF, L500, LASC and Liberty
Funds Distributor, Inc. ("LFD")(6)
(d)(1)(iv) Form of Sub-Advisory Agreement between the Trust, on behalf of LVF, LASC and Colonial
Management Associates, Inc. ("Colonial")(4)
(d)(1)(v) Form of Sub-Advisory Agreement between the Trust, on behalf of SRGUF, LASC and Stein
Roe & Farnham Incoporated ("Stein Roe")(4)
(d)(2)(i) Form of Management Agreement between the Trust, with respect to CSCVF, CHYSF and
LASC(1)
(d)(2)(ii) Form of Sub-Advisory Agreement between the Trust, on behalf of CSCVF, LASC and
Colonial(1)
(d)(2)(iii) Form of Sub-Advisory Agreement between the Trust, on behalf of CHYSF, LASC and
Colonial(1)
(d)(3)(i) Form of Management Agreement between the Trust, with respect to CIFfG, CUSG&IF, CSIF
and LASC(1)
(d)(3)(ii) Form of Sub-Advisory Agreement between the Trust, on behalf of CIFfG, LASC and
Colonial(5)
(d)(3)(iii) Form of Sub-Advisory Agreement between the Trust, on behalf of
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CUSG&IF, LASC and Colonial(5)
(d)(3)(iv) Form of Sub-Advisory Agreement between the Trust, on behalf of CSIF, LASC and
Colonial(2)
(d)(4)(i) Form of Management and Sub-Advisory Agreement between the Trust, with respect to
LASEF, LASC and Liberty Asset Management Company ("LAMCO")(1)
(d)(4)(ii) Form of Portfolio Management Agreement between the Trust, LAMCO and Boston Partners
Asset Management, L.P., with respect to LASEF(5)
(d)(4)(iii) Form of Portfolio Management Agreement between the Trust, LAMCO and J.P. Morgan
Investment Management, Inc., with respect to LASEF(5)
(d)(4)(iv) Form of Portfolio Management Agreement between the Trust, LAMCO and Oppenheimer
Capital, with respect to LASEF(5)
(d)(4)(v) Form of Portfolio Management Agreement between the Trust, LAMCO and Westwood
Management Corp., with respect to LASEF(5)
(d)(4)(vi) Form of Portfolio Management Agreement between the Trust, LAMCO and TCW Investment
Management Company, with respect to LASEF(5)
(d)(5)(i) Form of Management Agreement between the Trust, with respect to NTF and LASC(1)
(d)(5)(ii) Form of Sub-Advisory Agreement between the Trust, on behalf of NTF, LASC and Newport
Fund Management, Inc.(1)
(d)(6)(i) Form of Management Agreement between the Trust, with respect to CIHF, CGEF, CHREIF and
LASC(5)
(d)(6)(ii) Form of Sub-Advisory Agreement between the Trust, on behalf of CIHF, LASC and
Colonial(5)
(d)(6)(iii) Form of Sub-Advisory Agreement between the Trust, on behalf of CGEF, LASC and
Colonial(5)
(d)(6)(iv) Form of Sub-Advisory Agreement between the Trust, on behalf of CHREIF, LASC and Crabbe
Huson Group, Inc.(5)
(e)(1)(i) Underwriting Agreement between the Registrant and Keyport Financial Services Corp.
("KFSC")(5)
(e)(1)(ii) Amendment No. 1 to KFSC Underwriting Agreement(5)
(e)(2) Underwriting Agreement between the Registrant LFDI(1)
(f) Not applicable
(g)(1)(i) Global Custody Agreement with The Chase Manhattan Bank - filed as Exhibit 8. in Part
C, Item 24(b) of Post-Effective Amendment No 13 to the Registration Statement on Form
N-1A of Colonial Trust VI (File Nos. 33-45117 and 811-6529) and is hereby incorporated
</TABLE>
<PAGE>
<TABLE>
<S> <C>
by reference and made a part of this Registration Statement
(g)(1)(ii) Amendment No. 12 to Appendix A of Custody Agreement with the Chase Manhattan Bank(6)
(h)(1)(i) Pricing and Bookkeeping Agreement between the Trust and Colonial(1)
(h)(1)(ii) Amendment No. 3 to Pricing and Bookkeeping Agreement(1)
(h)(2)(I) Joinder and Release Agreement with respect to Transfer Agency Agreement dated as of
January 3, 1995 among the Trust, Liberty Investment Services, Inc. and Liberty Funds
Services, Inc. ("LFSI")(including form of Transfer Agency Agreement and Amendment No.
1 thereto)(1)
(h)(2)(ii) Amendment No. 2 to Transfer Agency Agreement(1)
(h)(2)(iii) Amendment No. 3 to Transfer Agency Agreement(1)
(h)(3) Form of Participation Agreement(6)
(i) Opinion and consent of counsel (with respect to Liberty Value Fund, Variable Series,
Stein Roe Global Utilities 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, Colonial International Fund for
Growth, Variable Series, Newport Tiger Fund, Variable Series, Colonial International
Horizons Fund, Variable Series, Colonial Global Equity Fund, Variable Series, Crabbe
Huson Real Estate Investment Fund, Variable Series)(5)
(j) Independent Accountants Consent
(k) Not applicable
(l) Not applicable
(m)(1) Rule 12b-1 Distribution Plan(6)
(m)(2) Rule 12b-1 Inter-Distributor Agreement(6)
(m)(3) 12b-1 Plan Implementing Agreement between the Registrant and LFDI(6)
(n) Not applicable
(o) Rule 18f-3 Plan(6)
(p)(1) Code of Ethics of LASC(3)
(p)(2) Code of Ethics of LAMCO(4)
(p)(3) Code of Ethics of Funds, LFDI and Colonial(3)
</TABLE>
<PAGE>
(p)(4) Code of Ethics of Newport(3)
(p)(5) Code of Ethics of Stein Roe(4)
(p)(6) Code of Ethics of Crabbe Huson(5)
Power of Attorney for: Tom Bleasdale, John V. Carberry, Lora S. Collins, James
E. Grinnell, Richard W. Lowry, Salvatore Macera, William E. Mayer, James L.
Moody, Jr., John J. Neuhauser, Thomas E. Stitzel and Anne-Lee Verville - filed
in Part C, Item 23 of Post-Effective Amendment No. 62 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (File Nos. 2-41251 and 811-2214)
and is hereby incorporated by reference and made a part of this Registration
Statement
(1) Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement filed with the Commission via EDGAR on or about
April 16, 1999.
(2) Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement filed with the Commission via EDGAR on or about
June 1, 1999.
(3) Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement filed with the Commission via EDGAR on or about
March 16, 2000.
(4) Incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement filed with the Commission via EDGAR on or about
March 31, 2000.
(5) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement filed with the Commission via EDGAR on or about
April 25, 2000.
(6) Incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement filed with the Commission via EDGAR on or about
May 30, 2000.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Shares of the Trust registered pursuant to this Registration Statement
will be offered and sold to Keyport Life Insurance Company
("Keyport"), a stock life insurance company organized under the laws
of Rhode Island, and to certain of its separate investment accounts
and certain of the respective separate investment accounts of Liberty
Life Assurance Company of Boston ("Liberty Life"), a stock life
insurance company organized as a Massachusetts corporation, and
Independence Life & Annuity Company, a stock life insurance company
organized under the laws of Rhode Island (formerly known as "Crown
America Life Insurance Company" and thereafter formerly known as
"Keyport America Life Insurance Company")("Independence"). Shares of
the Registrant may also be sold to other separate accounts of Keyport,
Liberty Life, Independence or other life insurance companies as the
funding medium for other insurance contracts and policies in addition
to the currently offered contracts and policies. The purchasers of
insurance contracts and policies issued in connection with such
accounts will have the right to instruct Keyport, Liberty Life and
Independence with respect to the voting of the Registrant's shares
held by their respective separate accounts. Subject to such voting
instruction rights, Keyport, Liberty Life, Independence and their
<PAGE>
respective separate accounts directly control the Registrant.
LFDI, the Trust's principal underwriter, LASC, the Trust's investment
manager, Colonial, LASC's sub-adviser with respect to LVF, CIFfG,
CUSG&IF, CSCVF, CHYSF, CIHF, CGEF, CSIF, Stein Roe, LASC's sub-adviser
with respect to SRGUF, Newport, LASC's sub-adviser with respect to
NTF, LAMCO, LASC's sub-adviser with respect to LASEF, Crabbe Huson,
LASC's sub-adviser with respect to CHREIF, are subsidiaries of Liberty
Financial Companies, Inc. ("Liberty Financial"), Boston,
Massachusetts. Liberty Mutual Insurance Company ("Liberty Mutual"),
Boston, Massachusetts, as of December 31, 1999 owned, indirectly,
approximately 71% of the combined voting power of the outstanding
voting stock of Liberty Financial (with the balance being
publicly-held). Liberty Life is a 90%-owned subsidiary of Liberty
Mutual.
Item 25. INDEMNIFICATION
Article Tenth of the Agreement and Declaration of Trust of Registrant
(Exhibit (a)), which Article is incorporated herein by reference,
provides that Registrant shall provide indemnification of its trustees
and officers (including each person who serves or has served at
Registration's request as a director, officer, or trustee of another
organization in which Registrant has any interest as a shareholder,
creditor or otherwise) ("Covered Persons") under specified
circumstances.
Section 17(h) of the 1940 Act provides that neither the Agreement and
Declaration of Trust nor the By-Laws of Registrant, nor any other
instrument pursuant to which Registrant is organized or administered,
shall contain any provision which protects or purports to protect any
trustee or officer of Registrant against any liability to Registrant
or its shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall not
protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
To the extent required under the 1940 Act:
(i) Article Tenth does not protect any person against any liability
to Registrant or to its shareholders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office;
<PAGE>
(ii) in the absence of a final decision on the merits by a court or
other body before whom a proceeding was brought that a Covered
Person was not liable by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Tenth unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are neither
"interested persons" of Registrant, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested, non-party trustees"), or (b) an independent
legal counsel as expressed in a written opinion; and
(iii) Registrant will not advance attorney's fees or other expenses
incurred by a Covered Person in connection with a civil or
criminal action, suit or proceeding unless Registrant receives an
undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled
to indemnification) and (a) the Covered Person provides security
for his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of
the disinterested, non-party trustees of Registrant or an
independent legal counsel as expressed in a written opinion,
determine, based on a review of readily-available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled
to indemnification.
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth as
indemnification if such Covered Person is subsequently adjudicated by
a court of competent jurisdiction not to have acted in good faith in
the reasonable belief that such Covered Person's action was in, or not
opposed to, the best interests of Registrant or to have been liable to
Registrant or its shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of such Covered Person's office.
Article Tenth also provides that its indemnification provisions are
not exclusive.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant or expenses incurred or paid by
a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such
issue.
Registrant, its trustees and officers, its investment manager, and
person affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such actions,
suits, or proceedings. Registrant will not pay any portion of the
premiums for coverage under such insurance that would (1) protect any
trustee or officer against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office or (2)
protect its investment manager or principal underwriter, if any,
against any liability to Registrant or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence, in the performance of its duties, or
by reason of its reckless disregard of its duties and obligations
under its contract or agreement with the Registrant; for this purpose
the Registrant will rely on an allocation of premiums determined by
the insurance company.
In addition, LASC, Registrant's investment manager, maintains
investment advisory professional liability insurance to insure it, for
the benefit of the Trust and its non-interested trustees, against loss
arising out of any effort, omission, or breach of any duty owed to the
Trust or any Fund by the investment manager.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Certain information pertaining to business and other connections of
the Registrant's investment manager, LASC, Colonial, the sub-adviser
to each of LVF, CIFfG, CUSG&IF, CIHF, CGEF, CSCVF, CHYSF, CSIF, Stein
Roe, the sub-adviser to SRGUF, Newport, the sub-adviser to NTF, Crabbe
Huson, the sub-adviser to CHREIF and LAMCO, the sub-adviser to LASEF,
and each of J.P. Morgan Investment Management, Inc., Oppenheimer
Capital, Westwood Management Corp., TCW Investment Management Company
and Boston Partners Asset Management, L.P., each of which firms serves
as a Portfolio Manager to LAMCO, is incorporated herein by reference
to the section of the Prospectus relating to each Fund captioned
"TRUST MANAGEMENT ORGANIZATIONS" and to the section of the Statement
of Additional Information relating to each Fund
<PAGE>
captioned "INVESTMENT MANAGEMENT AND OTHER SERVICES."
Set forth below is a list of each director and officer of LASC, and
each director and certain officers of Colonial, Newport, Stein Roe,
Crabbe Huson, LAMCO, and each of LAMCO's Portfolio Managers indicating
each business, profession, vocation, or employment of a substantial
nature in which each such person has been, at any time during the past
two fiscal years, engaged for his or her own account or in the
capacity of director, officer, partner, or trustee.
LIBERTY ADVISORY SERVICES, INC.
Liberty Advisory Services, Inc. is a direct wholly owned subsidiary of
Keyport. Keyport is a direct wholly owned subsidiary of SteinRoe
Services, Inc. ("SSI"). SSI is a direct wholly owned subsidiary of
Liberty Financial. As stated above, Liberty Financial is an indirect
majority owned subsidiary of Liberty Mutual.
<TABLE>
<CAPTION>
Name and Current Position with Adviser Other Positions During
Past Two Fiscal Years
<S> <C> <C>
Philip K. Polkinghorn President, Director
Stewart R. Morrison Diector, Senior Vice President Senior Vice President and Chief
and Chief Investment Officer Investment Officer of Keyport
James J. Klopper Vice President and Clerk Vice President, Counsel and
Secretary of Keyport; Clerk of KFSC
Daniel C. Bryant Vice President Vice President and Assistant
Secretary of Keyport (since
December, 1997): Chief Legal
Counsel, Department of Business
Regulation, State of Rhode Island
(March, 1995 to November, 1997)
Jeffrey J. Whitehead Vice President and Treasurer Vice President and Treasurer of
Keyport
Jacob M. Herschler Vice President Vice President of Keyport
</TABLE>
The business address of LASC and each
individual listed in the foregoing table is
c/o Keyport Life Insurance Company, 125 High
Street, Boston, Massachusetts 02110.
COLONIAL MANAGEMENT ASSOCIATES, INC.
Colonial is a direct wholly owned subsidiary
of Liberty Funds Group LLC ("LFG"). LFG is a
indirect owned subsidiary of Liberty
Financial.
<PAGE>
NEWPORT
The business and other connections of the
officers, directors of Newport are listed on
the Form ADV of Newport Fund Management,
Inc. as currently on file with the
Commission, the text of which is
incorporated herein by reference: (a) Items
1 and 2 of Part 2, and (b) Section 6,
Business Background of each Schedule D.
STEIN ROE
The business and other connections of the
officers, directors of Stein Roe are listed
on the Form ADV of Stein Roe & Farnham
Incorporated as currently on file with the
Commission (File No. 801-27653), the text of
which is incorporated herein by reference:
(a) Items 1 and 2 of Part 2, and (b) Section
6, Business Background of each Schedule D.
CRABBE HUSON GROUP, INC.
The business and other connections of the
officers, directors of Crabbe Huson are
listed on the Form ADV of Crabbe Huson
Group, Inc. as currently on file with the
Commission (File No. 801-15154), the text of
which is incorporated herein by reference:
(a) Items 1 and 2 of Part 2, and (b) Section
6, Business Background of each Schedule D.
LAMCO
The business and other connections of the
officers, directors of LAMCO are listed on
the Form ADV of Liberty Asset Managment
Company as currently on file with the
Commission (File No. 801-26296), the text of
which is incorporated herein by reference:
(a) Items 1 and 2 of Part 2, and (b) Section
6, Business Background of each Schedule D.
The business and other connections of the officers, directors or partners of the
Portfolio Managers of LASEF is incorporated by reference from the respective
Portfolio Manager's Form ADV, as most recently filed with the Securities and
Exchange Commission. The file numbers of such ADV Forms are as follows:
Oppenheimer Capital 801-27180
J.P. Morgan Investment Management Inc. 801-9755
Westwood Management Corporation 801-18727
Boston Partners Asset Management, L.P. 801-49059
TCW Investment Management Company 801-29075
<PAGE>
Item 27. PRINCIPAL UNDERWRITER
(a) Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFDI acts in such capacity for each series of Liberty Funds
Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds
Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty Variable Investment Trust,
Liberty-Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe
Municipal Trust, Stein Roe Investment Trust, Stein Roe Floating Rate
Income Fund, Stein Roe Institutional Floating Rate Income Fund,
SteinRoe Variable Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ ------------------- --------------
Anderson, Judith V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Bartlett, John Managing Director None
Bertrand, Thomas V.P. None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Carroll, Sean V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Claiborne, Doug V.P. None
Conley, Brook V.P. None
Conlin, Nancy L. Dir; Clerk Secretary
Costello, Matthew V.P. None
Couto, Scott V.P. None
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
DiMaio, Stephen V.P. None
Downey, Christopher V.P. None
Dupree, Robert V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Evitts, Stephen V.P. None
Feldman, David Managing Director None
Feloney, Joseph V.P. None
Fifield, Robert V.P. None
Fisher, James V.P. None
Fragasso, Philip Managing Director None
Gentile, Russell V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Grace, Anthony V.P. None
Gubala, Jeffrey V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Hodgkins, Joseph Sr. V.P. None
Huennekens, James V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Ives, Curt V.P. None
Jones, Cynthia V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Lewis, Blair V.P. None
Lichtenberg, Susyn V.P. None
Lynch, Andrew Managing Director None
Lynn, Jerry V.P. None
Marsh, Curtis Sr. V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Palombo, Joseph R. Director Vice President
Perullo, Deborah V.P. None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Scully-Power, Adam V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO; Co-President None
Tasiopoulos, Lou Co-President None
Torrisi, Susan V.P. None
Vail, Norman V.P. None
VanEtten, Keith H. Sr. V.P. None
Warfield, James V.P. None
Warnock, Laura V.P. None
Wess, Valerie Sr. V.P. None
White, John V.P. None
Young, Deborah V.P. None
--------------------------
* The address for each individual is One Financial Center, Boston, MA 02111.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The following entities prepare, maintain, and preserve the records
required by Section 31(a) of the Investment Company Act of 1940 (the
"1940 Act") for the Registrant. These services are provided to the
Registrant through written agreements between the parties to the
effect that such services will be provided to the Registrant for such
periods prescribed by the rules and regulations of the Securities and
Exchange Commission under the 1940 Act and such records are the
property of the entity required to maintain and preserve such records
and will be surrendered promptly on request.
The Chase Manhattan Bank, 3 Chase Metro Tech Center, 8th Floor,
Brooklyn, New York 11745, serves as custodian for all series of the
Trust. In such capacity, the custodian bank keeps records regarding
securities and other assets in custody and in transfer, bank
statements, canceled checks, financial books and records, and other
records relating to its duties as custodian. Liberty Funds Services,
Inc., One Financial Center, Boston, MA 02111, serves as the transfer
agent and dividend disbursing agent for the Registrant, and in such
capacities is responsible for records regarding each shareholder's
account and all disbursements made to shareholders. In addition, LASC,
pursuant to its Fund Management Agreements with the Registrant with
respect to the Trust, has delegated to (i) Colonial, One Financial
Center, Boston, Massachusetts 02111, and (ii) Liberty Financial
Companies, Inc., 600 Atlantic Avenue, Boston, Massachusetts 02210, the
obligation to maintain the records required pursuant to such
agreements. Colonial also maintains all records pursuant to its
Pricing and Bookkeeping Agreement with the Trust. LFDI, One Financial
Center, Boston, MA 02111, serves as principal underwriter for the
Trust, and in such capacity maintains all records required pursuant to
its underwriting Agreement with the Registrant.
Item 29. MANAGEMENT SERVICES
LASC, pursuant to its Fund Managed Agreements with the Trust, has
delegated its duties thereunder to provide certain administrative
services to the Trust to Colonial and Liberty Financial.
Item 30. UNDERTAKINGS
Not Applicable
<PAGE>
******************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Liberty
Variable Investment Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that the instrument has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Liberty Variable Investment Trust,
certifies that it meets all of the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) and has duly caused this
Post-Effective Amendment No. 23 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 24 under the Investment Company Act of
1940, to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston, and The Commonwealth of Massachusetts on this 1st day of June,
2000.
LIBERTY VARIABLE INVESTMENT TRUST
By: /s/STEPHEN E. GIBSON
----------------------------
Stephen E. Gibson, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in their capacities and
on the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/STEPHEN E. GIBSON President (chief June 1, 2000
----------------- Executive officer)
Stephen E. Gibson
/s/PAMELA A. MCGRATH Treasurer and Chief Financial Officer June 1, 2000
----------------- (principal financial officer)
Pamela A. McGrath
/s/J. KEVIN CONNAUGHTON Controller and Chief Accounting June 1, 2000
-------------------- Officer (principal accounting officer)
J. Kevin Connaughton
<PAGE>
TOM BLEASDALE* Trustee
Tom Bleasdale
JOHN V. CARBERRY* Trustee
-----------------
John V. Carberry
LORA S. COLLINS* Trustee
----------------
Lora S. Collins
JAMES E. GRINNELL* Trustee
------------------
James E. Grinnell
RICHARD W. LOWRY* Trustee */S/ SUZAN M. BARRON
----------------- --------------------
Richard W. Lowry Suzan M. Barron
Attorney-in-fact
For each Trustee
SALVATORE MACERA* Trustee June 1, 2000
-----------------
Salvatore Macera
WILLIAM E. MAYER* Trustee
-----------------
William E. Mayer
JAMES L. MOODY, JR. * Trustee
---------------------
James L. Moody, Jr.
JOHN J. NEUHAUSER* Trustee
------------------
John J. Neuhauser
THOMAS E. STITZEL* Trustee
------------------
Thomas E. Stitzel
ANNE-LEE VERVILLE* Trustee
------------------
Anne-Lee Verville
<PAGE>
EXHIBITS
(a) Amended and Restated Agreement and Declaration of Trust dated May 23,
2000
(j) Independent Accountants Consent