LIBERTY ALL-STAR EQUITY FUND, VARIABLE SERIES
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111-2621
INFORMATION STATEMENT REGARDING
CHANGE OF A PORTFOLIO MANAGER
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
BACKGROUND
Liberty All-Star Equity Fund, Variable Series (the "Fund") is one of
the seventeen funds of Liberty Variable Investment Trust (the "Trust") that
serve as funding vehicles for variable annuity contracts and variable life
insurance products offered by separate accounts of Keyport Life Insurance
Company, Independence Life and Annuity Company, Liberty Life Assurance Company
of Boston and Sage Life Assurance Company. The principal underwriter of the Fund
is Liberty Funds Distributor, Inc. ("LFD") and the administrator of the Fund is
Colonial Management Associates, Inc. ("CMA"). Both LFD and CMA are affiliates of
Liberty Advisory Services Corp. ("LASC"), the Fund's investment advisor. Each of
LFD, CMA and LASC is located at One Financial Center, Boston, Massachusetts
02111-2621.
The Fund is a "multi-managed" fund that allocates its portfolio assets
among a number of independent investment management organizations ("Portfolio
Managers") -- currently five in number -- recommended by the Fund's sub-advisor,
Liberty Asset Management Company ("LAMCO"), located at One Financial Center,
Boston, Massachusetts 02111. Each Portfolio Manager employs a different
investment style. From time to time LAMCO rebalances the Fund's portfolio assets
among the Portfolio Managers in order to maintain an approximately equal
allocation of portfolio assets among them throughout all market cycles.
LAMCO continuously monitors and evaluates the Fund's portfolio managers
on a quantitative and qualitative basis. The evaluation process focuses on, but
is not limited to, the firm's philosophy, investment process, people and
performance. After evaluation based on the aforementioned criteria LAMCO deemed
it was necessary to terminate Westwood Management Corporation Inc. ("Westwood").
In February, 2002, LAMCO determined to replace Westwood with Schneider Capital
Management Corporation ("Schneider"). In making the recommendation, LAMCO
considered a number of factors, including the strength of Schneider's management
team and the desirability of adding a portfolio manager to the Fund with a more
value-oriented investment style. In selecting a replacement for Westwood, LAMCO
first analyzed information regarding the personnel, investment process and
performance of a large number of investment management firms. LAMCO then
analyzed the candidates in terms of their historic returns, volatility and
portfolio characteristics (including market capitalizations, price/earnings
ratios and sector exposures) when combined with those of the Fund's four other
Portfolio Managers. In making its recommendation, the Fund's Board of Trustees
has relied upon and given equal consideration to each of the factors presented
to it by LAMCO. Based on the foregoing and on LAMCO's qualitative analysis,
LAMCO recommended, and the Board of Trustees on February 13, 2002, approved, the
termination of the Fund's portfolio management agreement with Westwood and its
replacement with Schneider, effective March 1, 2002.
Under an exemptive order issued by the Securities and Exchange
Commission ("SEC") on May 5, 1998, the Fund may enter into a portfolio
management agreement with a new Portfolio Manager without a vote of shareholders
of the Fund, provided that holders of variable annuity contracts of variable
life insurance products funded in whole or in part with shares of the Fund are
furnished information about the new Portfolio Manager and its portfolio
management agreement within 90 days of the effective date of the Portfolio
Manager change. This Information Statement is being furnished in connection with
the replacement of Westwood with Schneider as a Portfolio Manager of the Fund,
as recommended by LAMCO and approved by the Board of Trustees of the Trust on
February 13, 2002.
Reasons for a portfolio management change include a change or deviation
in the fundamental investment philosophy or process of the firm; a major change
in the ownership and/or organizational structure of the firm; a departure of key
investment professionals and a period of poor performance versus relevant
benchmarks.
INFORMATION ABOUT SCHNEIDER
Schneider, located at 460 East Swedesford Road, Wayne, PA 19087, is an
independently owned firm founded in 1996 by Arnold C. Schneider III. Mr.
Schneider serves as President and Chief Investment Officer of Schneider and
manages that portion of the Fund's portfolio assigned to Schneider. Prior to
founding Schneider, Mr. Schneider was a Senior Vice President and Partner of the
Wellington Management Company. Schneider is 100% employee-owned. As of February
28, 2002, Schneider managed over $1.9 billion in assets.
The following is the director and principal executive officer of Schneider:
Name and Address Position with Schneider Principal Occupation
Arnold C. Schneider III Chairman, President and Chief Chairman, President
460 East Swedesford Road Investment Officer and Chief Investment
Wayne, PA 19087 Officer of Schneider
Schneider's investment style is designed to identify companies that are
overlooked and undervalued where the firm anticipates a rebound in earnings.
On March 1, 2002, the Trustees and Officers of the Trust owned none of
the outstanding shares of Schneider.
The portfolio management agreement dated March 1, 2002, among the Fund,
LAMCO and Schneider is at the same fee rates and is, on other terms and
conditions, substantially identical to those of the portfolio management
agreements with the Fund's four other Portfolio Managers and to those of the
portfolio management agreement with Westwood.
Under the Fund's portfolio management agreements (including that with
Schneider), each Portfolio Manager has discretionary investment authority
(including the selection of brokers and dealers for the execution of the Fund's
portfolio transactions) with respect to the portion of the Fund's assets
allocated to it by LAMCO, subject to the Fund's investment objective and
policies, to the supervision and control of the Trustees, and to instructions
from LAMCO. The Portfolio Managers are required to use their best professional
judgment in making timely investment decisions for the Fund. The Portfolio
Managers, however, will not be liable for actions taken or omitted in good faith
and believed to be within the authority conferred by their portfolio management
agreements and without willful misfeasance, bad faith or gross negligence.
The Fund pays LASC, One Financial Center, Boston, Massachusetts 02111,
a management fee at an annual rate of 0.80% of the average daily net assets of
the Fund, from which LASC pays LAMCO a sub-advisory fee of 0.60% per annum of
such average daily net assets. LAMCO in turn pays each Portfolio Manager of the
Fund, including Schneider, a fee, accrued daily and paid monthly, at the annual
rate of 0.30% of the average daily net assets of that portion of the Fund's
portfolio assets assigned to that Portfolio Manager. For the Fund's fiscal year
ended December 31, 2001, LAMCO paid a portfolio management fee of $39,093 to
Westwood. No fees or payments were made by the Fund to Schneider or an affiliate
of Schneider during the Fund's fiscal year ended December 31, 2001.
OTHER FUNDS MANAGED BY SCHNEIDER
In addition to the management services provided by Schneider to the
Fund, Schneider also provides management services to other investment companies.
Information with respect to the assets of and management fees payable to
Schneider by those funds having investment objectives similar to those of the
Fund is set forth below:
Total Net Assets at Annual Management Fee
December 31, 2001 as a % of
Fund (in millions) Average Daily Net Assets
- ---- ------------- ------------------------
Impact Total Return Fund $6.3 0.60%
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each of the Fund's Portfolio Managers, including Schneider, has
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Portfolio Manager for the portion of the Fund's portfolio
assets allocated to it, and to select the markets in which such transactions are
to be executed. The portfolio management agreements with the Fund provide, in
substance, that in executing portfolio transactions and selecting brokers or
dealers, the primary responsibility of the Portfolio Manager is to seek to
obtain best net price and execution for the Fund.
The Portfolio Managers are authorized to cause the Fund to pay a
commission to a broker or dealer who provides research products and services to
the Portfolio Manager for executing a portfolio transaction which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction. The Portfolio Managers must determine in good faith,
however, that such commission was reasonable in relation to the value of the
research products and services provided them, viewed in terms of that particular
transaction or in terms of all the client accounts (including the Fund) over
which the Portfolio Manager exercises investment discretion. It is possible that
certain of the services received by a Portfolio Manager attributable to a
particular transaction will primarily benefit one or more other accounts for
which investment discretion is exercised by the Portfolio Manager.
In addition, under their portfolio management agreements with the Fund
and LAMCO, the Portfolio Managers, including Schneider, in selecting brokers or
dealers to execute portfolio transactions for the Fund, are authorized to
consider (and LAMCO may request them to consider) brokers or dealers that
provide to LAMCO, directly or through third parties, research products or
services such as research reports; subscriptions to financial publications and
research compilations; portfolio analyses; economic reports; compilations of
securities prices, earnings, dividends and other data; computer hardware and
software, quotation equipment and services used for research; and the services
of economic or other consultants. The commissions paid on such transactions may
exceed the amount of commission another broker would have charged for effecting
that transaction. Research products and services made available to LAMCO 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; and related computer
hardware and software, all of which are used by LAMCO in connection with its
selection and monitoring of Portfolio Managers, the assembly of an appropriate
mix of investment styles, and the determination of overall portfolio strategies.
These research products and services may also be used by LAMCO in connection
with its management of the Fund. In instances where LAMCO receives from or
through brokers and 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.
LAMCO from time to time reaches understandings with each of the Fund's
Portfolio Managers as to the amount of the Fund's portfolio transactions
initiated by such Portfolio Manager that are to be directed to brokers and
dealers which provide or make available research products and services to LAMCO
and the commissions to be charged to the Fund in connection therewith. These
amounts may differ among the Portfolio Managers based on the nature of the
market for the types of the securities managed by them and other factors.
Although the Fund does not permit a Portfolio Manager to act or have a
broker-dealer affiliate act as broker for Fund portfolio transactions initiated
by it, the Portfolio Managers are permitted to place Fund portfolio transactions
initiated by them with another Portfolio Manager or its broker-dealer affiliate
for execution on an agency basis, provided the commission does not exceed the
usual and customary broker's commission being paid to other brokers for
comparable transactions and is otherwise in accordance with the Fund's
procedures adopted pursuant to Rule 17e-1 under the Investment Company Act of
1940. During 2001, the Fund had no Fund portfolio transactions placed with a
Portfolio Manager or its affiliate.
On February 15, 2000, the SEC issued the Fund exemptive relief from
Sections 10(f), 17(a) and 17(e) and Rule 17e-1 under the Investment Company Act
of 1940 to permit (1) broker-dealers which are, or are affiliated with,
Portfolio Managers of the Fund to engage in principal transactions with, and
provide brokerage services, to portion(s) of the Fund advised by another
Portfolio Manager and (2) the Fund to purchase securities either directly from a
principal underwriter which is an affiliate of a Portfolio Manager or from an
underwriting syndicate of which a principal underwriter is affiliated with a
Portfolio Manager of the Fund.
For the fiscal year ended December 31, 2001, the Fund did not pay
brokerage commissions to any affiliated brokers.
Further information concerning the Fund is contained in its most recent
annual and semi-annual reports to shareholders, which are obtainable free of
charge by writing LFD, the Fund's distributor, at One Financial Center, Boston,
Massachusetts 02111-2621 or by calling 1-800-426-3750 or by calling or writing
the life insurance company which issued your variable annuity contract or
variable life insurance policy.
Dated: May 31, 2002