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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.
This Information Statement is being mailed to
shareholders on or about January 12, 2004.
BACKGROUND
Liberty All-Star Equity Fund, Variable Series (the "Fund") is one of
the eleven 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 participating insurance companies. The
principal underwriter of the Fund is Columbia Funds Distributor, Inc. ("CFD").
CFD is an affiliate of Columbia Management Advisors, Inc. ("CMA"), the Fund's
investment advisor and administrator. CFD is located at One Financial Center,
Boston, Massachusetts 02111. CMA is located at 100 Federal Street, Boston,
Massachusetts 02110.
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 100 Federal Street,
Boston, Massachusetts 02110. 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 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. Occasionally, LAMCO will decide to replace a Portfolio Manager
based on such factors as actual or expected changes in the firm's fundamental
investment philosophy or process, changes in the ownership and/or organizational
structure of the firm, departures of key investment personnel, periods of poor
performance versus relevant benchmarks and peers, and strategic opportunities.
LAMCO's decision may be based on a series of changes over time rather than a
single event at the firm. After giving careful consideration to the
above-mentioned factors, LAMCO deemed it appropriate to replace Oppenheimer
Capital LLC ("Oppenheimer Capital"). On October 8, 2003, LAMCO recommended to
the Trustees of the Trust replacing Oppenheimer Capital with Pzena Investment
Management, LLC ("Pzena"). In making the recommendation, LAMCO considered a
number of factors, including the strength of Pzena's management team. In
selecting a replacement for Oppenheimer Capital, LAMCO first analyzed
information regarding the personnel, investment process and performance of a
large number of investment management firms. LAMCO believes that Pzena has a
strong, stable investment staff, follows a consistent, disciplined investment
process, and has had strong relative performance (although past performance is
no guarantee of
future results). LAMCO then analyzed the candidates in terms of
their historic returns, volatility and portfolio characteristics (including
market capitalizations, price/earnings ratios (measuring the relative growth or
value orientation) and exposures to various market sectors) when combined with
those of the Fund's four other Portfolio Managers. LAMCO believes that Pzena's
value investing approach should complement the investment styles of the Fund's
four other Portfolio Managers. In making its determination, the Fund's Board of
Trustees has relied upon and given approximately equal consideration to each of
the factors presented to it by LAMCO. Based on the foregoing, LAMCO recommended,
and the Board of Trustees on October 8, 2003, approved, the termination of the
Fund's portfolio management agreement with Oppenheimer Capital and its
replacement with a portfolio management agreement with Pzena, effective October
15, 2003.
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 or 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 Oppenheimer Capital with Pzena as a Portfolio Manager of the
Fund, as recommended by LAMCO and approved by the Board of Trustees of the Trust
on October 8, 2003.
Reasons for a portfolio management change can 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/or a period of poor performance
versus relevant benchmarks.
INFORMATION ABOUT PZENA
Pzena is located at 120 West 45th Street, 34th Floor, New York, New
York 10036. Established in 1995, Pzena is an investment advisor to high net
worth individuals, pension plans, foundations, endowments, mutual funds and
other institutional accounts. As of December 31, 2003, the majority of Pzena was
owned by the firm's five managing principals: Richard S. Pzena (President and
Chief Executive Officer), John P. Goetz (Managing Principal, Research), Bill
Lipsey (Managing Principal, Marketing and Client Services), Amy Jones (Managing
Principal, Operations and Administration) and Rama Krishna (Managing Principal,
Large Cap Value). In addition, eight additional employees owned interests in the
firm as of January 1, 2004. Mr. Pzena has ownership interests in excess of 25%
and is therefore deemed a control person of Pzena. As of December 31, 2003,
Pzena had approximately $5.79 billion in assets under management.
The following is the sole manager and principal executive officer of Pzena:
Name Title and Principal Occupation
Richard S. Pzena Founder, President and Chief Executive
Officer
The following individuals are members of the executive committee of Pzena:
Name Title and Principal Occupation
Richard S. Pzena Founder, President and Chief Executive
Officer
John P. Goetz Managing Principal, Head of Research
William L. Lipsey Managing Principal, Head of Marketing and
Client Services
Amelia C. Jones Managing Principal, Head of Operations and
Administration
A. Rama Krishna Managing Principal, Large Cap
Value Portfolio Manager
The address for each of the individuals in the tables above is 120 West
45th Street, 34th Floor, New York, New York 10036.
Pzena's investment style is designed to identify companies with low
ratios of stock price to normalized earnings that have the ability to grow their
earnings over time. Normalized earnings is the earnings level that Pzena expects
a company to be able to generate within the next five years given its industry
position and Pzena's judgment as to management's ability to successfully
implement its strategic plans.
On December 31, 2003, the Trustees and Officers of the Trust owned none
of the outstanding shares of Pzena.
The portfolio management agreement dated October 15, 2003, among the
Fund, LAMCO and Pzena is at the same fee rate 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 Oppenheimer Capital.
Under the Fund's portfolio management agreements (including that with
Pzena), 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 CMA a management fee at an annual rate of 0.80% of the
average daily net assets of the Fund, from which CMA 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 Pzena, 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, 2003, LAMCO paid a portfolio
management fee of $17,456 to Oppenheimer Capital. For the Fund's fiscal year
ended December 31, 2003, LAMCO paid a portfolio management fee of $5,479 to
Pzena.
OTHER FUNDS MANAGED BY PZENA
In addition to the management services provided by Pzena to the Fund,
Pzena also provides management services to one other investment company, the
John Hancock Classic Value Fund (the "Hancock Fund"), having investment
objectives similar to those of the Fund. The Hancock Fund had total net assets
of approximately $296.8 million as of December 31, 2003. Pursuant to the terms
of a Sub-Advisory Agreement, John Hancock Advisers LLC, the investment advisor
for the Hancock Fund, pays Pzena quarterly, in arrears, after the end of each
quarter, a fee equal on an annual basis to the following percentages of the
Hancock Fund's average daily net assets:
Average daily net asset value
first $500 million 0.4250%
above $500 million to $1 billion 0.3825%
above $1 billion to $1.5 billion 0.3400%
above $1.5 billion to $2 billion 0.2975%
above $2 billion 0.2550%
During the first year of the Sub-Advisory Agreement, John Hancock Advisers LLC
has agreed to pay Pzena a minimum fee of $150,000.
SHARE OWNERSHIP OF THE FUND
All the shares of the Fund are held of record by sub-accounts of
separate accounts of participating insurance companies on behalf of the owners
of insurance contracts and policies, by CMA or by the general account of Keyport
Life Insurance Company ("Keyport"). Under the exemptive order described above,
no vote is required to approve the portfolio management agreement with Pzena.
When a vote of shareholders of the Fund is required, each participating
insurance company will vote the shares held of record by sub-accounts of its
separate accounts as to which instructions are received from the insurance
contract and policy owners on behalf of whom such shares are held 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 insurance contracts and policies).
There is no requirement as to the minimum percentage of shares with respect to
which instructions must be received from policy and contract owners.
Accordingly, each participating insurance company (including Keyport) disclaims
beneficial ownership of the shares of the Fund held of record by the
sub-accounts of their respective separate accounts.
As of December 31, 2003, the following shareholders owned of record 5%
or more of one or more of each class of the Fund's then outstanding shares:
Class A
Sun Life Insurance & Annuity Company of New York 7.57%
P.O. Box 9133
Wellesley Hills, MA 02481-9133
Keyport Life Insurance Company 88.88%(*)
P.O. Box 9133
Wellesley Hills, MA 02481-9133
Class B
Sun Life Insurance & Annuity Company of New York 11.86%
P.O. Box 9133
Wellesley Hills, MA 02481-9133
Keyport Life Insurance Company 82.64%(*)
P.O. Box 9133
Wellesley Hills, MA 02481-9133
(*) As of record on December 31, 2003, this participating insurance company
owned more than 25% of the then outstanding shares of the Fund and,
therefore, may be deemed to "control" the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each of the Fund's Portfolio Managers, including Pzena, 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 Pzena, 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 2003, 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, 2002, the Fund did not pay
brokerage commissions to any affiliated brokers. As of the date of this
Information Statement, information relating to brokerage commissions for the
fourth quarter of the fiscal year ended December 31, 2003, was not available.
For the period beginning January 1, 2003, through September 30, 2003, the Fund
paid $145 in brokerage commissions to affiliated brokers, which represented as
of September 30, 2003, less than 1% of the aggregate brokerage
commissions paid by the Fund during the period.
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 CFD, 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: January 6, 2004