-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GO8UeoKDAGOyVOVyKwRp8biT3kuBfQ9uVYrwpLHxg+Z1UPJA5YCOuku3WrRr8yeW CaozfsCiQ3nue+Ytsp42ng== /in/edgar/work/20000530/0000883163-00-000051/0000883163-00-000051.txt : 20000919 0000883163-00-000051.hdr.sgml : 20000919 ACCESSION NUMBER: 0000883163-00-000051 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20000530 EFFECTIVENESS DATE: 20000530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY VARIABLE INVESTMENT TRUST CENTRAL INDEX KEY: 0000898445 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-59216 FILM NUMBER: 645767 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-07556 FILM NUMBER: 645768 BUSINESS ADDRESS: STREET 1: FEDERAL RESERVE PLZ STREET 2: 600 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210-2214 BUSINESS PHONE: 6177226000 MAIL ADDRESS: STREET 1: 600 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 485BPOS 1 0001.txt FILING TO ADD 5 NEW SERIES TO TRUST 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. 22 / X / and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X / Amendment No. 23 / X / (Check appropriate box or boxes) LIBERTY VARIABLE INVESTMENT TRUST (Exact Name of Registrant as Specified in Charter) One Financial Center, Boston, Massachusetts 02111 (Address of Principal Executive Offices) 617-426-3750 (Registrant's Telephone Number, including Area Code) Name and Address of Agent for Service Copy to Nancy L. Conlin, Esq. John M. Loder, Esq. Colonial Management Associates, Inc. Ropes & Gray One Financial Center One International Place Boston, MA 02111 Boston, MA 02110-2624 It is proposed that this filing will become effective (check appropriate box): / 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. LIBERTY VARIABLE INVESTMENT TRUST PROSPECTUS DATED JUNE 1, 2000 Liberty Newport Japan Opportunities Fund, Variable Series Liberty Select Value Fund, Variable Series Rydex Financial Services Fund, Variable Series Rydex Health Care Fund, Variable Series Liberty S&P 500 Index Fund, Variable Series CLASS A AND 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 these securities 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 TABLE OF CONTENTS THE TRUST THE FUNDS Each of these sections discusses the following topics: Investment Goal, Primary Investment Strategies and Primary Investment Risks 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.......................................................................... TRUST MANAGEMENT ORGANIZATIONS The Trustees......................................................................................................... Investment Advisor: Liberty Advisory Services Corp.................................................................. Investment Sub-Advisors and Portfolio Managers....................................................................... Rule 12b-1 Plan...................................................................................................... Mixed and Shared Funding............................................................................................. OTHER INVESTMENT STRATEGIES AND RISKS Temporary Defensive Measures......................................................................................... Equity Risk.......................................................................................................... Pricing Risk......................................................................................................... Early Closing Risk................................................................................................... SHAREHOLDER INFORMATION Purchases and Redemptions............................................................................................ How the Funds Calculate Net Asset Value.............................................................................. Dividends and Distributions.......................................................................................... Tax Consequences.....................................................................................................
2 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 five 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:
FUND SUB-ADVISOR ---- ----------- Liberty Newport Japan Opportunities Fund, Variable Series (Japan Opportunities Fund) Newport Fund Management, Inc. (Newport) Liberty Select Value Fund, Variable Series (Select Value Fund) Colonial Management Associates, Inc. Rydex Financial Services Fund, Variable Series (Financial Services Fund) (Colonial) Rydex Health Care Fund, Variable Series (Health Care Fund) Liberty S&P 500 Index Fund, Variable Series (S&P 500 Fund)
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 LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES INVESTMENT GOAL The Fund seeks capital appreciation. PRIMARY INVESTMENT STRATEGIES Under normal market conditions, the Fund invests substantially all of its assets in stocks of companies whose principal activities are in Japan. Newport will determine where a company's principal activities are located by considering its country of organization, the principal trading market for its stock, the source of its revenues and the location of its assets. The Fund invests in stocks of well-established companies with histories of consistent earnings growth in industries with attractive or improving prospects. Additional strategies that are not primary investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRIMARY INVESTMENT RISKS The primary risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its goal. It is possible to lose money by investing in the Fund. Market risk is the risk that the price of a security held by the Fund will fall due to changing market, economic or political conditions. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Foreign securities are subject to special risks. Foreign stock markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income available to distribute to shareholders. Other risks include the following: possible delays in the settlement of transactions; less publicly available information about companies; the impact of political, social or diplomatic events; and possible seizure, expropriation or nationalization of the company or its assets. Because the Fund's investments are concentrated in Japan, the value of the Fund's shares is susceptible to country concentration risks. The political, economic and market conditions within Japan and movements in the currency exchange rates between Japan and the U.S. may cause the value of the Fund's shares to fluctuate more widely than the value of the shares of a fund that invests in companies located in a number of different countries. The Fund's concentration in Japan may also result in greater losses to the Fund than if the Fund were more geographically diversified. Because the Fund is a new fund and has not completed one full year of investment performance, information related to the Fund's performance has not been included in this prospectus. 4 LIBERTY SELECT VALUE FUND, VARIABLE SERIES INVESTMENT GOAL The Fund seeks long-term growth. PRIMARY INVESTMENT STRATEGIES The Fund invests, under normal market conditions, primarily in middle capitalization stocks. In managing the Fund, Colonial uses a value investing strategy that focuses on buying stocks cheaply when they are undervalued or "out of favor." Colonial buys stocks that have attractive current prices, consistent operating performance and/or favorable future growth prospects. Colonial's strategy uses fact-based, quantitative analysis supported by fundamental business and financial analyses. Additional strategies that are not primary investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRIMARY INVESTMENT RISKS The primary risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its goal. It is possible to lose money by investing in the Fund. Market risk is the risk that the price of a security held by the Fund will fall due to changing market, economic or political conditions. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor. If Colonial's assessment of a company's prospects is wrong, the price of its stock may not approach the value Colonial has placed on it. Smaller companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team. Stocks of smaller companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, they may not be widely followed by the investment community, which can lower the demand for their stock. Because the Fund is a new fund and has not completed one full year of investment performance, information related to the Fund's performance has not been included in this prospectus. 5 RYDEX FINANCIAL SERVICES FUND, VARIABLE SERIES INVESTMENT GOAL The Fund seeks capital appreciation. PRIMARY INVESTMENT STRATEGIES The Fund invests in companies that are involved in the financial services sector (Financial Services Companies). The Fund invests substantially all of its assets in equity securities of Financial Services Companies that are traded in the United States. Financial Services Companies include commercial banks, savings and loan associations, insurance companies, brokerage companies or other investment related companies. Under SEC regulations, the Fund may not invest more than 5% of its total assets in the equity securities of any company that derives more than 15% of its revenues from brokerage or investment management activities. Additional strategies that are not primary investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRIMARY INVESTMENT RISKS The primary risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its goal. It is possible to lose money by investing in the Fund. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Market risk is the risk that the price of a security held by the Fund will fall due to changing market, economic or political conditions. Since the Fund invests in the securities of a limited number of issuers conducting business in the financial services sector, it is subject to concentration risk. Concentration risk is the risk that the securities of issuers in the financial services sector that the Fund purchases will underperform the market as a whole. To the extent that the Fund's investments are concentrated in issuers conducting business in the same economic sector, the Fund is subject to legislative or regulatory changes, adverse market conditions and/or increased competition affecting that economic sector. Financial Services Companies are subject to extensive governmental regulation, which may limit both the amounts and types of loans and other financial commitments they can make, and the rates and fees they can charge. Profitability is largely dependent on the availability and cost of capital, and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers also can negatively impact the sector. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore the Fund may have an increased risk of loss compared to a similar diversified mutual fund. Because the Fund is a new fund and has not completed one full year of investment performance, information related to the Fund's performance has not been included in this prospectus. 6 RYDEX HEALTH CARE FUND, VARIABLE SERIES INVESTMENT GOAL The Fund seeks capital appreciation. PRIMARY INVESTMENT STRATEGIES The Fund invests in companies that are involved in the health care industry (Health Care Companies). The Fund invests substantially all of its assets in equity securities of Health Care Companies that are traded in the United States. Health Care Companies include pharmaceutical companies, companies involved in research and development of pharmaceutical products and services, companies involved in the operation of health care facilities, and other companies involved in the design, manufacture, or sale of health care-related products or services. Additional strategies that are not primary investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRIMARY INVESTMENT RISKS The primary risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its goal. It is possible to lose money by investing in the Fund. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Market risk is the risk that the price of a security held by the Fund will fall due to changing market, economic or political conditions. Since the Fund invests in the securities of a limited number of issuers conducting business in the health care sector, it is subject to concentration risk. Concentration risk is the risk that the securities of issuers in the health care sector that the Fund purchases will underperform the market as a whole. To the extent that the Fund's investments are concentrated in issuers conducting business in the same economic sector, the Fund is subject to legislative or regulatory changes, adverse market conditions and/or increased competition affecting that economic sector. The prices of the securities of Health Care Companies may fluctuate widely due to government regulation and approval of their products and services, which can have a significant effect on their price and availability. Furthermore, the types of products or services produced or provided by these companies may quickly become obsolete. Moreover, liability for products that are later alleged to be harmful or unsafe may be substantial, and may have a significant impact on a Health Care Company's market value and/or share price. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of a single issuer. This may concentrate issuer risk and, therefore the Fund may have an increased risk of loss compared to a similar diversified mutual fund. Because the Fund is a new fund and has not completed one full year of investment performance, information related to the Fund's performance has not been included in this prospectus. 7 8 LIBERTY S&P 500 INDEX FUND, VARIABLE SERIES INVESTMENT GOAL The Fund seeks capital appreciation by matching the performance of a benchmark index that measures the investment returns of stocks of large U.S. companies. PRIMARY INVESTMENT STRATEGIES The Fund employs a passive management strategy designed to match, as closely as possible, the performance of the Standard & Poor's 500 Composite Stock Price Index (S&P 500(R))(1), which is comprised of stocks of large U.S. companies. The Fund invests at least 80% of its assets in the stocks that make up the S&P 500. The Fund may also invest in stock index futures and options. Although a security may be included in the S&P 500, State Street may exclude or remove the security if adverse market conditions exist. Additional strategies that are not primary investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRIMARY INVESTMENT RISKS The primary risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its goal. It is possible to lose money by investing in the Fund. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Market risk is the risk that the price of a security held by the Fund will fall due to changing market, economic or political conditions. Because the Fund primarily invests in equity securities, it is subject to equity risk. The equity markets are volatile, and the value of the Fund's securities and futures and options contracts may fluctuate drastically from day-to-day. This volatility may cause the value of your investment in the Fund to decrease. Tracking Error Risk. There are several reasons that the Fund's performance may not track the S&P 500 exactly: Unlike the S&P 500 Index, the Fund incurs administrative expenses and transaction costs in trading stocks. The composition of the S&P 500 and the stocks held by the Fund may occasionally diverge. The timing and magnitude of cash inflows from investors buying shares could create large balances of uninvested cash. Conversely, the timing and magnitude of cash outflows to investors selling shares could require large ready reserves of uninvested cash. Either situation would likely cause the Fund's performance to deviate from the "fully invested" S&P 500. - -------- (1) "Standard & Poor's(R)" and "S&P 500(R)" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Liberty Funds Distributor, Inc. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Fund. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations of liabilities on behalf of Standard & Poor's. 9 Futures and Options Risk. The Fund may invest, to a limited extent, in stock index futures or options, which are types of derivatives. The Fund will not use these derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment. The Fund invests in derivatives to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include but are not limited to: - - the risk that the derivative is not well correlated with the security for which it is acting as a substitute; - - the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and - - the risk that the Fund cannot sell the derivative because of an illiquid secondary market. If the Fund invests in futures contracts and options on futures contracts for non-hedging purposes, the margin and premiums required to make those investments will not exceed 5% of the Fund's net asset value after taking into account unrealized profits and losses on the contracts. Futures contracts and options on futures contracts used for non-hedging purposes involve greater risks than stock investments. Because the Fund is a new fund and has not completed one full year of investment performance, information related to the Fund's performance has not been included in this prospectus. 10 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 the Sub-Advisors' performance and investment programs and recommends to the Board of Trustees whether the Sub-Advisors' contracts should be continued or modified and 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 its services as investment advisor, the Trust pays LASC a management fee at the following annual rates of the average daily net assets of each specified Fund: Liberty Newport Japan Opportunities Fund, Variable Series 1.20% Liberty Select Value Fund, Variable Series 0.70% Rydex Financial Services Fund, Variable Series 0.85% Rydex Health Care Fund, Variable Series 1.00% Liberty S&P 500 Index Fund, Variable Series 0.40%
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. NEWPORT Newport, an investment advisor since 1987, is the Sub-Advisor of Japan Opportunities Fund. Newport's principal business 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 1.00% of the average daily net assets of the Japan Opportunities Fund. David Smith, a senior vice president of Newport and its immediate parent, Newport Pacific Management, Inc. (Newport Pacific), is the manager for the Japan Opportunities Fund and has managed various other funds or accounts on behalf of Newport since October, 1994. COLONIAL Colonial, an investment advisor since 1931, is the Sub-Advisor of each of the Select Value Fund, Financial Services Fund, Health Care Fund and S&P 500 Fund. Colonial's principal business address is One Financial Center, Boston, Massachusetts 02111. As of March 31, 2000, Colonial managed over $15.7 billion in assets. LASC, out of the management fees it receives from the Trust, pays Colonial sub-advisory fees at the following annual rates of the average daily net assets of each specified Fund: Liberty Select Value Fund, Variable Series 0.50% Rydex Financial Services Fund, Variable Series 0.65% Rydex Health Care Fund, Variable Series 0.80% Liberty S&P 500 Index Fund, Variable Series 0.20%
Colonial also provides transfer agency, pricing and record keeping services for the Funds under separate agreements. 11 James P. Haynie, a senior vice president of Colonial, is a co-manager of the Select Value Fund. He has been employed by Colonial since 1993 and has managed other funds Colonial advises since that time. Michael Rega, a vice president of Colonial, is a co-manager of the Select Value Fund. He has been employed by Colonial since 1993 as an analyst or co-manager of other funds Colonial advises. Colonial will use Newport's trading facilities when buying or selling foreign securities for the Funds' portfolios. Newport executes all trades under its own procedures. Colonial is a manager of other investment managers which Colonial recommends to the Board of Trustees for appointment pursuant to portfolio management agreements among the Trust, Colonial and the Portfolio Managers. The management agreements permit each Portfolio Manager to have full investment discretion and authority over investment of a portion of the Fund's assets that they sub-advise. Colonial's investment advisory business is managed together with the mutual funds and institutional investment advisory business of its affiliate, Stein Roe & Farnham Incorporated (Stein Roe). Colonial is part of a larger business unit that includes several separate legal entities known as Liberty Funds Group LLC (LFG). The LFG business unit and Stein Roe are managed by a single management team. Stein Roe, Colonial and the other LFG entities also share personnel, facilities and systems that may be used in providing administrative or operational services to the Funds. Stein Roe is a registered investment advisor. Colonial, the other entities that make up LFG and Stein Roe are subsidiaries of Liberty Financial Companies, Inc. PADCO ADVISORS II, INC. PADCO Advisors II, Inc. (PADCO), an investment advisor since 1993, is the Portfolio Manager to the Financial Services Fund and the Health Care Fund. PADCO's principal business address is 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852. As of March 31, 2000, PADCO managed over $8 billion in assets. Out of the management fees it receives from LASC, Colonial pays PADCO a fee at the following annual rates of average daily net assets of each specified Fund: Rydex Financial Services Fund, Variable Series 0.50% (1) Rydex Health Care Fund, Variable Series 0.50% (1)
(1) When the combined assets of both the Financial Services Fund and Health Care Fund reach $300 million, the annual fee for each Fund will be reduced to 0.45% of the average daily net assets thereafter. Each Fund is managed by a team and no one person is responsible for making investment decisions for a specific Fund. A more complete description of PADCO is included in the Statement of Additional Information. STATE STREET GLOBAL ADVISORS State Street Global Advisors (State Street), the investment division of State Street Bank and Trust Company since 1978, is the Portfolio Manager to the S&P 500 Fund. State Street's principal business address is Two International Place, Boston, Massachusetts 02110. As of March 31, 2000, State Street managed over $723 billion in assets. Out of the management fees it receives from LASC, Colonial pays State Street a fee at the annual rate of $25,000 on average daily net assets up to $50 million and 0.05% on average daily net assets thereafter. Tom O'Brien, a principal of State Street, is manager of the S&P 500 Fund. 12 A more complete description of State Street is included in the Statement of Additional Information. AFFILIATED BROKER/DEALER Colonial can use the services of AlphaTrade Inc., an affiliated broker-dealer, when buying or selling equity securities for a Fund's portfolio, pursuant to procedures adopted by the Board of Trustees. RULE 12b-1 PLAN The Trust has adopted a plan for and on behalf of the Funds' Class B shares in accordance with Rule 12b-1 (Plan) under the Investment Company Act of 1940. The Plan allows the Funds to pay fees for the sale and distribution of their Class B shares. Under the Plan, each Fund pays the distributor a distribution fee of 0.25% of the average daily net assets attributable to the Funds' Class B shares. Because these fees are an ongoing expense, over time they increase the cost of an investment and the shares may cost more than shares that are not subject to a distribution fee. 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. 13 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 goal, 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. TEMPORARY DEFENSIVE MEASURES (ALL FUNDS) Each Fund's Portfolio Manager may determine that adverse market conditions make it desirable to temporarily suspend a Fund's normal investment activities. During such times, as a temporary defensive strategy, a Fund may, but is not required to, invest in cash or high quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment objective. ADDITIONAL EQUITY RISK (ALL FUNDS) The Funds may invest in publicly and privately issued equity securities, including common and preferred stocks, warrants, and rights, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which the Funds invest will cause the net asset value of the Funds to fluctuate. An investment in the Funds may be more suitable for long-term investors who can bear the risk of short-term principal fluctuations. 14 PRICING RISK (ALL FUNDS). The Funds securities are valued at their stated market value if price quotations are available and, if not, by the method that most accurately reflects their current worth in the judgment of the Board of Trustees. This procedure implies an unavoidable risk that our prices are higher or lower than the prices that the securities might actually command if we were to sell them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate securities prices, you may not receive the full market value for your Fund shares when you sell. EARLY CLOSING RISK (ALL FUNDS) The normal close of trading of securities listed on the National Association of Securities Dealers Automated Quotations system and the New York Stock Exchange is 4:00 P.M., Eastern time. Unanticipated early closings may result in a Fund being unable to sell or buy securities on that day. If an exchange closes early on a day when one or more of the Funds needs to execute a high volume of securities trades late in a trading day, a Fund might incur substantial trading losses. 15 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 regular trading on the New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern time, on each business day that the NYSE is open (typically Monday through Friday). To calculate NAV on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales on that day, we value the security at the most recent quoted bid price. We value each over-the-counter security or National Association of Securities Dealers Automated Quotation 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. 16 FOR MORE INFORMATION The annual report will contain 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, 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 02110 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 publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-6009 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. INVESTMENT COMPANY ACT FILE NUMBER: Liberty Variable Investment Trust: 811-07556 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 17 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. TABLE OF CONTENTS
ITEM PAGE - ---- ---- ORGANIZATION AND HISTORY............................................................ INVESTMENT MANAGEMENT AND OTHER SERVICES............................................. General..................................................................... Trust Charges and Expenses.................................................. INVESTMENT RESTRICTIONS .......................................................... 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................................. MORE FACTS ABOUT THE TRUST........................................................... Organization................................................................ Trustees and Officers....................................................... Principal Holders of Securities............................................. Custodian................................................................... OTHER CONSIDERATIONS................................................................. Portfolio Turnover.......................................................... Suspension of Redemptions................................................... Valuation of Securities..................................................... Portfolio Transactions...................................................... Information About the Standard & Poor's 500 Composite Stock Price Index .......................................................... DESCRIPTION OF CERTAIN INVESTMENTS................................................... Money Market Instruments.................................................... Investments in Less Developed Countries..................................... Foreign Currency Transactions............................................... Options on Securities....................................................... Futures Contracts and Related Options....................................... Securities Loans .......................................................... INVESTMENT PERFORMANCE............................................................... INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS.....................................
2 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 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." 3 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. 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. 4 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. (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). 5 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 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. 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. 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: 6
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 -- 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: 7 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%
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%
This arrangement 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. 8 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. 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. 9 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. 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; 10 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. 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; 11 4. With respect to 75% of total assets, purchase any voting security of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting securities of such issuer; 5. Purchase puts, calls, straddles, spreads, or any combination thereof if, as a result of such purchase, the Fund's aggregate investment in such securities would exceed 5% of total assets; 6. Purchase or sell commodities contracts if the total initial margin and premiums on the contracts would exceed 5% of its total assets; 7. Acquire any security issued by a person that, in its most recent fiscal year, derived 15% or less of its gross revenues from securities related activities (within the meaning of Rule 12d3-1 under the 1940 Act) if the Fund would control such person after such acquisition; or 8. Acquire any security issued by a person that, in its most recent fiscal year, derived more than 15% of its gross revenues from securities related activities (as so defined) unless (i) immediately after such acquisition of any equity security, the Fund owns 5% or less of the outstanding securities of that class of the issuer's equity securities, (ii) immediately after such acquisition of a debt security, the Fund owns 10% or less of the outstanding principal amount of the issuer's debt securities, and (iii) immediately after such acquisition, the Fund has invested not more than 5% of its total assets in the securities of the issuer. 12 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. 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. 13 STRATEGIC INCOME FUND FUNDAMENTAL INVESTMENT POLICIES. Strategic Income Fund may: 1. Issue senior securities only through borrowing money from banks for temporary or emergency purposes up to 10% of its net assets; however, the Fund will not purchase additional portfolio securities while borrowings exceed 5% of net assets; 2. Underwrite securities issued by others only when disposing of portfolio securities; 3. Make loans through lending of securities not exceeding 30% of total assets, through the purchase of debt instruments and similar evidences of indebtedness typically sold privately to financial institutions and through repurchase agreements; 4. Not concentrate more than 25% of its total assets in any one industry; 5. With respect to 75% of total assets not purchase any security (other than obligations of the U.S. Government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer or purchase the voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer; 6. Only own real estate acquired as the result of owning securities and not more than 5% of total assets; and 7. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets. OTHER INVESTMENT POLICIES. As non-fundamental investment policies of Strategic Income Fund which may be changed without a shareholder vote, the Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Purchase or sell commodities contracts if the total initial margin and premiums on the contracts would exceed 5% of its total assets; 3. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; or 4. Invest more than 15% of its net assets in illiquid assets. 14 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 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. 15 OTHER INVESTMENT POLICIES. As non-fundamental investment policies of Tiger Fund which may be changed without a shareholder vote, the Fund may not: 1. Invest in companies for the purpose of exercising control; 2. Invest in securities of other investment companies except by purchase in the open market involving only customary broker's commissions, or as part of a merger, consolidation, or acquisition of assets; 3. Participate on a joint and several basis in any securities trading account; 4. Write or trade in put or call options; 5. Purchase or sell commodities contracts if the total initial margin and premiums on the contracts would exceed 5% of its total assets; 6. Purchase securities on margin, but the Fund may utilize such short-term credits as may be necessary for clearance of purchases or sales of securities; or 7. Engage in short sales of securities. ALL-STAR EQUITY FUND FUNDAMENTAL INVESTMENT POLICIES. All-Star Equity Fund may not: 1. Issue senior securities, except as permitted by (2) below; 2. Borrow money, except that it may borrow in an amount not exceeding 7% of its total assets (including the amount borrowed) taken at market value at the time of such borrowing, and except that it may make borrowings in amounts up to an additional 5% of its total assets (including the amount borrowed) taken at market value at the time of such borrowing, to obtain such short-term credits as are necessary for the clearance of securities transactions, or for temporary or emergency purposes, and may maintain and renew any of the foregoing borrowings, provided that the Fund maintains asset coverage of 300% with respect to all such borrowings; 3. Pledge, mortgage or hypothecate its assets, except to secure indebtedness permitted by paragraph (2) above and then only if such pledging, mortgaging or hypothecating does not exceed 12% of the Fund's total assets taken at market value at the time of such pledge, mortgage or hypothecation. The deposit in escrow of securities in connection with the writing of put and call options and collateral arrangements with respect to margin for future contracts are not deemed to be pledges or hypothecation for this purpose; 4. Act as an underwriter of securities of other issuers, except when disposing of securities; 5. Purchase or sell real estate or any interest therein, except that the Fund may invest in securities issued or guaranteed by corporate or governmental entities secured by real estate or interests therein, such as mortgage pass-through and collateralized mortgage obligations, or issued by companies that invest in real estate or interests therein; 6. Make loans to other persons except for loans of portfolio securities (up to 30% of total assets) and except through the use of repurchase agreements, the purchase of commercial paper or the purchase of all or a portion of an issue of debt securities in accordance with its investment objective, policies and restrictions, and provided that not more than 10% of the Fund's assets will be invested in repurchase agreements maturing in more than seven days; 7. Invest in commodities or in commodity contracts (except stock index futures and options); 8. Purchase securities on margin (except to the extent that the purchase of options and futures may involve margin and except that it may obtain such short-term credits as may be necessary for the clearance of purchases or sales of securities), or make short sales of securities; 16 9. Purchase the securities of issuers conducting their principal business activity in the same industry (other than securities issued or guaranteed by the United States, its agencies and instrumentalities) if, immediately after such purchase, the value of its investments in such industry would comprise 25% or more of the value of its total assets taken at market value at the time of each investment; 10. Purchase securities of any one issuer, if (a) more than 5% of the Fund's total assets taken at market value would at the time be invested in the securities of such issuer, except that such restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities or corporations sponsored thereby, and except that up to 25% of the Fund's total assets may be invested without regard to this limitation; or (b) such purchase would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund, except that up to 25% of the Fund's total assets may be invested without regard to this limitation; 17 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 18 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 19 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. 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: 20 1. Issue senior securities only through borrowing money from banks for temporary or emergency purposes up to 10% of its net assets; however, the Fund will not purchase additional portfolio securities while borrowings exceed 5% of net assets; 2. Underwrite securities issued by others only when disposing of portfolio securities; 3. Make loans through lending of securities not exceeding 30% of total assets, through the purchase of debt instruments and similar evidences of indebtedness typically sold privately to financial institutions and through repurchase agreements; 4. Not concentrate more than 25% of its total assets in any one industry; 5. With respect to 75% of total assets not purchase any security (other than obligations of the U.S. Government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer or purchase the voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer; and 6. Only own real estate acquired as the result of owning securities and not more than 5% of total assets. OTHER INVESTMENT POLICIES. As non-fundamental investment policies of the Global Equity Fund, which may be changed without a shareholder vote, the Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Purchase and sell futures contracts and related options if the total initial margin and premiums required to establish non-hedging positions exceed 5% of its total assets; 3. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and 4. Invest more than 15% of its assets in illiquid assets. REAL ESTATE FUND FUNDAMENTAL INVESTMENT POLICIES. The Real Estate Fund may: 1. Issue senior securities only through borrowing money from banks for temporary or emergency purposes up to 10% of its net assets; however, the Fund will not purchase additional portfolio securities while borrowings exceed 5% of net assets; 2. Underwrite securities issued by others only when disposing of portfolio securities; 3. Make loans through lending of securities not exceeding 30% of total assets, through the purchase of debt instruments and similar evidences of indebtedness typically sold privately to financial institutions and through repurchase agreements; 4. Concentrate more than 25% of its total assets in any one industry; 5. With respect to 75% of total assets not purchase any security (other than obligations of the U.S. Government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer or purchase the voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer; and 6. Own real estate if it is acquired as the result of owning securities and not more than 5% of total assets; provided that the Fund may invest in securities that are secured by real estate or interest therein and may purchase and sell mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities. 21 OTHER INVESTMENT POLICIES. As non-fundamental investment policies of the Real Estate Fund, which may be changed without a shareholder vote, the Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Purchase and sell futures contracts and related options if the total initial margin and premiums required to establish non-hedging positions exceed 5% of its total assets; 3. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and 4. Invest more than 15% of its assets in illiquid assets. 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. 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; 22 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. 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 23 2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities. 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; 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. 24 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. 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 25 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.
Positions(s) held Principal occupations Name, Age and Address with the Trust during past five years - --------------------- -------------- ---------------------- Tom Bleasdale (69) Trustee Retired (formerly Chairman of the Board and 102 102 Clubhouse Drive #275 Chief Executive Officer, Shore Bank & Trust Naples, FL Naples, FL 34105 34105 Company (banking) from 1992 to 1993). 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.
26 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: 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.
27 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. 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).
28 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. 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).
29 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).
* 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 certain of their affiliates. Certain of the Trustees and officers of the Trust hold comparable positions with certain other investment companies. 30 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): COMPENSATION TABLE - --------------------------------------------------------------------------------
Total Compensation From Liberty Funds Complex Aggregate 1999 Compensation Paid to the Trustees For The Calendar Year from the Trust Ended December 31, 1999(b) Trustee 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)
(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. (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 for the Calendar Year Ended December 31, 1999(l) Trustee 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). 31 (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 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. 32 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 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. 33 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 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 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 34 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 LAMCO. These amounts may differ among the Portfolio Managers based on the nature of the markets for the types of securities managed by them and other factors. These research products and services are used by LAMCO in connection with its management of LAMCO Clients' portfolios, regardless of the source of the brokerage commissions. In instances where LAMCO receives from broker-dealers products or services which are used both for research purposes and for administrative or other non-research purposes, LAMCO makes a good faith effort to determine the relative proportions of such products or services which may be considered as investment research, based primarily on anticipated usage, and pays for the costs attributable to the non-research usage in cash. The table below shows information on brokerage commissions paid by each Fund during the periods indicated. (All-Star Equity Fund commenced operations on November 15, 1997; Small Cap Fund and High Yield Fund commenced operations on May 19, 1998; International Horizons Fund, Global Equity Fund and Real Estate Fund commenced operations on June 1, 1999; and Japan Opportunities Fund, Select Value Fund, Financial Services Fund, Health Care Fund and 500 Index Fund commenced operations on May 30, 2000.)
Growth & Global International U.S. Growth All-Star Income Fund Utilities Fund Fund Fund Tiger Fund Equity Fund ----------- -------------- ---- ---- ---------- ----------- Total amount of brokerage $ 521,325 $ 171,492 $ 54,904 $ 250,696 $ 42,877 $ 101,560 commissions paid during 1999
35 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
High Yield Small Cap Fund Strategic International Global Equity Real Estate Fund Income Fund Horizons Fund Fund Fund 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)
36 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
37 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. 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 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. 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. 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). 38 BANK AND SAVINGS AND LOAN OBLIGATIONS. These include certificates of deposit, bankers' acceptances, and time deposits. Certificates of deposit generally are short-term, interest-bearing negotiable certificates issued by commercial banks or savings and loan associations against funds deposited in the issuing institution. Bankers acceptances are time drafts drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction (e.g., to finance the import, export, transfer, or storage of goods). With a bankers' acceptance, the borrower is liable for payment as is the bank, which unconditionally guarantees to pay the draft at its face amount on the maturity date. Most bankers' acceptances have maturities of six months or less and are traded in secondary markets prior to maturity. Time deposits are generally short-term, interest-bearing negotiable obligations issued by commercial banks against funds deposited in the issuing institutions. The Funds will not invest in any security issued by a commercial bank or a savings and loan association unless the bank or savings and loan association is organized and operating in the United States, has total assets of at least one billion dollars, and is a member of the Federal Deposit Insurance Corporation ("FDIC"), in the case of banks, or insured by the FDIC in the case of savings and loan associations; provided, however, that such limitation will not prohibit investments in foreign branches of domestic banks which meet the foregoing requirements. The Funds will not invest in time-deposits maturing in more than seven days. SHORT-TERM CORPORATE DEBT INSTRUMENTS. These include commercial paper (i.e., short-term, unsecured promissory notes issued by corporations to finance short-term credit needs). Commercial paper is usually sold on a discount basis and has a maturity at the time of issuance not exceeding nine months. Also included are non-convertible corporate debt securities (e.g., bonds and debentures). Corporate debt securities with a remaining maturity of less than 13 months are liquid (and tend to become more liquid as their maturities lessen) and are traded as money market securities. Each Fund may purchase corporate debt securities having greater maturities. REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements. A repurchase agreement is an instrument under which the investor (such as a Fund) acquires ownership of a security (known as the "underlying security") and the seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to repurchase the underlying security at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period, unless the seller defaults on its repurchase obligations. The underlying securities will consist only of securities issued by the U.S. Government, its agencies or instrumentalities ("U.S. Government Securities"). Repurchase agreements are, in effect, collateralized by such underlying securities, and, during the term of a repurchase agreement, the seller will be required to mark-to-market such securities every business day and to provide such additional collateral as is necessary to maintain the value of all collateral at a level at least equal to the repurchase price. Repurchase agreements usually are for short periods, often under one week, and will not be entered into by a Fund for a duration of more than seven days if, as a result, more than 15% of the value of that Fund's total assets would be invested in such agreements or other securities which are illiquid. The Funds will seek to assure that the amount of collateral with respect to any repurchase agreement is adequate. As with any extension of credit, however, there is risk of delay in recovery or the possibility of inadequacy of the collateral should the seller of the repurchase agreement fail financially. In addition, a Fund could incur costs in connection with disposition of the collateral if the seller were to default. The Funds will enter into repurchase agreements only with sellers deemed to be creditworthy under creditworthiness standards approved by the Board of Trustees and only when the economic benefit to the Funds is believed to justify the attendant risks. The Board of Trustees believes these standards are designed to reasonably assure that such sellers present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase agreement. The Funds may enter into repurchase agreements only with commercial banks or registered broker-dealers. ADJUSTABLE RATE AND FLOATING RATE SECURITIES. Adjustable rate securities (i.e., variable rate and floating rate instruments) are securities that have interest rates that are adjusted periodically, according to a set formula. The maturity of some adjustable rate securities may be shortened under certain special conditions described more fully below. Variable rate instruments are obligations (usually certificates of deposit) that provide for the adjustment of their interest rates on predetermined dates or whenever a specific interest rate changes. A variable rate instrument subject to a demand feature is considered to have a maturity equal to the longer of the period remaining until the next readjustment of the interest rate or the period remaining until the principal amount can be recovered through demand. Floating rate instruments (generally corporate notes, bank notes or Eurodollar certificates of deposit) have interest rate reset provisions similar to those for variable rate instruments and may be subject to demand features like those for variable rate instruments. The interest rate is adjusted, periodically (e.g. daily, monthly, semi-annually), to the prevailing interest rate in the marketplace. The interest rate on floating rate securities is ordinarily determined by reference to, or is a percentage of, a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or bank certificates of deposit, an index of short-term interest rates or some other objective measure. 39 The maturity of a floating rate instrument is considered to be the period remaining until the principal amount can be recovered through demand. 40 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:
Europe and Asia Latin America the Middle East Africa 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
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, 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. 41 For transaction hedging purposes a Fund which is so authorized may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on a currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option. When it engages in position hedging, a Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, a Fund which is so authorized may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. A Fund may enter into short sales of a foreign currency to hedge a position in a security denominated in that currency. In such circumstances, the Fund will maintain in a segregated account with its Custodian an amount of cash or liquid debt securities equal to the excess of (i) the amount of foreign currency required to cover such short sale position over (ii) the amount of such foreign currency which could then be realized through the sale of the foreign securities denominated in the currency subject to the hedge. 42 The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which the Fund can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. CURRENCY FORWARD AND FUTURES CONTRACTS Each of International Fund, Global Utilities Fund, Strategic Income Fund, International Horizons Fund, Global Equity Fund and Tiger Fund will enter into such contracts only when cash or equivalents equal in value to either (i) the commodity value (less any applicable margin deposits) or (ii) the difference between the commodity value (less any applicable margin deposits) and the aggregate market value of all equity securities denominated in the particular currency held by the Fund have been deposited in a segregated account of the Fund's custodian. A forward currency contract involves an obligation to purchase or sell specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the Commodities Futures Trading Commission ("CFTC"), such as the New York Mercantile Exchange. (Tiger Fund may not invest in currency futures contracts.) Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit. At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts. Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Funds intend to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments or variation margin. CURRENCY OPTIONS In general, options on currencies operate similarly to options on securities and are subject to many risks similar to those applicable to currency futures and forward contracts. Currency options are traded primarily in the over-the- 43 counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System. Global Utilities Fund, International Horizons Fund, Global Equity Fund and Strategic Income Fund will only purchase or write currency options when Stein Roe or Colonial believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff. The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the value of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces. The value of a currency option reflects the value of an exchange rate which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd-lot market for the underlying currencies in connection with options at prices that are less favorable than for round-lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies. VALUATIONS There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets. SETTLEMENT PROCEDURES Settlement procedures relating to the Funds' investments in foreign securities and to their foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in such Funds' domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations. FOREIGN CURRENCY CONVERSION Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the "spread") between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Funds at one rate, while offering a lesser rate of exchange should the Funds desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations. OPTIONS ON SECURITIES Each of Global Utilities Fund, International Fund, International Horizons Fund, Global Equity Fund, Real Estate Fund and All-Star Equity Fund may purchase and sell options on individual securities. 44 WRITING COVERED OPTIONS. A Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the sub-advisor, such transactions are consistent with the Fund's investment objective and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price. A Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security. A Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value. A Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security. If a Fund writes a call option but does not own the underlying security, and then it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations. PURCHASING PUT OPTIONS. A Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs. PURCHASING CALL OPTIONS. A Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option. OVER-THE-COUNTER ("OTC") OPTIONS. 45 The Staff of the Division of Investment Management of the SEC has taken the position that OTC options purchased by a Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, a Fund will enter into OTC options transactions only with primary dealers in U.S. Government Securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in the money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable and (iv) repurchase agreements maturing in more than seven days. RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of a Fund's options strategies depends on the ability of its sub-advisor to forecast interest rate and market movements correctly. When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities. The effective use of options also depends on a Fund's ability to terminate option positions at times when its sub-advisor deems it desirable to do so. Although the Fund will take an option position only if the sub-advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price. If a secondary trading market in options were to become unavailable, a Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability - -- were to interrupt normal market operations. A marketplace may at times find it necessary to impose restrictions on particular types of options transactions, which may limit a Fund's ability to realize its profits or limit its losses. Disruptions in the markets for the securities underlying options purchased or sold by a Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation ("OCC") or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option. Special risks are presented by internationally-traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States. 46 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. 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 47 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 the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those relating to the sale of futures contracts. There is no assurance that higher than anticipated trading activity or other unforeseen events might not at times render certain market clearing facilities inadequate, and thereby result in the institution by exchanges of special procedures which may interfere with the timely execution of customer orders. To reduce or eliminate a hedge position held by a Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contacts or options), would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. INDEX FUTURES CONTRACTS AND RELATED OPTIONS; ASSOCIATED RISKS An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. A Fund may enter into stock index future contracts, debt index futures contracts, or other index futures contracts (e.g., an interest rate futures contract), as specified in the Prospectus. A Fund may also purchase and sell options on index futures contracts, to the extent specified in the Prospectus. There are several risks in connection with the use by a Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Fund's sub-advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged. Successful use of index futures by a Fund for hedging purposes is also subject to its sub-advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities subject to the hedge held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value in its portfolio securities. However, while this could occur to a certain degree, over time the value of the Fund's portfolio should tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of 48 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. 49 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) to the power of n Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Funds, the "Ending Redeemable Value," the "Total Return Percentage" and (where applicable) the "Average Annual Total Return" for the life of each Fund listed below (the period from July 1, 1993 in the case of 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:
Ending Cumulative Total Average Annual Fund Redeemable Value Return Percentage Total Return 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
50 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
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. 51 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. 52 PART C. OTHER INFORMATION Liberty Newport Japan Opportunities Fund, Variable Series (LNJOF) Liberty Select Value Fund, Variable Series (LSVF) Rydex Financial Services Fund, Variable Series (RFSF) Rydex Health Care Fund, Variable Series (RHCF) Liberty S&P 500 Index Fund, Variable Series (L500)
Item 23. Exhibits: - -------- --------- (a) Form of Amended and Restated Agreement and Declaration of Trust dated April 27, 2000 (b) Amended and Restated By-Laws dated October 28, 1999 (c) Not Applicable (d)(1)(i) Form of Expense Reimbursement Agreement between the Trust, with respect to LNJOF, LSVF, RFSF, RHCF, L500, LASC and Liberty Funds Distributor, Inc. ("LFD") (d)(1)(ii) Form of Management Agreement between the Trust, with respect to LNJOF, LSVF and LASC (d)(1)(iii) Form of Sub-Advisory Agreement between the Trust, on behalf of LNJOF, LASC and Newport (d)(1)(iv) Form of Sub-Advisory Agreement between the Trust, on behalf of LSVF, LASC and Colonial
(d)(2)(i) Form of Management and Sub-Advisory Agreement between the Trust, with respect to RFSF, RHCF, L500, LASC and Colonial (d)(2)(ii) Form of Portfolio Management Agreement between the Trust, Colonial and PADCO Advisors II, Inc., with respect to RFSF and RHCF (d)(2)(iii) Form of Portfolio Management Agreement between the Trust, Colonial and State Street Global Advisors, with respect to L500 (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 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 (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 (i) Opinion and consent of counsel (with respect to Liberty Newport Japan Opportunities Fund, Variable Series, Liberty Select Value Fund, Variable Series, Rydex Financial Services Fund, Variable Series, Rydex Health Care Fund, Variable Series and Liberty S&P 500 Index Fund, Variable Series)
(j) Not applicable (k) Not applicable (l) Not applicable (m)(1) Rule 12b-1 Distribution Plan (m)(2) Rule 12b-1 Inter-Distributor Agreement (m)(3) 12b-1 Plan Implementing Agreement between the Registrant and LFDI (n) Not applicable (o) Rule 18f-3 Plan (p)(1) Code of Ethics of LASC(3) (p)(2) Code of Ethics of Funds, LFDI and Colonial(3) (p)(3) Code of Ethics of Newport(3)
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.
Item 24. Persons Controlled by or under Common Control with Registrant Shares of the Trust registered pursuant to this Registration Statement will be offered and sold to Keyport Life Insurance Company ("Keyport"), a stock life insurance company organized under the laws of Rhode Island, and to certain of its separate investment accounts and certain of the respective separate investment accounts of Liberty Life Assurance Company of Boston ("Liberty Life"), a stock life insurance company organized as a Massachusetts corporation, and Independence Life & Annuity Company, a stock life insurance company organized under the laws of Rhode Island (formerly known as "Crown America Life Insurance Company" and thereafter formerly known as "Keyport America Life Insurance Company")("Independence"). Shares of the Registrant may also be sold to other separate accounts of Keyport, Liberty Life, Independence or other life insurance companies as the funding medium for other insurance contracts and policies in addition to the currently offered contracts and policies. The purchasers of insurance contracts and policies issued in connection with such accounts will have the right to instruct Keyport, Liberty Life and Independence with respect to the voting of the Registrant's shares held by their respective separate accounts. Subject to such voting instruction rights, Keyport, Liberty Life, Independence and their respective separate accounts directly control the Registrant. LFDI, the Trust's principal underwriter, LASC, the Trust's investment manager, Colonial, LASC's sub-adviser with respect to LSVF, RFSF, RHCF, L500, Newport, LASC's sub-adviser with respect to LNJOF, 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; (ii) in the absence of a final decision on the merits by a court or other body before whom a proceeding was brought that a Covered Person was not liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office, no indemnification is permitted under Article Tenth unless a determination that such person was not so liable is made on behalf of Registrant by (a) the vote of a majority of the trustees who are neither "interested persons" of Registrant, as defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding ("disinterested, non-party trustees"), or (b) an independent legal counsel as expressed in a written opinion; and (iii) Registrant will not advance attorney's fees or other expenses incurred by a Covered Person in connection with a civil or criminal action, suit or proceeding unless Registrant receives an undertaking by or on behalf of the Covered Person to repay the advance (unless it is ultimately determined that he is entitled to indemnification) and (a) the Covered Person provides security for his undertaking, or (b) Registrant is insured against losses arising by reason of any lawful advances, or (c) a majority of the disinterested, non-party trustees of Registrant or an independent legal counsel as expressed in a written opinion, determine, based on a review of readily-available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification. Any approval of indemnification pursuant to Article Tenth does not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with Article Tenth as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in, or not opposed to, the best interests of Registrant or to have been liable to Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person's office. Article Tenth also provides that its indemnification provisions are not exclusive. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to trustees, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant or expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. Registrant, its trustees and officers, its investment manager, and person affiliated with them are insured against certain expenses in connection with the defense of actions, suits, or proceedings, and certain liabilities that might be imposed as a result of such actions, suits, or proceedings. Registrant will not pay any portion of the premiums for coverage under such insurance that would (1) protect any trustee or officer against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office or (2) protect its investment manager or principal underwriter, if any, against any liability to Registrant or its shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of its duties, or by reason of its reckless disregard of its duties and obligations under its contract or agreement with the Registrant; for this purpose the Registrant will rely on an allocation of premiums determined by the insurance company. In addition, LASC, Registrant's investment manager, maintains investment advisory professional liability insurance to insure it, for the benefit of the Trust and its non-interested trustees, against loss arising out of any effort, omission, or breach of any duty owed to the Trust or any Fund by the investment manager. Item 26. Business and Other Connections of Investment Adviser Certain information pertaining to business and other connections of the Registrant's investment manager, LASC, Colonial, the sub-adviser to each of LSVF, RFSF, RHCF, L500 and PADCO Advisors II, Inc. ("PADCO"), Portfolio Manager with respect to RFSF and RHCF, State Street Global Advisors ("State Street"), Portfolio Manager with respect to L500, Newport, the sub-adviser to LNJOF, 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 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, PADCO, State Street, 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.
Other Positions During Name and Current Position with Adviser Past Two Fiscal Years - -------------------------------------- --------------------- 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
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. 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. PADCO Advisors II, Inc. The business and other connections of the officers, directors of PADCO are listed on the Form ADV of PADCO as currently on file with the Commission (File No. 801-43489), 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. State Street Global Advisors
Other Positions During Name and Current Position with Adviser Past Two Fiscal Years - -------------------------------------- --------------------- Nicholas A. Lopardo Chairman and CEO Vice Chairman of State Street Bank and Trust Company Timothy B. Harbert President Executive Vice President of State Street Corporation John R. Serhant Principal, Non-US Offices Executive Vice President of State Street Trust Company Marc V. Simons Principal, Corporate Operations, Executive Vice President of Chief Operations Officer State Street Bank John R. Snow Principal Head of the Global Alliance Group, Chairman of European Direct Capital Management, Asian Direct Capital Management, Rexiter Capital Management, and Pallada Asset Management, Executive Vice President of State Street Trust Company
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 ****************** 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. 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. 22 to its Registration Statement under the Securities Act of 1933 and Amendment No. 23 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 30th day of May, 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 May 30, 2000 - ----------------- Executive officer) Stephen E. Gibson /s/PAMELA A. MCGRATH Treasurer and Chief Financial Officer May 30, 2000 - ----------------- (principal financial officer) Pamela A. McGrath /s/J. KEVIN CONNAUGHTON Controller and Chief Accounting May 30, 2000 - -------------------- Officer (principal accounting officer) J. Kevin Connaughton
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 May 30, 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
EXHIBITS -------- (a) Form of Amended and Restated Agreement and Declaration of Trust dated April 27, 2000 (b) Amended and Restated By-Laws dated October 28, 1999 (d)(1)(i) Form of Expense Reimbursement Agreement between the Trust, with respect to LNJOF, LSVF, RFSF, RHCF, L500, LASC and Liberty Funds Distributor, Inc. ("LFD") (d)(1)(ii) Form of Management Agreement between the Trust, with respect to LNJOF, LSVF and LASC (d)(1)(iii) Form of Sub-Advisory Agreement between the Trust, on behalf of LNJOF, LASC and Newport (d)(1)(iv) Form of Sub-Advisory Agreement between the Trust, on behalf of LSVF, LASC and Colonial (d)(2)(i) Form of Management and Sub-Advisory Agreement between the Trust, with respect to RFSF, RHCF, L500, LASC and Colonial (d)(2)(ii) Form of Portfolio Management Agreement between the Trust, Colonial and PADCO Advisors II, Inc., with respect to RFSF and RHCF (d)(2)(iii) Form of Portfolio Management Agreement between the Trust, Colonial and State Street Global Advisors, with respect to L500 (g)(1)(ii) Amendment No. 12 to Appendix A of Custody Agreement with the Chase Manhattan Bank (h)(3) Form of Participation Agreement (i) Opinion and consent of counsel (with respect to Liberty Newport Japan Opportunities Fund, Variable Series, Liberty Select Value Fund, Variable Series, Rydex Financial Services Fund, Variable Series, Rydex Health Care Fund, Variable Series and Liberty S&P 500 Index Fund, Variable Series) (m)(1) Rule 12b-1 Distribution Plan (m)(2) Rule 12b-1 Inter-Distributor Agreement (m)(3) 12b-1 Plan Implementing Agreement between the Registrant and LFDI (o) Rule 18f-3 Plan
EX-99.(A) 2 0002.txt FORM OF AMENDED AND RESTATED AGMT AND DEC OF TRUST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST THIS RESTATED AGREEMENT AND DECLARATION OF TRUST ("Declaration of Trust") is made at Boston, Massachusetts, this 27th day of April, 2000, by the Trustees hereunder, and by the holders of shares of beneficial interest issued hereunder and issued hereunder as hereinafter provided. WITNESSETH that WHEREAS, this Trust has been formed as a voluntary association with transferable shares under the laws of the Commonwealth of Massachusetts to carry on the business of an investment company; and WHEREAS, the Trustees have agreed to manage all property coming into their hands as Trustees of a voluntary association in the form of a Massachusetts business trust in accordance with the provisions hereinafter set forth. NOW THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets that they may from time to time acquire in any manner as Trustees hereunder in Trust to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of shares of this Trust as hereinafter set forth. FIRST: Name. The name of this Trust is Liberty Variable Investment Trust (the "Trust"). SECOND: Purposes. The purposes for which the Trust is formed are: 1. To engage in the business of a management investment company; 2. To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of, to lend or to pledge, to trade in or deal in, securities or interests of all kinds, or obligations of all kinds, or rights, warrants, or contracts, and to acquire such securities, interests, or obligations, of or guaranteed by any private or public company, corporation, association, general or limited partnership, trust or other enterprise or organization, foreign or domestic, or of or guaranteed by any national, state or local government, foreign or domestic, or their agencies, instrumentalities or subdivisions, including but not limited to bonds, debentures, preferred stocks, common stocks, convertible securities, bills, time notices and all other evidences of indebtedness; negotiable or non-negotiable instruments; options; futures contracts and options on futures contracts; government securities; and money market instruments, including but not limited to bank certificates of deposit, finance paper, commercial paper, bankers' acceptances, and all kinds of repurchase agreements, of any corporation, company, trust, association, firm or other business organization, however established, and of any county, state, municipality or other political subdivision, or of any other government or quasi-governmental agency or instrumentality; 3. To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of, foreign currencies, funds, and exchange, and to make deposits in banks, savings banks, trust companies, and savings and loan associations, foreign or domestic; 4. To exercise all rights, powers, and privileges as owner of any securities, property, or assets which might be exercised by any individual owning such securities, property, or assets in his own right; 5. To acquire (by purchase, lease, or otherwise) and to hold, use, maintain, develop, and dispose of (by sale or otherwise); any property, real or personal, and any interest therein; 6. To aid by further investment any corporation, company, trust, association, or firm, any obligation of or interest in which is held by the Trust or in the affairs of which the Trust has any direct or indirect interest; to do all acts and things designed to protect, preserve, improve, or enhance the value of such obligation or interest; to guarantee or become surety of any or all of the contracts, stocks, bonds, notes, debentures, and other obligations of any such corporation, company, trust, association, or firm; and 7. In general, to carry on any other business in connection with or incidental to any of the foregoing objects and purposes, and to engage in any and all lawful business except as may be prohibited to be engaged in by a business trust organized under the laws of the Commonwealth of Massachusetts as in force from time to time, to do everything necessary, suitable, or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or purposes, objects, or powers. The Trust shall have the power to conduct and carry on its business, or any part thereof, and to have one or more offices, and to exercise any or all of its trust powers and rights, in the Commonwealth of Massachusetts, in any other states, territories, districts, colonies, and dependencies of the United States, and in any or all foreign countries. The foregoing clauses shall be construed both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Trust. THIRD: Address and Resident Agent. The post office address of the principal office of the Trust in the Commonwealth of Massachusetts is: c/o Liberty Funds Group LLC One Financial Center, 11th Floor Boston, Massachusetts 02111 or such other office as the Board of Trustees may from time to time designate. The name and post office address of the resident agent of the Trust in the Commonwealth of Massachusetts is: Nancy L. Conlin, Esq. c/o Liberty Funds Group LLC One Financial Center, 11th Floor Boston, Massachusetts 02111 or such other person as the Board of Trustees may from time to time designate. FOURTH: Shares. A. Definitions. "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of shares is authorized by the Trustees, the equal proportionate units into which each series of shares shall be divided from time to time or, if more than one class of shares of any series is authorized by the Trustees, the equal proportionate units into which each class of such series of shares shall be divided from time to time B. Division of Beneficial Interest. The shares of the Trust shall be issued in one or more series as the Board of Trustees may, without shareholder approval, authorize. The Trustees may, without shareholder approval, divide the shares of any series into two or more classes, shares of each such class having such preferences or special or relative rights or privileges (including conversion rights, if any) as the Trustees may determine and as are not inconsistent with any provision of this Declaration of Trust. Each series shall be preferred over all other series with respect to the assets allocated to that series. The beneficial interest in each series shall at all times be divided into shares, with or without par value as the Board of Trustees shall determine, each of which shall, except as the Trustees may otherwise authorize in the case of any series that is divided into two or more classes, represent an equal proportionate interest in the series with each other share of the same series, none having priority or preference over another. The number of shares authorized shall be unlimited, and the shares so authorized may be represented in part by fractional shares. The Board of Trustees may from time to time divide or combine the shares of any series or class into a greater or lesser number without thereby changing the proportionate beneficial interests in the series or class. C. Ownership of Shares. The ownership of shares shall be recorded on the books of the Trust or its transfer or similar agent. No certificates certifying the ownership of shares shall be issued except as the Board of Trustees may otherwise determine from time to time. The Board of Trustees may make such rules as it considers appropriate for the issuance of share certificates, the transfer of shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent of the Trust, as the case may be, shall be conclusive as to who are the shareholders of each series and as to the number of shares of each series held from time to time by each shareholder. D. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every shareholder by virtue of having become a shareholder shall be deemed to have expressly assented to and agreed to be bound by the terms hereof and to have become a party hereto. The death of a shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of such deceased shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Board of Trustees, but only to the rights of said decedent under this Trust. Ownership of shares shall not entitle the shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of shares constitute the shareholders to be partners. Neither the Trust nor the Board of Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any shareholder, nor, except as specifically provided herein, to call upon any shareholder for the payment of any sum of money or assessment whatsoever other than such as the shareholder may at any time personally agree to pay. FIFTH. No Preemptive Rights. Shareholders shall have no preemptive or other right to receive, purchase, or subscribe for any additional shares or other securities issued by the Trust. SIXTH. Issue, Redemption, and Repurchase of Shares. SECTION I ISSUE OF THE TRUST'S SHARES 1.01. General. The Board of Trustees may from time to time issue, reissue, sell or cause to be issued and sold any of the Trust's shares in one or more series and in one or more classes of each such series as the Board of Trustees may, without shareholder approval, authorize, including any shares redeemed or repurchased by the Trust, for a consideration determined in accordance with Section 1.02 hereof; except that only shares previously contracted to be sold may be issued during any period when the determination of net asset value is suspended pursuant to the provisions of Section III hereof. 1.02. Price. No shares of a series or class shall be issued or sold by the Trust, except as a share dividend distributed to shareholders of such series or class, for less than an amount which would result in proceeds to the Trust, in connection with such transaction, of at least the net asset value per share of such series or class, determined as set forth in Section III hereof. The net asset value per share applicable to any such transaction shall be the net asset value per share of such series or class next determined after receipt of an unconditional order for purchase of shares of such series or class; except that, subject to applicable rules and regulations, if any, of the Securities and Exchange Commission or any other governmental body having similar jurisdiction over the Trust (the "SEC"), the Board of Trustees may prescribe that requests for purchase received prior to a time of day (the "cutoff time") preceding the time of day prescribed for determination of net asset value per share of such series or class shall be transacted at the net asset value per share next determined and that requests for purchase received after the cutoff time and before the time for determination of the next net asset value per share shall be transacted at the net asset value per share next determined after the next net asset value per share of such series or class. The criteria for determining what constitutes an unconditional order for purchase of shares of a series or class and the receipt of such an order shall be prescribed by the Board of Trustees. All shares, when issued in accordance with the terms of this Section I, shall be fully paid and nonassessable. 1.03. Fractional Shares. The Trust may issue and sell or cause to be issued and sold fractions of shares of a series or class having pro rata all the rights of full shares of such series or class, including, without limitation, the right to vote and to receive dividends. 1.04. Assets of a Series. All consideration received by the Trust for the issue or sale of shares of each series authorized by the Board of Trustees, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors of Trust assets allocated to such series, and shall be so recorded upon the books of account of the Trust and are herein referred to as "assets of" such series. SECTION II REDEMPTION AND REPURCHASE OF THE TRUST'S SHARES 2.01. Redemption of Shares. Any shares of any series of the Trust may be redeemed at the option of the holder of such shares and, to the extent permitted in Section 2.06 hereof, at the option of the Trust, at the redemption price for such shares, determined in the manner set out in this Declaration of Trust or in any amendment hereto. Unless otherwise provided by resolution of the Board of Trustees, shares redeemed shall be cancelled. Redeemed shares which have not been cancelled may be resold by the Trust. The Trust shall redeem shares subject to the conditions and at the price determined as hereinafter set forth. 2.02. Price. Shares shall be redeemed at the net asset value per share of the appropriate series or attributable to the particular class, determined as set forth in Section III hereof. The net asset value per share of such series or class applicable to any such redemption of shares shall be the net asset value per share next determined after receipt of a request for redemption of such shares in proper form, except that, subject to applicable rules and regulations, if any, of the SEC, the Board of Trustees may prescribe that requests for redemption received prior to the cutoff time preceding the time of day prescribed for determination of net asset value per share of such series or class shall be transacted at the net asset value per share next determined and that requests for redemption after the cutoff time and before the time for determination of the next net asset value per share shall be transacted at the net asset value per share next determined after the next net asset value per share. The criteria for determining what constitutes a proper request for redemption of shares of a series or class and the receipt of such request for redemption shall be prescribed by the Board of Trustees. 2.03. Payment. Subject to the provisions of Section 2.04 hereof, payment for shares of a series or class shall be made in cash to, or upon the direction of, the shareholder of record within seven calendar days after the date of receipt of (a) a written, unconditional and irrevocable instruction of the shareholder to redeem, in a form acceptable to the Trust or its designated agent, together with any certificates which may have been issued therefor, endorsed or accompanied by proper instrument of transfer, and such other documents as the Trust or its designated agent may require or (b) such other direction or authorization of redemption by the shareholder as the Board of Trustees shall authorize. Subject to applicable rules and regulations, if any, of the SEC, the Trust may pay the redemption price for such shares of a series or class in whole or in part by a distribution in kind of securities from the portfolio of the Trust allocated to such series or class, in lieu of money, valuing such securities at their value employed for determining the net asset value governing such redemption price, and selecting the securities in such manner as the Board of Trustees may determine to be fair and equitable. 2.04. Effect of Suspension of Determination of Net Asset Value. If, pursuant to Section 3.03 hereof, the Board of Trustees shall declare a suspension of the determination of net asset value of a particular series or class, (a) the rights of shareholders (including those who shall have requested redemption pursuant to Sections 2.01, 2.02, and 2.03 hereof but for whom the redemption price shall not yet have been determined) to have shares redeemed and paid for by the Trust, and (b) the obligation of the Trust to pay for shares previously redeemed, shall be suspended until the termination of such suspension. Any record holder of shares not previously redeemed who shall have his redemption right so suspended may, during the period of such suspension, by appropriate written notice of revocation at the office or agency where request for redemption was made, revoke any request or instruction for redemption not honored and withdraw any certificates tendered for redemption. The redemption price of shares for which redemption requests have been made and not revoked shall be the net asset value of such shares next determined as set forth in Section III hereof after the termination of such suspension, and payment shall be made within seven days after the date upon which the requirements of Section 2.03 were met plus the period during which the determination of net asset value was suspended. 2.05. Repurchase by Agreement. The Trust may repurchase shares of the Trust directly, or through a principal underwriter, if any, or another agent designated for the purpose, by agreement with the owner thereof at a price not exceeding the net asset value per share of the appropriate series or class determined as of the time when the purchase or contract of purchase is made or the net asset value as of any time which may be later determined pursuant to Section III hereof, provided payment is not made for the shares prior to the time as of which such net asset value is determined. Repurchased shares may be resold by the Trust. 2.06. Redemption of Shareholder's Interest. The Trust shall have the right at its option and at any time to redeem shares of any shareholder at the net asset value thereof determined in accordance with Section III hereof: (i) if at such time such shareholder owns fewer shares than, or shares having an aggregate net asset value of less than, an amount determined from time to time by the Board of Trustees; or (ii) to the extent that such shareholder owns shares of a particular series or class of shares equal to or in excess of a percentage of the outstanding shares of that series or class determined from time to time by the Board of Trustees; or (iii) to the extent that such shareholder owns shares of the Trust representing a percentage equal to or in excess of a percentage of the aggregate number of outstanding shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Board of Trustees, and subject to the Trust's giving general notice to all shareholders of its intention to avail itself of such right, either by publication in the Trust's prospectus, if any, or by such other means as the Board of Trustees may determine. Subject to the same terms and conditions, the Trust shall also have the right to redeem shares of the Trust, or a particular series or class, owned by any shareholder if in the opinion of the Board of Trustees, ownership of shares of the Trust or series or class, respectively, has or may become concentrated to an extent which could cause the Trust to become a personal holding company within the meaning of the Internal Revenue Code. 2.07. Additional Provisions Relating to Redemptions and Repurchases. The completion of redemption of shares shall constitute a full discharge of the Trust and the Trustees with respect to such shares, and the Trustees may require that any certificate or certificates issued by the Trust to evidence the ownership of such shares shall be surrendered to the Trustees for cancellation or notation. SECTION III NET ASSET VALUE OF SHARES 3.01. By Whom Determined. Subject to the provisions of Section 3.04 of this Article SIXTH, the Board of Trustees shall have the power and duty to determine from time to time the net asset value per share of the outstanding shares of each series and class authorized by the Board of Trustees and any such determination shall be binding on all parties. 3.02. When Determined. The net asset value of a series or class shall be determined at such times as the Board of Trustees, subject to applicable rules and regulations, if any, of the SEC, shall prescribe, provided that such net asset value shall be determined at least once each week. In the absence of a resolution of the Board of Trustees, the net asset value of a series or class shall be determined as of the close of trading on the New York Stock Exchange on each business day. 3.03. Suspension of Determination of Net Asset Value. The Board of Trustees may declare a suspension of the determination of net asset value of a series or class (a) for any period during which trading on the New York Stock Exchange is restricted, as determined by the SEC, or that Exchange is closed (other than customary weekend and holiday closing), (b) for any period during which an emergency exists as a result of which disposal of the investments held by that series or determination of net asset value of that series is not reasonably practicable, or (c) for such period as the SEC by order may permit. Such suspension shall take effect at such time as the Board of Trustees shall specify and thereafter there shall be no determination of net asset value until the Board of Trustees shall declare the suspension terminated, except that the suspension shall terminate in any event on the first day on which (1) the condition giving rise to the suspension shall have ceased to exist and (2) no other condition exists under which suspension is authorized under this Section 3.03. Each declaration by the Board of Trustees pursuant to this Section 3.03 shall be consistent with such official rules and regulations, if any, relating to the subject matter thereof as shall have been promulgated by the SEC. To the extent not inconsistent with such official rules and regulations, the determination of the Board of Trustees shall be conclusive. 3.04. Computation of Per Share Net Asset Value. a. Net Asset Value Per Share. The net asset value of each share of a series or class as of any particular time shall be the quotient obtained by dividing the value of the net assets of the Trust allocated to such series or class by the total number of shares of such series or class outstanding, rounded to such extent as the Board of Trustees shall determine from time to time. b. Value of Trust's Net Assets. The value of the net assets of the Trust allocated to any series or class as of any particular time shall be the value of the assets so allocated less the liabilities of the Trust so allocated, determined as follows: (1) each security for which market quotations are readily available shall be valued at current market value determined by methods specified by the Board of Trustees; (2) each other security, including any security within (1) for which the specified price does not appear to represent a dependable quotation for such security as of the time of valuation, shall be valued at a fair value as determined in good faith by the Board of Trustees; (3) any cash on hand shall be valued at the face amount thereof, (4) any cash on deposit, accounts receivable, and cash dividends and interest declared or accrued and not yet received, any prepaid expenses, and any other current asset shall be valued at the face amount thereof, unless the Board of Trustees shall determine that any such item is not worth its face amount, in which case such asset shall be valued at a fair value determined in good faith by the Board of Trustees; and (5) any other asset shall be valued at a fair value determined in good faith by the Board of Trustees. Notwithstanding the foregoing, short-term debt obligations, commercial paper and repurchase agreements may be, but need not be, valued on the basis of quoted yields for securities of comparable maturity, quality and type, or on the basis of amortized cost. The Board of Trustees may appoint persons to assist it in the determination of the value of assets, liabilities and net asset value per share of any series or class and to make the actual calculations pursuant to the direction of the Board of Trustees. 3.05. Miscellaneous. For the purposes of this Section III: a. Shares of any series or class issued shall be deemed to be outstanding commencing immediately after the time for determination of net asset value per share for purposes of determining their sales price, pursuant to Section 1.02 hereof, and the net sale price thereof shall thereupon be deemed an asset of that series or class. b. Shares of any series or class for which a request for redemption has been made in proper form or which are being repurchased by the Trust shall be deemed to be outstanding up to and including the time as of which the redemption of repurchase price for such shares is determined. After such time, they shall be deemed to be no longer outstanding and the price until paid shall thereupon be deemed to be a liability of that series or class. c. Funds on deposit and contractual obligations payable to the Trust in foreign currency and liabilities and contractual obligations payable by the Trust in foreign currency shall be taken at the current applicable rate of exchange as nearly as practicable at the time as of which the net asset value is computed for the series or class to which such items relate. SECTION IV COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940 Notwithstanding any of the foregoing provisions of this Article SIXTH, the Board of Trustees may prescribe such other bases and times for determining the per share net asset value of any series or class of the Trust as it shall deem necessary or desirable to enable the Trust to comply with any provision of the Investment Company Act of 1940, or any rule or regulation thereunder, all as now in effect or hereafter amended or added (the "1940 Act"), including any rule or regulation adopted by any securities association registered under the Securities Exchange Act of 1934. SEVENTH: Board of Trustees. A. Election. The number of Trustees shall be fixed pursuant to the By-Laws. Trustees shall be elected by the shareholders, except as otherwise provided herein. The initial Trustees, each of whom shall serve until the first meeting of shareholders at which Trustees are elected and until his or her successor is elected and qualified, or until he or she sooner dies, resigns or is removed, shall be John W. Rosensteel,* and such other persons as the Trustee or Trustees then in office shall, prior to any sale of shares pursuant to a public offering, appoint. Any vacancy occurring in the Board of Trustees may be filled by the Trustees, unless immediately after filling any such vacancy, less than two-thirds of the Trustees then holding office would have been elected to such office by the shareholders. The Board of Trustees shall call a meeting of shareholders for the purpose of electing Trustees whenever less than a majority of the Trustees have been elected by shareholders. Each Trustee elected by the shareholders or by the Board of Trustees shall serve until the next meeting of shareholders, if any, called for the purpose of reelecting such Trustee or electing a successor to such Trustee and until the election and qualification of his or her successor, or until he or she sooner dies, resigns or is removed. A Trustee may be removed with or without cause (a) at any meeting called for such purpose by a vote of two-thirds of the outstanding shares, (b) by the holders of two-thirds of the outstanding shares by declaration in writing filed with the Custodian of the securities of the Trust, or (c) by vote of a majority of the Trustees then in office. * Paul H. LeFevre, Jr. and Robert R. Baird B. Effect of Death, Resignation, Etc. of a Trustee. The death, declination, resignation, retirement, removal, or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. C. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Board of Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Board of Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the shareholders; they may fill vacancies in their number, including vacancies resulting from increases in their number, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including an executive committee which may, when the Board of Trustees is not in session, exercise some or all of the power and authority of the Board of Trustees as the Trustees may determine; they may appoint an advisory board, the members of which shall not be Trustees and need not be shareholders; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a shareholder services agent, or both, provide for the distribution of shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of shareholders with respect to various matters and in general delegate such authority as they consider desirable to any officers of the Trust, to any committee of the Board of Trustees and to any agent or employee of the Trust or to any such custodian or underwriter. Without limiting the foregoing, the Board of Trustees shall have power and authority: 1. To invest and reinvest in securities, options, futures contracts, options on futures contracts and other property, and to hold cash uninvested; 2. To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust; 3. To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Board of Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Board of Trustees shall deem proper; 4. To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities or other assets; 5. To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depository or a nominee or nominees or otherwise; 6. Subject to the provisions of Article SIXTH, Section 1.04, to allocate assets, liabilities and expenses of the Trust to a particular series of shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of shares shall be payable solely out of the assets of that series; and to the extent necessary or appropriate to give effect to the preferences and special or relative rights and privileges of any classes of shares, to allocate assets, liabilities, income and expenses of a series to a particular class of shares of that series or to apportion the same among two or more classes of shares of that series 7. To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust; 8. To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Board of Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Board of Trustees shall deem proper; 9. To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust on any matter in controversy, including but not limited to claims for taxes; 10. To enter into joint ventures, general or limited partnerships and any other combinations or associations; 11. To borrow funds, securities or other assets; 12. To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guarantee or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all of such obligations or obligations incurred pursuant to Clause II hereof; 13. To purchase and pay for, entirely out of Trust property, such insurance as they may deem necessary or appropriate for the conduct of the business, including without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters, or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; 14. To pay pensions for faithful service, as deemed appropriate by the Board of Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees, and agents of the Trust; 15. To pay remuneration to each Trustee for his services, including reimbursement of expenses incurred, as shall be fixed from time to time by resolution of the Board of Trustees. Nothing herein contained shall be construed to preclude any Trustee from serving the Trust in any other capacity and receiving compensation therefor; and 16. To do all acts and things appropriate in the furtherance of the foregoing and in furtherance of the purposes of the Trust. The Board of Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by Trustees. Except as otherwise provided herein or from time to time in the By-Laws, any action to be taken by the Board of Trustees may be taken by a majority of the Trustees present at a meeting of the Board of Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. or by written consent of a majority of the Trustees then in office. D. Payment of Expenses by Trust. The Board of Trustees is authorized to pay or to cause to be paid out of the principal or income of the Trust, or partly out of principal and partly out of income, as they deem appropriate, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or manager, principal underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Board of Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred or arising in connection with a particular series of shares, as determined by the Board of Trustees, shall be payable solely out of the assets of that series. E. Ownership of Assets of the Trust. Title to all of the assets of the Trust, including all assets allocated to each series of shares, shall at all times be considered as vested in the Board of Trustees. F. Advisory, Management and Distribution. Subject to a vote meeting the requirements of the 1940 Act, the Board of Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or management services with any partnership, corporation, trust, association or other organization (the 'Adviser'), every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Board of Trustees may determine, including. without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested, and to make changes in the Trust's investments. The Board of Trustees may also, at any time and from time to time, contract with the Adviser or any other partnership, corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the shares, every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Board of Trustees may determine. The fact that: (i) any of the shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter, or distributor or agent of or for any corporation, trust, association, or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract may have been or may hereafter be made by the Trust also has an advisory or management contract, or principal underwriters or distributor's contract, or transfer, shareholder services or other agency contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests, shall not affect the validity of any such contract or disqualify any shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its shareholders. EIGHTH: Liability: A. Trustees, Shareholders, Etc, Not Personally Liable: Notice. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of shares shall look only to the assets of the Trust or the assets of that particular series of shares for payment under such credit, contract or claim; and neither the shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future shall be personally liable therefor. The Board of Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, investment adviser or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by any Trustees or Trustee or by any officers or officer shall give notice that this Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustees or Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the shareholders individually but are binding only upon the assets and property of the Trust, or of the particular series of shares to which such instrument relates, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustees or Trustee or officers or officer, or shareholders or shareholder individually. Every note, bond, contract, instrument, certificate, share or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Board of Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. B. Trustee's Good Faith Action: Expert Advice: No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. 'Me Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. C. Liability of Third Persons Dealing with Trustees, No person dealing with the Board of Trustees or any Trustee shall be bound to make any inquiry concerning the validity of any transaction made or to be made by either or to see to the application of any payments made or property transferred to the Trust or upon its order. NINTH: Determination of Net Profits, Etc.: Dividends. With respect to each series or class of shares authorized by the Board of Trustees, the Board is expressly authorized to determine in accordance with generally accepted accounting principles and practices what constitutes net income, profits or earnings, or surplus and capital to include in net income, profits or earnings the portion of subscription or redemption prices attributable to accrued net income, profits or earnings in such prices, and to determine what accounting periods shall be used by the Trust for any purpose, whether annual or any other period, including daily; to set apart out of any funds of such series or class such reserves for such purposes as it shall determine and to abolish the same; to declare and pay dividends and distributions in cash, securities, or other property from surplus or capital or any funds of such series or class legally available therefor, at such intervals (which may be as frequently as daily) or on such other periodic basis as it shall determine; to declare such dividends or distributions by means of a formula or other method of determining at meetings held less frequently than the frequency of the effectiveness of such declarations; to establish payment dates for dividends or any other distributions on any basis, including dates occurring less frequently than the effectiveness of the declaration thereof; and to provide for the payment of declared dividends on a date earlier than the specified payment date in the case of shareholders of such series or class redeeming their entire ownership of shares of such series or class. Inasmuch as the computation of net income, profits or earnings for Federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give to the Board of Trustees the power in its discretion to distribute for any fiscal year as dividends and as capital gain distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce its liability for taxes. In the case of any series not divided into two or more classes of shares, each distribution pursuant to this Article NINTH shall be made ratably according to the number of shares of the series held by the several shareholders on the applicable record date thereof, provided that no distribution need be made on shares purchased pursuant to orders received, or for which payment is made, after such time or times as the Trustees may determine. In the case of any series divided into two or more classes, each distribution pursuant to this Article NINTH may be made in whole or in such parts as the Trustees may determine to the shareholders of any one or more classes, and the distribution to the shareholders of any class shall be made ratably according to the number of shares of the class (but need not be made ratably according to the number of shares of the series, considered without regard to class) held by the several shareholders on the record date thereof, provided that no distribution need be made on shares purchased pursuant to orders received, or for which payment is made, after such time or times as the Trustees may determine. Any such distribution paid in shares will be paid at the net asset value thereof as determined in accordance with Section III of Article SIXTH of this Declaration of Trust. No dividend or distribution (including, without limitation, any distribution paid upon termination of the Trust or of any series or class) with respect to, nor any redemption or repurchase of, the shares of any series or class shall be effected by the Trust other than from the assets of such series or class. TENTH: Indemnification. A. Indemnification Generally. The Trust shall indemnify, to the fullest extent permitted by applicable law, each person who is or has been a Trustee or officer (including each person who serves or has served at the Trust's request as a director, officer, or trustee of another organization in which the Trust has any interest as a shareholder, creditor or otherwise, and any heir, administrator or executor of such person) (a "Covered Person') against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and attorney's fees reasonably incurred by such Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (a 'Proceeding'), before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person. B. Determination of Eligibility, Notwithstanding the provisions of Section A of Article TENTH, to the extent required under the 1940 Act, (i) Article TENTH, Section A, shall not protect any person against any liability to the Trust or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office; (ii) in the absence of a final decision on the merits by a court or other body before whom a Proceeding was brought that a Covered Person was not liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office, no indemnification shall be permitted unless a determination that such person was not so liable shall have been made on behalf of the Trust by (a) the vote of a majority of the "disinterested, non-party Trustees," as defined below, or (b) an independent legal counsel as expressed in a written opinion; and (iii) the Trust shall not advance attorneys' fees incurred by a Covered Person in connection with Proceeding unless the Trust 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 shall provide security for his undertaking, or (b) the Trust shall be insured against losses arising by reason of any lawful advances, or (c) a majority of the disinterested, non-party Trustees of the Trust or an independent ' legal counsel, as expressed in a written opinion, shall 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. Such undertaking shall provide that the Covered Person to whom the advance was made shall not be obligated to repay pursuant to such undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction, including appeals therefrom, concerning the right of such Covered Person to be indemnified by the Trust or the obligation of such person to repay pursuant to the undertaking. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section 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 the Trust or to have been liable to the Trust 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. As used in this Article TENTH, the term disinterested, "non-party Trustee" is a Trustee who is not an "interested person" of the Trust, as defined in Section 2(a)(19) of the 1940 Act and against whom none of the Proceedings in question or another action, suit or other Proceeding on the same or similar grounds is then or has been pending. C. Indemnification Not Exclusive. The rights of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. Nothing contained in this Article shall affect any rights to indemnification to which Covered Persons and other persons may be entitled by contract (apart from the provisions of this Article TENTH) or otherwise under law, nor to limit the power of the Trust to indemnify such persons. D. Shareholders, In case any shareholder or former shareholder shall be held to be personally liable solely by reason of his or her being or having been a shareholder and not because of his or her acts or omissions, his or her noncompliance with applicable federal tax law, or for some other reason, the shareholder or former shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability. E. Contractual Rights. This Article TENTH shall be deemed to be a contract between the Trust and each person who is a Covered Person at any time this Article TENTH is in effect. Any repeal or other modification of this Article TENTH or of any applicable laws shall not limit any rights of indemnification then existing or arising out of events, acts, or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article TENTH with respect to events, acts or omissions prior to such repeal or modification. F. Protection of Rights. If a written claim for indemnification by a Covered Person under this Article TENTH is not promptly paid in full by the Trust after receipt by the Trust of such a claim, or if expenses have not been promptly advanced after compliance by a Covered Person with the requirements of this Article TENTH for such advancement, such Covered Person may, at any time thereafter, bring suit against the Trust to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such Covered Person shall also be entitled to be paid the reasonable expense therefor. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the requirements of this Article TENTH for advancement of expenses have been met by such Covered Person) that the indemnification of the Covered Person is prohibited, but the burden of proving such defense shall be on the Trust. Neither the failure of the Trust, including its disinterested non-party Trustees or independent legal counsel, to have made a determination that indemnification of a Covered Person is proper in the circumstances because he or she has met the applicable standard of conduct required under the 1940 Act, nor the actual determination by the Trust, including its disinterested non-party Trustees or independent legal counsel that the Covered Person had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that such Covered Person had not met the applicable standard of conduct. ELEVENTH: Reservation of Right to Amend. A. By Board of Trustees. Except when otherwise required by the 1940 Act, this Declaration of Trust may be amended at any time by a majority of the Trustees then in office, provided notice of any amendment (other than amendments having the purpose of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein, or having any other purpose which is ministerial or clerical in nature) shall be mailed promptly to shareholders of record at the close of business on the effective date of such amendment B. By Shareholders. Except when otherwise required by the 1940 Act, this Declaration of Trust may be amended at any time by a majority vote of the shares of the Trust entitled to be voted. TWELFTH: Shareholders' Voting Powers and Meetings. A. Shareholders' Voting Powers. The shareholders shall have power to vote only (i) for the election or removal of Trustees as provided in Article SEVENTH, Section A; (ii) with respect to any investment adviser as provided in Article SEVENTH, Section F; (iii) with respect to any termination of this Trust or a series thereof to the extent and as provided in Article FOURTEENTH; (iv) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article ELEVENTH, Section B; (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the shareholders; and (vi) with respect to such additional matters relating to the Trust as may be required by the 1940 Act, this Declaration of Trust, the By-Laws or any registration of the Trust with the SEC, or as the Board of Trustees may consider necessary or desirable. Each whole share outstanding on the record date established in accordance with the By-Laws shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of shareholders, shares shall be voted in the aggregate as a single class without regard to series or class, except: (1) when required by the 1940 Act or other applicable law or when the Trustees shall have determined that the matter affects one or more series or classes materially differently, shares shall be voted by individual series or class; or (2) when the Board of Trustees has determined that the matter affects only the interests of one or more series or classes, then only shareholders of such series or classes shall be entitled to vote thereon. Shares may be voted in person or by proxy. A proxy with respect to shares held in the names of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy, the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. At all meetings of shareholders, unless inspectors of election have been appointed, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. Unless otherwise specified in the proxy, the proxy shall apply to all shares of each series of the Trust owned by the shareholder. Until shares are issued, the Board of Trustees may exercise all rights of shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by shareholders. B. Meetings. Meetings of shareholders of the Trust or of any series or class may be called by the Board of Trustees, the President, the Executive Vice-President, any Vice-President, or such other person or persons as may be specified in the By-Laws and held from time to time for the purpose of taking action upon any matter requiring the vote or the authority of the shareholders of the Trust or any series or class as herein provided or upon any other matter deemed by the Board of Trustees to be necessary or desirable. Meetings of shareholders of the Trust or of any series or class shall be called by the Secretary or such other person or persons as may be specified in the By-Laws upon written application by shareholders holding at least 10% of the outstanding shares of the Trust, if shareholders of all series and classes are required hereunder to vote in the aggregate and not by individual series or class at such meeting, or of any series or class, if shareholders of such series or class are entitled hereunder to vote by individual series or class at such meeting, requesting that a meeting be called for a purpose requiring action by the shareholder as provided herein or in the By-Laws and provided that such application shall state the purpose or purposes of such meeting and the matters proposed to be acted on. C. Quorum and Required Vote, Thirty percent of the shares entitled to vote shall be a quorum for the transaction of business at a shareholders' meeting, except that if any provision of law or of this Declaration of Trust permits or requires that holders of any series or class shall vote as a series or class, then thirty percent of the aggregate number of shares of each series or class entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series or class. Any lesser number, however, shall be sufficient for adjournments or if no shares are represented thereat, any officer present thereat entitled to preside or act as secretary of such meeting may adjourn the meeting. Any adjourned session or sessions may be held within a reasonable time after the date set for the original meeting without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the By-Laws, a majority of the shares voted shall decide any questions and a plurality shall elect any Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series or class shall vote as a series or class, then a majority of the shares of that series or class voted on the matter shall decide that matter insofar as that series or class is concerned. The vote upon any question shall be by written ballot whenever requested by any person entitled to vote but, unless such a request is made, voting may be conducted by voice vote or in any other way approved by the meeting. D. Place of Meeting. All shareholders' meetings shall be held at the office of the Trust in the City of Boston, State of Massachusetts, except that the Board of Trustees or the President of the Trust may fix a different place of meeting within the United States, which shall be specified in the notice or waiver of notice of such meeting. E. Notice of Meetings: Adjournment. The Secretary or an Assistant Secretary shall cause notice of the place, date and hour and the purpose or purposes for which a meeting is called, to be mailed, postage prepaid, not less than seven days before the date of such meeting, to each shareholder entitled to vote at such meeting, at his address as it appears on the records of the Trust. Notice of any shareholders' meeting need not be given to any shareholder who shall sign a written waiver of such notice, whether before or after the time of such meeting, which waiver shall be filed with the record of such meeting, or to any shareholder who shall attend such meeting in person or by proxy. A meeting of shareholders convened on the date for which it was called may be adjourned from time to time, without further notice, to a date not more than 120 days after the original record date. F. Share Ledger. It shall be the duty of the Secretary or Assistant Secretary of the Trust to cause an original or duplicate share ledger to be maintained at the office of the Trust's transfer agent. Such share ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. G. Action by Written Consent. Any action taken by shareholders may be taken without a meeting if a majority of shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust or the By-Laws) consent to the action in writing and such written consents are filed with the records of the meetings of shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of shareholders. THIRTEENTH: Use of Name. The Trust acknowledges that it is adopting its trust name, and may adopt the names of various series of the Trust, through permission of Liberty Advisory Services Corp., a Massachusetts corporation, and agrees that Liberty Advisory Services Corp. reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "Liberty Variable Investment Trust," or any similar name to any other entity, including but not limited to any investment company of which Liberty Advisory Services Corp. or any subsidiary or affiliate thereof or any successor to the business thereof shall be the investment adviser. FOURTEENTH: Miscellaneous. A. Duration and Termination of Trust, Unless terminated as proved herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by the Trustees by written notice to the shareholders unless otherwise required by law. Any series of shares may be terminated at any time by the Trustees by written notice to the shareholders of such series unless otherwise required by law. Upon termination of the Trust or of any one or more series of shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated as may be determined by the Trustees, The Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the shareholders of the series involved, ratably according to the number of shares of such series held by the several shareholders of such series on the date of termination, provided that any distribution to the shareholders of a particular class of shares shall be made to such shareholders pro rata in proportion to the number of shares of such class held by each of them. Anything contained herein or otherwise to the contrary notwithstanding, the Trustees upon affirmative majority vote, may (a) select any entity, be it a corporation, association, trust or other kind of organization, or organize any such kind of entity, to take over the Trust property and carry on the affairs of the Trust, (b) merge the Trust into or sell, convey and transfer the Trust property to any such entity for such consideration and upon terms and conditions without limitation as they in their discretion deem suitable, and (c) take such other action as they may in their discretion deem either necessary or appropriate to accomplish or implement any action taken hereunder. B. Filing of Copies, References, Headings. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument, and all expressions such as "herein', "hereof", and "hereunder', shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. C. Applicable Law. This Declaration of Trust is made in the Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. D. Severability. If any Article or other portion of this Declaration of Trust shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall have not been reversed on appeal, such invalidity or unenforceability shall not affect the other provisions hereof, and this Declaration of Trust shall be construed in all respects as if such invalid or unenforceable provision has been omitted herefrom. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seal in the City of Boston, Massachusetts, for themselves and their assigns, as of the day and year first above written. /s/John V. Carberry /s/Tom Bleasdale John V. Carberry Tom Bleasdale /s/James E. Grinnell /s/Lora S. Collins James E. Grinnell Lora S. Collins /s/Salvatore Macera /s/Richard W. Lowry Salvatore Macera Richard W. Lowry /s/James L. Moody, Jr. ______________________________ James L. Moody, Jr. William E. Mayer /s/Thomas E. Stitzel /s/John J. Neuhauser Thomas E. Stitzel John J. Neuhauser /s/Anne-Lee Verville /s/Robert L. Sullivan Anne-Lee Verville Robert L. Sullivan
The Declaration of Trust establishing Liberty Variable Investment Trust, dated March 4, 1993, a copy of which is on file with the office of the Secretary of The Commonwealth of Massachusetts, provides that the name of "Liberty Variable Investment Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Liberty Variable Investment Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Trust, but the trust property only shall be liable. Then personally appeared the above-named Trustees and executed the Amended and Restated Establishment and Designation to the Agreement and Declaration of Trust of Liberty Variable Investment Trust as their free act and deed, before me, this April 27, 2000. /s/Mary P. Mahoney Notary Public My Commission Expires: 2/22/2002 LIBERTY VARIABLE INVESTMENT TRUST The undersigned, Secretary of Liberty Variable Investment Trust, a Massachusetts business trust (the "Trust"), DO HEREBY CERTIFY that attached hereto is a true and correct copy of an instrument of Amended and Restated Establishment and Designation of the Trust, duly executed by all of the Trustees of the Trust in accordance with provisions of the Declaration of Trust of the Trust. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of April , 2000. /s/Nancy L. Conlin Nancy L. Conlin Secretary THE COMMONWEALTH OF MASSACHUSETTS, SUFFOLK COUNTY April 27, 2000 Then personally appeared the above named person, Nancy L. Conlin, known by me to be the Secretary of Liberty Variable Investment Trust, a Massachusetts business trust, who acknowledged the foregoing instrument to be his free act and deed. Before me: /s/Mary P. Mahoney Notary Public My commission expires: 2/22/2002 EX-99.(B) 3 0003.txt AMENDED AND RESTATED BY-LAWS Original By-Laws 3/4/93 Amended 7/13/99 - Sec. 2.02 deleted, Sec. 2.03 - 2.08 renumbered Sec. 2.02 - 2.07; Sec. 3.05, New 2nd, 3rd and 4th Paragraph Amended 10/28/99 - Sec. 4.07, Sec. 4.08, Sec. 4.09, Sec. 4.10 and Sec. 4.11 BY-LAWS OF LIBERTY VARIABLE INVESTMENT TRUST ARTICLE I AGREEMENT AND DECLARATION OF TRUST, LOCATION OF OFFICES AND SEAL Section 1.01. Agreement and Declaration of Trust. These By-Laws shall be subject to the Agreement and Declaration of Trust as now in effect and as hereafter amended ("Declaration of Trust") of Keyport Variable Investment Trust, a Massachusetts business trust established by the Declaration of Trust (the "Trust"). For all purposes, except as noted in these By-Laws, "series" as used hereinafter shall refer to the Trust's investment portfolios ("Funds") and any series issued by such Funds. Section 1.02. Principal Office. A principal office of the Trust shall be located in Boston, Massachusetts. The Trust may, in addition, establish and maintain such other offices and places of business as the Board of Trustees may from time to time determine. Section 1.03. Seal. The seal of the Trust shall be circular in form and shall bear the name of the Trust, the word "Massachusetts," and the year of its organization. The form of the seal shall be subject to alteration by the Board of Trustees and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any officer or Trustee of the Trust shall have authority to affix the seal of the Trust to any document requiring the same. Unless otherwise required by the Board of Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE II BOARD OF TRUSTEES Section 2.01. Number and Term of Office. The Board of Trustees shall initially consist of the initial sole Trustee and his or her successor, which number may be increased or subsequently decreased by a resolution of a majority of the entire Board of Trustees, provided that the number of Trustees shall not be less than one nor more than twenty-three. Each Trustee (whenever selected) shall hold office until the next meeting of shareholders and until his successor is elected and qualified or until his earlier death, resignation, or removal. The initial Trustee shall be the person designated in the Declaration of Trust. Section 2.02. Annual and Regular Meetings. Annual and regular meetings of the Board of Trustees may be held without call or notice and at such places at such times as the Board of Trustees may from time to time determine provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. Unless otherwise required by the Investment Company Act of 1940 (the "1940 Act"), members of the Board of Trustees or any committee designated thereby may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment, by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 2 03. Special Meeting. Special meetings of the Board of Trustees shall be held whenever called and at such place and time determined by the President, or by any one of the Trustees, at the time being in office, at the time and place specified in the respective notices or waivers of notice of such meetings. Section 2.04. Notice. If notice of a meeting of the Board of Trustees is required or desired to be given, notice stating the time and place shall be mailed to each Trustee at his residence or regular place of business at least two days before the day on which the meeting is to be held, or caused to be delivered to him personally or to be transmitted to him by telephone, telegraph, cable, or wireless at least one day before the meeting. A notice or waiver of notice of a meeting need not specify the purpose thereof. Section 2.05. Waiver of Notice. No notice required or desired to be given of any meeting need be given to any Trustee who attends such meeting in person or to any Trustee who waives notice of such meeting in writing (which waiver shall be filed with records of such meeting), whether before or after the time of the meeting. Section 2.06. Quorum and Voting. At all meetings of the Board of Trustees, the presence of a majority of the Trustees then in office shall constitute a quorum for the transaction of business. In the absence of a quorum a majority of the Trustees present may adjourn the meeting without further notice, from time to time, until a quorum shall be present The action of a majority of the Trustees present at a meeting at which a quorum is present shall be the action of the Board of Trustees, unless the concurrence of a greater proportion of a proportion of Trustees who are not interested persons as defined by the 1940 Act is required for such action by law, by the Declaration of Trust, or by these By-Laws. Section 2.07. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Trustees may be taken without a meeting, unless otherwise required by the 1940 Act, if all the Trustees consent to the action in writing, and such written consents are filed with the minutes of proceedings of the Board of Trustees. Such consents shall be treated as a vote for all purposes. ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES Section 3.01. How Constituted. By resolution adopted by the Board of Trustees, the Board may designate one or more committees, including an Executive Committee. The number composing such committees (not less than two in the case of any Executive Committee) shall be determined by the Board of Trustees. Each member of a committee shall be a Trustee and shall hold office during the pleasure of the Board. Section 3.02. Powers of the Executive Committee. Unless otherwise provided by resolution of the Board of Trustees, the Executive Committee shall have and may exercise all powers of the Board of Trustees in the management of the business and affairs of the Trust that may lawfully be exercised by an executive committee, except the power to recommend to shareholders any matter requiring shareholder approval amend the Declaration of Trust or By-Laws, or approve any merger or share exchange that does not require shareholder approval. Section 3.03. Other Committees of the Board of Trustees. To the extent provided by resolution of the Board, other committees of the Board shall have and may exercise any of the powers that may lawfully be granted to the Executive Committee. Section 3.04. Proceedings, Quorum and Manner of Acting. In the absence of appropriate resolution of the Board of Trustees, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting, as it shall deem proper and desirable. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum may appoint a member of the Board of Trustees to act in the place of such absent member. Section 3.05. Other Committees. The Board of Trustees may appoint other committees, each consisting of one or more persons, who need not be Trustees. Each such committee shall have such powers and perform such duties as may be assigned to it from time to time by the Board of Trustees, but shall not exercise any power which may lawfully be exercised only by the Board of Trustees or a committee thereof. The Board of Trustees may appoint a Dividend Committee of not less than three officers who may (but need not) be Trustees. From time to time as it may deem advisable, the Dividend Committee may declare and pay dividends to the shareholder of any series of the Trust in cash or other property of that series, out of any source available to that series for dividends, according to the respective rights and interest of shareholders of that series and in accordance with such series' policies as set forth in each prospectus and statement of additional information. The Dividend Committee may prescribe, from time to time, that dividends declared on shares of a series may be payable at the election of any of the shareholders of that series (exercisable before the declaration of the dividend), either in cash or in shares of that series; provided that the net asset value of the shares received by a shareholder electing to receive dividends in shares (determined as of such time as the Dividend Committee shall have prescribed in accordance with such series' policies as set forth in each prospectus and statement of additional information.) shall not exceed the full amount of cash to which the shareholder would be entitled if he elected to receive cash. No special compensation shall be payable to members of the Dividend Committee. Each member of the Dividend Committee will hold office until the successors are elected and qualified or until the member dies, resigns, is removed, becomes disqualified or until the Committee is abolished by the Trustees. Section 3.06. Action without a Meeting. Any action required or permitted to be taken at any meeting of any committee may be taken without a meeting, if all the members thereof consent to the action in writing, and such written consents are filed with the minutes of proceedings of the Board of Trustees or of the committee. Section 3.07. Waiver of Notice. Whenever any notice of the time, place or purpose of any meeting of any committee is required to be given under the provisions of any applicable law or under the provisions of the Declaration of Trust or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding of such meeting, or actual attendance at the meeting in person, shall be deemed equivalent to the giving of such notice to such persons. ARTICLE IV OFFICERS Section 4.01. General. The officers of the Trust shall be a President, a Secretary, and a Treasurer, who shall be elected by the Trustees. The Trustees may elect or appoint such other officers or agents as they deem advisable including, without limitation, a Controller, one or more Vice Presidents, one or more Assistant Treasurers, and one or more Assistant Secretaries. Section 4.02. Term of Office and Qualifications. Except as otherwise provided by law, the Declaration of Trust of these by-laws, the President, the Treasurer and the Secretary shall each hold office until his successor shall have been duly elected and qualified or until his or her earlier death, resignation or removal, and all other officers shall hold office at the pleasure of the Trustees. Any person may hold one or more offices of the Trust except the offices of President and Vice-President, but no officer shall execute, acknowledge, or verify an instrument in more than one capacity, if such instrument is required by law, by the Declaration of Trust, or by these By-Laws to be executed, acknowledged or verified by two or more officers. The Chairman of the Board, if any, shall be chosen from among the Trustees of the Trust and may hold such office only so long as he continues to be a Trustee. No other officer need be a Trustee. Section 4.03. Resignation. Any officer may resign his office at any time by delivering a written resignation to the Board of Trustees, the President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 4.04. Removal. Any officer may be removed from office, whenever in the Board's judgment the best interest of the Trust will be served thereby, by the vote of a majority of the Trustees then in office given at any regular or special meeting. In addition, any officer or agent appointed by an officer or committee may be removed, either with or without cause, by such appointing officer or committee. Section 4.05. Chairman of the Board. In the absence or disability of the President, the Chairman of the Board, if there be such an officer, shall preside at all shareholders' meetings and at all meetings of the Board of Trustees. He shall have such other powers and perform such other duties as may be assigned to him or her from time to time by the Board of Trustees. Section 4.06. Powers and Duties of the President. The President may call meetings of the Trustees and of any Committee thereof when he deems it necessary and shall preside at all meetings of the Shareholders. Subject to the control of the Trustees and to the control of any Committees of the Trustees, within their respective spheres, as provided by the Trustees, he shall at all times exercise a general supervision and direction over the affairs of the Trust. He shall have the power to employ attorneys and counsel for the Trust and to employ such subordinate officers. agents, clerks and employees as he may find necessary to transact the business of the Trust. He shall also have the power to grant, issue, execute or sign such powers of attorney, proxies or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust. The President shall have such other powers and duties, as from time to time may be conferred upon or assigned to him by the Trustees. Section 4.07. Powers and Duties of Vice Presidents. In the absence or disability of the President, the Vice President or, if there be more than one Vice president, any Vice President designated by the Trustees shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Trustees. Each Vice President shall perform such other duties as may be assigned to him from time to time by the Trustees and the President, including the appointment of Assistant Vice Presidents. Section 4.08. Powers and Duties of the Treasurer. The Treasurer shall be the principal financial officer of the Trust, and, in the absence of a Controller of the Trust serving as the principal accounting officer, shall be the principal accounting officer of the Trust. He shall deliver all funds of the Trust which may come into his hands to such Custodian as the Trustees may employ pursuant to Article V of these By-Laws. He shall render a statement of condition of the finances of the Trust to the Trustees as often as they shall require the same and he shall in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Trustees. The Treasurer shall have the power to appoint one or more Assistant Treasurers. The Treasurer shall give a bond for the faithful discharge of his duties, if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require. Section 4.09. Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Trustees and of the Shareholders in proper books provided for that purpose; he shall have custody of the seal of the Trust; he shall have charge of the Share transfer books, lists and records unless the same are in the charge of the Transfer Agent. He shall attend to the giving and serving of all notices by the Trust in accordance with the provision of these By-Laws and as required by law; and subject to these By-Laws, he shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Trustees, The Secretary shall have the power to appoint one or more Assistant Secretaries. Section 4.10. Powers and Duties of Assistant Treasurers. In the absence or disability of the Treasurer, any Assistant Treasurer designated by the Trustees shall perform such other duties as from time to time may be assigned to him by the Trustees. Each Assistant Treasurer shall perform such other duties as may from time to time be assigned to him by the Trustees or by the Treasurer. Each Assistant Treasurer shall give a bond for the faithful discharge of his duties if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require. Section 4.11. Powers and Duties of Assistant Secretaries. In the absence or disability of the Secretary, any Assistant Secretary designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Secretary. Each Assistant Secretary shall perform such other duties as from time to time may be assigned to him by the Trustees or by the Secretary. Section 4.12. Remuneration. The compensation, if any, or other compensation of the officers and Trustees of the Trust shall be fixed from time to time by the Board of Trustees. Section 4.13. Surety Bonds. The Board of Trustees may require any officer or agent of the Trust to execute a bond to the Trust (including, without limitation, any bond required by the 1940 Act and the rules and regulations of the SEC thereunder) in such sum and with such surety or sureties as the Board of Trustees may determine, conditioned upon the faithful performance of his duties to the Trust, including responsibility for negligence and for the accounting of any of the Trust's property, funds, or securities that may come into his hands. ARTICLE V CUSTODY OF SECURITIES Section 5.01. Employment of a Custodian. The Trust shall place and at all times maintain in the custody of a Custodian (including any sub-custodian for the Custodian) all securities and similar investments owned by the Trust for the benefit of any series and cash representing the proceeds from sales of securities owned by the Trust for the benefit of any series and of capital stock or other units of beneficial interest issued to the Trust for the benefit of any series, payments of principal upon securities owned by the Trust for the benefit of any series, or capital distribution in respect to capital stock or other units of beneficial interest owned by the Trust for the benefit of any series, pursuant to a written contract with such Custodian. The Custodian shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits (as shown in its last published report). Section 5.02. Provisions of Custodian Contract. The Custodian contract shall be upon such terms and conditions and may provide for such compensation as the Board of Trustees deems necessary or appropriate, provided that such contract shall include all such provisions that are required by, and shall otherwise comply with, the applicable provisions of the 1940 Act and the rules and regulations thereunder as in effect from time to time. ARTICLE VI EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY HOLDER Section 6.01. General. All deeds, documents, transfers, contracts, agreements and other instruments requiring execution by the Trust shall be signed by the President, any Vice-President, or the Treasurer, or as the Board of Trustees may otherwise, from time to time, authorize. Any such authorization may be general or confined to specific instances. Section 6.02. Rights as Security Holder. Unless otherwise ordered by the Board of Trustees, any officer shall have full power and authority on behalf of the Trust to (1) exercise (or waive) any and all rights, powers and privileges incident to the ownership of any securities or other obligations which may be owned by the Trust; and (2) attend and to act and to vote, or in the name of the Trust to execute proxies to vote, at any meeting of security holders of any company in which the Trust may hold securities. At any such meeting, any officer shall possess and may exercise (in person or by proxy) any and all rights, powers and privileges incident to the ownership of such securities. ARTICLE VII SHARES OF BENEFICIAL INTEREST Section 7.01. Certificates. Each shareholder shall be entitled, upon request, to a certificate or certificates which shall represent and certify the number, kind, series and class of full shares owned by him in the Trust. No certificates shall be issued for fractional shares. Each certificate shall be signed by the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and shall be sealed with the Seal. The signatures may be either manual or facsimile signatures and the seal may be either facsimile or any other form of seal. In case any officer who has signed any certificate ceases to be an officer of the Trust before the certificate is issued, the certificate may nevertheless be issued by the Trust with the same effect as if the officer had not ceased to be such officer as of the date of its issue. Section 7.02. Uncertificated Shares. The Trust's share ledger shall be deemed to represent and certify the number of full and/or fractional shares of a series owned of record by a shareholder in those instances where a certificate for such shares has not been issued. Section 7.03. Transfers of Shares. Shares of any series of the Trust shall be transferable on the books of the Trust at the request of the record holder thereof in person or by a duly authorized attorney, upon presentation to the Trust or its transfer agent of a duly executed assignment or authority to transfer, or proper evidence of succession, and, if the shares are represented by a certificate, a duly endorsed certificate or certificates of shares surrendered for cancellation, and with such proof of the authenticity of the signatures and as to other relevant matters as the Trust or its transfer agent may reasonably require. The transfer shall be recorded on the books of the Trust, the old certificates, if any, shall be canceled, and the new record holder, upon request, shall be entitled to a new certificate or certificates. Section 7.04. Registered Shareholders. The Trust shall be entitled to treat the holder of record of shares of each series as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof except as otherwise provided by the laws of Commonwealth of Massachusetts. Section 7.05. Transfer Agents and Registrars. The Board of Trustees may, from time to time, appoint or remove transfer agents and/or registrars of transfers of shares of the Trust, and it may appoint the same person as both transfer agent and registrar. Upon any such appointment being made, all certificates representing shares thereafter issued shall be countersigned by one of such transfer agents or by one of such registrars of transfers or by both and shall not be valid unless so countersigned. If the same person shall be both transfer agent and registrar, only one countersignature by such person shall be required. Section 7.06. Fixing of Record Date. The Board of Trustees may fix in advance a date as a record date for the determination of the shareholders of any series entitled to notice of or to vote at any meeting of such shareholders or any adjournment thereof, or to express consent to Trust action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of shares of such series, or for the purpose of any other lawful action, provided that such record date shall not be a date more than 60 days, and, in the case of a meeting of shareholders, not less than 10 days, prior to the date on which the particular action requiring such determination of shareholders of such series is to be taken. In such case only such shareholders as shall be shareholders of record of such series on the record date so fixed shall be entitled to such notice of, and to vote at, such meeting or adjournment, or to give such consent, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, or to take such other action, as the case may be, notwithstanding any transfer or redemption of any shares of such series on the books of the Trust after any such record date. If no record date has been fixed for the determination of shareholders, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which notice of the meeting is mailed, which shall not be more than 70 days before the meeting, or, if notice is waived by all shareholders entitled thereto, at the close of business on the tenth day before the day on which the meeting is held. Section 7.07. Lost, Stolen, or Destroyed Certificates. Before issuing a new certificate for shares of any series of the Trust alleged to have been lost, stolen, or destroyed, the Board of Trustees or any officer authorized by the Board may, in its or his discretion, require the owner of the lost, stolen, or destroyed certificate (or his legal representative) to give the Trust a bond or other indemnity, in such form and in such amount as the Board or any such officer may direct and with such surety or sureties as may be satisfactory to the Board or any such officer, sufficient to indemnify the Trust against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate. Section 7.08. Discontinuance of Issuance of Certificates. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. ARTICLE VIII FISCAL YEAR ACCOUNTANT Section 8.01. Fiscal Year. The fiscal year of the Trust shall be established by the Board of Trustees. Section 8.02. Accountant. The Trust shall employ an independent public accountant or firm of independent public accountants as its Accountant to examine and certify or issue its report on the financial statements of the Trust. ARTICLE IX AMENDMENTS Section 9.01. General. Except as provided in Section 9.02 hereof, all ByLaws of the Trust, whether adopted by the Board of Trustees or the shareholders, shall be subject to amendment, alteration, or repeat and new By-Laws may be made, by the affirmative vote of a majority of either: (a) the holders of record of the outstanding shares of the Trust entitled to vote to any meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal, or new By-Laws or (b) the Trustees, at any regular or special meeting. Section 9.02. By Shareholders Only. (a) No amendment of any section of these By-Laws shall be made except by the shareholders of the Trust, if the By-Laws provide that such section may not be amended, altered or repealed except by the shareholders. (b) From and after the effectiveness of the Trust's Registration Statement under the Securities Act of 1933, no amendment of this Article IV or Article X shall be made except by the shareholders of the Trust. ARTICLE X MISCELLANEOUS Section 10.01. Restrictions and Limitations (a) The Trust shall not lend assets of the Trust to any officer or Trustee of the Trust or to any officer, director, or stockholder (or partner of a stockholder) of, or person financially interested in, the investment adviser or any underwriter of the Trust, or to the investment adviser of the Trust or to any underwriter of the Trust. (b) The Trust shall not restrict the transferability or negotiability of the shares of the Trust, except in conformity with the statements with respect thereto contained in the Trust's Registration Statement, and not in contravention of such rules and regulations as the SEC may prescribe. (c) The Trust shall not permit any officer or Trustee of the Trust, or any officer, director, or stockholder (or partner of a stockholder) of the investment adviser or any underwriter of the Trust to deal for or on behalf of the Trust with himself as principal or agent, or with any partnership, association or trust in which he has a financial interest; provided that the foregoing provisions shall not prevent, to the extent consistent with applicable securities laws: (1) officers and Trustees of the Trust from buying, holding, redeeming, or selling shares in the Trust, or from being officers, directors, or stockholders (or partners of a stockholder) of or otherwise financially interested in the investment adviser or any underwriter of the Trust; (2) purchases or sales of securities or other property by the Trust from or to an affiliated person or to the investment adviser or any underwriter of the Trust, if such transactions are not prohibited by the 1940 Act or have been exempted by SEC order from the prohibitions of the 1940 Act; (3) purchases of investments for the portfolio of the Trust through a securities dealer who is, or one or more of whose partners, stockholders, officers, or directors is, an officer or Trustee of the Trust, if such transactions are handled in the capacity of broker only and commissions charged do not exceed customary brokerage charges for such services; (4) employment of legal counsel, registrar, transfer agent, dividend disbursing agent, or custodian who is, or has a partner, stockholder, officer, or director who is, an officer or Trustee of the Trust, if only customary fees are charged for services to the Trust; (5) sharing statistical research, legal and management expenses and office hire and expenses with any other investment company in which an officer or Trustee of the Trust is an officer, trustee, or director or otherwise financially interested. EX-99.(D)(1)(I) 4 0004.txt FORM OF EXPENSE REIMBURSEMENT AGMT EXPENSE REIMBURSEMENT AGREEMENT AGREEMENT made this 30th day of May, 2000, by and between LIBERTY VARIABLE INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), on its own behalf and on behalf of Liberty Value Fund, 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; Liberty Newport Japan Opportunities Fund, Variable Series; Liberty Select Value Fund, Variable Series; Rydex Financial Services Fund, Variable Series; Rydex Health Care Fund, Variable Series; and Liberty S&P 500 Index Fund, Variable Series (each a "Fund," and collectively, the "Funds"), and LIBERTY ADVISORY SERVICES CORP., a corporation organized under the laws of The Commonwealth of Massachusetts (the "Advisor") and LIBERTY FUNDS DISTRIBUTOR, INC., a corporation organized under the laws of The Commonwealth of Massachusetts (the "Distributor"). WHEREAS, the Funds and the Advisor have separately entered into a Management Agreement of even date herewith (the "Management Agreement") and the Trust and the Distributor have entered into a 12b-1 Implementing Agreement and Underwriting Agreement of even date herewith (the "Distribution Agreement"); In consideration of the mutual covenants hereinafter contained it is hereby agreed by and between the parties hereto as follows: 1. For the period from May 30, 2000 through April 30, 2001, the Advisor and the Distributor agree to reimburse the Fund for all expenses, including management fees, but excluding interest, taxes, brokerage and extraordinary expenses, incurred by each Fund 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%
The Distributor 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, the Advisor 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, the Advisor will then waive a portion of its management fee to reach the above stated limits. 2. This Agreement, and the Advisor's and Distributor's obligation to so waive expenses hereunder, shall terminate on the earlier of (a) April 30, 2001 or (b) termination of the Management Agreement and Distribution Agreement. 3. Except as provided in paragraph 2 above, this Agreement may be terminated only by the vote of (a) the Board of Trustees of the Funds, including the vote of the members of the Board who are not "interested persons" within the meaning of the Investment Company Act of 1940, and (b) a majority of the outstanding voting securities of each Fund. 4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder shall not be thereby affected. 5. The Trust's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. This Agreement is executed on behalf of the Funds by the Funds' officers as officers and not individually and the obligations imposed upon the Funds by this Agreement are not binding upon any of the Funds' Trustees, officers or shareholders individually but are binding only upon the assets and property of each Fund. IN WITNESS WHEREOF, the Funds, the Advisor and the Distributor have caused this Agreement to be executed on the day and year above written. LIBERTY VARIABLE INVESTMENT TRUST on its own behalf and on behalf of Liberty Value Fund, 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; 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 By: /s/Stephen E. Gibson LIBERTY ADVISORY SERVICES CORP. By: /s/Philip K. Polkinghorn LIBERTY FUNDS DISTRIBUTOR, INC. By: /s/James Tambone EX-99.(D)(1)(II) 5 0005.txt MGMT AGMT WITH RESPECT TO LNJOF, LSVF AND LASC LIBERTY VARIABLE INVESTMENT TRUST LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES LIBERTY SELECT VALUE FUND, VARIABLE SERIES MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT ("Agreement"), made this 30th day of May, 2000, between LIBERTY VARIABLE INVESTMENT TRUST, a business trust organized under the laws of The Commonwealth of Massachusetts (the "Trust"), on its own behalf and on behalf of Liberty Newport Japan Opportunities Fund, Variable Series and Liberty Select Value Fund, Variable Series (each a "Fund," and collectively, the "Funds"), and LIBERTY ADVISORY SERVICES CORP., a corporation organized under the laws of The Commonwealth of Massachusetts (the "Manager"). WHEREAS, the Trust has been organized as an open-end management investment company registered as such under the Investment Company Act of 1940, as amended ("Investment Company Act"), and is authorized to issue shares of beneficial interest in one or more separate series (each representing interests in a separate portfolio of securities and other assets), including the Funds, which shares are to be issued and sold to and held by various separate accounts of Keyport Life Insurance Company ("Keyport"), Independence Life & Annuity Insurance Company ("Independence") and Liberty Life Assurance Company of Boston ("Liberty Life") or separate accounts of other insurance companies that are affiliated or are not affiliated with Keyport (collectively, "Participating Insurance Companies"); WHEREAS, the Trust heretofore has created (i) two other separate funds which are covered by the Management Agreement dated June 7, 1993 among the Trust, on its own behalf and on behalf of such other two series funds, and the Manager, (ii) three other separate funds which are covered by the Management Agreement dated as of May 2, 1994 among the Trust, on its own behalf and on behalf of such other three series funds, and the Manager, (iii) one other separate fund which is covered by the Management Agreement dated as of May 1, 1995 among the Trust, on its own behalf and on behalf of such other series fund, and the Manager, (iv) one other separate fund which is covered by the Managers Agreement dated as of November 15, 1997 among the Trust, on its own behalf and on behalf of such other series fund, and the Manager, (v) two other separate funds which are covered by the Management Agreement dated as of May 19, 1998 among the Trust, on its own behalf and on behalf of such other two series funds, (vi) three other separate funds which are covered by the Management Agreement dated as of June 1, 1999 among the Trust, on its own behalf and on behalf of such other three series funds and the Manager, and the Trust may in the future create additional fund(s) that may be covered by other separate agreements; WHEREAS, the Trust desires the Manager to render certain administrative services and to render total investment management services to the Trust and the Funds, all in the manner and on the terms and conditions hereinafter set forth; WHEREAS, the Trust authorizes the Manager to enter into sub-advisory agreements with one or more firms registered as investment advisers under the Investment Advisors Act of 1940, as amended (the "Investment Adviser's Act"), or qualifying as a "bank" within the meaning of the Investment Adviser's Act and thereby exempted from the requirement to be so registered, to manage all or a portion of a Fund's assets, as determined by the Manager from time to time (a "Sub-Adviser"); and WHEREAS, the Manager is registered as an investment adviser under the Investment Adviser's Act, and desires to provide services to the Trust and the Funds in consideration of and on the terms and conditions hereinafter set forth; NOW, THEREFORE, the Trust, on its own behalf and on behalf of the Funds, and the Manager hereby agree as follows: 1. Employment of the Investment Adviser. The Trust hereby employs the Manager (i) to provide certain administrative and limited oversight services and (ii) to provide investment management and related services to the Trust and the Funds, all in the manner set forth in Section 2 of this Agreement, subject to the direction of the Trustees, and for the period, in the manner, and on the terms set forth hereinafter. The Manager hereby accepts such employment and agrees during such period to render the services and to assume the obligations herein set forth. The Manager shall for all purposes herein be deemed to be an independent contractor and, except as expressly provided or authorized (whether herein or otherwise), shall have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 2. Obligations of, and Services to be Provided by, the Manager. The Manager undertakes to provide the services hereinafter set forth and to assume the following obligations: A. Administrative Services. (a) The Manager will provide general administrative services as hereinafter set forth ("Administrative Services"), all subject to the overall direction and control of the Board of Trustees of the Trust (the "Board"). (b) Such Administrative Services shall not include investment advisory, custodian, underwriting and distribution, transfer agency or pricing and bookkeeping services, but shall include; (i) provision of office space, equipment and facilities necessary in connection with the services to be performed hereunder and the maintenance of the headquarters of the Trust; (ii) maintenance of the corporate books and records of the Trust (other than those of its records maintained by the Sub-Advisers referred to in paragraph 2(B)(c) below, the transfer agent, the custodian and the pricing and bookkeeping agent); (iii) administration of all dealings and relationships with the Trustees for meetings of the Board, the scheduling of such meetings and the conduct thereof; (iv) preparation and filing of proxy materials and administration of arrangements for meetings of shareholders or beneficial owners of the Funds; (v) preparation and filing of all required reports and all updating and other amendments to the Trust's Registration Statement under the Investment Company Act, the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations thereunder; (vi) calculation of distributions required or advisable under the Investment Company Act and the Internal Revenue Code of 1986, as amended (the "Code"); (vii) periodic computation and reporting to the Trustees of each Fund's compliance with diversification and other portfolio requirements of the Investment Company Act and the Code; (viii) development and implementation of general shareholder and beneficial owner correspondence and communications relating to the Funds, including the preparation and filing of shareholder and beneficial owner reports as are required or deemed advisable; and (ix) general oversight of the custodial, net asset value computation, portfolio accounting, financial statement preparation, legal, tax and accounting services performed for the Trust or the Funds by others. It is understood that the Manager may, in its discretion and at its expense, delegate some or all of its administrative duties and responsibilities under this subsection 2A to its affiliate, Liberty Financial Companies, Inc. ("LFC"), or any majority or greater owned subsidiaries of LFC. B. Investment Advisory Services. (a) The Manager shall have responsibility for the management and investment of the assets of the Funds, subject to and in accordance with the separate investment objectives, policies and limitations of the Funds, as provided in the Trust's Prospectus and Statement of Additional Information and governing instruments, as amended from time to time, and any directions and policies which the Trustees may issue to the Manager from time to time. (b) The Manager shall provide a continuous investment program for the Funds, shall revise each such program as necessary, and shall monitor implementation of the program. (c) The Manager may delegate its investment responsibilities under paragraph 2B(a) with respect to each Fund to one or more persons or companies registered as investment advisers under the Investment Adviser's Act or qualifying as a "bank" within the meaning of the Investment Adviser's Act and thereby exempted from the requirement to be so registered ("Sub-Advisers") pursuant to an agreement among the Trust, such Fund and each Sub-Adviser ("Sub-Advisory Agreement"). Each Sub-Advisory Agreement may provide that the Sub-Adviser, subject to the control and supervision of the Trustees and the Manager, shall have full investment discretion for the Funds and shall make all determinations with respect to the investment of the Funds' assets or any portion thereof specified by the Manager. Any delegation of duties pursuant to this paragraph shall comply with any applicable provisions of Section 15 of the Investment Company Act, except to the extent permitted by any exemptive order of the Securities and Exchange Commission or similar relief. (d) The Manager shall be solely responsible for paying the fees of each Sub-Adviser from the fees it collects as provided in paragraph 6 below. (e) The Manager shall evaluate possible Sub-Advisers and shall advise the Trustees of the candidates which the Manager believes are best suited to invest the assets of each Fund; shall monitor and evaluate the investment performance of each Sub-Adviser; shall recommend changes of or additions of Sub-Advisers when appropriate; and shall coordinate the investment activities of the Sub-Advisers. (f) It is understood that the Manager may seek advice with respect to the performance of any or all of its duties under paragraphs 2B(b) and (c) from a person or company ("Consultant") pursuant to an agreement among the Manager, the Trust and the Consultant (a "Fund Consulting Agreement"). The Fund Consulting Agreement may provide that the Consultant, subject to the control and supervision of the Trustees and the Manager, shall provide assistance to the Manager with respect to a Fund's investment program, the selection, monitoring and evaluation of Sub-Advisers and the allocation of each Fund's assets to the Sub-Advisers. (g) The Funds shall be solely responsible for paying the fees of any Consultant. (h) The Manager shall render regular reports to the Trustees relating to the performance of its duties specified in paragraphs 2B(a), (b) and (c). C. Expenses Borne By Manager. To the extent necessary to perform its obligations under this Agreement, the Manager, at its own expense, shall furnish executive and other personnel and office space, equipment and facilities, and shall pay any other expenses incurred by it, in connection with the performance of its duties hereunder, except that the Trust or the Funds, as appropriate, shall reimburse the Manager for its out-of-pocket costs, including telephone, postage and supplies, incurred by it in connection with communications with shareholders and beneficial owners of the Funds. The Manager shall pay all salaries, fees and expenses of Trustees or officers of the Trust who are employees of the Manager. The Manager shall not be obligated to bear any other expenses incidental to the operations and business of the Trust. The Manager shall not be required to pay or provide any credit for services provided by the Trust's custodian, transfer agent or other agents. D. Provision of Information Necessary for Preparation of Registration Statement Amendments and Other Materials. The Manager will make available and provide such information as the Trust may reasonably request for use in the preparation of its Registration Statement, reports and other documents required by federal laws and any securities and insurance laws of the other states and other jurisdictions in which the Trust's shares are sold. E. Code of Ethics. The Manager has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Investment Company Act and has provided the Trust with a copy of the code of ethics and evidence of its adoption. Within forty-five (45) days of the end of the last calendar quarter of each year while this Agreement is in effect, an executive officer of the Manager shall verify to the Trustees that the Manager has complied with the requirements of Rule 17j-1 during the previous year and that there has been no violation of the Manager's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of the Trust, the Manager shall permit the Trust to examine the reports required to be made to the Manager by Rule 17j-1(c)(1). F. Disqualification. The Manager shall immediately notify the Trustees of the occurrence of any event which would disqualify the Manager from serving as an investment adviser of an investment company pursuant to Section 9(a) of the Investment Company Act or any other applicable statute or regulation. G. Other Obligations and Service. The Manager shall make its officers and employees available to the Trustees and officers of the Trust for consulting and discussions regarding the management of the Trust and its investment activities. 3. Execution and Allocation of Portfolio Brokerage. A. The Manager, subject to the control and direction of the Trustees, any Sub-Advisers, subject to the control and direction of the Trustees and the Manager, shall have authority and discretion, as appropriate, to select brokers and dealers to execute portfolio transactions for each Fund, and for the selection of the markets on or in which the transactions will be executed. B. In acting pursuant to paragraph 3A, the Manager and the Sub-Advisers may place orders through such brokers and dealers in conformity with the policy with respect to brokerage set forth in the Trust's then effective Registration Statement. C. It is understood that none of the Trust, the Manager or any Sub-Advisers will adopt a formula for allocation of the Trust's brokerage, except as may be provided for in the custody agreement with the Trust's Custodian. D. It is understood that the Manager or a Sub-Adviser may, to the extent permitted by applicable laws and regulations, aggregate securities to be sold or purchased for a Fund and for other clients in order to obtain the most favorable price and efficient execution. In that event, allocation of the securities purchased or sold, as well as expenses incurred in the transaction, will be made by the Manager or Sub-Adviser, as the case may be, in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Trust and to its other clients, and in conformity with any applicable policies adopted by the Board of Trustees. E. The Manager shall provide such reports as the Trustees may reasonably request with respect to each Fund's total brokerage and the manner in which that brokerage was allocated. 4. Expenses of the Trust. It is understood that the Trust (or each of its funds (including the Funds), where applicable) will pay, or will enter into arrangements that require third parties to pay, all of the expenses of the Trust or such funds, other than those expressly assumed by the Manager herein, including without limitation: A. Advisory, sub-advisory and administrative fees; B. Fees for services of independent public accountants; C. Legal and consulting fees; D. Transfer agent, custodian and portfolio recordkeeping and tax information services; E. Expenses of periodic calculations of the funds' net asset values and of equipment for communication among the funds' custodian, transfer agent and others; F. Taxes and the preparation of the funds' tax returns; G. Brokerage fees and commissions; H. Interest; I. Costs of Board of Trustees and shareholder meetings; J. Updates and printing of prospectuses and reports to shareholders; K. Fees for filing reports with regulatory bodies and the maintenance of the Trust's existence; L. Membership dues for industry trade associations; M. Fees to federal authorities for the registration of the shares of the funds; N. Fees and expenses of Trustees who are not directors, officers, employees or stockholders of the Manager of its affiliates; O. Insurance and fidelity bond premiums; and P. Litigation and other extraordinary expenses of a non-recurring nature. 5. Activities and Affiliates of the Manager. A. The Trust acknowledges that the Manager or one or more of its affiliates may have investment or administrative responsibilities or render investment advice to or perform other investment advisory services for other individuals or entities, and that the Manager, its affiliates or any of its or their directors, officers, agents or employees may buy, sell or trade in securities for its or their respective accounts ("Affiliated Accounts"). Subject to the provisions of paragraph 3, the Trust agrees that the Manager or its affiliates may give advice or exercise investment responsibility and take such other action with respect to Affiliated Accounts which may differ from the advice given or the timing or nature of action with respect to the Funds, provided that the Manager acts in good faith. The Trust acknowledges that one or more of the Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Funds may have an interest. The Manager shall have no obligation to recommend for the Funds a position in any investment which an Affiliated Account may acquire, and the Trust shall have no first refusal, co-investment or other rights in respect of any such investment, either for the Funds or otherwise. B. Subject to and in accordance with the Declaration of Trust and By-Laws of the Trust as currently in effect and the Investment Company Act and the rules thereunder, it is understood that Trustees, officers and agents of the Trust and shareholders of the Trust are or may be interested persons as defined by the Investment Company Act ("Interested Persons") of the Manager or its affiliates as directors, officers, agents and shareholders of the Manager or its affiliates; that directors, officers, agents and shareholders of the Manager or its affiliates are or may be Interested Persons of the Trust as Trustees, officers, agents, shareholders or otherwise; that the Manager or its affiliates may be Interested Persons of the Trust as shareholders or otherwise; and that the effect of any such interests shall be governed by said Declaration of Trust, By-Laws and the Investment Company Act and the rules thereunder. 6. Compensation of the Manager. For all services to be rendered and payments made pursuant to this Agreement, the Trust, on its own behalf and on behalf of Funds, will pay the Manager monthly in arrears a fee at an annual rate equal to 1.20%, in the case of the Liberty Newport Japan Opportunities Fund, Variable Series and 0.70%, in the case of the Liberty Select Value Fund, Variable Series of the net asset value of such Fund. The fee shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly on or before the tenth day of the following calendar month. The daily accruals of the fee will be computed by (i) multiplying the annual percentage rate referred to above by the fraction the numerator of which is one and the denominator of which is the number of calendar days in the year, and (ii) multiplying the product obtained pursuant to clause (i) above by the net asset value of such Fund as determined in accordance with the Trust's Prospectus as of the previous business day on which such Fund was open for business. The foregoing fee shall be prorated for any month during which this Agreement is in effect for only a portion of the month. 7. Liabilities of the Manager. A. Except as provided below, in the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Manager, the Manager shall not be subject to liability to the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. B. The Manager shall indemnify and hold harmless the Trust from any loss, cost, expense or damage resulting from the failure of any Sub-Advisor to comply with (i) any statement included in the Prospectus and Statement of Additional Information of the Trust, or (ii) instructions given by the Manager to any Sub-Advisor for the purpose of ensuring the Trust's compliance with securities, tax and other requirements applicable to the Trust's business and the investment activities of its Funds; provided, however, that the indemnification provided in this paragraph 7B shall apply only to the extent that a Sub-Adviser is liable to the Trust and, after demand by the Trust, is unable or refuses to discharge its obligations to the Trust. C. No provision of this Agreement shall be construed to protect any Trustee or officer of the Trust, or the Manager, from liability in violation of Sections 17(h) and (i) of the Investment Company Act. 8. Effective Date: Term. This Agreement shall become effective on the later of (i) the date first written above or (ii) the date on which the offer and sale of shares of the Funds have been registered under the Securities Act and the Investment Company Act pursuant to an effective Registration Statement of the Trust on Form N-1A and shall continue until the second anniversary of the date hereof, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by a vote of the Trustees, including the vote of a majority of the Trustees who are not interested persons of the Trust, cast in person at a meeting called for the purpose of voting on such approval, or by vote of a majority of the outstanding voting securities. The aforesaid provision shall be construed in a manner consistent with the Investment Company Act and the rules and regulations thereunder. 9. Assignment. No assignment of this Agreement shall be made by the Manager, and this Agreement shall terminate automatically in the event of any such assignment. The Manager shall notify the Trust in writing in advance of any proposed change of control to enable the Trust to take the steps necessary to enter into a new advisory contract. 10. Amendment This Agreement may be amended at any time, but only by written Agreement between the Manager and the Trust, which is subject to the approval of the Trustees of the Trust and the shareholders of any affected Fund in the manner required by the Investment Company Act and the rules thereunder. 11. Termination. This Agreement: (a) may at any time be terminated without payment of any penalty, by the Trust (by the Board of Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Fund) on sixty (60) days' written notice to the Manager; (b) shall immediately terminate in the event of its assignment; and (c) may be terminated by the Manager on sixty (60) days written notice to the Trust. 12. Definitions. As used in this Agreement, the terms "affiliated person," "assignment," "control," "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Investment Company Act and the rules and regulations thereunder, subject to any applicable orders of exemption issued by the SEC. 13. Notice. Any notice under this Agreement shall be given in writing addressed and delivered or mailed postpaid to the other party to this Agreement at its principal place of business. 14. Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 15. Shareholder Liability. The Manager is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Declaration of Trust of the Trust and agrees that obligations assumed by the Trust pursuant to this Agreement shall be limited in all cases to the Trust and its assets, and if the liability relates to one or more Funds, the obligations thereunder shall be limited to the respective assets of such Funds. The Manager further agrees that it shall not seek satisfaction of any such obligation from the shareholders of the Funds, nor from the Trustees or any individual Trustee of the Trust. 16. Governing Law. This Agreement shall be interpreted under, and the performance of the Manager under this Agreement shall be consistent with, the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, the terms of the Investment Company Act, applicable rules and regulations thereunder, the Code and regulations thereunder, and the Trust's Prospectus and Statement of Additional Information, in each case as from time to time in effect. The provisions of this Agreement shall be construed and interpreted in accordance with the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict of laws rules or provisions that would result in the application of the domestic substantive laws of any other jurisdiction; provided, however, that if such law or any of the provisions of this Agreement conflict with the applicable provisions of the Investment Company Act, the latter shall control. 17. Use of Manager's Name. The Trust may use the name "Keyport" or any other name derived from the name "Keyport" only for so long as this Agreement (or another similar management agreement pertaining to other series funds of the Trust) or any extension, renewal, or amendment hereof (or thereof) remains in effect, including any similar agreement with any organization that shall have succeeded to the business of the Manager. At such time as this Agreement (and each other similar agreement pertaining to such other series funds) or any extension, renewal or amendment hereof (or thereof), or each such other similar successor organization agreement shall no longer be in effect, the Trust will cease to use any name derived from the name "Keyport," any name similar thereto, or any other name indicating that it is managed by or otherwise connected with the Manager, or with any organization which shall have succeeded to Manager's business as investment advisor or manager. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have duly executed this agreement on the date first above written. ATTEST: LIBERTY VARIABLE INVESTMENT TRUST, on its own behalf and on behalf of Liberty Newport Japan Opportunities Fund, Variable Series Liberty Select Value Fund, Variable Series By: /s/Nancy L. Conlin By: /s/Stephen E. Gibson Nancy L. Conlin, Secretary Stephen E. Gibson, President ATTEST: LIBERTY ADVISORY SERVICES CORP. By: /s/James J. Klopper By: /s/Philip K. Polkinghorn James J. Klopper, Clerk Philip K. Polkinghorn, President EX-99.(D)(1)(III) 6 0006.txt SUB-ADVISORY AGMT ON BEHALF OF LNJOF LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES NEWPORT FUND MANAGEMENT, INC. SUB-ADVISORY AGREEMENT AGREEMENT dated May 30, 2000 among LIBERTY VARIABLE INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), with respect to LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES (the "Fund"), LIBERTY ADVISORY SERVICES CORP., a Massachusetts corporation ("Advisor"), and NEWPORT FUND MANAGEMENT, INC., a Virginia corporation (the "Sub-Advisor"). In consideration of the promises and covenants herein, the parties agree as follows: 1. The Sub-Advisor will manage the investment of the assets of the Fund in accordance with its investment objective, policies and limitations set forth in the Trust's prospectus and statement of additional information, as amended from time to time, and will perform the other services herein set forth, subject to the supervision of the Advisor and the Board of Trustees of the Trust. 2. In carrying out its investment management obligations, the Sub-Advisor shall: (a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable; (b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in the Trust's prospectus and statement of additional information; and (c) report results to the Advisor and to the Board of Trustees. 3. The Sub-Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby. 4. The Advisor shall pay the Sub-Advisor a monthly fee at the annual rate of 1.00% of the average daily net assets of the Fund for managing the investment of the assets of the Fund provided in paragraph 1 above. Such fee shall be paid in arrears on or before the 10th day of the next following calendar month. 5. This Agreement shall become effective on the date first written above, an (a) unless otherwise terminated, shall continue until the second anniversary of the date hereof, and from year to year thereafter so long as approved annually in accordance with the 1940 Act; (b) may be terminated without penalty on sixty days' written notice to the Sub-Advisor either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund; (c) shall automatically terminate in the even of its assignment; and (d) may be terminated without penalty by the Sub-Advisor on sixty day's written notice to the Trust. 6. This Agreement may be amended in accordance with the 1940 Act. 7. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares," and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act. 8. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Sub-Advisor, or reckless disregard of its obligations and duties hereunder, the Sub-Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any person, firm or organization, for any act or omission in the course of or connection with rendering services hereunder. 9. The Fund may use the name "Newport," or any other name derived from the name "Newport," only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization that shall have succeeded to the business of the Sub-Advisor. At such time as this Agreement or any extension, renewal or amendment hereof, or each such other similar successor organization agreement shall no longer be in effect, the Fund will cease to use any name derived from the name "Newport," any name similar thereto, or any other name indicating that it is advised by or otherwise connected with the Sub-Advisor, or with any organization which shall have succeeded to the Sub-Advisor's business as an investment advisor. 10. The Sub-Advisor is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Declaration of Trust of the Trust and agrees that obligations assumed by the Trust pursuant to this Agreement shall be limited in all cases to the assets of the Fund. The Sub-Advisor further agrees that it shall not seek satisfaction of any such obligation from the shareholders of the Fund, nor from the Trustees or any individual Trustee of the Trust. LIBERTY NEWPORT JAPAN OPPORTUNITIES FUND, VARIABLE SERIES By: LIBERTY VARIABLE INVESTMENT TRUST By:/s/Stephen E. Gibson Stephen E. Gibson, President NEWPORT FUND MANAGEMENT, INC. By:/s/Thomas R. Tuttle Thomas R. Tuttle, President LIBERTY ADVISORY SERVICES CORP. By:/s/Philip K. Polkinghorn Philip K. Polkinghorn, President EX-99.(D)(1)(IV) 7 0007.txt SUB-ADVISORY AGMT ON BEHALF OF LSVF LIBERTY SELECT VALUE FUND, VARIABLE SERIES COLONIAL MANAGEMENT SUB-ADVISORY AGREEMENT AGREEMENT dated May 30, 2000 among LIBERTY VARIABLE INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), with respect to LIBERTY SELECT VALUE FUND, VARIABLE SERIES (the "Fund"), LIBERTY ADVISORY SERVICES CORP., a Massachusetts corporation ("Advisor"), and COLONIAL MANAGEMENT ASSOCIATES, INC., a Massachusetts corporation (the "Sub-Advisor"). In consideration of the promises and covenants herein, the parties agree as follows: 1. The Sub-Advisor will manage the investment of the assets of the Fund in accordance with its investment objective, policies and limitations set forth in the Trust's prospectus and statement of additional information, as amended from time to time, and will perform the other services herein set forth, subject to the supervision of the Advisor and the Board of Trustees of the Trust. 2. In carrying out its investment management obligations, the Sub-Advisor shall: (a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable; (b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in the Trust's prospectus and statement of additional information; and (c) report results to the Advisor and to the Board of Trustees. 3. The Sub-Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby. 4. The Advisor shall pay the Sub-Advisor a monthly fee at the annual rate of 0.50% of the average daily net assets of the Fund for managing the investment of the assets of the Fund provided in paragraph 1 above. Such fee shall be paid in arrears on or before the 10th day of the next following calendar month. 5. This Agreement shall become effective on the date first written above, an (a) unless otherwise terminated, shall continue until the second anniversary of the date hereof, and from year to year thereafter so long as approved annually in accordance with the 1940 Act; (b) may be terminated without penalty on sixty days' written notice to the Sub-Advisor either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund; (c) shall automatically terminate in the even of its assignment; and (d) may be terminated without penalty by the Sub-Advisor on sixty day's written notice to the Trust. 6. This Agreement may be amended in accordance with the 1940 Act. 7. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares," and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act. 8. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Sub-Advisor, or reckless disregard of its obligations and duties hereunder, the Sub-Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any person, firm or organization, for any act or omission in the course of or connection with rendering services hereunder. 9. The Fund may use the name "Colonial," or any other name derived from the name "Colonial," only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization that shall have succeeded to the business of the Sub-Advisor. At such time as this Agreement or any extension, renewal or amendment hereof, or each such other similar successor organization agreement shall no longer be in effect, the Fund will cease to use any name derived from the name "Colonial," any name similar thereto, or any other name indicating that it is advised by or otherwise connected with the Sub-Advisor, or with any organization which shall have succeeded to the Sub-Advisor's business as an investment advisor. 10. The Sub-Advisor is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Declaration of Trust of the Trust and agrees that obligations assumed by the Trust pursuant to this Agreement shall be limited in all cases to the assets of the Fund. The Sub-Advisor further agrees that it shall not seek satisfaction of any such obligation from the shareholders of the Fund, nor from the Trustees or any individual Trustee of the Trust. LIBERTY SELECT VALUE FUND, VARIABLE SERIES By: LIBERTY VARIABLE INVESTMENT TRUST By:/s/Stephen E. Gibson Stephen E. Gibson, President COLONIAL MANAGEMENT ASSOCIATES, INC. By:/s/Stephen E. Gibson Stephen E. Gibson, President LIBERTY ADVISORY SERVICES CORP. By:/s/Philip K. Polkinghorn Philip K. Polkinghorn, President EX-99.(D)(2)(I) 8 0008.txt MGMT AGREEMENT ON BEHALF OF RFSF, RHCF AND L500 LIBERTY VARIABLE INVESTMENT TRUST RYDEX FINANCIAL SERVICES FUND, VARIABLE SERIES RYDEX HEALTH CARE FUND, VARIABLE SERIES LIBERTY S&P 500 INDEX FUND, VARIABLE SERIES MANAGEMENT AND SUB-ADVISORY AGREEMENT MANAGEMENT AND SUB-ADVISORY AGREEMENT ("Agreement"), made this 30th day of May, 2000, between LIBERTY VARIABLE INVESTMENT TRUST, a business trust organized under the laws of The Commonwealth of Massachusetts (the "Trust"), on its own behalf and on behalf of the Rydex Financial Services Fund, Variable Series, Rydex Health Care Fund, Variable Series, Liberty S&P 500 Index Fund, Variable Series (2) (each a "Fund," and collectively, the "Funds"), LIBERTY ADVISORY SERVICES CORP., a corporation organized under the laws of The Commonwealth of Massachusetts ("LASC"), and COLONIAL MANAGEMENT ASSOCIATES, INC., a Massachusetts corporation ("Colonial"). WHEREAS, the Trust has been organized as an open-end management investment company registered as such under the Investment Company Act of 1940, as amended ("Investment Company Act"), and is authorized to issue shares of beneficial interest in one or more separate series (each representing interests in a separate portfolio of securities and other assets), including the Funds, which shares are to be issued and sold to and held by various separate accounts of Keyport Life Insurance Company ("Keyport"), or separate accounts of other insurance companies that are affiliated or are not affiliated with Keyport (collectively, "Participating Insurance Companies"); WHEREAS, the Trust heretofore has created various other separate funds which are covered by various Management Agreements among the Trust, on its own behalf and on behalf of such other series funds, and LASC, and the Trust may in the future create additional fund(s) that may be covered by other separate agreements; WHEREAS, the Trust desires LASC to render certain investment management and administrative services to the Trust and the Funds, all in the manner and on the terms and conditions hereinafter set forth; WHEREAS, the Trust and LASC desire that Colonial, as sub-adviser to LASC, provide investment management services to the Funds based on Colonial's portfolio manager concept, under which Colonial recommends, over-sees and coordinates, and allocates each Fund's portfolio assets among, portfolio managers ("Portfolio Managers"); and - -------- (2) "S&P 500 Index" is a trademark of McGraw-Hill Companies, Inc. and has been licensed for use by Liberty Funds Distributor, Inc. WHEREAS, each of LASC and Colonial is registered as an investment adviser under the Investment Advisers of 1940 (the "Investment Advisers Act"), and desires to provide services to the Trust and the Funds, in the manner contemplated above, in consideration of and on the terms and conditions hereinafter set forth; NOW, THEREFORE, the Trust, on its own behalf and on behalf of the Funds, LASC and Colonial hereby agree as follows: 1. Employment of the Investment Adviser. The Trust hereby employs LASC (i) to provide certain administrative and limited oversight services and (ii) to provide certain investment management and related services to the Trust and the Funds, all in the manner set forth in Section 2 of this Agreement, subject to the direction of the Trustees, and for the period, in the manner, and on the terms set forth hereinafter. LASC hereby accepts such employment and agrees during such period to render the services and to assume the obligations herein set forth. LASC shall for all purposes herein be deemed to be an independent contractor and, except as expressly provided or authorized (whether herein or otherwise), shall have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 2. Obligations of, and Services to be Provided by, the Manager. LASC undertakes to provide the services hereinafter set forth and to assume the following obligations: A. Administrative Services. (a) LASC will provide general administrative services as hereinafter set forth ("Administrative Services"), all subject to the overall direction and control of the Board of Trustees of the Trust (the "Board"). (b) Such Administrative Services shall not include investment advisory, custodian, underwriting and distribution, transfer agency or pricing and bookkeeping services, but shall include: (i) provision of office space, equipment and facilities necessary in connection with the services to be performed hereunder and the maintenance of the headquarters of the Trust; (ii) maintenance of the corporate books and records of the Trust (other than those of its records maintained by Colonial or the Portfolio Managers, the transfer agent, the custodian and the pricing and bookkeeping agent); (iii) administration of all dealings and relationships with the Trustees for meetings of the Board, the scheduling of such meetings and the conduct thereof; (iv) preparation and filing of proxy materials and administration of arrangements for meetings of shareholders or beneficial owners of the Funds; (v) preparation and filing of all required reports and all updating and other amendments to the Trust's Registration Statement under the Investment Company Act, the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations thereunder; (vi) calculation of distributions required or advisable under the Investment Company Act and the Internal Revenue Code of 1986, as amended (the "Code"); (vii) periodic computation and reporting to the Trustees of each Fund's compliance with diversification and other portfolio requirements of the Investment Company Act and the Code; (viii) development and implementation of general shareholder and beneficial owner correspondence and communications relating to the Funds, including the preparation and filing of shareholder and beneficial owner reports as are required or deemed advisable; and (ix) general oversight of the custodial, net asset value computation, portfolio accounting, financial statement preparation, legal, tax and accounting services performed for the Trust or the Funds by others. It is understood that LASC may, in its discretion and at its expense, delegate some or all of its administrative duties and responsibilities under this subsection 2A to its affiliate, Liberty Financial Companies, Inc. ("LFC"), or any majority or greater owned subsidiaries of LFC. B. Investment Advisory Services. (a) LASC shall have overall supervisory responsibility for the management and investment of the assets of the Funds, subject to and in accordance with the investment objectives, policies and limitations of each Fund, as provided in the Trust's Prospectus and Statement of Additional Information and governing instruments, as amended from time to time, and any directions and policies which the Trustees may issue to LASC from time to time (collectively, "Investment Policies"). (b) With the consent of the Trust, on behalf of the Funds, LASC hereby delegates to Colonial the obligation to provide the Funds, as sub-advisor to LASC, an overall investment program and strategy, in accordance with Colonial's portfolio manager concept. LASC shall be solely responsible for paying the fees of Colonial from the fees it collects from the Trust as provided in paragraph 5 below. (c) In accordance with Colonial's portfolio manager concept, Colonial will recommend to the Trustees one or more persons or companies registered as investment advisers under the Investment Advisers Act or qualifying as a "bank" within the meaning of the Investment Advisers Act and thereby exempted from the requirement to be so registered ("Portfolio Managers"), pursuant to a portfolio management agreement among the Trust, on behalf of each Fund, each Portfolio Manager and Colonial. Each Portfolio Manager shall have full investment discretion and authority to make all determinations with respect to the investment and reinvestment of the portion of each Fund's assets assigned to that Portfolio Manager by Colonial from time to time and the purchase and sale of portfolio securities with those assets, all within each Fund's Investment Policies. Subject to Section 6, Colonial shall not be responsible or liable for the investment merits of any decision by a Portfolio Manager to purchase hold or sell a security for a Fund's portfolio. Colonial shall advise the Trustees as to which persons or companies Colonial believes are best suited for appointment as Portfolio Managers; shall monitor and evaluate the investment performance of each Portfolio Manager, shall allocate and reallocate from time to time, in its sole discretion, the respective portions of each Fund's assets to be managed by the Portfolio Managers; shall recommend to the Trustees changes of, additions to or terminations of Portfolio Managers when it believes such changes, additions or terminations are appropriate; and shall coordinate the investment activities of the Portfolio Managers with a view to ensuring their compliance with each Fund's Investment Policies and applicable laws. (d) Colonial shall be solely responsible for paying the fees of each Portfolio Manager from the fees it collects from LASC as provided in paragraph 5 below. (e) LASC and/or Colonial shall render regular reports to the Board relating to the performance of their duties specified in paragraphs 2B(a), (b) and (c). C. Expenses Borne By Manager. To the extent necessary to perform its obligations under this Agreement, LASC and/or Colonial, at their own expense, shall furnish executive and other personnel and office space, equipment and facilities, and shall pay any other expenses incurred by them, in connection with the performance of their duties hereunder, except that the Trust or the Funds, as appropriate, shall reimburse LASC and/or Colonial (as appropriate) for its out-of-pocket costs, including telephone, postage and supplies, incurred by it in connection with communications with shareholders and beneficial owners of the Funds. LASC and/or Colonial shall pay all salaries, fees and expenses of Trustees or officers of the Trust who are their employees. LASC and Colonial shall not be obligated to bear any other expenses incidental to the operations and business of the Trust. LASC and Colonial shall not be required to pay or provide any credit for services provided by the Trust's custodian, transfer agent or other agents. D. Provision of Information Necessary for Preparation of Registration Statement Amendments and Other Materials. LASC will make available and provide such information as the Trust may reasonably request for use in the preparation of its Registration Statement, reports and other documents required by federal laws and any securities and insurance laws of the other states and other jurisdictions in which the Trust's shares are sold. E. Code of Ethics. Each of LASC and Colonial has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Investment Company Act and has provided the Trust with a copy of such code of ethics and evidence of its adoption. On or before June 1 in each year, an executive officer of each of LASC and Colonial shall verify to the Trustees that it has complied with the requirements of Rule 17j-1 during the previous year and that there has been no material violation of its code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of the Trust, each of LASC and Colonial shall permit the Trust to examine the reports required to be made to it by Rule 17j-1(c)(1). F. Disqualification. Each of LASC and Colonial shall immediately notify the Trustees of the occurrence of any event which would disqualify it from serving as an investment adviser of an investment company pursuant to Section 9(a) of the Investment Company Act or any other applicable statute or regulation. G. Other Obligations and Service. Each of LASC and Colonial shall make its officers and employees available to the Trustees and officers of the Trust for consulting and discussions regarding the management of the Trust and its investment activities. 3. Expenses of the Trust. It is understood that the Trust (or each of its funds (including the Funds), where applicable) will pay, or will enter into arrangements that require third parties to pay, all of the expenses of the Trust or such funds, other than those expressly assumed by LASC and Colonial herein, including without limitation: A. Advisory, sub-advisory and administrative fees; B. Fees for services of independent public accountants; C. Legal and consulting fees; D. Transfer agent, custodian and portfolio pricing, recordkeeping and tax information services; E. Expenses of periodic calculations of the funds' net asset values and of equipment for communication among the funds' custodian, transfer agent and others; F. Taxes and the preparation of the funds' tax returns; G. Brokerage fees and commissions; H. Interest; I. Costs of Board of Trustees and shareholder meetings; J. Updates and printing of prospectuses, proxy statements and reports to shareholders; K. Fees for filing reports with regulatory bodies and the maintenance of the Trust's existence; L. Membership dues for industry trade associations; M. Fees to federal authorities for the registration of the shares of the funds; N. Fees and expenses of Trustees who are not directors, officers, employees or stockholders of LASC, Colonial or any of their respective affiliates; O. Insurance and fidelity bond premiums; and P. Litigation and other extraordinary expenses of a non-recurring nature. 4. Activities and Affiliates of the Manager. A. The Trust acknowledges that each of LASC and Colonial or one or more of its affiliates may have investment or administrative responsibilities or render investment advice to or perform other investment advisory services for other individuals or entities, and that each of LASC and Colonial, its affiliates or any of its or their directors, officers, agents or employees may buy, sell or trade in securities for its or their respective accounts ("Affiliated Accounts"). The Trust agrees that each of LASC and Colonial or its affiliates may give advice or exercise investment responsibility and take such other action with respect to Affiliated Accounts which may differ from the advice given or the timing or nature of action with respect to the Funds, provided that it acts in good faith. The Trust acknowledges that one or more of the Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Funds may have an interest. B. Subject to and in accordance with the Declaration of Trust and By-Laws of the Trust as currently in effect and the Investment Company Act and the rules thereunder, it is understood that Trustees, officers and agents of the Trust and shareholders of the Trust are or may be interested persons as defined by the Investment Company Act of LASC and/or Colonial or of their respective affiliates as directors, officers, agents and shareholders thereof; that directors, officers, agents and shareholders of LASC and/or Colonial or of their respective affiliates are or may be interested persons of the Trust as Trustees, officers, agents, shareholders or otherwise; that LASC and/or Colonial or their respective affiliates may be interested persons of the Trust as shareholders or otherwise; and that the effect of any such interests shall be governed by said Declaration of Trust and By-Laws and the Investment Company Act and the rules thereunder. 5. Compensation of LASC and Colonial. For all services to be rendered and payments made pursuant to this Agreement, (a) the Trust, on its own behalf and on behalf of Fund, will pay LASC monthly in arrears a fee at an annual rate equal to 0.85% in the case of the Rydex Financial Services Fund, Variable Series, 1.00% in the case of the Rydex Health Care Fund, Variable Series and 0.40%, in the case of the Liberty S&P 500 Index Fund, Variable Series of the net asset value of such Fund, and (b) LASC, on its own behalf, will pay Colonial monthly in arrears a fee at an annual rate equal to to 0.65% in the case of the Rydex Financial Services Fund, Variable Series, 0.80% in the case of the Rydex Health Care Fund, Variable Series and 0.20%, in the case of the Liberty S&P 500 Index Fund, Variable Series of the net asset value of such Fund. Colonial acknowledges and agrees that the Trust shall have no obligation to Colonial to pay any portion of such fee, which shall be solely the responsibility of LASC. Each such fee shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly on or before the tenth day of the following calendar month. The daily accruals of the fee will be computed by (i) multiplying the annual percentage rate referred to above by the fraction the numerator of which is one and the denominator of which is the number of calendar days in the year, and (ii) multiplying the product obtained pursuant to clause (i) above by the net asset value of such Fund as determined in accordance with the Trust's Prospectus as of the previous business day on which each Fund was open for business. The foregoing fee shall be prorated for any month during which this Agreement is in effect for only a portion of the month. 6. Liabilities of LASC and Colonial. A. Except as provided below, in the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of LASC or Colonial, as the case may be, LASC or Colonial shall not be subject to liability to the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. B. Colonial shall indemnify and hold harmless the Trust from any loss, cost, expense or damage resulting from the failure of any Portfolio Manager to comply with (i) any statement included in the Prospectus and Statement of Additional Information of the Trust, or (ii) instructions given by Colonial to any Portfolio Manager for the purpose of ensuring the Trust's compliance with securities, tax and other requirements applicable to the Trust's business and the investment activities of its Funds; provided, however, that the indemnification provided in this paragraph 6B shall apply only to the extent that a Portfolio Manager is liable to the Trust and, after demand by the Trust, is unable or refuses to discharge its obligations to the Trust. C. No provision of this Agreement shall be construed to protect any Trustee or officer of the Trust, or the LASC or Colonial, as the case may be, from liability in violation of Sections 17(h) and (i) of the Investment Company Act. 7. Effective Date: Term. This Agreement shall become effective on the later of (i) the date first written above or (ii) the date on which the offer and sale of shares of the Funds have been registered under the Securities Act and the Investment Company Act pursuant to an effective Registration Statement of the Trust on Form N-1A and shall continue until May 30, 2002, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by a vote of the Trustees, including the vote of a majority of the Trustees who are not interested persons of the Trust, cast in person at a meeting called for the purpose of voting on such approval, or by vote of a majority of the outstanding voting securities. The aforesaid provision shall be construed in a manner consistent with the Investment Company Act and the rules and regulations thereunder. 8. Assignment. No assignment of this Agreement shall be made by LASC or Colonial, and this Agreement shall terminate automatically in the event of any such assignment. Each of LASC and Colonial shall notify the Trust in writing in advance of any proposed change of control with respect to it to enable the Trust to take the steps necessary to enter into a new advisory contract. 9. Amendment This Agreement may be amended at any time, but only by written agreement between LASC, Colonial and the Trust, which is subject to the approval of the Trustees of the Trust and the shareholders of any affected Fund in the manner required by the Investment Company Act and the rules thereunder. 10. Termination. This Agreement: (a) may at any time be terminated without payment of any penalty, by the Trust (by the Board of Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Fund) on sixty (60) days' written notice to LASC and Colonial; (b) shall immediately terminate in the event of its assignment; and (c) may be terminated by LASC or Colonial on sixty (60) days written notice to the other parties hereto. 11. Definitions. As used in this Agreement, the terms "affiliated person," "assignment," "control," "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Investment Company Act and the rules and regulations thereunder, subject to any applicable orders of exemption issued by the Securities and Exchange Commission. 12. Notice. Any notice under this Agreement shall be given in writing addressed and delivered or mailed postpaid to the other party to this Agreement at its principal place of business. 13. Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 14. Shareholder Liability. Each of LASC and Colonial is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Declaration of Trust of the Trust and agrees that obligations assumed by the Trust pursuant to this Agreement shall be limited in all cases to the Trust and its assets, and if the liability relates to one or more Funds, the obligations thereunder shall be limited to the respective assets of such Funds. Each of LASC and Colonial further agrees that it shall not seek satisfaction of any such obligation from the shareholders of the Funds, nor from the Trustees or any individual Trustee of the Trust. 15. Governing Law. This Agreement shall be interpreted under, and the performance of each of LASC and Colonial under this Agreement shall be consistent with, the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, the terms of the Investment Company Act, applicable rules and regulations thereunder, the Code and regulations thereunder, and the Trust's Prospectus and Statement of Additional Information, in each case as from time to time in effect. The provisions of this Agreement shall be construed and interpreted in accordance with the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict of laws rules or provisions that would result in the application of the domestic substantive laws of any other jurisdiction; provided, however, that if such law or any of the provisions of this Agreement conflict with the applicable provisions of the Investment Company Act, the latter shall control. 16. Use of Manager's Name. The Trust may use the names "Liberty" or any other name derived from such names only for so long as this Agreement (or another similar management agreement with LFC or a majority or greater owned subsidiary thereof pertaining to other series funds of the Trust) or any extension, renewal, or amendment hereof (or thereof) remains in effect. At such time as this Agreement (and each such other similar agreement pertaining to such other series funds) or any extension, renewal or amendment hereof (or thereof), or each such other similar successor organization agreement shall no longer be in effect, the Trust will cease to use any name derived from any such names similar thereto, or any other name indicating that it is managed by or otherwise connected with the Manager, or with any organization which shall have succeeded to Manager's business as investment advisor or manager. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have duly executed this agreement on the date first above written. LIBERTY VARIABLE INVESTMENT TRUST, on its own behalf and on behalf of Rydex Financial Services Fund, Variable Series Rydex Health Care Fund, Variable Series Liberty S&P 500 Index Fund, Variable Series By: /s/Stephen E. Gibson Title: President LIBERTY ADVISORY SERVICES CORP. By: /s/Philip K. Polkinghorn Title: President COLONIAL MANAGEMENT ASSOCIATES, INC. By: /s/Stephen E. Gibson Title: President EX-99.(D)(2)(II) 9 0009.txt PORTFOLIO MGMT AGMT ON BEHALF OF RFSF AND RHCF PORTFOLIO MANAGEMENT AGREEMENT WITH PADCO ADVISORS II, INC. as of May 30, 2000 PADCO Advisors II, Inc. 6116 Executive Boulevard, Suite 400 Rockville, MD 20852 Re: Portfolio Management Agreement Ladies and Gentlemen: Rydex Financial Services Fund, Variable Series and Rydex Heath Care Fund, Variable Series (each a "Fund" and together, "Funds") are each series of the Liberty Variable Investment Trust (the "Trust"), a diversified open-end investment company registered under the Investment Company Act of 1940 (the "Act"), and is subject to the rules and regulations promulgated thereunder. Liberty Advisory Services Corp. ("LASC") is the manager of the Fund. Pursuant to the Management and Sub-Advisory Agreement of even date herewith (the "Management and Sub-Advisory Agreement") among the Trust, on behalf of the Fund, LASC and Colonial Management Associates, Inc. (the "Fund Manager"), LASC delegates to the Fund Manager responsibility for investment management of the Fund. In furtherance thereof, the Fund Manager evaluates and recommends the portfolio manager for the Funds and is responsible for certain administrative matters relating to the Funds. l. Employment as a Portfolio Manager. The Trust being duly authorized hereby employs PADCO Advisors II, Inc. (the "Portfolio Manager") as a discretionary portfolio manager, on the terms and conditions set forth herein. 2. Acceptance of Employment; Standard of Performance. The Portfolio Manager accepts its employment as a discretionary portfolio manager and agrees to use its best professional judgment to make timely investment decisions for the Funds in accordance with the provisions of this Agreement. 3. Portfolio Management Services of Portfolio Manager. In providing portfolio management services to the Funds, the Portfolio Manager shall be subject to the investment objectives, policies and restrictions of each Fund as set forth in the Trust's current registration statement under the Act (as the same may be modified from time to time), and the investment restrictions set forth in the Act and the Rules thereunder (as and to the extent set forth in such registration statement or in other documentation furnished to the Portfolio Manager by the Funds or the Fund Manager), to the supervision and control of the Trustees of the Trust (the "Trustees"), and to instructions from the Fund Manager. The Portfolio Manager shall not, without the prior approval of the Funds or the Fund Manager, effect any transactions which would cause the Funds, each treated as a separate fund, to be out of compliance with any of such restrictions or policies. 4. Transaction Procedures. All portfolio transactions for the Funds will be consummated by payment to or delivery by the custodian of the assets of the Funds (the "Custodian"), or such depositories or agents as may be designated by the Custodian in writing, as custodian for the Funds, of all cash and/or securities due to or from the Funds, and the Portfolio Manager shall not have possession or custody thereof or any responsibility or liability with respect to such custody. The Portfolio Manager shall advise and confirm in writing to the Custodian all investment orders for the Funds placed by it with brokers and dealers at the time and in the manner set forth in Schedule A hereto (as Schedule A may be amended from time to time). The Funds shall issue to the Custodian such instructions as may be appropriate in connection with the settlement of any transaction initiated by the Portfolio Manager. The Funds shall be responsible for all custodial arrangements and the payment of all custodial charges and fees, and, upon giving proper instructions to the Custodian, the Portfolio Manager shall have no responsibility or liability with respect to custodial arrangements or the acts, omissions or other conduct of the Custodian. 5. Allocation of Brokerage. The Portfolio Manager shall have authority and discretion to select brokers and dealers to execute portfolio transactions initiated by the Portfolio Manager, and to select the markets on or in which the transaction will be executed. A In doing so, the Portfolio Manager's primary responsibility shall be to seek to obtain best net price and execution for the Funds. However, this responsibility shall not obligate the Portfolio Manager to solicit competitive bids for each transaction or to seek the lowest available commission cost to the Funds, so long as the Portfolio Manager reasonably believes that the broker or dealer selected by it can be expected to obtain a "best execution" market price on the particular transaction and determines in good faith that the commission cost is reasonable in relation to the value of the brokerage and research services (as defined in Section 28(e)(3) of the Securities Exchange Act of 1934) provided by such broker or dealer to the Portfolio Manager viewed in terms of either that particular transaction or of the Portfolio Manager's overall responsibilities with respect to its clients, including the Funds, as to which the Portfolio Manager exercises investment discretion, notwithstanding that the Funds may not be the direct or exclusive beneficiary of any such services or that another broker may be willing to charge the Funds a lower commission on the particular transaction. B. Subject to the requirements of paragraph A above, the Fund Manager shall have the right to request that transactions giving rise to brokerage commissions shall be executed by brokers and dealers (and in amounts), to be agreed upon from time to time between the Fund Manager and the Portfolio Manager, that provide brokerage or research services to the Funds or the Fund Manager, or as to which an on-going relationship will be of value to the Funds in the management of its assets, which services and relationship may, but need not, be of direct benefit to the Funds. Notwithstanding any other provision of this Agreement, the Portfolio Manager shall not be responsible under paragraph A above with respect to transactions executed through any such broker or dealer. C. The Portfolio Manager shall not execute any portfolio transactions for the Funds with a broker or dealer which is an "affiliated person" (as defined in the Act) of the Funds, the Portfolio Manager of the Funds without the prior written approval of the Funds. The Funds will provide the Portfolio Manager with a list of brokers and dealers which are "affiliated persons" of the Funds. 6. Proxies. The Portfolio Manager will vote all proxies solicited by or with respect to the issuers of securities in which assets of the Funds may be invested from time to time in accordance with such policies as shall be determined by the Fund Manager. 7. Fees for Services. As its compensation for its services under this Agreement, the Fund Manager will pay the Portfolio Manager monthly in arrears a fee at the annual rate of 0.50% of each Fund's daily net assets. When the combined assets of both Funds reach $300 million, the annual fee for each Fund will be reduced to 0.45% of the average daily net assets thereafter. The fee shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly on or before the fifteenth day of the following calendar month. The daily accruals of the fee will be computed by (i) multiplying the annual percentage rate referred to above by the fraction the numerator of which is one and the denominator of which is the number of days in the year, and (ii) multiplying the product obtained pursuant to clause (i) above by the net asset value of each Fund as determined in accordance with the Trust's Prospectus as of the previous day on which each Fund was open for business. The foregoing fee shall be prorated for any month during which this Agreement is in effect for only a portion of the month. Pursuant to the Management and Sub-Advisory Agreement, the Fund Manager is solely responsible for the payment of fees to the Portfolio Manager, and the Portfolio Manager agrees to seek payment of its fees solely from the Fund Manager. 8. Other Investment Activities of Portfolio Manager. The Trust on behalf of the Funds acknowledges that the Portfolio Manager or one or more of its affiliates has investment responsibilities, renders investment advice to and performs other investment advisory services for other individuals or entities ("Client Accounts"), and that the Portfolio Manager, its affiliates or any of its or their directors, officers, agents or employees may buy, sell or trade in any securities for its or their respective accounts ("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the Trust on behalf of the Funds agrees that the Portfolio Manager or its affiliates may give advice or exercise investment responsibility and take such other action with respect to other Client Accounts and Affiliated Accounts which may differ from the advice given or the timing or nature of action taken with respect to the Funds, provided that the Portfolio Manager acts in good faith, and provided further, that it is the Portfolio Manager's policy to allocate, within its reasonable discretion, investment opportunities to the Funds over a period of time on a fair and equitable basis relative to the Client Accounts and the Affiliated Accounts, taking into account the cash position and the investment objectives and policies of the Funds and any specific investment restrictions applicable thereto. The Trust on behalf of the Funds acknowledges that one or more Client Accounts and Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Funds may have an interest from time to time, whether in transactions which involve the Funds or otherwise. The Portfolio Manager shall have no obligation to acquire for the Funds a position in any investment which any Client Account or Affiliated Account may acquire, and the Funds shall have no first refusal, coinvestment or other rights in respect of any such investment, either for the Funds or otherwise. 9. Limitation of Liability. The Portfolio Manager shall not be liable for any action taken, omitted or suffered to be taken by it in its reasonable judgment, in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement, or in accordance with (or in the absence of) specific directions or instructions from the Funds or the Fund Manager, provided, however, that such acts or omissions shall not have resulted from the Portfolio Manager's willful misfeasance, bad faith or gross negligence, a violation of the standard of care established by and applicable to the Portfolio Manager in its actions under paragraph 2 hereof or breach of its duty or of its obligations hereunder (provided, however, that the foregoing shall not be construed to protect the Portfolio Manager from liability in violation of Section 17(i) of the Act). 10. Confidentiality. Subject to the duty of the Portfolio Manager and the Funds to comply with applicable law, including any demand of any regulatory or taxing authority having jurisdiction, the parties hereto shall treat as confidential all information pertaining to the Funds and the actions of the Portfolio Manager and the Funds in respect thereof. 11. Assignment. This Agreement shall terminate automatically in the event of its assignment, as that term is defined in Section 2(a)(4) of the Act. The Portfolio Manager shall notify the Funds in writing sufficiently in advance of any proposed change of control, as defined in Section 2(a)(9) of the Act, as will enable the Funds to consider whether an assignment as defined in Section 2(a)(4) of the Act will occur, and whether to take the steps necessary to enter into a new contract with the Portfolio Manager. 12. Representations, Warranties and Agreements of the Funds. The Trust on behalf of the Funds represents, warrants and agrees that: A. The Portfolio Manager has been duly appointed to provide investment services to the Funds as contemplated hereby. B. The Trust on behalf of the Funds will deliver to the Portfolio Manager a true and complete copy of its then current registration statement as effective from time to time and such other documents governing the investment of the Funds, or such other information as is necessary for the Portfolio Manager to carry out its obligations under this Agreement. 13. Representations, Warranties and Agreements of the Portfolio Manager. The Portfolio Manager represents, warrants and agrees that: A. It is registered as an "Investment Adviser" under the Investment Advisers Act of 1940 ("Advisers Act"). B. It will maintain, keep current and preserve on behalf of the Funds, in the manner required or permitted by the Act and the Rules thereunder, the records identified in Schedule B (as Schedule B may be amended from time to time). The Portfolio Manager agrees that such records are the property of the Funds, and will be surrendered to the Funds promptly upon request. C. It will maintain in effect a written code of ethics complying with the requirements of Rule l7j-l under the Act. Within 45 days of the end of each year while this Agreement is in effect, an officer or general partner of the Portfolio Manager shall certify to the Funds that the Portfolio Manager has complied with the requirements of Rule l7j-l during the previous year and that there has been no violation of its code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. D. Upon request, the Portfolio Manager will promptly supply the Trust with any information concerning the Portfolio Manager and its stockholders, employees and affiliates which the Trust may reasonably require in connection with the preparation of its registration statement, proxy material, reports and other documents relating to the Funds required to be filed under the Act, the Securities Act of 1933, or other applicable securities laws. E. Reference is hereby made to the Amended and Restated Agreement and Declaration of Trust dated April 27, 2000, establishing the Trust, a copy of which has been filed with the Secretary of the Commonwealth of Massachusetts and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The name Liberty Variable Investment Trust refers to the Trustees under said Declaration of Trust, as Trustees and not personally, and no Trustee, shareholder, officer, agent or employee of the Trust shall be held to any personal liability hereunder or in connection with the affairs of the Trust or the Funds, but only the assets of the Funds are liable under this Agreement. Without limiting the generality of the foregoing, neither the Portfolio Manager nor any of its officers, directors, partners, shareholders or employees shall, under any circumstances, have recourse or cause or willingly permit recourse to be had directly or indirectly to any personal, statutory, or other liability of any shareholder, Trustee, officer, agent or employee of the Trust or of any successor of the Trust or the Funds, whether such liability now exists or is hereafter incurred, for claims against the Trust estate, but shall look for payment solely to the assets of the Funds or any successor thereto. 14. Amendment. This Agreement may be amended at any time, but only by written agreement among the Portfolio Manager, the Fund Manager and the Trust, on behalf of the Funds, which amendment, other than amendments to Schedules A and B (which may be amended by the Fund Manager acting alone), is subject to the approval of the Trustees and the Shareholders of the Funds as and to the extent required by the Act. 15. Effective Date; Term. This Agreement shall continue in effect for two years from the date hereof and shall continue in effect thereafter provided such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees or (ii) a vote of a "majority" (as defined in the Act) of each Fund's outstanding voting securities, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the Act and the Rules and Regulations thereunder. 16. Termination. This Agreement may be terminated by any party, without penalty, immediately upon written notice to the other parties in the event of a breach of any provision thereof by a party so notified, or otherwise upon not less than ninety (90) days' written notice to the Portfolio Manager in the case of termination by the Trust on behalf of the Funds or the Fund Manager, or ninety (90) days' written notice to the Trust and the Fund Manager in the case of termination by the Portfolio Manager, but any such termination shall not affect the status, obligations or liabilities of any party hereto to the other parties. 17. Applicable Law. To the extent that state law is not preempted by the provisions of any law of the United States heretofore or hereafter enacted, as the same may be amended from time to time, this Agreement shall be administered, construed and enforced according to the laws of the Commonwealth of Massachusetts. 18. Severability. If any term or condition of this Agreement shall be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement, and such term or condition except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first written above. LIBERTY VARIABLE INVESTMENT TRUST on its own behalf and on behalf of the Rydex Financial Services Fund, Variable Series and Rydex Health Care Fund, Variable Series /s/Nancy L. Conlin By:Nancy L. Conlin Title: Secretary COLONIAL MANAGEMENT ASSOCIATES, INC. /s/Joseph R. Palombo By:Joseph R. Palombo Title: Executive Vice President ACCEPTED AND AGREED TO: PADCO ADVISORS II, INC. /s/Albert P. Viragh, Jr. By:Albert P. Viragh, Jr. Title: President SCHEDULES: * A. Operational Procedures B. Record Keeping Requirements * The Schedules relate to day-to-day operational logistics and to technical compliance matters. Schedule A RYDEX FINANCIAL SERVICES FUND, VARIABLE SERIES RYDEX HEALTH CARE FUND, VARIABLE SERIES Operational Procedures In order to facilitate operations efficiency, it will be necessary for a flow of information to be supplied to The Chase Manhattan Bank (the Custodian), and Colonial Management Associates, Inc. (the Administrator). PADCO Advisors II, Inc. (the Portfolio Manager) must furnish the Administrator with daily information as to executed trades, no later than 12:00 p.m. (Eastern time) on trade date plus one to ensure the information is processed in time for pricing. If there are no trades, a report must also be sent stating there were no trades for that day. The necessary information can be transmitted electronically to the Administrator, Attention: John Papoutsis, (the direct line to the machine is (617) 585-4251). Upon receipt of brokers' confirmation the Portfolio Manager or the Administrator must notify the other party if any differences exist. The reporting of trades by the Portfolio Manager to the Administrator shall include the following information: 1. Purchase or sale 2. Security name and description 3. Cusip and ticker symbol 4. Number of shares or units 5. Sale/purchase price per share or unit 6. Commission rate per share and aggregate commission or indicate net if so 7. Executing broker and clearing bank, if any 8. Trade date 9. Settlement date 10. Interest purchased or sold, if applicable 11. Total net amount of the transaction 12. If other than HIGH COST is to be used on a sale, it must be identified 13. Name of Fund and Portfolio Manager must be identified on trade ticket 14. Sequential numbering of all trades is also recommended For confirmation of trades, please advise the brokers to use the Custodian's DTC ID system number (No. 27028) to facilitate the receipt of information by the Custodian. In addition, the Portfolio Manager should arrange to have a duplicate confirmation sent to Colonial Management Assoc. as an interested party. Please have confirms linked to the Administrator's existing sign on: N199. 1. All DTC Eligible Securities Depository Trust Company (DTC) Agent Bank Name: Chase Manhattan Bank Agent Bank Number: 27028 Agent Bank Clearing Number: 902 2. Delivery Instructions All Physical Securities Chase Manhattan Bank 4 New York Plaza Ground Floor Window New York, NY 10004 Ref: (Name of Fund) All Government Issues Deliver through your area Federal Reserve Bank to: The Chase Manhattan Bank 021000021 CMB/CUST/Account Number/Account Name Wire Instructions: The Chase Manhattan Bank ABA #021000021 For credit to account 900-9-000127 For Further Credit to Chase Account Number Chase Account Name The Custodian will supply the Portfolio Manager daily with a cash availability report. This will normally be done electronically so that the Portfolio Manager will know the amount available for investment purposes. Schedule B RYDEX FINANCIAL SERVICES FUND, VARIABLE SERIES RYDEX HEALTH CARE FUND, VARIABLE SERIES Portfolio Management Agreement RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER 1. (Rule 31a-1(b)(5) and (6)). A record of each brokerage order, and all other portfolio purchases and sales, given by the Portfolio Manager on behalf of the Fund for, or in connection with, the purchase or sale of securities, whether executed or unexecuted. Such records shall include: A. The name of the broker; B. The terms and conditions of the order and of any modifications or cancellation thereof; C. The time of entry or cancellation; D. The price at which executed; E. The time or receipt of a report of execution; and F. The name of the person who placed the order on behalf of the Fund. 2. (Rule 31a-1(b)(9)). A record for each fiscal quarter, completed within ten (10) days after the end of the quarter, showing specifically the basis or bases upon which the allocation of orders for the purchase and sale of portfolio securities to named brokers or dealers was effected, and the division of brokerage commissions or other compensation on such purchase and sale orders. Such record: A. Shall include the consideration given to: (i) The sale of shares of the Fund by brokers or dealers. (ii) The supplying of services or benefits by brokers or dealers to: (a) The Fund; (b) The Manager (Liberty Asset Management Company); (c) The Portfolio Manager; and (d) Any person other than the foregoing. (iii) Any other consideration other than the technical qualifications of the brokers and dealers as such. B. Shall show the nature of the services or benefits made available. C. Shall describe in detail the application of any general or specific formula or other determinant used in arriving at such allocation of purchase and sale orders and such division of brokerage commissions or other compensation. D. The name of the person responsible for making the determination of such allocation and such division of brokerage commissions or other compensation. 3. (Rule 31a-a(b)(10)). A record in the form of an appropriate memorandum identifying the person or persons, committees or groups authorizing the purchase or sale of portfolio securities. Where an authorization is made by a committee or group, a record shall be kept of the names of its members who participate in the authorization. There shall be retained as part of this record: any memorandum, recommendation or instruction supporting or authorizing the purchase or sale of portfolio securities and such other information as is appropriate to support the authorization.(1) 4. (Rule 31a-1(f)). Such accounts, books and other documents as a required to be maintained by registered investment advisers by rule adopted under Section 204 of the Investment Advisers Act of 1940, to the extent such records are necessary or appropriate to record the Portfolio Manager's transactions with the Fund. (1) Such information might include: the current Form 10-K, annual and quarterly reports, press releases, reports by analysts and from brokerage firms (including their recommendation; i.e., buy, sell, hold) or any internal reports or portfolio manager reviews. EX-99.(D)(2)(III) 10 0010.txt PORTFOLIO MGMT AGMT ON BEHALF OF L500 PORTFOLIO MANAGEMENT AGREEMENT WITH STATE STREET GLOBAL ADVISORS as of May 30, 2000 State Street Global Advisors Two International Place Boston, MA 02110 Re: Portfolio Management Agreement Ladies and Gentlemen: Liberty S&P 500 Index Fund, Variable Series(1) (the "Fund") is a series of the Liberty Variable Investment Trust (the "Trust"), a diversified open-end investment company registered under the Investment Company Act of 1940 (the "Act"), and is subject to the rules and regulations promulgated thereunder. Liberty Advisory Services Corp. ("LASC") is the manager of the Fund. Pursuant to the Management and Sub-Advisory Agreement of even date herewith (the "Management and Sub-Advisory Agreement") among the Trust, on behalf of the Fund, LASC and Colonial Management Associates, Inc. (the "Fund Manager"), LASC delegates to the Fund Manager responsibility for investment management of the Fund. In furtherance thereof, the Fund Manager evaluates and recommends the portfolio manager for the Fund and is responsible for certain administrative matters relating to the Fund. l. Employment as a Portfolio Manager. The Trust being duly authorized hereby employs State Street Global Advisors, a division of State Street Bank & Trust Co., (the "Portfolio Manager") as a discretionary portfolio manager, on the terms and conditions set forth herein. 2. Acceptance of Employment; Standard of Performance. The Portfolio Manager accepts its employment as a discretionary portfolio manager and agrees to use its best professional judgment to make timely investment decisions for the Fund in accordance with the provisions of this Agreement. 3. Portfolio Management Services of Portfolio Manager. In providing portfolio management services to the Fund, the Portfolio Manager shall be subject to the investment objectives, policies and restrictions of the Fund as set forth in the Trust's current registration statement under the Act (as the same may be modified from time to time), and the investment restrictions set forth in the Act and the Rules thereunder (as and to the extent set forth in such registration statement or in other documentation furnished to the Portfolio Manager by the Fund or the Fund Manager), to the supervision and control of the Trustees of the Trust (the "Trustees"), and to instructions from the Fund Manager. The Portfolio Manager shall not, without the prior approval of the Fund or the Fund Manager, effect any transactions which would cause the Fund, treated as a separate fund, to be out of compliance with any of such restrictions or policies. 4. Transaction Procedures. All portfolio transactions for the Fund will be consummated by payment to or delivery by the custodian of the assets of the Fund (the "Custodian"), or such depositories or agents as may be designated by the Custodian in writing, as custodian for the Fund, of all cash and/or securities due to or from the Fund, and the Portfolio Manager shall not have possession or custody thereof or any responsibility or liability with respect to such custody. The Portfolio Manager shall advise and confirm in writing to the Custodian all investment orders for the Fund placed by it with brokers and dealers at the time and in the manner set forth in Schedule A hereto (as Schedule A may be amended from time to - ---------- (1) "S&P 500 Index" is a trademark of McGraw-Hill Companies, Inc. and has been licensed for use by Liberty Funds Distributor, Inc. time). The Fund shall issue to the Custodian such instructions as may be appropriate in connection with the settlement of any transaction initiated by the Portfolio Manager. The Fund shall be responsible for all custodial arrangements and the payment of all custodial charges and fees, and, upon giving proper instructions to the Custodian, the Portfolio Manager shall have no responsibility or liability with respect to custodial arrangements or the acts, omissions or other conduct of the Custodian. 5. Allocation of Brokerage. The Portfolio Manager shall have authority and discretion to select brokers and dealers to execute portfolio transactions initiated by the Portfolio Manager, and to select the markets on or in which the transaction will be executed. A In doing so, the Portfolio Manager's primary responsibility shall be to seek to obtain best net price and execution for the Fund. However, this responsibility shall not obligate the Portfolio Manager to solicit competitive bids for each transaction or to seek the lowest available commission cost to the Fund, so long as the Portfolio Manager reasonably believes that the broker or dealer selected by it can be expected to obtain a "best execution" market price on the particular transaction and determines in good faith that the commission cost is reasonable in relation to the value of the brokerage and research services (as defined in Section 28(e)(3) of the Securities Exchange Act of 1934) provided by such broker or dealer to the Portfolio Manager viewed in terms of either that particular transaction or of the Portfolio Manager's overall responsibilities with respect to its clients, including the Fund, as to which the Portfolio Manager exercises investment discretion, notwithstanding that the Fund may not be the direct or exclusive beneficiary of any such services or that another broker may be willing to charge the Fund a lower commission on the particular transaction. B. Subject to the requirements of paragraph A above, the Fund Manager shall have the right to request that transactions giving rise to brokerage commissions shall be executed by brokers and dealers (and in amounts), to be agreed upon from time to time between the Fund Manager and the Portfolio Manager, that provide brokerage or research services to the Fund or the Fund Manager, or as to which an on-going relationship will be of value to the Fund in the management of its assets, which services and relationship may, but need not, be of direct benefit to the Fund. Notwithstanding any other provision of this Agreement, the Portfolio Manager shall not be responsible under paragraph A above with respect to transactions executed through any such broker or dealer. C. The Portfolio Manager shall not execute any portfolio transactions for the Fund with a broker or dealer which is an "affiliated person" (as defined in the Act) of the Fund, the Portfolio Manager of the Fund without the prior written approval of the Fund. The Fund will provide the Portfolio Manager with a list of brokers and dealers which are "affiliated persons" of the Fund. 6. Proxies. The Portfolio Manager will vote all proxies solicited by or with respect to the issuers of securities in which assets of the Fund may be invested from time to time in accordance with such policies as shall be determined by the Fund Manager. 7. Fees for Services. As its compensation for its services under this Agreement, the Fund Manager will pay the Portfolio Manager monthly in arrears a fee at an annual rate equal to $25,000 on average daily net assets of the Fund up to $50 million and 0.05% of average daily net assets of the Fund thereafter. The fee shall be accrued for each calendar day and the sum of the daily fee accruals shall be paid monthly on or before the fifteenth day of the following calendar month. The daily accruals of the fee will be computed by (i) multiplying the annual percentage rate referred to above by the fraction the numerator of which is one and the denominator of which is the number of days in the year, and (ii) multiplying the product obtained pursuant to clause (i) above by the net asset value of the Fund as determined in accordance with the Trust's Prospectus as of the previous day on which the Fund was open for business. The foregoing fee shall be prorated for any month during which this Agreement is in effect for only a portion of the month. Pursuant to the Management and Sub-Advisory Agreement, the Fund Manager is solely responsible for the payment of fees to the Portfolio Manager, and the Portfolio Manager agrees to seek payment of its fees solely from the Fund Manager. 8. Other Investment Activities of Portfolio Manager. The Trust on behalf of the Fund acknowledges that the Portfolio Manager or one or more of its affiliates has investment responsibilities, renders investment advice to and performs other investment advisory services for other individuals or entities ("Client Accounts"), and that the Portfolio Manager, its affiliates or any of its or their directors, officers, agents or employees may buy, sell or trade in any securities for its or their respective accounts ("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the Trust on behalf of the Fund agrees that the Portfolio Manager or its affiliates may give advice or exercise investment responsibility and take such other action with respect to other Client Accounts and Affiliated Accounts which may differ from the advice given or the timing or nature of action taken with respect to the Fund, provided that the Portfolio Manager acts in good faith, and provided further, that it is the Portfolio Manager's policy to allocate, within its reasonable discretion, investment opportunities to the Fund over a period of time on a fair and equitable basis relative to the Client Accounts and the Affiliated Accounts, taking into account the cash position and the investment objectives and policies of the Fund and any specific investment restrictions applicable thereto. The Trust on behalf of the Fund acknowledges that one or more Client Accounts and Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Fund may have an interest from time to time, whether in transactions which involve the Fund or otherwise. The Portfolio Manager shall have no obligation to acquire for the Fund a position in any investment which any Client Account or Affiliated Account may acquire, and the Fund shall have no first refusal, coinvestment or other rights in respect of any such investment, either for the Fund or otherwise. 9. Limitation of Liability. The Portfolio Manager shall not be liable for any action taken, omitted or suffered to be taken by it in its reasonable judgment, in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement, or in accordance with (or in the absence of) specific directions or instructions from the Fund or the Fund Manager, provided, however, that such acts or omissions shall not have resulted from the Portfolio Manager's willful misfeasance, bad faith or gross negligence, a violation of the standard of care established by and applicable to the Portfolio Manager in its actions under paragraph 2 hereof or breach of its duty or of its obligations hereunder (provided, however, that the foregoing shall not be construed to protect the Portfolio Manager from liability in violation of Section 17(i) of the Act). 10. Confidentiality. Subject to the duty of the Portfolio Manager and the Fund to comply with applicable law, including any demand of any regulatory or taxing authority having jurisdiction, the parties hereto shall treat as confidential all information pertaining to the Fund and the actions of the Portfolio Manager and the Fund in respect thereof. 11. Assignment. This Agreement shall terminate automatically in the event of its assignment, as that term is defined in Section 2(a)(4) of the Act. The Portfolio Manager shall notify the Fund in writing sufficiently in advance of any proposed change of control, as defined in Section 2(a)(9) of the Act, as will enable the Fund to consider whether an assignment as defined in Section 2(a)(4) of the Act will occur, and whether to take the steps necessary to enter into a new contract with the Portfolio Manager. 12. Representations, Warranties and Agreements of the Fund. The Trust on behalf of the Fund represents, warrants and agrees that: A. The Portfolio Manager has been duly appointed to provide investment services to the Fund as contemplated hereby. B. The Trust on behalf of the Fund will deliver to the Portfolio Manager a true and complete copy of its then current registration statement as effective from time to time and such other documents governing the investment of the Fund, or such other information as is necessary for the Portfolio Manager to carry out its obligations under this Agreement. 13. Representations, Warranties and Agreements of the Portfolio Manager. The Portfolio Manager represents, warrants and agrees that: A. It is a "bank" as such term is defined under the Investment Advisers Act of 1940 ("Advisers Act"). B. It will maintain, keep current and preserve on behalf of the Fund, in the manner required or permitted by the Act and the Rules thereunder, the records identified in Schedule B (as Schedule B may be amended from time to time). The Portfolio Manager agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request. C. It will maintain in effect a written code of ethics complying with the requirements of Rule l7j-l under the Act. Within 45 days of the end of each year while this Agreement is in effect, an officer or general partner of the Portfolio Manager shall certify to the Fund that the Portfolio Manager has complied with the requirements of Rule l7j-l during the previous year and that there has been no violation of its code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. D. Upon request, the Portfolio Manager will promptly supply the Trust with any information concerning the Portfolio Manager and its stockholders, employees and affiliates which the Trust may reasonably require in connection with the preparation of its registration statement, proxy material, reports and other documents relating to the Fund required to be filed under the Act, the Securities Act of 1933, or other applicable securities laws. E. Reference is hereby made to the Amended and Restated Agreement and Declaration of Trust dated April 27, 2000, establishing the Trust, a copy of which has been filed with the Secretary of the Commonwealth of Massachusetts and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The name Liberty Variable Investment Trust refers to the Trustees under said Declaration of Trust, as Trustees and not personally, and no Trustee, shareholder, officer, agent or employee of the Trust shall be held to any personal liability hereunder or in connection with the affairs of the Trust or the Fund, but only the assets of the Fund are liable under this Agreement. Without limiting the generality of the foregoing, neither the Portfolio Manager nor any of its officers, directors, partners, shareholders or employees shall, under any circumstances, have recourse or cause or willingly permit recourse to be had directly or indirectly to any personal, statutory, or other liability of any shareholder, Trustee, officer, agent or employee of the Trust or of any successor of the Trust or the Fund, whether such liability now exists or is hereafter incurred, for claims against the Trust estate, but shall look for payment solely to the assets of the Fund or any successor thereto. 14. Amendment. This Agreement may be amended at any time, but only by written agreement among the Portfolio Manager, the Fund Manager and the Trust, on behalf of the Fund, which amendment, other than amendments to Schedules A and B (which may be amended by the Fund Manager acting alone), is subject to the approval of the Trustees and the Shareholders of the Fund as and to the extent required by the Act. 15. Effective Date; Term. This Agreement shall continue in effect for two years from the date hereof and shall continue in effect thereafter provided such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees or (ii) a vote of a "majority" (as defined in the Act) of the Fund's outstanding voting securities, provided that in either event the continuance is also approved by a majority of the Board of Trustees who are not "interested persons" (as defined in the Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the Act and the Rules and Regulations thereunder. 16. Termination. This Agreement may be terminated by any party, without penalty, immediately upon written notice to the other parties in the event of a breach of any provision thereof by a party so notified, or otherwise upon not less than thirty (30) days' written notice to the Portfolio Manager in the case of termination by the Trust on behalf of the Fund or the Fund Manager, or ninety (90) days' written notice to the Trust and the Fund Manager in the case of termination by the Portfolio Manager, but any such termination shall not affect the status, obligations or liabilities of any party hereto to the other parties. 17. Applicable Law. To the extent that state law is not preempted by the provisions of any law of the United States heretofore or hereafter enacted, as the same may be amended from time to time, this Agreement shall be administered, construed and enforced according to the laws of the Commonwealth of Massachusetts. 18. Severability. If any term or condition of this Agreement shall be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement, and such term or condition except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law. IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first written above. LIBERTY VARIABLE INVESTMENT TRUST on its own behalf and on behalf of the Liberty S&P 500 Index Fund, Variable Series /s/Nancy L. Conlin By:Nancy L. Conlin Title: Secretary COLONIAL MANAGEMENT ASSOCIATES, INC. /s/Joseph R. Palombo By:Joseph R. Palombo Title: Executive Vice President ACCEPTED AND AGREED TO: STATE STREET GLOBAL ADVISORS A division of State Street Bank & Trust Co. /s/Timothy B. Harbert By:Timothy B. Harbert President Title: SCHEDULES: * A. Operational Procedures B. Record Keeping Requirements * The Schedules relate to day-to-day operational logistics and to technical compliance matters. Schedule A LIBERTY S&P 500 INDEX FUND, VARIABLE SERIES Operational Procedures In order to facilitate operations efficiency, it will be necessary for a flow of information to be supplied to The Chase Manhattan Bank (the Custodian), and Colonial Management Associates, Inc. (the Administrator). State Street Global Advisors (the Portfolio Manager) must furnish the Administrator with daily information as to executed trades, no later than 12:00 p.m. (Eastern time) on trade date plus one to ensure the information is processed in time for pricing. If there are no trades, a report must also be sent stating there were no trades for that day. The necessary information can be transmitted electronically to the Administrator, Attention: John Papoutsis, (the direct line to the machine is (617) 585-4251). Upon receipt of brokers' confirmation the Portfolio Manager or the Administrator must notify the other party if any differences exist. The reporting of trades by the Portfolio Manager to the Administrator shall include the following information: 1. Purchase or sale 2. Security name and description 3. Cusip and ticker symbol 4. Number of shares or units 5. Sale/purchase price per share or unit 6. Commission rate per share and aggregate commission or indicate net if so 7. Executing broker and clearing bank, if any 8. Trade date 9. Settlement date 10. Interest purchased or sold, if applicable 11. Total net amount of the transaction 12. If other than HIGH COST is to be used on a sale, it must be identified 13. Name of Fund and Portfolio Manager must be identified on trade ticket 14. Sequential numbering of all trades is also recommended For confirmation of trades, please advise the brokers to use the Custodian's DTC ID system number (No. 27028) to facilitate the receipt of information by the Custodian. In addition, the Portfolio Manager should arrange to have a duplicate confirmation sent to Colonial Management Assoc. as an interested party. Please have confirms linked to the Administrator's existing sign on: N199. 3. All DTC Eligible Securities Depository Trust Company (DTC) Agent Bank Name: Chase Manhattan Bank Agent Bank Number: 27028 Agent Bank Clearing Number: 902 4. Delivery Instructions All Physical Securities Chase Manhattan Bank 4 New York Plaza Ground Floor Window New York, NY 10004 Ref: (Name of Fund) All Government Issues Deliver through your area Federal Reserve Bank to: The Chase Manhattan Bank 021000021 CMB/CUST/Account Number/Account Name Wire Instructions: The Chase Manhattan Bank ABA #021000021 For credit to account 900-9-000127 For Further Credit to Chase Account Number Chase Account Name The Custodian will supply the Portfolio Manager daily with a cash availability report. This will normally be done electronically so that the Portfolio Manager will know the amount available for investment purposes. Schedule B LIBERTY S&P 500 INDEX FUND, VARIABLE SERIES Portfolio Management Agreement RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER 1. (Rule 31a-1(b)(5) and (6)). A record of each brokerage order, and all other portfolio purchases and sales, given by the Portfolio Manager on behalf of the Fund for, or in connection with, the purchase or sale of securities, whether executed or unexecuted. Such records shall include: A. The name of the broker; B. The terms and conditions of the order and of any modifications or cancellation thereof; C. The time of entry or cancellation; D. The price at which executed; E. The time or receipt of a report of execution; and F. The name of the person who placed the order on behalf of the Fund. 2. (Rule 31a-1(b)(9)). A record for each fiscal quarter, completed within ten (10) days after the end of the quarter, showing specifically the basis or bases upon which the allocation of orders for the purchase and sale of portfolio securities to named brokers or dealers was effected, and the division of brokerage commissions or other compensation on such purchase and sale orders. Such record: A. Shall include the consideration given to: (i) The sale of shares of the Fund by brokers or dealers. (ii) The supplying of services or benefits by brokers or dealers to: (a) The Fund; (b) The Manager (Liberty Asset Management Company); (c) The Portfolio Manager; and (d) Any person other than the foregoing. (iii) Any other consideration other than the technical qualifications of the brokers and dealers as such. B. Shall show the nature of the services or benefits made available. C. Shall describe in detail the application of any general or specific formula or other determinant used in arriving at such allocation of purchase and sale orders and such division of brokerage commissions or other compensation. D. The name of the person responsible for making the determination of such allocation and such division of brokerage commissions or other compensation. 3. (Rule 31a-a(b)(10)). A record in the form of an appropriate memorandum identifying the person or persons, committees or groups authorizing the purchase or sale of portfolio securities. Where an authorization is made by a committee or group, a record shall be kept of the names of its members who participate in the authorization. There shall be retained as part of this record: any memorandum, recommendation or instruction supporting or authorizing the purchase or sale of portfolio securities and such other information as is appropriate to support the authorization.(1) 4. (Rule 31a-1(f)). Such accounts, books and other documents as a required to be maintained by registered investment advisers by rule adopted under Section 204 of the Investment Advisers Act of 1940, to the extent such records are necessary or appropriate to record the Portfolio Manager's transactions with the Fund. (1) Such information might include: the current Form 10-K, annual and quarterly reports, press releases, reports by analysts and from brokerage firms (including their recommendation; i.e., buy, sell, hold) or any internal reports or portfolio manager reviews. EX-99.(G)(1)(II) 11 0011.txt AMDMT NO. 12 TO CHASE AGMT AMENDMENT NO. 12 TO SCHEDULE A IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first-above written.
CUSTOMER - -------- Trust Series - ----- ------ Liberty Funds Trust I Colonial High Yield Securities Fund Colonial Income Fund Colonial Strategic Income Fund Stein Roe Advisor Tax-Managed Growth Fund Stein Roe Advisor Tax-Managed Value Fund Stein Roe Advisor Tax-Managed Growth Fund II Liberty Funds Trust II Colonial Money Market Fund Colonial Intermediate U.S. Government Fund Colonial Short Duration U.S. Government Fund Stein Roe Small Cap Tiger Fund Liberty Newport Japan Opportunities Fund Newport Greater China Fund Liberty Funds Trust III Colonial Select Value Fund The Colonial Fund Colonial Federal Securities Fund Colonial Global Equity Fund Colonial International Horizons Fund Colonial Global Utilities Fund Colonial Strategic Balanced Fund The Crabbe Huson Special Fund Crabbe Huson Small Cap Fund Crabbe Huson Real Estate Investment Fund Crabbe Huson Equity Fund Crabbe Huson Managed Income & Equity Fund Crabbe Huson Oregon Tax-Free Fund Crabbe Huson Contrarian Income Fund Crabbe Huson Contrarian Fund Liberty Funds Trust IV Colonial Tax-Exempt Fund Colonial Tax-Exempt Insured Fund Colonial Municipal Money Market Fund Colonial High Yield Municipal Fund Colonial Utilities Fund Colonial Intermediate Tax-Exempt Fund Colonial Counselor Select Income Portfolio Colonial Counselor Select Balanced Portfolio Colonial Counselor Select Growth Portfolio Liberty Funds Trust V Colonial Massachusetts Tax-Exempt Fund Colonial Minnesota Tax-Exempt Fund Colonial Michigan Tax-Exempt Fund Colonial New York Tax-Exempt Fund Colonial Ohio Tax-Exempt Fund Colonial California Tax-Exempt Fund Colonial Connecticut Tax-Exempt Fund Colonial Florida Tax-Exempt Fund Colonial North Carolina Tax-Exempt Fund
Liberty Funds Trust VI Colonial U.S. Growth & Income Fund Colonial Small Cap Value Fund Colonial Value Fund Newport Asia Pacific Fund Liberty Funds Trust VII Newport Tiger Fund Newport Europe Fund
Colonial Intermediate High Income Fund Colonial InterMarket Income Trust I Colonial Municipal Income Trust Colonial High Income Municipal Trust Colonial Investment Grade Municipal Trust Colonial Insured Municipal Fund Colonial California Insured Municipal Fund Colonial New York Insured Municipal Fund Colonial Investment Grade Bond Fund Liberty All-Star Growth Fund, Inc. Liberty All-Star Equity Fund Liberty Variable Investment Trust 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 High Yield Securities Fund, Variable Series Colonial Small Cap Value Fund, Variable Series Colonial International Horizons Fund, Variable Series Colonial Global Equity Fund, Variable Series 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
By:/s/Nancy L. Conlin Nancy L. Conlin May 30, 2000 THE CHASE MANHATTAN BANK By:/s/Rosemary M. Stidmon Rosemary M. Stidmon May 30, 2000 Page 2 of 2 EX-99.(H)(3) 12 0012.txt FORM OF PARTICIPATION AGMT PARTICIPATION AGREEMENT AMONG ________________________________. ON BEHALF OF ITSELF AND ___________________________________________________________ AND KEYPORT LIFE INSURANCE COMPANY THIS AGREEMENT made as of _____________, among ___________________ (the "Trust"), a corporation organized under ___________ law, _______________________, a ___________ corporation, the Trust's principal underwriter ("Underwriter"), and Keyport Life Insurance Company, a life insurance company organized as a corporation under Rhode Island law (the "Company"), on its own behalf and on behalf of each segregated asset account of the Company set forth in Schedule A, as may be amended from time to time (the "Accounts"). W I T N E S S E T H: WHEREAS, the Trust is registered with the Securities and Exchange Commission (the "SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and has an effective registration statement relating to the offer and sale of the various series of its shares under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, the Trust and the Underwriter desire that Trust shares be used as an investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts to be offered by life insurance companies which have entered into fund participation agreements with the Trust (the "Participating Insurance Companies"); WHEREAS, the beneficial interest in the Trust is divided into several series of shares, each series representing an interest in a particular managed portfolio of securities and other assets, and certain of those series, named in Schedule B, (the "Portfolios") are to be made available for purchase by the Company for the Accounts; and WHEREAS, the Trust has been granted or currently intends to apply for an order from the SEC granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies and certain qualified pension and retirement plans (the "Shared Funding Exemptive Order"); WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act unless an exemption from registration under the 1940 Act is available and the Trust has been so advised; and has registered or will register certain variable annuity contracts and variable life insurance policies under which the portfolios are to be made available as investment vehicles (the "Contracts") under the 1933 Act unless such interests under the Contracts in the Accounts are exempt from registration under the 1933 Act and the Trust has been so advised; WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company, on the date shown for such account on Schedule A hereto, to set aside and invest assets attributable to one or more Contracts; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser") is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act") and any applicable state securities laws; WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of each Account to fund certain of the aforesaid Contracts and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account at net asset value; NOW THEREFORE, in consideration of their mutual promises, the parties agree as follows: ARTICLE I. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES 1.1. For purposes of this Article I, the Company shall be the Trust's designee for receipt of purchase orders and requests for redemption relating to each Portfolio from each Account, provided that the Company notifies the Trust of such purchase orders and requests for redemption by 9:00 a.m. Eastern time on the next following Business Day, as defined in Section 1.3. 1.2. The Trust agrees to make shares of the Portfolios available to the Accounts for purchase at the net asset value per share next computed after receipt of a purchase order by the Trust (or its designee), as established in accordance with the provisions of the then current prospectus of the Trust describing Portfolio purchase procedures on those days on which the Trust calculates its net asset value pursuant to rules of the SEC, and the Trust shall use its best efforts to calculate such net asset value on each day on which the New York Stock Exchange ("NYSE") is open for trading. The Company will transmit orders from time to time to the Trust for the purchase of shares of the Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Portfolio. 1.3 The Company shall submit payment for the purchase of shares of a Portfolio on behalf of an Account no later than the close of business on the next Business Day after the Trust receives the purchase order. Payment shall be made in federal funds transmitted by wire to the Trust or its designated custodian. Upon receipt by the Trust of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Trust for this purpose. "Business Day" shall mean any day on which the NYSE is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the SEC. 1.4 The Trust will redeem for cash any full or fractional shares of any Portfolio, when requested by the Company on behalf of an Account, at the net asset value next computed after receipt by the Trust (or its designee) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Trust describing Portfolio redemption procedures. The Trust shall make payment for such shares in the manner established from time to time by the Trust. Redemption with respect to a Portfolio will normally be paid to the Company for an Account in federal funds transmitted by wire to the Company before the close of business on the next Business Day after the receipt of the request for redemption. Such payment may be delayed if, for example, the Portfolio's cash position so requires or if extraordinary market conditions exist, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act. 1.5 Payments for the purchase of shares of the Trust's Portfolios by the Company under Section 1.3 and payments for the redemption of shares of the Trust's Portfolios under Section 1.4 may be netted against one another on any Business Day for the purpose of determining the amount of any wire transfer on that Business Day. 1.6 Issuance and transfer of the Trust's Portfolio shares will be by book entry only. Stock certificates will not be issued to the Company or the Account. Portfolio Shares purchased from the Trust will be recorded in the appropriate title for each Account or the appropriate subaccount of each Account. 1.7 The Trust shall furnish, on or before the ex-dividend date, notice to the Company of any income dividends or capital gain distributions payable on the shares of any Portfolio of the Trust. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's shares in additional shares of the Portfolio. The Trust shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.8 The Trust shall calculate the net asset value of each Portfolio on each Business Day, as defined in Section 1.3. The Trust shall make the net asset value per share for each Portfolio available to the Company or its designated agent on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use reasonable efforts to make such net asset value per share available by 7:00 p.m. Eastern time each Business Day. 1.9 The Trust agrees that its Portfolio shares will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Shared Funding Exemptive Order. No shares of any Portfolio will be sold directly to the general public. The Company agrees that it will use Trust shares only for the purposes of funding the Contracts through the Accounts listed in Schedule A, as amended from time to time. 1.10 The Company agrees that all net amounts available under the Contracts shall be invested in the Trust, in such other Funds advised by an Adviser or its affiliates as may be mutually agreed to in writing by the parties hereto, or in the Company's general account, provided that such amounts may also be invested in an investment company other than the Trust if: (a) such other investment company, or series thereof, has investment objectives or policies that are substantially different from the investment objectives and policies of the Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days written notice of its intention to make such other investment company available as a funding vehicle for the Contracts; or (c) such other investment company is available as a funding vehicle for the Contracts at the date of this Agreement and the Company so informs the Trust and the Underwriter prior to their signing this Agreement; or (d) the Trust or Underwriter consents to the use of such other investment company. 1.11 The Trust agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.10 and Article IV of this Agreement. 1.12 Each party to this Agreement shall have the right to rely on information or confirmations provided by any other party (or by any affiliate of any other party), and shall not be liable in the event that an error results from any incorrect information or confirmations supplied by any other party. If an error is made in reliance upon incorrect information or confirmations, any amount required to make a Contract owner's account whole shall be borne by the party who provided the incorrect information or confirmation. ARTICLE II. OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES 2.1 The Trust shall prepare and be responsible for filing with the SEC and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of the Trust. The Trust shall bear the costs of registration and qualification of its shares of the Portfolios, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2 At the option of the Company, the Trust or the Underwriter shall either (a) provide the Company with as many copies of portions of the Trust's current prospectus, annual report, semi-annual report and other shareholder communications, including any amendments or supplements to any of the foregoing, pertaining specifically to the Portfolios as the Company shall reasonably request; or (b) provide the Company with a camera ready copy of such documents in a form suitable for printing and from which information relating to series of the Trust other than the Portfolios has been deleted to the extent practicable. The Trust or the Underwriter shall provide the Company with a copy of its current statement of additional information, including any amendments or supplements, in a form suitable for duplication by the Company. Expenses of furnishing such documents for marketing purposes shall be borne by the Company and expenses of furnishing such documents for current contract owners invested in the Trust shall be borne by the Trust or the Underwriter. 2.3 The Trust (at its expense) shall provide the Company with copies of any Trust-sponsored proxy materials in such quantity as the Company shall reasonably require for distribution to Contract owners. The Company shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions), prospectuses and statements of additional information to Contract owners. The Company assumes sole responsibility for ensuring that such materials are delivered to Contract owners in accordance with applicable federal and state securities laws. 2.4 If and to the extent required by law, the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Trust shares in accordance with the instructions received from Contract owners; and (iii) vote Trust shares for which no instructions have been received in the same proportion as Trust shares of such Portfolio for which instructions have been received; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Trust shares held in any segregated asset account in its own right, to the extent permitted by law. 2.5 The Company shall furnish, or cause to be furnished to the Trust or its designee, at least one complete copy of each registration statement, prospectus, statement of additional information, retirement plan disclosure information or other disclosure documents or similar information, as applicable (collectively "disclosure documents"), as well as any report, solicitation for voting instructions, sales literature and other promotional materials, and all amendments to any of the above that relate to the Contracts or the Accounts prior to its first use. The Company shall furnish, or shall cause to be furnished, to the Trust or its designee each piece of sales literature or other promotional material in which the Trust or an Adviser is named, at least 15 Business Days prior to its use. No such material shall be used if the Trust or its designee reasonably objects to such use within five Business Days after receipt of such material. For purposes of this paragraph, "sales literature or other promotional material" includes, but is not limited to, portions of the following that use any Trademark related to the Trust or Underwriter or refer to the Trust or affiliates of the Trust: advertisements (such as material published or designed for use in a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures or electronic communication or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts or any other advertisement, sales literature or published article or electronic communication), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and disclosure documents, shareholder reports and proxy materials. 2.6 The Company and its agents shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust, the Underwriter or an Adviser in connection with the sale of the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Trust shares (as such registration statement and prospectus may be amended or supplemented from time to time), annual and semi-annual reports of the Trust, Trust-sponsored proxy statements, or in sales literature or other promotional material approved by the Trust or its designee, except as required by legal process or regulatory authorities or with the written permission of the Trust or its designee. 2.7 The Trust shall use its best efforts to provide the Company, on a timely basis, with such information about the Trust, the Portfolios and each Adviser, in such form as the Company may reasonably require, as the Company shall reasonably request in connection with the preparation of disclosure documents and annual and semi-annual reports pertaining to the Contracts. 2.8 The Trust shall not give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts other than information or representations contained in and accurately derived from disclosure documents for the Contracts (as such disclosure documents may be amended or supplemented from time to time), or in materials approved by the Company for distribution including sales literature or other promotional materials, except as required by legal process or regulatory authorities or with the written permission of the Company. 2.9 So long as, and to the extent that, the SEC interprets the 1940 Act to require pass-through voting privileges for Contract owners, the Company will provide pass-through voting privileges to Contract owners whose Contract values are invested, through the registered Accounts, in shares of one or more Portfolios of the Trust. The Trust shall require all Participating Insurance Companies to calculate voting privileges in the same manner and the Company shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Trust. With respect to each registered Account, the Company will vote shares of each Portfolio of the Trust held by a registered Account and for which no timely voting instructions from Contract owners are received in the same proportion as those shares held by that registered Account for which voting instructions are received. The Company and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Portfolio shares held to fund the Contracts without the prior written consent of the Trust, which consent may be withheld in the Trust's sole discretion. 2.10 The Trust and Underwriter shall pay no fee or other compensation to the Company under this Agreement except as provided on Schedule C. Nevertheless, the Trust or the Underwriter or an affiliate may make payments (other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or to the Contracts' underwriter in amounts agreed to by the Underwriter in writing and such payments may be made out of fees otherwise payable to the Underwriter or its affiliates, profits of the Underwriter or its affiliates, or other resources available to the Underwriter or its affiliates. ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 The Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of its state of incorporation and that it has legally and validly established each Account as a segregated asset account under such law as of the date set forth in Schedule A. 3.2 The Company represents and warrants that, with respect to each Account, (1) the Company has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated asset account for the Contracts, or (2) if the Account is exempt from registration as an investment company under Section 3(c) of the 1940 Act, the Company will make every effort to maintain such exemption and will notify the Trust and the Adviser immediately upon having a reasonable basis for believing that such exemption no longer applies or might not apply in the future. 3.3 The Company represents and warrants that, with respect to each Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or under Section 4(2) and Regulation D of the 1933 Act, the Company will make every effort to maintain such exemption and will notify the Trust and the Adviser immediately upon having a reasonable basis for believing that such exemption no longer applies or might not apply in the future. The Company further represents and warrants that the Contracts will be sold by broker-dealers, or their registered representatives, who are registered with the SEC under the 1934 Act and who are members in good standing of the NASD; the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. For any unregistered Accounts which are exempt from registration under the 1940 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company represents and warrants that: (a) each Account and sub-account thereof has a principal underwriter which is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended; (b) Trust shares are and will continue to be the only investment securities held by the corresponding Account sub-accounts; and (c) with regard to each Portfolio, the Company, on behalf of the corresponding sub-account, will: (1) seek instructions from all Contract owners with regard to the voting of all proxies with respect to Trust shares and vote such proxies only in accordance with such instructions or vote such shares held by it in the same proportion as the vote of all other holders of such shares; and (2) refrain from substituting shares of another security for such shares unless the SEC has approved such substitution in the manner provided in Section 26 of the 1940 Act. 3.4 The Trust represents and warrants that it is duly organized and validly existing under the laws of the State of Maryland and that it does and will comply in all material respects with the 1940 Act and the rules and regulations thereunder. 3.5 The Trust represents and warrants that the Portfolio shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Trust shall be registered under the 1940 Act prior to and at the time of any issuance or sale of such shares. The Trust shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Trust shall register and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Trust or the Underwriter. 3.6 The Trust represents and warrants that the investments of each Portfolio will comply with the diversification requirements for variable annuity, endowment or life insurance contracts set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended (the"Code"), and the rules and regulations thereunder, including without limitation Treasury Regulation 1.817-5, and will notify the Company immediately upon having a reasonable basis for believing any Portfolio has ceased to comply or might not so comply and will in that event immediately take all reasonable steps to adequately diversify the Portfolio to achieve compliance within the grace period afforded by Regulation 1.817-5. 3.7 The Trust represents and warrants that it is currently qualified as a "regulated investment company" under Subchapter M of the Code, that it will make every effort to maintain such qualification and will notify the Company immediately upon having a reasonable basis for believing it has ceased to so qualify or might not so qualify in the future. 3.8 The Trust represents and warrants that should it ever desire to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Trustees, including a majority who are not "interested persons" of the Trust under the 1940 Act ("disinterested Trustees"), will formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 3.9 The Trust represents and warrants that it, its directors, officers, employees and others dealing with the money or securities, or both, of a Portfolio shall at all times be covered by a blanket fidelity bond or similar coverage for the benefit of the Trust in an amount not less that the minimum coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such bond shall include coverage for larceny and embezzlement and be issued by a reputable bonding company. 3.10 The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Trust are and shall be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Trust, in an amount not less than $5 million. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Trust and the Underwriter in the event that such coverage no longer applies. 3.11 The Underwriter represents that each Adviser is duly organized and validly existing under applicable corporate law and that it is registered and will during the term of this Agreement remain registered as an investment adviser under the Advisers Act. 3.12 The Trust currently intends for one or more classes of shares (each, a "Class") to make payments to finance its distribution expenses, including service fees, pursuant to a Plan adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may determine to discontinue such practice in the future. To the extent that any Class of the Trust finances its distribution expenses pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to comply with any then current SEC and SEC staff interpretations concerning Rule 12b-1 or any successor provisions. ARTICLE IV. POTENTIAL CONFLICTS 4.1 The parties acknowledge that a Portfolio's shares may be made available for investment to other Participating Insurance Companies. In such event, the Trustees will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Trust shall promptly inform the Company of any determination by the Trustees that an irreconcilable material conflict exists and of the implications thereof. 4.2 The Company agrees to promptly report any potential or existing conflicts of which it is aware to the Trustees. The Company will assist the Trustees in carrying out their responsibilities by providing the Trustees with all information reasonably necessary for the Trustees to consider any issues raised including, but not limited to, information as to a decision by the Company to disregard Contract owner voting instructions. All communications from the Company to the Trustees may be made in care of the Trust. 4.3 If it is determined by a majority of the Trustees, or a majority of the disinterested Trustees, that a material irreconcilable conflict exists that affects the interests of Contract owners, the Company shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its own expense and to the extent reasonably practicable (as determined by the Trustees) take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to some or all of the Accounts from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the question of whether or not such withdrawal should be implemented to a vote of all affected Contract owners and, as appropriate, withdrawal of the assets of any appropriate group (i.e. , annuity contract owners, life insurance policy owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such withdrawal, or offering to the affected Contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 4.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with a majority of other state regulators, then the Company will withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account within six (6) months after the Trustees inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of the disinterested Trustees shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Trust be required to establish a new funding medium for the Contracts. In the event that the Trustees determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Trust and terminate this Agreement within six (6) months after the Trustees inform the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Trustees. 4.7 The Company shall at least annually submit to the Trustees such reports, materials or data as the Trustees may reasonably request so that the Trustees may fully carry out the duties imposed upon them by the Shared Funding Exemptive Order, and said reports, materials and data shall be submitted more frequently if reasonably deemed appropriate by the Trustees. 4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable. ARTICLE V. INDEMNIFICATION 5.1 Indemnification By the Company (a) The Company agrees to indemnify and hold harmless the Underwriter, the Trust and each of its Trustees, officers, employees and agents and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually the "Indemnified Party" for purposes of this Article V) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses are related to the sale or acquisition of Trust Shares or the Contracts and (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a disclosure document for the Contracts or in the Contracts themselves or in sales literature generated or approved by the Company on behalf of the Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article V), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Company by or on behalf of the Trust for use in Company Documents or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Trust Documents as defined in Section 5.2 (a)(i)) or wrongful conduct of the Company or persons under its control, with respect to the sale or acquisition of the Contracts or Trust shares; or (iii) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Trust Documents as defined in Section 5.2(a)(i) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Trust by or on behalf of the Company; or (iv) arise out of or result from any failure by the Company to provide the services or furnish the materials required under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. (b) The Company shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Trust or Underwriter, whichever is applicable. The Company shall also not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (c) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Trust shares or the Contracts or the operation of the Trust. 5.2 Indemnification By The Underwriter (a) The Underwriter agrees to indemnify and hold harmless the Company, the underwriter of the Contracts and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually an "Indemnified Party" for purposes of this Section 5.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter, which consent shall not be unreasonably withheld) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses") to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such Losses are related to the sale or acquisition of the Trust's Shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement, prospectus or sales literature of the Trust (or any amendment or supplement to any of the foregoing) (collectively, the "Trust Documents") or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission of such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Trust by or on behalf of the Company for use in the Registration Statement or prospectus for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the disclosure documents or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Trust, Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a disclosure document or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Trust; or (iv) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification representation specified in Section 3.7 of this Agreement and the diversification requirements specified in Section 3.6 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 5.2(b) and 5.2(c) hereof. (b) The Underwriter shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to each Company or the Account, whichever is applicable. (c) The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 5.3 Indemnification By The Trust (a) The Trust agrees to indemnify and hold harmless the Company, and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 5.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust, which consent shall not be unreasonably withheld) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Trust, and arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust; as limited by and in accordance with the provisions of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly stipulated that neither the holders of shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. (b) The Trust shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against any Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Trust, the Underwriter or each Account, whichever is applicable. (c) The Trust shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Trust to such party of the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Trust will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Company and the Underwriter agree promptly to notify the Trust of the commencement of any litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of either the Account, or the sale or acquisition of share of the Trust. ARTICLE VI. TERMINATION 6.1 This Agreement may be terminated by any party in its entirety or with respect to one, some or all Portfolios or any reason by sixty (60) days advance written notice delivered to the other parties, and shall terminate immediately in the event of its assignment, as that term is used in the 1940 Act. 6.2 This Agreement may be terminated immediately by either the Trust or the Underwriter following consultation with the Trustees upon written notice to the Company if: (a) the Company notifies the Trust or the Underwriter that the exemption from registration under Section 3(c) of the 1940 Act no longer applies, or might not apply in the future, to the unregistered Accounts, or that the exemption from registration under Section 4(2) or Regulation D promulgated under the 1933 Act no longer applies or might not apply in the future, to interests under the unregistered Contracts; or (b) either one or both of the Trust or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (c) the Company gives the Trust and the Underwriter the written notice specified in Section 1.10 hereof and at the same time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, that any termination under this Section 6.2(c) shall be effective forty-five (45) days after the notice specified in Section 1.10 was given; or 6.3 If this Agreement is terminated for any reason, except under Article IV (Potential Conflicts) above, the Trust shall, at the option of the Company, continue to make available additional shares of any Portfolio and redeem shares of any Portfolio pursuant to all of the terms and conditions of this Agreement for all Contracts in effect on the effective date of termination of this Agreement. If this Agreement is terminated pursuant to Article IV, the provisions of Article IV shall govern. 6.4 The provisions of Articles II (Representations and Warranties) and V (Indemnification) shall survive the termination of this Agreement. All other applicable provisions of this Agreement shall survive the termination of this Agreement, as long as shares of the Trust are held on behalf of Contract owners in accordance with Section 6.3, except that the Trust and the Underwriter shall have no further obligation to sell Trust shares with respect to Contracts issued after termination. 6.5 The Company shall not redeem Trust shares attributable to the Contracts (as opposed to Trust shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish to the Trust and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Trust and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Trust or the Underwriter 90 days notice of its intention to do so. ARTICLE VII. NOTICES. Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust or the Underwriter: _____________________ _____________________ _____________________ If to the Company: Keyport Life Insurance Company 125 High Street Boston, MA 02110-2712 Attention: Jim Klopper ARTICLE VIII. MISCELLANEOUS 8.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 8.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 8.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 8.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Rhode Island. It shall also be subject to the provisions of the federal securities laws and the rules and regulations thereunder and to any orders of the SEC granting exemptive relief therefrom and the conditions of such orders. Copies of any such orders shall be promptly forwarded by the Trust to the Company. 8.5 The parties to this Agreement acknowledge and agree that all liabilities of the Trust arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Trust and that no Trustee, officer, agent or holder of shares of beneficial interest of the Trust shall be personally liable for any such liabilities. 8.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 8.7 Each party hereto shall treat as confidential the names and addresses of the Contract owners and all information reasonably identified as confidential in writing by any other party hereto, and, except as permitted by this Agreement or as required by legal process or regulatory authorities, shall not disclose, disseminate, or utilize such names and addresses and other confidential information until such time as they may come into the public domain, without the express written consent of the affected party. Without limiting the foregoing, no party hereto shall disclose any information that such party has been advised is proprietary, except such information that such party is required to disclose by any appropriate governmental authority (including, without limitation, the SEC, the NASD, and state securities and insurance regulators). 8.8 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 8.9 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect, except as provided in Section 1.10. 8.10 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written approval of the other party. 8.11 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Participation Agreement as of the date and year first above written. The Company: Keyport Life Insurance Company By its authorized officer By: ----------------------------- Name: Title: The Underwriter: -------------------------------- By its authorized officer By: ----------------------------- Name: Title: SCHEDULE A SEPARATE ACCOUNTS OF KEYPORT LIFE INSURANCE COMPANY 1. Variable Account A Date Established: January 30, 1996 SEC Registration Numbers: 333-75729 333-75747 SCHEDULE B TRUST PORTFOLIOS AND CLASSES AVAILABLE SCHEDULE C RULE 12B-1 PLANS COMPENSATION SCHEDULE Each Portfolio named below shall pay the following amounts pursuant to the terms and conditions referenced below under its Class B Rule 12b-1 Distribution Plan, stated as a percentage per year of Class B's average daily net assets represented by shares of Class B. Portfolio Name Maximum Annual Payment Rate Agreement Provisions If the Company, on behalf of any Account, purchases Trust Portfolio shares ("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the 1940 Act (the "Plan"), the Company may participate in the Plan. To the extent the Company or its affiliates, agents or designees (collectively "you") you provide administrative and other services which assist in the promotion and distribution of Eligible Shares or Variable Contracts offering Eligible Shares, the Underwriter, the Trust or their affiliates (collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other services" may include, but are not limited to, furnishing personal services to owners of Contracts which may invest in Eligible Shares ("Contract Owners"), answering routine inquiries regarding a Portfolio, coordinating responses to Contract Owner inquiries regarding the Portfolios, maintaining such accounts or providing such other enhanced services as a Trust Portfolio or Contract may require, maintaining customer accounts and records, or providing other services eligible for service fees as defined under NASD rules. Your acceptance of such compensation is your acknowledgment that eligible services have been rendered. All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the Company on behalf of its Accounts, and shall be calculated on the basis and at the rates set forth in the Compensation Schedule stated above. The aggregate annual fees paid pursuant to each Plan shall not exceed the amounts stated as the "annual maximums" in the Portfolio's prospectus, unless an increase is approved by shareholders as provided in the Plan. These maximums shall be a specified percent of the value of a Portfolio's net assets attributable to Eligible Shares owned by the Company on behalf of its Accounts (determined in the same manner as the Portfolio uses to compute its net assets as set forth in its effective Prospectus). You shall furnish us with such information as shall reasonably be requested by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for their review on a quarterly basis, a written report of the amounts expended under the Plans and the purposes for which such expenditures were made. The Plans and provisions of any agreement relating to such Plans must be approved annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and who have no financial interest in the Plans or any related agreement ("Disinterested Trustees"). Each Plan may be terminated at any time by the vote of a majority of the Disinterested Trustees, or by a vote of a majority of the outstanding shares as provided in the Plan, on sixty (60) days' written notice, without payment of any penalty. The Plans may also be terminated by any act that terminates the Underwriting Agreement between the Underwriter and the Trust, and/or the management or administration agreement between ______________________________, Inc. or its/their affiliates and the Trust. Continuation of the Plans is also conditioned on Disinterested Trustees being ultimately responsible for selecting and nominating any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to request and evaluate, and persons who are party to any agreement related to a Plan have a duty to furnish, such information as may reasonably be necessary to an informed determination of whether the Plan or any agreement should be implemented or continued. Under Rule 12b-1, the Trust is permitted to implement or continue Plans or the provisions of any agreement relating to such Plans from year-to-year only if, based on certain legal considerations, the Trustees are able to conclude that the Plans will benefit each affected Trust Portfolio and class. Absent such yearly determination, the Plans must be terminated as set forth above. In the event of the termination of the Plans for any reason, the provisions of this Schedule C relating to the Plans will also terminate. Any obligation assumed by the Trust pursuant to this Agreement shall be limited in all cases to the assets of the Trust and no person shall seek satisfaction thereof from shareholders of the Trust. You agree to waive payment of any amounts payable to you by Underwriter under a Plan until such time as the Underwriter has received such fee from the Fund. The provisions of the Plans shall control over the provisions of the Participation Agreement, including this Schedule C, in the event of any inconsistency. You agree to provide complete disclosure as required by all applicable statutes, rules and regulations of all rule 12b-1 fees received from us in the prospectus of the contracts. EX-99.(I) 13 0013.txt OPINION AND CONSENT OF COUNSEL ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110-2624 (617) 951-7000 FAX: (617) 951-7050 30 Kennedy Plaza One Franklin Square Providence, RI 02903-2328 1301 K Street, N.W. (401) 455-4400 Suite 800 East FAX: (401) 455-4401 Washington, D.C. 20005-3333 (202) 626-3900 FAX: (202) 626-3961 May 30, 2000 Liberty Variable Investment Trust One Financial Center Boston, Massachusetts 02111 Ladies and Gentlemen: You have informed us that you propose to register under the Securities Act of 1933, as amended (the "Act"), and offer and sell from time to time shares of beneficial interest ("Shares") of the funds listed on Schedule A attached hereto (the "Funds"), each a series of Liberty Variable Investment Trust (the "Trust"). We act as counsel for the Trust and are familiar with the actions taken by its Board of Trustees to authorize the issuance of the Shares. We have examined the Trust's Agreement and Declaration of Trust and amendments thereto on file at the office of the Secretary of the Commonwealth of Massachusetts (collectively, the "Agreement and Declaration of Trust") and the Trust's By-Laws. We have also examined such other documents as we deem necessary for the purpose of this opinion. We assume that appropriate action has been taken to register or qualify the sale of the Shares under any applicable state and federal laws regulating offerings and sales of securities. Based on the foregoing, we are of the opinion that the issue and sale by the Trust of an unlimited number of Shares of each Fund has been duly authorized under Massachusetts law. Upon the original issue and sale of any such authorized but unissued Shares and upon receipt by the Trust of the authorized consideration therefor in an amount not less than the applicable net asset value, the Shares so issued will be validly issued, fully paid and nonassessable by the Trust. Liberty Variable Investment Trust -2- May 30, 2000 The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each note, bond, contract, instrument, certificate or undertaking made or issued by any Trustee or Trustees or any officer or officers of the Trust. The Agreement and Declaration of Trust provides for indemnification for all loss and expenses of any shareholder held personally liable solely by reason of being or having been a shareholder of the Trust. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust would be unable to meet its obligations. We understand that this opinion is to be used in connection with the registration of an indefinite number of Shares for offering and sale pursuant to the Act. We consent to the filing of this opinion with and as part of your Registration Statement on Form N-1A relating to such offering and sale. Very truly yours, /s/Ropes & Gray Ropes & Gray MHODMA.Active;8249423;3 Schedule A 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 EX-99.(M)(1) 14 0014.txt RULE 12B-1 DISTRIBUTION PLAN LIBERTY VARIABLE INVESTMENT TRUST RULE 12b-1 DISTRIBUTION PLAN June 1, 1999, As amended May 30, 2000 Liberty Variable Investment Trust, a Massachusetts business trust (the Trust) hereby adopts the following distribution plan (the Plan) pursuant to Rule 12b-1 (the Rule) under the Investment Company Act of 1940 (Act) on behalf of the specified Funds named in Appendix 1. I. Each Fund shall pay a distribution fee at the annual rate of up to 0.25% of its net assets in respect of its Class B shares. II. PAYMENTS OF FEES UNDER THE PLAN Each Fund shall make all payments of distribution fees under this Plan to the Distributor of Record, Liberty Funds Distributor, Inc. (LFDI), monthly, on the 20th day of each month or, if such day is not a business day, on the next business day thereafter. No Fund shall pay, nor shall a Distributor of Record be entitled to receive, any amount under this Plan if such payment would result in a Distributor of Record receiving amounts in excess of those permitted by applicable law or by rules of the National Association of Securities is Dealers, Inc. III. USE OF FEES. A Distributor of Record may pay part or all of the distribution fees it receives from a Fund as reimbursements to a participating insurance company (a Company) that has issued qualified variable annuity or variable life contracts (Contracts) for which shares of the Trust serve as investment vehicles, and that provides services to the owners of its Contracts. This provision does not obligate a Distributor of Record to make any payments of distribution fees nor limit the use that a Distributor of Record may make of the fees it receives. IV. REPORTING The Distributor of Record shall provide to the Trust's Trustees, and the Trustees shall review, at least quarterly, reports setting forth all Plan expenditures, and the purposes for those expenditures. Amounts payable under this paragraph are subject to any limitations on such amounts prescribed by applicable laws or rules. If a Company is an "affiliate" of a Distributor of Record (as that term is defined in the Act), that Distributor of Record shall obtain comparable information from that Company and provide such information to the Trustees. V. OTHER PAYMENTS AUTHORIZED Payments by the Trust to a Distributor of Record and its affiliates (including Liberty Advisory Services Corp.) other than as set forth in Section I which may be indirect financing of distribution costs are authorized by this Plan. VI. CONTINUATION; AMENDMENT; TERMINATION This Plan shall continue in effect with respect to a Fund only so long as specifically approved for that Fund at least annually as provided in the Rule. The Plan may not be amended to increase materially the distribution fee with respect to a Fund without such shareholder approval as is required by the Rule and any applicable orders of the Securities and Exchange Commission, and all material amendments of the Plan must be approved in the manner described in the Rule. The Plan may be terminated with respect to any Fund at any time as provided in the Rule without payment of any penalty. The continuance of the Plan shall be effective only if the selection and nomination of the Trust's Trustees who are not interested persons (as defined under the Act) of the Trust is effected by such non-interested Trustees as required by the Rule. Approved by the Trustees as of the date set forth above: By: /s/Nancy L. Conlin Nancy L. Conlin, Secretary of the Trust APPENDIX 1 AS OF MAY 30, 2000 LIBERTY VARIABLE INVESTMENT TRUST CLASS B SHARES OF THE FOLLOWING SERIES: Colonial Global Equity Fund, Variable Series Liberty Value Fund, Variable Series Colonial High Yield Securities Fund, Variable Series Colonial International Fund for Growth, Variable Series Colonial Small Cap Value Fund, Variable Series Colonial Strategic Income Fund, Variable Series Colonial U. S. Growth & Income Fund, Variable Series Crabbe Huson Real Estate Investment Fund, Variable Series Liberty All-Star Equity Fund, Variable Series Newport Tiger Fund, Variable Series Stein Roe Global Utilities Fund, Variable Series Colonial International Horizons Fund, Variable Series Liberty Newport Japan Opportunities Fund, Variable Series Liberty Select Value Fund, Variable Series Liberty S&P 500 Index Fund, Variable Series Rydex Health Care Fund, Variable Series Rydex Financial Services Fund, Variable Series EX-99.(M)(2) 15 0015.txt RULE 12B-1 INTER-DISTRIBUTOR AGMT 12B-1 PLAN INTER-DISTRIBUTOR AGREEMENT Liberty Funds Distributor, Inc., a Massachusetts corporation ("LFDI"), and Keyport Financial Services Corp., a Massachusetts corporation ("KFSC"), make this agreement as of May 30, 2000. RECITALS WHEREAS, LFDI is the Distributor of shares of the Funds within Liberty Variable Investment Trust (the "Trust"), an open-end investment company that sells shares to separate accounts of Keyport Life Insurance Company and Keyport Benefit Life Insurance Company (together, "Keyport") as funding vehicles for variable annuity contracts issued by Keyport (the "Contracts"); and WHEREAS, KFSC is the Distributor of the Contracts and has selling agreements with dealers that sell the Contracts; and WHEREAS, the Trust, on behalf of its Funds, has adopted a so-called "Rule 12b-1 Plan" (the "Plan") pursuant to SEC Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act") under which a Fund or a class of shares of a Fund may, pursuant to the Plan, pay LFDI a specified portion of its assets to be used for the purposes specified in the Plan ("12b-1 Fees"), and an Implementing Agreement with LFDI dated June 1, 1999 under which LFDI agrees to receive the 12b-1 Fees, to use such 12b-1 Fees consistently with the Plan, and to report on its expenditure of such 12b-1 Fees to the Trustees of the Trust as required by the Rule; and WHEREAS, LFDI wishes to pay KFSC, as Distributor of the Contracts, the amounts it receives from the Trust as 12b-1 Fees; and WHEREAS, KFSC, as Distributor of the contracts, is willing to receive 12b-1 Fees from LFDI, to use such fees for purposes consistent with the Plan, and to cooperate with LFDI in making all reports required by the Act, the Rule or the Plan, NOW THEREFORE, intending to be legally bound, LFDI and KFSC hereby agree as follows: 1. PAYMENTS, EXPENDITURES AND REPORTS. A. LFDI expects to receive from each Fund 12b-1 Fees payable under the Plan on the 20th day of each month, or, if such day is not a business day, the next business day thereafter, during the term of this Agreement. LFDI will pay KFSC the amounts it receives in 12b-1 Fees within three business days from its receipt of such fees. B. KFSC shall expend the amounts of 12b-1 Fees it receives from LFDI in its discretion, so long as such expenditures are consistent with the Rule, the Plan, and any instructions LFDI or KFSC may receive from the Trustees of the Trust. C. KFSC shall use its best efforts to cooperate with LFDI in preparing and submitting all reports required under the Act, the Rule or the Plan to the Trustees of the Trusts, both as provided in the Act, the Rule and the Plan and as requested by the Trustees. 2. CONTINUATION; AMENDMENT; TERMINATION; NOTICE. A. This Agreement (i) supersedes and replaces any contract or agreement relating to the subject matter hereof in effect prior to the date hereof, (ii) shall continue in effect as to the Trust or any Fund only so long as the Plan is specifically approved for that Fund at least annually by the Trustees or shareholders of the Trust or Fund; (iii) may be amended at any time by written agreement of the parties, each in accordance with the Act and the Rule; (iv) shall terminate with respect to a Fund at any time as provided in the Rule without payment of any penalty. B. This Agreement (i) shall terminate immediately upon the effective date of any later dated agreement relating to the subject matter hereof, and (ii) may be terminated either upon 60 days' notice without penalty, upon written notice to both parties that the Trustees of the Trust have determined that it is in the best interests of the Trust that it shall terminate, or by either party or otherwise in accordance with the Act, and (iii) will terminate immediately in the event of its assignment (as defined in the Act). Upon termination the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination. C. All notices required under this Agreement shall be in writing and delivered to the office of the other party. Executed under seal as a Massachusetts contract as of the date set forth above. LIBERTY FUNDS DISTRIBUTOR, INC. By: /s/James Tambone James Tambone, Co-President KEYPORT FINANCIAL SERVICES CORP. By: /s/James Klopper James Klopper, President EX-99.(M)(3) 16 0016.txt 12B-1 PLAN IMPLEMENTING AGMT 12B-1 PLAN IMPLEMENTING AGREEMENT Liberty Variable Investment Trust, a Massachusetts business trust (the Trust), and Liberty Funds Distributor, Inc., (LFDI) a Massachusetts corporation, agree effective June 1, 1999, as amended May 30, 2000: 1. 12B-1 PLAN. The Trust, on behalf of its Funds, has adopted a so-called "Rule 12b-1 Plan" (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act"). This Agreement shall apply to each Fund named in Appendix 1 as that Appendix may be amended from time to time by the parties, in writing. 2. PAYMENTS, EXPENDITURES AND REPORTS. A. Each Fund shall pay LFDI the amount then due LFDI under a Plan on the 20th day of each month, or, if such day is not a business day, the next business day thereafter, during the term of this Agreement. B. LFDI shall expend the amounts paid to it by the Funds under a Plan in its discretion, so long as such expenditures are consistent with the Rule, the Plan, and any instructions LFDI may receive from the Trustees of the Trust. C. LFDI shall make all reports required under the Act, the Rule or a Plan to the Trustees of the Trusts, as provided in the Act, the Rule and any Plan or as requested by the Trustees. If a participating insurance company (as defined in the Plan) is an "affiliate" of LFDI (as that term is defined in the Act), LFDI shall obtain comparable information from that participating company and provide such information to the Trustees. 3. CONTINUATION; AMENDMENT; TERMINATION; NOTICE. A. This Agreement (i) supersedes and replaces any contract or agreement relating to the subject matter hereof in effect prior to the date hereof, (ii) shall continue in effect as to the Trust or any Fund only so long as specifically approved at least annually by the Trustees or shareholders of the Trust or Fund and (iii) may be amended at any time by written agreement of the parties, each in accordance with the Act and the Rule. B. This Agreement (i) shall terminate immediately upon the effective date of any later dated agreement relating to the subject matter hereof, and (ii) may be terminated upon 60 days' notice without penalty by a vote of the Trustees or by LFDI or otherwise in accordance with the Act, and (iii) will terminate immediately in the event of its assignment (as defined in the Act). Upon termination the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination. C. All notices required under this Agreement shall be in writing and delivered to the office of the other party. 4. AGREEMENT AND DECLARATION OF TRUST. A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. As to the Trust this Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the relevant Fund. Agreed: LIBERTY VARIABLE INVESTMENT TRUST By: /s/Nancy L. Conlin Nancy L. Conlin, Secretary LIBERTY FUNDS DISTRIBUTOR, INC. By: /s/James Tambone JAMES TAMBONE, CO-PRESIDENT APPENDIX 1 AS OF MAY 30, 2000 Liberty Variable Investment Trust Class B Shares of the following series: Colonial International Horizons Fund, Variable Series Colonial Global Equity Fund, Variable Series Crabbe Huson Real Estate Investment Fund, Variable Series Liberty Value Fund, Variable Series Colonial High Yield Securities Fund, Variable Series Colonial International Fund for Growth, Variable Series Colonial Small Cap Value Fund, Variable Series Colonial Strategic Income Fund, Variable Series Colonial U.S. Growth & Income Fund, Variable Series Liberty All-Star Equity Fund, Variable Series Newport Tiger Fund, Variable Series Stein Roe Global Utilities Fund, Variable Series Liberty Newport Japan Opportunities Fund, Variable Series Liberty Select Value Fund, Variable Series Liberty S&P 500 Index Fund, Variable Series Rydex Health Care Fund, Variable Series Rydex Financial Services Fund, Variable Series EX-99.(O) 17 0017.txt RULE 18F-3 PLAN LIBERTY VARIABLE INVESTMENT TRUST Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 Effective May 30, 2000 Each series ("Fund") of Liberty Variable Investment Trust (the "Trust") may from time to time issue one or more of the following classes of shares: Class A shares and Class B shares. Each class is subject to such investment minimums and other conditions of eligibility as set forth in the Funds' prospectuses as from time to time in effect. The differences in expenses among these classes of shares, and the exchange features of each class of shares, are set forth below in this Plan, which is subject to change, to the extent permitted by law and by the Declaration of Trust and By-laws of the Trust, by action of the Board of Trustees of the Trust. Class A Shares Class A shares are offered at net asset value ("NAV"), without an initial sales charge or contingent deferred sales charge ("CDSC"). Class A shares do not pay fees under a 12b-1 Plan (see below). Class A shares of a Fund may only be exchanged for the Class A shares of another Fund in the Trust. Class B Shares Class B shares are offered at NAV, without an initial sales charge or CDSC. Class B shares pay distribution fees pursuant to a plan adopted pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan") as described in the Funds' prospectuses in effect from time to time. Such fees may not exceed 0.25% per annum of the average daily net assets attributable to such class. Class B shares of a Fund may only be exchanged for the Class B shares of another Fund in the Trust. -----END PRIVACY-ENHANCED MESSAGE-----