UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-7556 | |||||||
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Liberty Variable Investment Trust | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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One Financial Center, Boston, Massachusetts |
| 02111 | ||||||
(Address of principal executive offices) |
| (Zip code) | ||||||
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Vincent Pietropaolo, Esq. Columbia Management Group, Inc. One Financial Center Boston, MA 02111 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 1-617-772-3698 |
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Date of fiscal year end: | December 31, 2005 |
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Date of reporting period: | December 31, 2005 |
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Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
2005 Annual Report Liberty Variable Investment Trust
Annual Report
December 31, 2005
Liberty Variable Investment Trust
SHC-42/105100-1205 (02/06) 05/9699
President’s Message
Liberty Variable Investment Trust
Dear Shareholder:
Columbia Management, the asset management division of Bank of America, is in the final stages of a significant business integration effort. Over the last year, we have been integrating various components of our various fund families, including Liberty and SteinRoe, which will result in a single fund family that covers a wide range of markets, sectors and asset classes. Our team of talented, seasoned investment professionals will continue to strive to achieve strong results within their investment categories. Our objective is not only to provide our shareholders with the best products but also to enhance the breadth and availability of our services. Given our ability to now leverage the size and scale of the Columbia Management business, I am pleased that these efforts are also expected to result in substantial cost savings to the variable funds.
Our goal is to create a more simplified, clearly delineated product. Last year several fund mergers and liquidations were successfully completed. As we work to complete the remaining product consolidations in the coming months, we remain committed to building a business that meets, and hopefully exceeds, your desire for personal financial solutions. We will continue to strive for the highest standards of performance and service excellence. The asset management business is in a time of transformation and we are committed to being progressive and innovative in our approach to the business. We value the confidence you have placed in us to assist you in managing your variable funds during these changing times. As with all businesses that are affiliated with Bank of America, we understand that your trust must be continuously earned and will remain focused on producing results for you.
In the pages that follow, you’ll find a discussion of the economic environment during the period followed by a detailed report from the fund’s manager or managers on key factors that influenced performance. We encourage you to read the manager reports carefully and discuss any questions you have with your financial advisor. As always, we thank you for choosing Columbia Management. We look forward to helping you keep your long-term financial goals on target in the years to come.
Sincerely,
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management, responsible for the day-to-day delivery of mutual fund services to the firm’s investors. With the exception of distribution, Chris oversees all aspects of the mutual fund services operation, including treasury, investment accounting and shareholder and broker services. Chris serves as Columbia Funds President and is the primary liaison to the Fund Boards of Trustees. Chris joined Bank of America in August 2004.
The views expressed in the President’s Message and Portfolio Commentary reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for Funds managed by Columbia Management Advisors, LLC are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Fund. References to specific company securities should not be construed as a recommendation or investment advice.
Performance At A Glance
Liberty Variable Investment Trust
|
| Average annual total return |
| ||||||||
|
| Inception |
| 1-year |
| 5-year |
| 10-year |
| Life |
|
Liberty Variable Investment Trust |
|
|
|
|
|
|
|
|
|
|
|
Colonial Small Cap Value Fund, Variable Series — Class A |
| 05/19/98 |
| 5.64 |
| 13.13 |
| — |
| 9.75 |
|
Colonial Strategic Income Fund, Variable Series — Class A |
| 07/05/94 |
| 1.61 |
| 8.32 |
| 6.81 |
| 7.56 |
|
Columbia High Yield Fund, Variable Series — Class A |
| 03/03/98 |
| 2.51 |
| 6.11 |
| — |
| 5.65 |
|
Columbia International Fund, Variable Series — Class A |
| 05/02/94 |
| 13.16 |
| 2.72 |
| 4.22 |
| 3.56 |
|
Liberty Growth & Income Fund, Variable Series — Class A |
| 07/05/94 |
| 6.38 |
| 2.38 |
| 9.71 |
| 11.30 |
|
Liberty S&P 500 Index Fund, Variable Series — Class A |
| 05/30/00 |
| 4.50 |
| 0.05 |
| — |
| -0.92 |
|
Liberty Select Value Fund, Variable Series — Class A |
| 05/30/00 |
| 12.34 |
| 8.82 |
| — |
| 9.95 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance numbers reflect all fund expenses, but do not include any insurance company charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
An investment in money market mutual funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market mutual funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market mutual funds.
Table of Contents
Liberty Variable Investment Trust
Portfolio Managers’ Discussions |
|
|
|
Colonial Small Cap Value Fund, Variable Series | 2 |
|
|
Colonial Strategic Income Fund, Variable Series | 19 |
|
|
Columbia High Yield Fund, Variable Series | 43 |
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Columbia International Fund, Variable Series | 61 |
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Liberty Growth & Income Fund, Variable Series | 79 |
|
|
Liberty S&P 500 Index Fund, Variable Series | 94 |
|
|
Liberty Select Value Fund, Variable Series | 114 |
|
|
Financial Statements |
|
|
|
Colonial Small Cap Value Fund, Variable Series | 5 |
|
|
Colonial Strategic Income Fund, Variable Series | 22 |
|
|
Columbia High Yield Fund, Variable Series | 46 |
|
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Columbia International Fund, Variable Series | 64 |
|
|
Liberty Growth & Income Fund, Variable Series | 82 |
|
|
Liberty S&P 500 Index Fund, Variable Series | 97 |
|
|
Liberty Select Value Fund, Variable Series | 117 |
Must be preceded or accompanied by a prospectus.
Columbia Management Distributors, Inc. 02/2006
Liberty Variable Investment Trust
Liberty Variable
Investment Trust
Portfolio Managers’ Discussion
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
Colonial Small Cap Value Fund, Variable Series seeks long-term growth by investing primarily in smaller capitalization (small-cap) equities.
Stephen D. Barbaro, the lead manager, has co-managed the fund, along with Jeremy Javidi, since June 2002. Mr. Barbaro has been with Columbia Management Advisors, LLC or its predecessors or affiliate organizations since 1976. Mr. Javidi has been associated with the advisor or its affiliates since January 2000.
Small-cap stocks continued their streak of solid performance in 2005, although their gains were more modest than the double-digit returns of the previous two years. The fund benefited from its focus on companies with fortress-like competitive and financial positions, good earnings growth prospects and reasonable valuations which helped it come out slightly ahead of the Russell 2000 Value Index (the “Russell”)(1). Stock selection was particularly strong in the financials, technology and materials sectors where the fund benefited both from owning strong individual performers and avoiding major disappointments. An overweight in energy and underweight in financials further bolstered returns relative to the Russell. Health care was the fund’s one area of disappointment.
Technology and financial sectors were strong
Strong performance from stocks across a variety of subsectors drove above-average returns in technology. Brightpoint, Inc. (1.0% of net assets), a leading distributor of cell phones, rallied sharply as strong revenues and earnings gains attracted investor attention. An overweight in semiconductor (“chip”) and semiconductor capital equipment stocks further bolstered returns, as the industry benefited from dwindling inventories, accelerated chip production and improved pricing. Among the winners were MEMC Electronic Materials, Inc. and Standard Microsystems Corp. (0.3% and 0.6% of net assets, respectively).
In the financial sector, stock selection among real estate investment trusts (REITs), thrifts and banks was strong. We focused on REITs with attractive valuations, while avoiding those whose businesses were most vulnerable to rising interest rates. Within banking, the fund benefited from targeting commercial lenders, whose businesses tend to suffer less than more retail-oriented banks as interest rates rise. The fund’s underweight in thrifts was also positive, as the potential for a slowdown in housing pressured the industry’s returns.
Further gains from materials and energy
Materials stocks rallied as economic growth improved, boosting both demand and pricing. Among the strongest performers were building materials companies and selected metals stocks. Eagle Materials, Inc., a leading supplier of cement and wallboard, was a top gainer, as was Greif, Inc., an industrial packaging company (0.8% and 0.9% of net assets, respectively). Energy stocks further fueled performance, as the sector benefited from historically high commodity prices. Although the fund’s energy returns were very strong in absolute terms, they were slightly below the sector average. During the year, our focus shifted from exploration and production companies to energy service companies that we believed were likely to benefit as companies accelerated their capital spending. Lufkin Industries, Inc. (0.8% of net assets), which sells a diversified line of pumps and components, was a particularly strong performer.
Health care returns disappointed
We tend to avoid biotechnology and specialty pharmaceutical stocks because they tend not to have strong or predictable earnings. Not owning these stocks was costly during the period, as product announcements fueled sharp gains. The less volatile stocks the fund held, including companies that own medical facilities and sell or distribute hospital or dental products, fell from investor favor as biotech took the limelight. Among the detractors was Kindred Healthcare, Inc. (0.6% of net assets), a hospital and nursing home operator that declined when it lowered earnings expectations late in the year.
Looking ahead with cautious optimism
Going forward, we believe that small-cap stocks have the potential to keep up with the rest of the market. However, we tend not to make investments based on where we think the market or economy is headed, but to focus instead on stock selection based on research that focuses on company business prospects. We think that stock selection is likely to be even more important in an environment of slowing economic and profit growth. As a result, we hope to sidestep disappointments by favoring higher quality companies with the ability to grow their businesses and deliver improved earnings. We think stocks with these characteristics can appreciate in any type of market environment.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in response to economic and business developments.
Investments in small-cap stocks may be subject to greater volatility and price fluctuations because they may be thinly traded and less liquid than investments in larger companies.
Value stocks are stocks 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 and, in the advisor’s opinion, undervalued. If the advisor’s assessment of a company’s prospects is wrong, the price of the company’s stock may not approach the value the advisor has placed on it.
Holdings are disclosed as of December 31, 2005 and are subject to change.
(1) The Russell 2000 Value Index is an unmanaged index that measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
It is not possible to invest directly in an index.
2
Performance Information
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| Life |
|
Class A (05/19/98) |
| 5.64 |
| 13.13 |
| 9.75 |
|
Russell 2000 Value Index(1) |
| 4.71 |
| 13.55 |
| 9.47 |
|
Inception date of share class is in parentheses.
Net asset value per share ($) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 16.94 |
| 17.86 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 05/19/98 – 12/31/05
The graph compares the results of a hypothetical $10,000 investment in the fund with the index. The Index is unmanaged and returns for the index and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all distributions. The Russell 2000 Value Index is an unmanaged index that measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
(1) Index performance for the life of the fund is from May 19, 1998.
3
Understanding Your Expenses
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 – |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s annualized |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| (%) |
|
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,066.49 |
| 1,020.67 |
| 4.69 |
| 4.58 |
| 0.90 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
4
Investment Portfolio
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
|
| Shares |
| Value |
| |
COMMON STOCKS—99.5% |
|
|
|
|
| |
Consumer Discretionary—11.0% |
|
|
|
|
| |
Auto Components—1.1% |
|
|
|
|
| |
BorgWarner, Inc. |
| 42,900 |
| $ | 2,601,027 |
|
Modine Manufacturing Co. |
| 66,650 |
| 2,172,124 |
| |
|
|
|
| 4,773,151 |
| |
Distributors—0.5% |
|
|
|
|
| |
Building Materials Holding Corp. |
| 28,640 |
| 1,953,534 |
| |
Hotels, Restaurants & Leisure—3.1% |
|
|
|
|
| |
Bob Evans Farms, Inc. |
| 40,490 |
| 933,699 |
| |
Dave & Buster’s, Inc. (a) |
| 86,900 |
| 1,530,309 |
| |
Landry’s Restaurants, Inc. |
| 71,250 |
| 1,903,088 |
| |
Lone Star Steakhouse & Saloon, Inc. |
| 95,350 |
| 2,263,609 |
| |
Marcus Corp. |
| 44,900 |
| 1,055,150 |
| |
Scientific Games Corp., Class A (a) |
| 129,500 |
| 3,532,760 |
| |
Vail Resorts, Inc. (a) |
| 42,900 |
| 1,416,987 |
| |
|
|
|
| 12,635,602 |
| |
Household Durables—1.4% |
|
|
|
|
| |
American Greetings Corp., Class A |
| 156,300 |
| 3,433,911 |
| |
CSS Industries, Inc. |
| 44,500 |
| 1,367,485 |
| |
Kimball International, Inc., Class B |
| 95,800 |
| 1,018,354 |
| |
|
|
|
| 5,819,750 |
| |
Media—1.2% |
|
|
|
|
| |
4Kids Entertainment, Inc. (a) |
| 84,700 |
| 1,328,943 |
| |
Journal Communications, Inc., Class A |
| 78,070 |
| 1,089,076 |
| |
Media General, Inc., Class A |
| 16,470 |
| 835,029 |
| |
Reader’s Digest Association, Inc. |
| 59,200 |
| 901,024 |
| |
Scholastic Corp. (a) |
| 26,050 |
| 742,686 |
| |
|
|
|
| 4,896,758 |
| |
Specialty Retail—1.9% |
|
|
|
|
| |
GameStop Corp., Class A (a) |
| 103,100 |
| 3,280,642 |
| |
Monro Muffler, Inc. |
| 73,505 |
| 2,228,672 |
| |
Movie Gallery, Inc. |
| 65,100 |
| 365,211 |
| |
Pier 1 Imports, Inc. |
| 70,100 |
| 611,973 |
| |
Zale Corp. (a) |
| 48,710 |
| 1,225,056 |
| |
|
|
|
| 7,711,554 |
| |
Textiles, Apparel & Luxury Goods—1.8% |
|
|
|
|
| |
Delta Apparel, Inc. |
| 53,600 |
| 833,480 |
| |
Hampshire Group Ltd. (a) |
| 99,500 |
| 2,368,299 |
| |
Hartmarx Corp. (a) |
| 117,510 |
| 917,753 |
| |
Stride Rite Corp. |
| 88,200 |
| 1,195,992 |
| |
Wolverine World Wide, Inc. |
| 104,360 |
| 2,343,926 |
| |
|
|
|
| 7,659,450 |
| |
Consumer Staples—3.0% |
|
|
|
|
| |
Food & Staples Retailing—1.2% |
|
|
|
|
| |
BJ’s Wholesale Club, Inc. (a) |
| 38,600 |
| 1,141,016 |
| |
Weis Markets, Inc. |
| 86,430 |
| 3,719,947 |
| |
|
|
|
| 4,860,963 |
| |
Food Products—1.8% |
|
|
|
|
| |
Flowers Foods, Inc. |
| 109,373 |
| 3,014,320 |
| |
J & J Snack Foods Corp. |
| 23,674 |
| 1,406,472 |
| |
Lancaster Colony Corp. |
| 25,670 |
| $ | 951,074 |
|
Lance, Inc. |
| 69,500 |
| 1,294,785 |
| |
Maui Land & Pineapple Co., Inc. (a) |
| 29,900 |
| 1,014,507 |
| |
|
|
|
| 7,681,158 |
| |
Energy—6.4% |
|
|
|
|
| |
Energy Equipment & Services—2.7% |
|
|
|
|
| |
Dresser-Rand Group, Inc. (a) |
| 17,195 |
| 415,775 |
| |
Grey Wolf, Inc. (a) |
| 268,540 |
| 2,075,814 |
| |
Lone Star Technologies, Inc. (a) |
| 16,550 |
| 854,973 |
| |
Lufkin Industries, Inc. |
| 69,827 |
| 3,482,273 |
| |
Maverick Tube Corp. (a) |
| 33,780 |
| 1,346,471 |
| |
NS Group, Inc. (a) |
| 21,490 |
| 898,497 |
| |
Superior Well Services, Inc. (a) |
| 20,500 |
| 487,080 |
| |
Trico Marine Services, Inc. (a) |
| 67,287 |
| 1,749,462 |
| |
|
|
|
| 11,310,345 |
| |
Oil, Gas & Consumable Fuels—3.7% |
|
|
|
|
| |
Alpha Natural Resources, Inc. (a) |
| 63,940 |
| 1,228,288 |
| |
Bill Barrett Corp. (a) |
| 21,807 |
| 841,968 |
| |
Bois d’Arc Energy, Inc. (a) |
| 63,107 |
| 1,000,877 |
| |
Comstock Resources, Inc. (a) |
| 27,410 |
| 836,279 |
| |
Harvest Natural Resources, Inc. (a) |
| 124,250 |
| 1,103,340 |
| |
InterOil Corp. (a) |
| 36,200 |
| 970,160 |
| |
Peabody Energy Corp. |
| 29,965 |
| 2,469,715 |
| |
Range Resources Corp. |
| 131,500 |
| 3,463,710 |
| |
Western Gas Resources, Inc. |
| 72,300 |
| 3,404,607 |
| |
|
|
|
| 15,318,944 |
| |
Financials—25.5% |
|
|
|
|
| |
Capital Markets—0.4% |
|
|
|
|
| |
Piper Jaffray Companies, Inc. (a) |
| 41,020 |
| 1,657,208 |
| |
Commercial Banks—11.1% |
|
|
|
|
| |
BancFirst Corp. |
| 16,159 |
| 1,276,561 |
| |
BancorpSouth, Inc. |
| 86,270 |
| 1,903,979 |
| |
BancTrust Financial Group, Inc. |
| 62,588 |
| 1,258,019 |
| |
Bank of Granite Corp. |
| 68,297 |
| 1,265,543 |
| |
Bryn Mawr Bank Corp. |
| 70,897 |
| 1,521,450 |
| |
Capitol Bancorp Ltd. |
| 70,396 |
| 2,635,626 |
| |
Chemical Financial Corp. |
| 70,365 |
| 2,234,792 |
| |
Chittenden Corp. |
| 85,514 |
| 2,378,144 |
| |
Citizens Banking Corp. |
| 37,720 |
| 1,046,730 |
| |
City Holding Co. |
| 35,230 |
| 1,266,519 |
| |
Columbia Banking System, Inc. |
| 56,400 |
| 1,610,220 |
| |
Community Trust Bancorp, Inc. |
| 55,862 |
| 1,717,757 |
| |
Corus Bankshares, Inc. |
| 42,410 |
| 2,386,411 |
| |
First Citizens BancShares, Inc., Class A |
| 9,800 |
| 1,709,316 |
| |
First Financial Bankshares, Inc. |
| 46,017 |
| 1,613,356 |
| |
First Financial Corp. |
| 52,550 |
| 1,418,850 |
| |
Greater Bay Bancorp |
| 58,572 |
| 1,500,615 |
| |
Hancock Holding Co. |
| 37,698 |
| 1,425,361 |
| |
Merchants Bancshares, Inc. |
| 51,600 |
| 1,240,603 |
| |
Mid-State Bancshares |
| 91,050 |
| 2,435,587 |
| |
Northrim BanCorp, Inc. |
| 44,900 |
| 1,052,905 |
| |
Signature Bank (a) |
| 9,476 |
| 265,991 |
|
See Accompanying Notes to Financial Statements.
5
|
| Shares |
| Value |
| |
Sterling Bancshares, Inc. |
| 137,741 |
| $ | 2,126,721 |
|
TriCo Bancshares |
| 92,210 |
| 2,156,792 |
| |
TrustCo Bank Corp. NY |
| 116,830 |
| 1,451,029 |
| |
UMB Financial Corp. |
| 41,200 |
| 2,633,092 |
| |
Whitney Holding Corp. |
| 85,590 |
| 2,358,860 |
| |
|
|
|
| 45,890,829 |
| |
Consumer Finance—1.1% |
|
|
|
|
| |
Advance America Cash Advance Centers, Inc. |
| 144,406 |
| 1,790,634 |
| |
Cash America International, Inc. |
| 118,240 |
| 2,741,986 |
| |
|
|
|
| 4,532,620 |
| |
Insurance—6.5% |
|
|
|
|
| |
AmerUs Group Co. |
| 34,800 |
| 1,972,116 |
| |
Argonaut Group, Inc. (a) |
| 51,163 |
| 1,676,612 |
| |
Baldwin & Lyons, Inc., Class B |
| 61,487 |
| 1,494,134 |
| |
CNA Surety Corp. (a) |
| 117,570 |
| 1,712,995 |
| |
Commerce Group, Inc. |
| 18,100 |
| 1,036,768 |
| |
Delphi Financial Group, Inc., Class A |
| 57,486 |
| 2,644,931 |
| |
Harleysville Group, Inc. |
| 73,934 |
| 1,959,251 |
| |
Horace Mann Educators Corp. |
| 85,320 |
| 1,617,667 |
| |
KMG America Corp. (a) |
| 34,452 |
| 316,269 |
| |
National Western Life Insurance Co., Class A (a) |
| 512 |
| 105,938 |
| |
Navigators Group, Inc. (a) |
| 81,577 |
| 3,557,573 |
| |
Phoenix Companies, Inc. |
| 161,750 |
| 2,206,270 |
| |
ProCentury Corp. |
| 138,070 |
| 1,484,253 |
| |
Quanta Capital Holdings Ltd. (a) |
| 166,290 |
| 848,079 |
| |
RLI Corp. |
| 42,207 |
| 2,104,863 |
| |
United America Indemnity Ltd., Class A (a) |
| 101,690 |
| 1,867,028 |
| |
|
|
|
| 26,604,747 |
| |
Real Estate—6.4% |
|
|
|
|
| |
Alexandria Real Estate Equities, Inc., REIT |
| 20,340 |
| 1,637,370 |
| |
Bedford Property Investors, Inc., REIT |
| 63,785 |
| 1,399,443 |
| |
BioMed Realty Trust, Inc., REIT |
| 24,904 |
| 607,658 |
| |
Brandywine Realty Trust, REIT |
| 62,560 |
| 1,746,049 |
| |
Cousins Properties, Inc., REIT |
| 51,520 |
| 1,458,016 |
| |
EastGroup Properties, Inc., REIT |
| 58,850 |
| 2,657,666 |
| |
Equity One, Inc., REIT |
| 76,200 |
| 1,761,744 |
| |
Franklin Street Properties Corp., Class A, REIT |
| 84,062 |
| 1,761,099 |
| |
Getty Realty Corp., REIT |
| 61,660 |
| 1,621,041 |
| |
Healthcare Realty Trust, Inc. |
| 44,680 |
| 1,486,504 |
| |
Lexington Corporate Properties Trust, REIT |
| 57,183 |
| 1,217,998 |
| |
Mid-America Apartment Communities, Inc., REIT |
| 64,860 |
| 3,145,710 |
| |
PS Business Parks, Inc., REIT |
| 66,900 |
| 3,291,480 |
| |
Universal Health Realty Income Trust, REIT |
| 44,070 |
| 1,381,154 |
| |
Urstadt Biddle Properties, Inc., Class A, REIT |
| 87,050 |
| 1,411,080 |
| |
|
|
|
| 26,584,012 |
| |
|
|
|
|
|
| |
Health Care—9.5% |
|
|
|
|
| |
Health Care Equipment & Supplies—4.3% |
|
|
|
|
| |
Analogic Corp. |
| 25,480 |
| $ | 1,219,218 |
|
Bio-Rad Laboratories, Inc., Class A (a) |
| 30,800 |
| 2,015,552 |
| |
DJ Orthopedics, Inc. (a) |
| 32,320 |
| 891,386 |
| |
Greatbatch, Inc. (a) |
| 47,605 |
| 1,238,206 |
| |
Haemonetics Corp. (a) |
| 52,270 |
| 2,553,912 |
| |
Invacare Corp. |
| 48,608 |
| 1,530,666 |
| |
STERIS Corp. |
| 121,020 |
| 3,027,921 |
| |
Sybron Dental Specialties, Inc. (a) |
| 62,110 |
| 2,472,599 |
| |
Varian, Inc. (a) |
| 25,610 |
| 1,019,022 |
| |
Viasys Healthcare, Inc. (a) |
| 41,800 |
| 1,074,260 |
| |
Vital Signs, Inc. |
| 20,420 |
| 874,384 |
| |
|
|
|
| 17,917,126 |
| |
Health Care Providers & Services—5.2% |
|
|
|
|
| |
Cross Country Healthcare, Inc. (a) |
| 111,970 |
| 1,990,827 |
| |
Genesis HealthCare Corp. (a) |
| 57,200 |
| 2,088,944 |
| |
Gentiva Health Services, Inc. (a) |
| 117,560 |
| 1,732,834 |
| |
Hooper Holmes, Inc. |
| 191,600 |
| 488,580 |
| |
Kindred Healthcare, Inc. (a) |
| 103,000 |
| 2,653,280 |
| |
Owens & Minor, Inc. |
| 51,700 |
| 1,423,301 |
| |
PAREXEL International Corp. (a) |
| 94,300 |
| 1,910,518 |
| |
Pediatrix Medical Group, Inc. (a) |
| 47,300 |
| 4,189,361 |
| |
Res-Care, Inc. (a) |
| 103,320 |
| 1,794,668 |
| |
Symbion, Inc. (a) |
| 65,800 |
| 1,513,400 |
| |
United Surgical Partners International, Inc. (a) |
| 51,700 |
| 1,662,155 |
| |
|
|
|
| 21,447,868 |
| |
Industrials—17.4% |
|
|
|
|
| |
Aerospace & Defense—2.8% |
|
|
|
|
| |
AAR Corp. (a) |
| 107,723 |
| 2,579,966 |
| |
Esterline Technologies Corp. (a) |
| 74,100 |
| 2,755,779 |
| |
Kaman Corp., Class A |
| 45,400 |
| 893,926 |
| |
Moog, Inc., Class A (a) |
| 25,560 |
| 725,393 |
| |
Precision Castparts Corp. |
| 88,100 |
| 4,564,461 |
| |
|
|
|
| 11,519,525 |
| |
Air Freight & Logistics—0.3% |
|
|
|
|
| |
Ryder System, Inc. |
| 34,400 |
| 1,411,088 |
| |
Airlines—1.1% |
|
|
|
|
| |
JetBlue Airways Corp. (a) |
| 72,030 |
| 1,107,822 |
| |
MAIR Holdings, Inc. (a) |
| 34,165 |
| 160,917 |
| |
Republic Airways Holdings, Inc. (a) |
| 62,900 |
| 956,080 |
| |
Skywest, Inc. |
| 80,700 |
| 2,167,602 |
| |
|
|
|
| 4,392,421 |
| |
Building Products—1.0% |
|
|
|
|
| |
Lennox International, Inc. |
| 50,110 |
| 1,413,102 |
| |
NCI Building Systems, Inc. (a) |
| 67,220 |
| 2,855,506 |
| |
|
|
|
| 4,268,608 |
| |
Commercial Services & Supplies—4.4% |
|
|
|
|
| |
ABM Industries, Inc. |
| 80,300 |
| 1,569,865 |
| |
Casella Waste Systems, Inc., Class A (a) |
| 168,800 |
| 2,158,952 |
|
See Accompanying Notes to Financial Statements.
6
|
| Shares |
| Value |
| |
CBIZ, Inc. (a) |
| 101,674 |
| $ | 612,077 |
|
Consolidated Graphics, Inc. (a) |
| 75,450 |
| 3,571,803 |
| |
Healthcare Services Group, Inc. |
| 94,106 |
| 1,948,935 |
| |
Korn/Ferry International (a) |
| 67,050 |
| 1,253,165 |
| |
Nam Tai Electronics, Inc. |
| 33,420 |
| 751,950 |
| |
NCO Group, Inc. (a) |
| 70,900 |
| 1,199,628 |
| |
Sourcecorp, Inc. (a) |
| 51,400 |
| 1,232,572 |
| |
TeleTech Holdings, Inc. (a) |
| 159,000 |
| 1,915,950 |
| |
United Stationers, Inc. (a) |
| 35,980 |
| 1,745,030 |
| |
|
|
|
| 17,959,927 |
| |
Construction & Engineering—1.9% |
|
|
|
|
| |
EMCOR Group, Inc. (a) |
| 25,100 |
| 1,695,003 |
| |
KHD Humboldt Wedag International Ltd. (a) |
| 156,500 |
| 3,466,475 |
| |
Washington Group International, Inc. (a) |
| 48,300 |
| 2,558,451 |
| |
|
|
|
| 7,719,929 |
| |
Electrical Equipment—1.3% |
|
|
|
|
| |
Genlyte Group, Inc. (a) |
| 57,500 |
| 3,080,275 |
| |
Woodward Governor Co. |
| 28,300 |
| 2,434,083 |
| |
|
|
|
| 5,514,358 |
| |
Machinery—1.9% |
|
|
|
|
| |
Briggs & Stratton Corp. |
| 26,900 |
| 1,043,451 |
| |
EnPro Industries, Inc. (a) |
| 81,200 |
| 2,188,340 |
| |
Harsco Corp. |
| 57,900 |
| 3,908,829 |
| |
Kadant, Inc. (a) |
| 35,633 |
| 659,210 |
| |
|
|
|
| 7,799,830 |
| |
Road & Rail—1.1% |
|
|
|
|
| |
Dollar Thrifty Automotive Group, Inc. (a) |
| 25,400 |
| 916,178 |
| |
Swift Transportation Co., Inc. (a) |
| 30,324 |
| 615,577 |
| |
Werner Enterprises, Inc. |
| 160,770 |
| 3,167,169 |
| |
|
|
|
| 4,698,924 |
| |
Trading Companies & Distributors—1.6% |
|
|
|
|
| |
Hughes Supply, Inc. |
| 40,022 |
| 1,434,789 |
| |
Watsco, Inc. |
| 89,150 |
| 5,332,061 |
| |
|
|
|
| 6,766,850 |
| |
Information Technology—14.8% |
|
|
|
|
| |
Communications Equipment—1.9% |
|
|
|
|
| |
Anaren, Inc. (a) |
| 132,650 |
| 2,073,319 |
| |
Belden CDT, Inc. |
| 49,100 |
| 1,199,513 |
| |
Black Box Corp. |
| 31,000 |
| 1,468,780 |
| |
Dycom Industries, Inc. (a) |
| 97,050 |
| 2,135,100 |
| |
Tollgrade Communications, Inc. (a) |
| 81,650 |
| 892,435 |
| |
|
|
|
| 7,769,147 |
| |
Computers & Peripherals—1.6% |
|
|
|
|
| |
Electronics for Imaging, Inc. (a) |
| 79,480 |
| 2,114,963 |
| |
Hutchinson Technology, Inc. (a) |
| 43,070 |
| 1,225,342 |
| |
Imation Corp. |
| 40,200 |
| 1,852,014 |
| |
Intergraph Corp. (a) |
| 30,166 |
| 1,502,568 |
| |
|
|
|
| 6,694,887 |
| |
Electronic Equipment & Instruments—3.2% |
|
|
|
|
| |
Agilysys, Inc. |
| 63,050 |
| 1,148,771 |
| |
Anixter International, Inc. |
| 42,400 |
| $ | 1,658,688 |
|
Benchmark Electronics, Inc. (a) |
| 63,550 |
| 2,137,187 |
| |
Brightpoint, Inc. (a) |
| 148,450 |
| 4,116,518 |
| |
MTS Systems Corp. |
| 56,950 |
| 1,972,748 |
| |
Vishay Intertechnology, Inc. (a) |
| 170,500 |
| 2,346,080 |
| |
|
|
|
| 13,379,992 |
| |
Internet Software & Services—0.3% |
|
|
|
|
| |
Digitas, Inc. (a) |
| 64,590 |
| 808,666 |
| |
Keynote Systems, Inc. (a) |
| 37,307 |
| 479,395 |
| |
|
|
|
| 1,288,061 |
| |
IT Services—1.9% |
|
|
|
|
| |
Acxiom Corp. |
| 113,240 |
| 2,604,520 |
| |
MAXIMUS, Inc. |
| 34,420 |
| 1,262,870 |
| |
MPS Group, Inc. (a) |
| 280,800 |
| 3,838,536 |
| |
|
|
|
| 7,705,926 |
| |
Semiconductors & Semiconductor |
|
|
|
|
| |
Equipment—2.8% |
|
|
|
|
| |
Advanced Energy Industries, Inc. (a) |
| 66,110 |
| 782,081 |
| |
Asyst Technologies, Inc. (a) |
| 20,233 |
| 115,733 |
| |
ATMI, Inc. (a) |
| 52,370 |
| 1,464,789 |
| |
Brooks Automation, Inc. (a) |
| 66,750 |
| 836,377 |
| |
Exar Corp. (a) |
| 97,000 |
| 1,214,440 |
| |
Fairchild Semiconductor International, Inc. (a) |
| 111,610 |
| 1,887,325 |
| |
MEMC Electronic Materials, Inc. (a) |
| 60,880 |
| 1,349,710 |
| |
Sigmatel, Inc. (a) |
| 40,350 |
| 528,585 |
| |
Standard Microsystems Corp. (a) |
| 86,400 |
| 2,478,816 |
| |
Varian Semiconductor Equipment Associates, Inc. (a) |
| 16,600 |
| 729,238 |
| |
|
|
|
| 11,387,094 |
| |
Software—3.1% |
|
|
|
|
| |
Captaris, Inc. (a) |
| 199,000 |
| 734,310 |
| |
Internet Security Systems, Inc. (a) |
| 91,200 |
| 1,910,640 |
| |
Lawson Software, Inc. (a) |
| 235,920 |
| 1,734,012 |
| |
MSC.Software Corp. (a) |
| 127,000 |
| 2,159,000 |
| |
Phoenix Technologies Ltd. (a) |
| 136,550 |
| 854,803 |
| |
PLATO Learning, Inc. (a) |
| 66,932 |
| 531,440 |
| |
SeaChange International, Inc. (a) |
| 39,900 |
| 315,210 |
| |
Sybase, Inc. (a) |
| 81,500 |
| 1,781,590 |
| |
Transaction Systems Architects, Inc. (a) |
| 94,900 |
| 2,732,171 |
| |
|
|
|
| 12,753,176 |
| |
Materials—7.9% |
|
|
|
|
| |
Chemicals—2.6% |
|
|
|
|
| |
Cytec Industries, Inc. |
| 45,400 |
| 2,162,402 |
| |
H.B. Fuller Co. |
| 67,000 |
| 2,148,690 |
| |
Minerals Technologies, Inc. |
| 34,200 |
| 1,911,438 |
| |
Schulman (A.), Inc. |
| 89,950 |
| 1,935,724 |
| |
Sensient Technologies Corp. |
| 58,100 |
| 1,039,990 |
| |
Stepan Co. |
| 48,500 |
| 1,304,165 |
| |
|
|
|
| 10,502,409 |
|
See Accompanying Notes to Financial Statements.
7
|
| Shares |
| Value |
| ||
Construction Materials—0.8% |
|
|
|
|
| ||
Eagle Materials, Inc. |
| 27,930 |
| $ | 3,417,515 |
| |
Containers & Packaging—1.3% |
|
|
|
|
| ||
AptarGroup, Inc. |
| 33,900 |
| 1,769,580 |
| ||
Greif, Inc., Class A |
| 56,550 |
| 3,748,134 |
| ||
|
|
|
| 5,517,714 |
| ||
Metals & Mining—2.4% |
|
|
|
|
| ||
AMCOL International Corp. |
| 52,800 |
| 1,083,456 |
| ||
Carpenter Technology Corp. |
| 36,150 |
| 2,547,490 |
| ||
Metal Management, Inc. |
| 72,840 |
| 1,694,258 |
| ||
RTI International Metals, Inc. (a) |
| 50,530 |
| 1,917,614 |
| ||
Worthington Industries, Inc. |
| 134,010 |
| 2,574,332 |
| ||
|
|
|
| 9,817,150 |
| ||
Paper & Forest Products—0.8% |
|
|
|
|
| ||
Glatfelter |
| 133,200 |
| 1,890,108 |
| ||
Mercer International, Inc. (a) |
| 173,500 |
| 1,363,710 |
| ||
|
|
|
| 3,253,818 |
| ||
Telecommunication Services—0.4% |
|
|
|
|
| ||
Diversified Telecommunication Services—0.4% |
|
|
|
|
| ||
North Pittsburgh Systems, Inc. |
| 60,300 |
| 1,137,861 |
| ||
TALK America Holdings, Inc. (a) |
| 60,668 |
| 523,565 |
| ||
|
|
|
| 1,661,426 |
| ||
Utilities—3.6% |
|
|
|
|
| ||
Electric Utilities—2.3% |
|
|
|
|
| ||
ALLETE, Inc. |
| 34,800 |
| 1,531,200 |
| ||
Central Vermont Public Service Corp. |
| 84,800 |
| 1,527,248 |
| ||
El Paso Electric Co. (a) |
| 96,000 |
| 2,019,840 |
| ||
Maine & Maritimes Corp. |
| 19,200 |
| 297,216 |
| ||
MGE Energy, Inc. |
| 33,500 |
| 1,135,985 |
| ||
Otter Tail Corp. |
| 48,700 |
| 1,411,326 |
| ||
Puget Energy, Inc. |
| 82,800 |
| 1,690,776 |
| ||
|
|
|
| 9,613,591 |
| ||
Gas Utilities—0.6% |
|
|
|
|
| ||
Cascade Natural Gas Corp. |
| 36,500 |
| 712,115 |
| ||
Northwest Natural Gas Co. |
| 27,600 |
| 943,368 |
| ||
WGL Holdings, Inc. |
| 29,400 |
| 883,764 |
| ||
|
|
|
| 2,539,247 |
| ||
Multi-Utilities—0.7% |
|
|
|
|
| ||
CH Energy Group, Inc. |
| 57,200 |
| 2,625,480 |
| ||
Total Common Stocks |
|
|
| 411,233,712 |
| ||
|
|
|
|
|
| ||
|
| Par |
| Value |
| ||
SHORT-TERM OBLIGATION—0.5% |
|
|
|
|
| ||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Bond maturing 02/15/21, market value of $2,035,000 (repurchase proceeds $1,992,748) |
| $ | 1,992,000 |
| $ | 1,992,000 |
|
Total Short-Term Obligation |
|
|
| 1,992,000 |
| ||
Total Investments—100.0% |
|
|
| 413,225,712 |
| ||
Other Assets & Liabilities, Net—0.0% |
|
|
| 26,032 |
| ||
Net Assets—100.0% |
|
|
| $ | 413,251,744 |
| |
Notes to Investment Portfolio:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $362,315,466.
At December 31, 2005, the Fund held investments in the following sectors:
Sector (Unaudited) |
| % of Net Assets |
|
Financials |
| 25.5 | % |
Industrials |
| 17.4 |
|
Information Technology |
| 14.8 |
|
Consumer Discretionary |
| 11.0 |
|
Health Care |
| 9.5 |
|
Materials |
| 7.9 |
|
Energy |
| 6.4 |
|
Utilities |
| 3.6 |
|
Consumer Staples |
| 3.0 |
|
Telecommunication Services |
| 0.4 |
|
Short-Term Obligation |
| 0.5 |
|
Other Assets & Liabilities, Net |
| 0.0 | * |
|
| 100.0 | % |
* Rounds to less than 0.1%.
Acronym |
| Name |
REIT |
| Real Estate Investment Trust |
See Accompanying Notes to Financial Statements.
8
Statement of Assets & Liabilities
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost |
| $ | 362,114,575 |
|
Investments, at value |
| $ | 413,225,712 |
|
Cash |
| 881 |
| |
Receivable for: |
|
|
| |
Investments sold |
| 40,151 |
| |
Fund shares sold |
| 190,206 |
| |
Interest |
| 374 |
| |
Dividends |
| 529,717 |
| |
Expense reimbursement due from Distributor |
| 46,632 |
| |
Deferred Trustees’ compensation plan |
| 8,996 |
| |
Total Assets |
| 414,042,669 |
| |
Liabilities: |
|
|
| |
Payable for: |
|
|
| |
Investments purchased |
| 292,926 |
| |
Fund shares repurchased |
| 57,927 |
| |
Investment advisory fee |
| 281,319 |
| |
Transfer agent fee |
| 12 |
| |
Pricing and bookkeeping fees |
| 10,505 |
| |
Trustees’ fees |
| 496 |
| |
Custody fee |
| 14,000 |
| |
Distribution fee—Class B |
| 84,943 |
| |
Chief compliance officer expenses |
| 2,480 |
| |
Deferred Trustees’ fees |
| 8,996 |
| |
Other liabilities |
| 37,321 |
| |
Total Liabilities |
| 790,925 |
| |
Net Assets |
| $ | 413,251,744 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 349,381,527 |
|
Undistributed net investment income |
| 1,285,935 |
| |
Accumulated net realized gain |
| 11,473,145 |
| |
Net unrealized appreciation on investments |
| 51,111,137 |
| |
Net Assets |
| $ | 413,251,744 |
|
Class A: |
|
|
| |
Net assets |
| $ | 13,711,276 |
|
Shares outstanding |
| 767,720 |
| |
Net asset value per share |
| $ | 17.86 |
|
Class B: |
|
|
| |
Net assets |
| $ | 399,540,468 |
|
Shares outstanding |
| 22,438,149 |
| |
Net asset value per share |
| $ | 17.81 |
|
See Accompanying Notes to Financial Statements.
9
Statement of Operations
Colonial Small Cap Value Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Dividends |
| $ | 5,359,682 |
|
Interest |
| 108,065 |
| |
Total Investment Income |
| 5,467,747 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 2,784,014 |
| |
Distribution fee—Class B |
| 836,263 |
| |
Transfer agent fee |
| 6,284 |
| |
Pricing and bookkeeping fees |
| 96,371 |
| |
Trustees’ fees |
| 14,475 |
| |
Custody fee |
| 87,847 |
| |
Chief compliance officer expenses (See Note 4) |
| 6,407 |
| |
Non-recurring costs (See Note 7) |
| 6,769 |
| |
Other expenses |
| 134,428 |
| |
Total Expenses |
| 3,972,858 |
| |
Fees waived by Transfer Agent |
| (1,207 | ) | |
Fees reimbursed by Distributor—Class B |
| (164,575 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 7) |
| (6,769 | ) | |
Custody earnings credit |
| (473 | ) | |
Net Expenses |
| 3,799,834 |
| |
Net Investment Income |
| 1,667,913 |
| |
Net Realized and Unrealized Gain (Loss) on Investments: |
|
|
| |
Net realized gain on: |
|
|
| |
Investments |
| 11,304,654 |
| |
Net realized loss on disposal of investments purchased in error (See Note 6) |
| — |
| |
Net realized gain |
| 11,304,654 |
| |
Net change in unrealized appreciation (depreciation) on investments |
| 9,670,800 |
| |
Net Gain |
| 20,975,454 |
| |
Net Increase in Net Assets from Operations |
| $ | 22,643,367 |
|
See Accompanying Notes to Financial Statements.
10
Statement of Changes in Net Assets
Colonial Small Cap Value Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 1,667,913 |
| $ | 717,153 |
|
Net realized gain on investments and foreign currency transactions |
| 11,304,654 |
| 6,089,366 |
| ||
Net change in unrealized appreciation (depreciation) on investments |
| 9,670,800 |
| 32,496,427 |
| ||
Net Increase from Operations |
| 22,643,367 |
| 39,302,946 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (59,647 | ) | ||
Class B |
| — |
| (777,348 | ) | ||
From net realized gains: |
|
|
|
|
| ||
Class A |
| (27,432 | ) | (363,580 | ) | ||
Class B |
| (733,878 | ) | (6,319,347 | ) | ||
Total Distributions Declared to Shareholders |
| (761,310 | ) | (7,519,922 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 2,105,777 |
| 3,893,180 |
| ||
Distributions reinvested |
| 27,432 |
| 423,227 |
| ||
Redemptions |
| (3,632,642 | ) | (2,651,167 | ) | ||
Net Increase (Decrease) |
| (1,499,433 | ) | 1,665,240 |
| ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 131,584,854 |
| 175,158,904 |
| ||
Distributions reinvested |
| 733,878 |
| 7,096,695 |
| ||
Redemptions |
| (18,494,137 | ) | (6,127,471 | ) | ||
Net Increase |
| 113,824,595 |
| 176,128,128 |
| ||
Net Increase from Share Transactions |
| 112,325,162 |
| 177,793,368 |
| ||
Total Increase in Net Assets |
| 134,207,219 |
| 209,576,392 |
| ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 279,044,525 |
| 69,468,133 |
| ||
End of period |
| $ | 413,251,744 |
| $ | 279,044,525 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 1,285,935 |
| $ | (191,969 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 124,507 |
| 254,063 |
| ||
Issued for distributions reinvested |
| 1,545 |
| 25,530 |
| ||
Redemptions |
| (217,621 | ) | (174,777 | ) | ||
Net Increase (Decrease) |
| (91,569 | ) | 104,816 |
| ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 7,859,004 |
| 11,470,781 |
| ||
Issued for distributions reinvested |
| 41,439 |
| 427,336 |
| ||
Redemptions |
| (1,089,973 | ) | (399,816 | ) | ||
Net Increase |
| 6,810,470 |
| 11,498,301 |
|
See Accompanying Notes to Financial Statements.
11
Notes to Financial Statements
Colonial Small Cap Value Fund, Variable Series / December 31, 2005
Note 1. Organization
Colonial Small Cap Value Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”), is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks long-term growth by investing primarily in smaller capitalization (small-cap) equities.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings. Distributions paid by real estate investment trusts (REITs) in excess of their income are recorded as a reduction of the cost of the related investments. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains.
Foreign Currency Transactions—The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day’s exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
12
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for REIT adjustments were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | (190,009) |
| $ | 190,010 |
| $ | (1 | ) |
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income* |
| $ | 706,775 |
| $ | 5,382,821 |
|
Long-term capital gains |
| 54,535 |
| 2,137,101 |
| ||
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions.
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Ordinary |
| Undistributed |
| Long-Term |
| |||
$ | 2,562,113 |
| $ | 10,406,573 |
| $ | 50,910,246 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales and REIT adjustments.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 67,008,038 |
|
Unrealized depreciation |
| (16,097,792 | ) | |
Net unrealized appreciation |
| $ | 50,910,246 |
|
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $500 million |
| 0.80 | % |
$500 million to $1 billion |
| 0.75 | % |
Over $1 billion |
| 0.70 | % |
For the year ended December 31, 2005, the Fund’s effective investment advisory fee rate was 0.80%.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
13
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.028% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,207 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was less than 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Columbia and the Distributor have voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 1.10% annually of the Fund’s average daily net assets. For the Class B shares, the Distributor will first reimburse the Class B distribution fee up to 0.25% annually to reach the 1.10% limit on Class B expenses. If additional reimbursement is needed to meet the limit for each class, Columbia will then reimburse other expenses to the extent necessary. If additional reimbursement is still needed in order to reach the expense limit, Columbia will then waive a portion of its investment advisory fee to the extent necessary. Columbia or the Distributor, at their discretion, may revise or discontinue this arrangement any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,778 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $243,276,863 and $130,213,848, respectively.
Note 6. Other
During the year ended December 31, 2005, the Fund had a realized loss due to a trading error. This loss of $4,880 was reimbursed by Columbia.
Note 7. Disclosure of Significant Risks and Contingencies
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
14
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $6,769 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
15
Financial Highlights
Colonial Small Cap Value Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 16.94 |
| $ | 14.23 |
| $ | 10.48 |
| $ | 11.56 |
| $ | 10.73 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.12 |
| 0.09 |
| 0.07 |
| 0.02 |
| 0.02 |
| |||||
Net realized and unrealized gain (loss) on investments and foreign currency |
| 0.83 |
| 3.13 |
| 4.03 |
| (0.73 | ) | 0.98 |
| |||||
Total from Investment Operations |
| 0.95 |
| 3.22 |
| 4.10 |
| (0.71 | ) | 1.00 |
| |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.07 | ) | (0.03 | ) | (0.01 | ) | (0.02 | ) | |||||
From net realized gains |
| (0.03 | ) | (0.44 | ) | (0.32 | ) | (0.36 | ) | (0.15 | ) | |||||
Total Distributions Declared to Shareholders |
| (0.03 | ) | (0.51 | ) | (0.35 | ) | (0.37 | ) | (0.17 | ) | |||||
Net Asset Value, End of Period |
| $ | 17.86 |
| $ | 16.94 |
| $ | 14.23 |
| $ | 10.48 |
| $ | 11.56 |
|
Total return (b)(c) |
| 5.64 | %(d)(e) | 22.70 | % | 39.30 | %(d) | (6.12 | )%(d) | 9.30 | %(d) | |||||
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (f) |
| 0.90 | % | 0.97 | % | 1.10 | % | 1.10 | % | 1.10 | % | |||||
Net investment income (f) |
| 0.67 | % | 0.57 | % | 0.59 | % | 0.18 | % | 0.22 | % | |||||
Waiver/reimbursement |
| — | %(g) | — |
| 0.11 | % | 0.04 | % | 0.22 | % | |||||
Portfolio turnover rate |
| 38 | % | 30 | % | 55 | % | 125 | % | 56 | % | |||||
Net assets, end of period (000’s) |
| $ | 13,711 |
| $ | 14,557 |
| $ | 10,738 |
| $ | 7,893 |
| $ | 9,361 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund’s total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
16
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Colonial Small Cap Value Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Colonial Small Cap Value Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 21, 2006
17
Unaudited Information
Colonial Small Cap Value Fund, Variable Series
Federal Income Tax Information
For the fiscal year ended December 31, 2005, the Fund designates long-term capital gains of $10,411,831.
18
Portfolio Managers’ Discussion
Colonial Strategic Income Fund, Variable Series / December 31, 2005
Colonial Strategic Income Fund, Variable Series seeks current income consistent with prudent risk. The fund also seeks maximum total return.
Laura A. Ostrander has managed or co-managed the fund since September 2000. Kevin L. Cronk and Thomas A. LaPointe have co-managed the fund since May 2005. Ms. Ostrander has been with Columbia Management Advisors, LLC or its predecessors or affiliate organizations since 1996. Mr. Cronk and Mr. LaPointe have been affiliated with the advisor or its affiliates since 1999.
In a year that was generally lackluster for all segments of the bond market, the fund’s performance was slightly lower than its benchmarks and peer group. While exposure to emerging market debt was a positive for performance, the fund’s other foreign currency exposure detracted from performance as the dollar strengthened. The benchmarks have no exposure to non-dollar securities and we believe that the fund’s peer universe had less exposure to non-dollar securities than the fund. The fund’s exposure to high-yield bonds was generally favorable for performance.
Emerging market debt boosted performance
A position in emerging market debt was the best performing sector for the fund. Steady global growth and high commodity prices improved the capacity of many lesser-developed countries to reduce their debt levels. As a result, the sovereign debt of countries such as Brazil, Russia, Mexico, Colombia and Venezuela were profitable investments. A position in Canadian bonds also aided performance as the Canadian dollar strengthened versus the US dollar. By contrast, exposure to bonds denominated in the euro, the British pound and the Swedish krona detracted from performance.
High-yield bonds produced mixed results
Overall, the fund’s exposure to high-yield bonds, which accounted for 38% of the fund’s assets, also contributed to positive performance. In particular, the fund’s holdings in energy, utilities and wireless telecom aided return. Energy and utility companies posted robust operating results, boosted by sustained high prices for oil and gas.
Within wireless, holdings in Nextel Partners, Inc., US Unwired, Inc., iPCS Escrow Co. and Western Wireless, did well (0.2%, 0.2% and 0.1% of net assets, respectively). Western Wireless was sold before the end of the period. Their values increased due to improved operating results and industry consolidation led by investment-grade companies.
The results from high-yield securities were not uniformly favorable for the fund. Low-quality securities came under pressure following several high-profile bankruptcies as well as the well-publicized difficulties at Ford and GM. The fund’s exposure to securities rated CCC or lower detracted from performance in this environment.
Looking ahead
As the world economy heads into the back-end of an economic growth cycle, we expect slower growth in 2006. This economic assessment, combined with tighter liquidity around the world, has made us more cautious regarding the credit-sensitive sectors of the fund. As a result, we have taken steps to increase the overall quality of the fund’s holdings. In the second half of the year, we lowered the fund’s exposure to lower-quality high-yield securities. We continue to believe that the fund has the potential to generate additional return through careful credit selection, but we plan to place particular emphasis on reducing downside risk. We have also become more defensive with the fund’s emerging market allocation by adding exposure to higher quality countries such as Chile while reducing exposure to Brazil. While credit fundamentals and supply/demand factors remain favorable in many emerging market countries, political uncertainty caused by the heavy election cycle in 2006 could lead to volatility and deterioration. The steps we have taken regarding the fund’s emerging market position are designed to help mitigate the impact of any unfavorable outcomes.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
Strategic investing offers attractive income and total return opportunities, but also involves certain risks. The value and return of your investment may fluctuate as a result of changes in interest rates, the financial strength of issuers of lower-rated bonds, foreign, political and economic developments, and changes in currency exchange rates.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.
Some of the countries in which the fund invests are considered emerging economies, which means there may be greater risks associated with investing there than in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.
Investing in high-yield securities or “junk” bonds offers the potential for higher current income and attractive total return, but involves certain risks. Changes in economic conditions or other circumstances may adversely affect a high-yield bond issuer’s ability to make timely principal and interest payments. High yield bonds issued by foreign entities have greater potential risks, including foreign taxation, currency fluctuations, risks associated with possible differences in financial standards and other monetary and political risks.
Holdings are disclosed as of December 31, 2005, and are subject to change.
19
Performance Information
Colonial Strategic Income Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| 10-year |
|
Class A (07/05/94) |
| 1.61 |
| 8.32 |
| 6.81 |
|
Lehman Brothers Government/Credit Bond Index |
| 2.37 |
| 6.11 |
| 6.17 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 9.96 |
| 10.12 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 01/01/96 – 12/31/05
The graph compares the results of a hypothetical $10,000 investment in the fund with the index. The Index is unmanaged and returns for the index and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all distributions. The Lehman Brothers Government/Credit Bond Index is an unmanaged index that tracks the performance of a selection of US government and investment grade US corporate bonds. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
20
Understanding Your Expenses
Colonial Strategic Income Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 – |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s annualized |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| ||
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,012.00 |
| 1,021.22 |
| 4.01 |
| 4.02 |
| 0.79 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
21
Investment Portfolio
Colonial Strategic Income Fund, Variable Series / December 31, 2005
|
| Par |
| Value |
| ||
GOVERNMENT & AGENCY OBLIGATIONS—53.2% |
|
|
|
|
|
| |
Agency Obligations—0.4% |
|
|
|
|
|
| |
Federal Farm Credit Bank |
|
|
|
|
|
| |
5.000% 08/25/10 |
| USD | 500,000 |
| $ | 496,022 |
|
Foreign Government Obligations—32.5% |
|
|
|
|
|
| |
Aries Vermoegensverwaltungs GmbH |
|
|
|
|
|
| |
7.750% 10/25/09 (a) |
| EUR | 250,000 |
| 338,595 |
| |
Australian Government Bond |
|
|
|
|
|
| |
7.500% 09/15/09 |
| AUD | 1,060,000 |
| 835,741 |
| |
Corp. Andina de Fomento |
|
|
|
|
|
| |
6.375% 06/18/09 |
| EUR | 510,000 |
| 660,547 |
| |
European Investment Bank |
|
|
|
|
|
| |
7.625% 12/07/07 |
| GBP | 455,000 |
| 829,755 |
| |
Federal Republic of Brazil |
|
|
|
|
|
| |
5.188% 04/15/24 (b) |
| USD | 1,045,000 |
| 1,017,621 |
| |
11.500% 04/02/09 |
| EUR | 480,000 |
| 690,962 |
| |
14.500% 10/15/09 |
| USD | 1,200,000 |
| 1,539,600 |
| |
Federal Republic of Germany |
|
|
|
|
|
| |
4.250% 07/04/14 |
| EUR | 1,450,000 |
| 1,840,012 |
| |
5.000% 07/04/12 |
|
| 555,000 |
| 726,522 |
| |
6.000% 07/04/07 |
|
| 1,210,000 |
| 1,498,449 |
| |
Government of Canada |
|
|
|
|
|
| |
5.250% 06/01/13 |
| CAD | 920,000 |
| 857,327 |
| |
10.000% 06/01/08 |
|
| 2,611,000 |
| 2,559,631 |
| |
Government of New Zealand |
|
|
|
|
|
| |
6.000% 11/15/11 |
| NZD | 1,975,000 |
| 1,364,463 |
| |
6.500% 04/15/13 |
|
| 815,000 |
| 582,722 |
| |
Kingdom of Norway |
|
|
|
|
|
| |
5.500% 05/15/09 |
| NOK | 9,340,000 |
| 1,477,419 |
| |
6.000% 05/16/11 |
|
| 3,450,000 |
| 572,311 |
| |
Kingdom of Spain |
|
|
|
|
|
| |
5.500% 07/30/17 |
| EUR | 1,580,000 |
| 2,249,139 |
| |
Kingdom of Sweden |
|
|
|
|
|
| |
5.000% 01/28/09 |
| SEK | 9,220,000 |
| 1,229,140 |
| |
6.750% 05/05/14 |
|
| 11,070,000 |
| 1,741,910 |
| |
Province of Ontario |
|
|
|
|
|
| |
5.000% 03/08/14 |
| CAD | 760,000 |
| 688,789 |
| |
Province of Quebec |
|
|
|
|
|
| |
6.000% 10/01/12 |
|
| 460,000 |
| 436,008 |
| |
6.000% 10/01/29 |
|
| 380,000 |
| 385,596 |
| |
Republic of Bulgaria |
|
|
|
|
|
| |
8.250% 01/15/15 |
| USD | 860,000 |
| 1,038,536 |
| |
Republic of Colombia |
|
|
|
|
|
| |
8.125% 05/21/24 |
|
| 245,000 |
| 264,600 |
| |
9.750% 04/09/11 |
|
| 537,705 |
| 604,918 |
| |
11.375% 01/31/08 |
| EUR | 365,000 |
| 496,942 |
| |
Republic of France |
|
|
|
|
|
| |
4.000% 04/25/14 |
|
| 945,000 |
| 1,179,459 |
| |
4.750% 10/25/12 |
|
| 1,330,000 |
| 1,724,656 |
| |
Republic of Panama |
|
|
|
|
|
| |
8.875% 09/30/27 |
| USD | 795,000 |
| 946,050 |
| |
Republic of Peru |
|
|
|
|
|
| |
7.500% 10/14/14 |
| EUR | 315,000 |
| 422,342 |
| |
9.875% 02/06/15 |
| USD | 660,000 |
| 792,000 |
| |
Republic of Poland |
|
|
|
|
|
| |
5.750% 03/24/10 |
| PLN | 2,475,000 |
| $ | 784,545 |
|
8.500% 05/12/07 |
|
| 1,679,000 |
| 543,133 |
| |
Republic of South Africa |
|
|
|
|
|
| |
5.250% 05/16/13 |
| EUR | 540,000 |
| 692,848 |
| |
6.500% 06/02/14 |
| USD | 780,000 |
| 844,350 |
| |
Republic of Venezuela |
|
|
|
|
|
| |
9.250% 09/15/27 |
|
| 868,000 |
| 1,028,580 |
| |
Russian Federation |
|
|
|
|
|
| |
5.000% 03/31/30 |
|
|
|
|
|
| |
(7.500% 03/31/07) (c) |
|
| 645,000 |
| 728,141 |
| |
11.000% 07/24/18 |
|
| 655,000 |
| 969,466 |
| |
12.750% 06/24/28 |
|
| 955,000 |
| 1,751,661 |
| |
United Kingdom Treasury |
|
|
|
|
|
| |
8.000% 06/07/21 |
| GBP | 280,000 |
| 694,634 |
| |
9.000% 07/12/11 |
|
| 615,000 |
| 1,308,996 |
| |
United Mexican States |
|
|
|
|
|
| |
7.500% 03/08/10 |
| EUR | 605,000 |
| 822,839 |
| |
7.500% 04/08/33 |
| USD | 1,085,000 |
| 1,280,300 |
| |
11.375% 09/15/16 |
|
| 930,000 |
| 1,371,750 |
| |
Victoria Treasury Corp. |
|
|
|
|
|
| |
7.500% 08/15/08 |
| AUD | 1,400,000 |
| 1,078,557 |
| |
|
|
|
|
| 45,491,562 |
| |
U.S. Government Bonds & Notes—20.3% |
|
|
|
|
|
| |
U.S. Treasury Bonds |
|
|
|
|
|
| |
7.500% 11/15/24 |
| USD | 1,310,000 |
| 1,781,139 |
| |
8.750% 05/15/17 |
|
| 4,911,000 |
| 6,743,800 |
| |
8.875% 02/15/19 |
|
| 300,000 |
| 426,609 |
| |
10.375% 11/15/12 |
|
| 3,800,000 |
| 4,199,593 |
| |
12.500% 08/15/14 |
|
| 9,012,000 |
| 11,431,515 |
| |
U.S. Treasury Notes |
|
|
|
|
|
| |
5.625% 05/15/08 |
|
| 1,500,000 |
| 1,540,899 |
| |
6.500% 10/15/06 |
|
| 2,350,000 |
| 2,385,708 |
| |
|
|
|
|
| 28,509,263 |
| |
Total Government & Agency Obligations |
|
|
|
| 74,496,847 |
| |
CORPORATE FIXED-INCOME |
|
|
|
|
|
| |
BONDS & NOTES—41.0% |
|
|
|
|
|
| |
Basic Materials—4.2% |
|
|
|
|
|
| |
Chemicals—1.9% |
|
|
|
|
|
| |
Agricultural Chemicals—0.6% |
|
|
|
|
|
| |
IMC Global, Inc. |
|
|
|
|
|
| |
10.875% 08/01/13 |
|
| 205,000 |
| 235,750 |
| |
Terra Capital, Inc. |
|
|
|
|
|
| |
12.875% 10/15/08 |
|
| 245,000 |
| 284,812 |
| |
|
|
|
|
|
|
| |
UAP Holding Corp. (d) 07/15/12 |
|
|
|
|
|
| |
(10.750% 01/15/08) |
|
| 190,000 |
| 164,350 |
| |
United Agri Products |
|
|
|
|
|
| |
8.250% 12/15/11 |
|
| 177,000 |
| 186,293 |
| |
|
|
|
|
| 871,205 |
| |
Chemicals – Diversified—1.1% |
|
|
|
|
|
| |
BCP Crystal US Holdings Corp. |
|
|
|
|
|
| |
9.625% 06/15/14 |
|
| 126,000 |
| 140,175 |
| |
EquiStar Chemicals LP |
|
|
|
|
|
| |
10.625% 05/01/11 |
|
| 120,000 |
| 132,000 |
|
See Accompanying Notes to Financial Statements.
22
|
| Par |
| Value |
| ||
Huntsman International LLC |
|
|
|
|
|
| |
7.375% 01/01/15 (a) |
| $ | 160,000 |
| $ | 154,400 |
|
Huntsman LLC |
|
|
|
|
|
| |
11.500% 07/15/12 |
|
| 210,000 |
| 238,350 |
| |
Innophos Investments Holdings, |
|
|
|
|
|
| |
Inc., PIK, |
|
|
|
|
|
| |
12.340% 02/15/15 (a)(b) |
|
| 125,439 |
| 117,146 |
| |
Lyondell Chemical Co. |
|
|
|
|
|
| |
9.625% 05/01/07 |
|
| 205,000 |
| 214,481 |
| |
Nell AF SARL |
|
|
|
|
|
| |
8.375% 08/15/15 (a) |
|
| 105,000 |
| 103,950 |
| |
8.375% 08/15/15 (a) |
| EUR | 65,000 |
| 78,108 |
| |
NOVA Chemicals Corp. |
|
|
|
|
|
| |
6.500% 01/15/12 |
| USD | 255,000 |
| 246,712 |
| |
7.561% 11/15/13 (a)(b) |
|
| 115,000 |
| 117,588 |
| |
|
|
|
|
| 1,542,910 |
| |
Chemicals – Specialty—0.2% |
|
|
|
|
|
| |
Rhodia SA |
|
|
|
|
|
| |
8.875% 06/01/11 |
|
| 215,000 |
| 222,256 |
| |
Forest Products & Paper—1.5% |
|
|
|
|
|
| |
Forestry—0.1% |
|
|
|
|
|
| |
Millar Western Forest |
|
|
|
|
|
| |
Products Ltd. |
|
|
|
|
|
| |
7.750% 11/15/13 |
|
| 90,000 |
| 67,050 |
| |
Tembec Industries, Inc. |
|
|
|
|
|
| |
8.500% 02/01/11 |
|
| 190,000 |
| 105,450 |
| |
|
|
|
|
| 172,500 |
| |
Paper & Related Products—1.4% |
|
|
|
|
|
| |
Abitibi-Consolidated, Inc. |
|
|
|
|
|
| |
8.375% 04/01/15 |
|
| 155,000 |
| 148,025 |
| |
Boise Cascade LLC |
|
|
|
|
|
| |
7.025% 10/15/12 (b) |
|
| 255,000 |
| 252,450 |
| |
7.125% 10/15/14 |
|
| 120,000 |
| 112,200 |
| |
Buckeye Technologies, Inc. |
|
|
|
|
|
| |
8.500% 10/01/13 |
|
| 145,000 |
| 145,725 |
| |
Caraustar Industries, Inc. |
|
|
|
|
|
| |
9.875% 04/01/11 |
|
| 145,000 |
| 147,900 |
| |
Georgia-Pacific Corp. |
|
|
|
|
|
| |
8.000% 01/15/24 |
|
| 400,000 |
| 383,000 |
| |
Neenah Paper, Inc. |
|
|
|
|
|
| |
7.375% 11/15/14 |
|
| 85,000 |
| 75,225 |
| |
Newark Group, Inc. |
|
|
|
|
|
| |
9.750% 03/15/14 |
|
| 290,000 |
| 255,200 |
| |
NewPage Corp. |
|
|
|
|
|
| |
10.000% 05/01/12 |
|
| 125,000 |
| 123,125 |
| |
Norske Skog |
|
|
|
|
|
| |
7.375% 03/01/14 |
|
| 185,000 |
| 162,800 |
| |
8.625% 06/15/11 |
|
| 90,000 |
| 85,950 |
| |
|
|
|
|
| 1,891,600 |
| |
Iron/Steel—0.2% |
|
|
|
|
|
| |
Steel – Producers—0.1% |
|
|
|
|
|
| |
Steel Dynamics, Inc. |
|
|
|
|
|
| |
9.500% 03/15/09 |
|
| 105,000 |
| 110,775 |
| |
Steel – Specialty—0.1% |
|
|
|
|
|
| |
UCAR Finance, Inc. |
|
|
|
|
|
| |
10.250% 02/15/12 |
|
| 250,000 |
| 265,000 |
| |
Metals & Mining—0.6% |
|
|
|
|
|
| |
Mining Services—0.1% |
|
|
|
|
|
| |
Hudson Bay Mining & Smelting Co., Ltd. |
|
|
|
|
|
| |
9.625% 01/15/12 |
| $ | 65,000 |
| $ | 69,225 |
|
Non-Ferrous Metals—0.5% |
|
|
|
|
|
| |
Codelco, Inc. |
|
|
|
|
|
| |
5.500% 10/15/13 |
|
| 730,000 |
| 747,301 |
| |
Communications—8.2% |
|
|
|
|
|
| |
Media—3.2% |
|
|
|
|
|
| |
Broadcast Services/Programs—0.1% |
|
|
|
|
|
| |
Fisher Communications, Inc. |
|
|
|
|
|
| |
8.625% 09/15/14 |
|
| 160,000 |
| 168,400 |
| |
Cable TV— 1.4% |
|
|
|
|
|
| |
Atlantic Broadband Finance LLC |
|
|
|
|
|
| |
9.375% 01/15/14 |
|
| 235,000 |
| 210,325 |
| |
Charter Communications Holdings II LLC |
|
|
|
|
|
| |
10.250% 09/15/10 |
|
| 210,000 |
| 208,950 |
| |
Charter Communications Holdings LLC |
|
|
|
|
|
| |
9.920% 04/01/14 (a) |
|
| 705,000 |
| 401,850 |
| |
CSC Holdings, Inc. |
|
|
|
|
|
| |
7.000% 04/15/12 (a) |
|
| 105,000 |
| 99,356 |
| |
7.625% 04/01/11 |
|
| 410,000 |
| 407,950 |
| |
EchoStar DBS Corp. |
|
|
|
|
|
| |
6.625% 10/01/14 |
|
| 245,000 |
| 235,813 |
| |
Insight Midwest LP |
|
|
|
|
|
| |
9.750% 10/01/09 |
|
| 135,000 |
| 139,050 |
| |
Pegasus Satellite Communications, Inc. |
|
|
|
|
|
| |
11.250% 01/15/10 (a)(e) |
|
| 270,000 |
| 23,625 |
| |
Telenet Group Holding NV (d) 06/15/14 |
|
|
|
|
|
| |
(11.500% 12/15/08) (a) |
|
| 206,000 |
| 168,405 |
| |
|
|
|
|
| 1,895,324 |
| |
Multimedia—0.5% |
|
|
|
|
|
| |
Advanstar Communications, Inc. |
|
|
|
|
|
| |
15.000% 10/15/11 |
|
| 185,000 |
| 193,325 |
| |
|
|
|
|
|
|
| |
Haights Cross Operating Co. |
|
|
|
|
|
| |
11.750% 08/15/11 |
|
| 100,000 |
| 107,000 |
| |
Lamar Media Corp. |
|
|
|
|
|
| |
6.625% 08/15/15 |
|
| 185,000 |
| 187,775 |
| |
Quebecor Media, Inc. |
|
|
|
|
|
| |
11.125% 07/15/11 |
|
| 205,000 |
| 222,425 |
| |
|
|
|
|
| 710,525 |
| |
Publishing – Newspapers—0.1% |
|
|
|
|
|
| |
Hollinger, Inc. |
|
|
|
|
|
| |
11.875% 03/01/11 (a) |
|
| 81,000 |
| 81,000 |
| |
12.875% 03/01/11 (a) |
|
| 117,000 |
| 123,435 |
| |
|
|
|
|
| 204,435 |
| |
Publishing – Periodicals—0.8% |
|
|
|
|
|
| |
Dex Media West LLC |
|
|
|
|
|
| |
9.875% 08/15/13 |
|
| 436,000 |
| 483,415 |
|
See Accompanying Notes to Financial Statements.
23
|
|
|
| Par |
| Value |
| ||
|
|
|
|
|
|
|
| ||
Dex Media, Inc. (d) 11/15/13 |
|
|
|
|
|
|
| ||
(9.000% 11/15/08) |
|
|
| $ | 160,000 |
| $ | 127,400 |
|
8.875% 05/15/11 |
|
|
| 315,000 |
| 289,800 |
| ||
WDAC Subsidiary Corp. |
|
|
|
|
|
|
| ||
8.375% 12/01/14 (a) |
|
|
| 180,000 |
| 173,700 |
| ||
|
|
|
|
|
| 1,074,315 |
| ||
Television—0.3% |
|
|
|
|
|
|
| ||
LIN Television Corp. |
|
|
|
|
|
|
| ||
6.500% 05/15/13 |
|
|
| 55,000 |
| 52,800 |
| ||
Paxson Communications Corp. |
|
|
|
|
|
|
| ||
7.777% 01/15/12 (a)(b) |
|
|
| 95,000 |
| 94,762 |
| ||
Sinclair Broadcast Group, Inc. |
|
|
|
|
|
|
| ||
8.750% 12/15/11 |
|
|
| 260,000 |
| 273,325 |
| ||
|
|
|
|
|
| 420,887 |
| ||
Telecommunication Services—5.0% |
|
|
|
|
|
|
| ||
Cellular Telecommunications—2.0% |
|
|
|
|
|
|
| ||
American Cellular Corp. |
|
|
|
|
|
|
| ||
10.000% 08/01/11 |
|
|
| 180,000 |
| 195,525 |
| ||
Digicel Ltd. |
|
|
|
|
|
|
| ||
9.250% 09/01/12 (a) |
|
|
| 200,000 |
| 205,500 |
| ||
Dobson Cellular Systems, Inc. |
|
|
|
|
|
|
| ||
8.375% 11/01/11 |
|
|
| 230,000 |
| 243,800 |
| ||
Horizon PCS, Inc. |
|
|
|
|
|
|
| ||
11.375% 07/15/12 |
|
|
| 120,000 |
| 137,700 |
| ||
iPCS Escrow Co. |
|
|
|
|
|
|
| ||
11.500% 05/01/12 |
|
|
| 105,000 |
| 120,488 |
| ||
Nextel Communications, Inc. |
|
|
|
|
|
|
| ||
7.375% 08/01/15 |
|
|
| 390,000 |
| 411,364 |
| ||
Nextel Partners, Inc. |
|
|
|
|
|
|
| ||
8.125% 07/01/11 |
|
|
| 255,000 |
| 272,212 |
| ||
Rogers Cantel, Inc. |
|
|
|
|
|
|
| ||
9.750% 06/01/16 |
|
|
| 230,000 |
| 276,575 |
| ||
Rogers Wireless, Inc. |
|
|
|
|
|
|
| ||
8.000% 12/15/12 |
|
|
| 140,000 |
| 148,400 |
| ||
Rural Cellular Corp. |
|
|
|
|
|
|
| ||
8.250% 03/15/12 |
|
|
| 150,000 |
| 158,250 |
| ||
9.750% 01/15/10 |
|
|
| 45,000 |
| 45,450 |
| ||
10.041% 11/01/12 (a)(b) |
|
|
| 165,000 |
| 166,238 |
| ||
US Unwired, Inc. |
|
|
|
|
|
|
| ||
10.000% 06/15/12 |
|
|
| 300,000 |
| 340,500 |
| ||
|
|
|
|
|
| 2,722,002 |
| ||
Satellite Telecommunications—0.6% |
|
|
|
|
|
|
| ||
Inmarsat Finance II PLC (d) 11/15/12 |
|
|
|
|
|
|
| ||
(10.375% 11/15/08) |
|
|
| 255,000 |
| 209,737 |
| ||
Intelsat Bermuda Ltd. |
|
|
|
|
|
|
| ||
8.250% 01/15/13 (a) |
|
|
| 365,000 |
| 365,000 |
| ||
PanAmSat Corp. |
|
|
|
|
|
|
| ||
9.000% 08/15/14 |
|
|
| 133,000 |
| 139,650 |
| ||
Zeus Special Subsidiary Ltd. (d) 02/01/15 |
|
|
|
|
|
|
| ||
(9.250% 02/01/10) (a) |
|
|
| 200,000 |
| 130,500 |
| ||
|
|
|
|
|
| 844,887 |
| ||
Telecommunication Equipment—0.1% |
|
|
|
|
|
|
| ||
Lucent Technologies, Inc. |
|
|
|
|
|
|
| ||
6.450% 03/15/29 |
|
|
| 220,000 |
| 187,550 |
| ||
Telecommunication Services—0.4% |
|
|
|
|
|
|
| ||
Syniverse Technologies, Inc. |
|
|
|
|
|
|
| ||
7.750% 08/15/13 |
|
|
| $ | 145,000 |
| $ | 146,269 |
|
Time Warner Telecom |
|
|
|
|
|
|
| ||
Holdings, Inc. |
|
|
|
|
|
|
| ||
9.250% 02/15/14 |
|
|
| 90,000 |
| 94,612 |
| ||
Time Warner Telecom, Inc. |
|
|
|
|
|
|
| ||
10.125% 02/01/11 |
|
|
| 280,000 |
| 293,300 |
| ||
|
|
|
|
|
| 534,181 |
| ||
Telephone – Integrated—1.6% |
|
|
|
|
|
|
| ||
Axtel SA de CV |
|
|
|
|
|
|
| ||
11.000% 12/15/13 |
|
|
| 160,000 |
| 180,800 |
| ||
Cincinnati Bell, Inc. |
|
|
|
|
|
|
| ||
7.000% 02/15/15 |
|
|
| 355,000 |
| 347,900 |
| ||
Citizens Communications Co. |
|
|
|
|
|
|
| ||
9.000% 08/15/31 |
|
|
| 290,000 |
| 294,350 |
| ||
Qwest Capital Funding, Inc. |
|
|
|
|
|
|
| ||
6.875% 07/15/28 |
|
|
| 400,000 |
| 360,000 |
| ||
Qwest Communications |
|
|
|
|
|
|
| ||
International, Inc. |
|
|
|
|
|
|
| ||
7.500% 02/15/14 (a) |
|
|
| 265,000 |
| 269,638 |
| ||
Qwest Corp. |
|
|
|
|
|
|
| ||
7.500% 06/15/23 |
|
|
| 295,000 |
| 291,681 |
| ||
8.875% 03/15/12 |
|
|
| 370,000 |
| 415,325 |
| ||
US LEC Corp. |
|
|
|
|
|
|
| ||
12.716% 10/01/09 (b) |
|
|
| 130,000 |
| 139,425 |
| ||
|
|
|
|
|
| 2,299,119 |
| ||
Wireless Equipment—0.3% |
|
|
|
|
|
|
| ||
American Towers, Inc. |
|
|
|
|
|
|
| ||
7.250% 12/01/11 |
|
|
| 180,000 |
| 187,200 |
| ||
SBA Telecommunications, Inc. (d) 12/15/11 |
|
|
|
|
|
|
| ||
(9.750% 12/15/07) |
|
|
| 272,000 |
| 252,960 |
| ||
|
|
|
|
|
| 440,160 |
| ||
Consumer Cyclical—6.6% |
|
|
|
|
|
|
| ||
Airlines—0.2% |
|
|
|
|
|
|
| ||
Airlines—0.2% |
|
|
|
|
|
|
| ||
Continental Airlines, Inc. |
|
|
|
|
|
|
| ||
7.568% 12/01/06 |
|
|
| 260,000 |
| 254,800 |
| ||
Apparel—0.6% |
|
|
|
|
|
|
| ||
Apparel Manufacturers—0.6% |
|
|
|
|
|
|
| ||
Broder Brothers Co. |
|
|
|
|
|
|
| ||
11.250% 10/15/10 |
|
|
| 155,000 |
| 147,638 |
| ||
Levi Strauss & Co. |
|
|
|
|
|
|
| ||
9.750% 01/15/15 |
|
|
| 475,000 |
| 490,437 |
| ||
Phillips-Van Heusen Corp. |
|
|
|
|
|
|
| ||
7.250% 02/15/11 |
|
|
| 95,000 |
| 95,950 |
| ||
8.125% 05/01/13 |
|
|
| 115,000 |
| 120,894 |
| ||
|
|
|
|
|
| 854,919 |
| ||
Auto Manufacturers—0.2% |
|
|
|
|
|
|
| ||
Auto – Cars/Light Trucks—0.1% |
|
|
|
|
|
|
| ||
General Motors Corp. |
|
|
|
|
|
|
| ||
8.375% 07/15/33 |
|
|
| 155,000 |
| 102,688 |
|
See Accompanying Notes to Financial Statements.
24
|
|
|
| Par |
| Value |
| ||
Auto – Medium & Heavy Duty Trucks—0.1% |
|
|
|
|
|
|
| ||
Navistar International Corp. |
|
|
|
|
|
|
| ||
7.500% 06/15/11 |
|
|
| $ | 180,000 |
| $ | 171,000 |
|
Auto Parts & Equipment—0.6% |
|
|
|
|
|
|
| ||
Auto/Truck Parts & Equipment – |
|
|
|
|
|
|
| ||
Original—0.0% |
|
|
|
|
|
|
| ||
Cooper-Standard Automotive, Inc. |
|
|
|
|
|
|
| ||
7.000% 12/15/12 |
|
|
| 55,000 |
| 50,738 |
| ||
Auto/Truck Parts & Equipment – |
|
|
|
|
|
|
| ||
Replacement—0.3% |
|
|
|
|
|
|
| ||
Commercial Vehicle Group |
|
|
|
|
|
|
| ||
8.000% 07/01/13 (a) |
|
|
| 185,000 |
| 183,150 |
| ||
Rexnord Corp. |
|
|
|
|
|
|
| ||
10.125% 12/15/12 |
|
|
| 150,000 |
| 161,625 |
| ||
|
|
|
|
|
| 344,775 |
| ||
Rubber – Tires—0.3% |
|
|
|
|
|
|
| ||
Goodyear Tire & Rubber Co. |
|
|
|
|
|
|
| ||
9.000% 07/01/15 (a) |
|
|
| 410,000 |
| 404,875 |
| ||
Distribution/Wholesale—0.1% |
|
|
|
|
|
|
| ||
Distribution/Wholesale—0.1% |
|
|
|
|
|
|
| ||
Buhrmann US, Inc. |
|
|
|
|
|
|
| ||
7.875% 03/01/15 |
|
|
| 100,000 |
| 98,000 |
| ||
Entertainment—0.7% |
|
|
|
|
|
|
| ||
Gambling (Non-Hotel)—0.1% |
|
|
|
|
|
|
| ||
Global Cash Access LLC |
|
|
|
|
|
|
| ||
8.750% 03/15/12 |
|
|
| 172,000 |
| 182,965 |
| ||
Music—0.3% |
|
|
|
|
|
|
| ||
Steinway Musical Instruments, Inc. |
|
|
|
|
|
|
| ||
8.750% 04/15/11 |
|
|
| 155,000 |
| 162,362 |
| ||
Warner Music Group |
|
|
|
|
|
|
| ||
7.375% 04/15/14 |
|
|
| 240,000 |
| 239,400 |
| ||
|
|
|
|
|
| 401,762 |
| ||
Resorts/Theme Parks—0.2% |
|
|
|
|
|
|
| ||
Six Flags, Inc. |
|
|
|
|
|
|
| ||
9.625% 06/01/14 |
|
|
| 220,000 |
| 214,500 |
| ||
Theaters—0.1% |
|
|
|
|
|
|
| ||
Galaxy Entertainment Finance Co. Ltd. |
|
|
|
|
|
|
| ||
9.875% 12/15/12 (a) |
|
|
| 165,000 |
| 167,475 |
| ||
Home Builders—0.5% |
|
|
|
|
|
|
| ||
Building – Residential/Commercial—0.5% |
|
|
|
|
|
|
| ||
D.R. Horton, Inc. |
|
|
|
|
|
|
| ||
9.750% 09/15/10 |
|
|
| 250,000 |
| 282,500 |
| ||
K. Hovnanian Enterprises, Inc. |
|
|
|
|
|
|
| ||
8.875% 04/01/12 |
|
|
| 45,000 |
| 46,462 |
| ||
10.500% 10/01/07 |
|
|
| 250,000 |
| 269,375 |
| ||
Standard Pacific Corp. |
|
|
|
|
|
|
| ||
7.000% 08/15/15 |
|
|
| 5,000 |
| 4,619 |
| ||
9.250% 04/15/12 |
|
|
| 185,000 |
| 189,394 |
| ||
|
|
|
|
|
| 792,350 |
| ||
Home Furnishings—0.1% |
|
|
|
|
|
|
| ||
Home Furnishings—0.1% |
|
|
|
|
|
|
| ||
WII Components, Inc. |
|
|
|
|
|
|
| ||
10.000% 02/15/12 |
|
|
| 140,000 |
| 137,900 |
| ||
Leisure Time—0.3% |
|
|
|
|
|
|
| ||
Leisure & Recreational Products—0.1% |
|
|
|
|
|
|
| ||
K2, Inc. |
|
|
|
|
|
|
| ||
7.375% 07/01/14 |
|
|
| $ | 120,000 |
| $ | 119,700 |
|
Recreational Centers—0.2% |
|
|
|
|
|
|
| ||
Equinox Holdings, Inc. |
|
|
|
|
|
|
| ||
9.000% 12/15/09 |
|
|
| 95,000 |
| 101,650 |
| ||
Town Sports International, Inc. (d) 02/01/14 |
|
|
|
|
|
|
| ||
(11.000% 02/01/09) |
|
|
| 280,000 |
| 193,200 |
| ||
|
|
|
|
|
| 294,850 |
| ||
Lodging—2.4% |
|
|
|
|
|
|
| ||
Casino Hotels—2.4% |
|
|
|
|
|
|
| ||
CCM Merger, Inc. |
|
|
|
|
|
|
| ||
8.000% 08/01/13 (a) |
|
|
| 55,000 |
| 52,938 |
| ||
Chukchansi Economic Development Authority |
|
|
|
|
|
|
| ||
8.000% 11/15/13 (a) |
|
|
| 185,000 |
| 189,162 |
| ||
Circus & Eldorado/Silver Legacy Capital Corp. |
|
|
|
|
|
|
| ||
10.125% 03/01/12 |
|
|
| 220,000 |
| 232,650 |
| ||
Eldorado Casino Shreveport/Shreveport Capital Corp. |
|
|
|
|
|
|
| ||
10.000% 08/01/12 |
|
|
| 454,577 |
| 357,979 |
| ||
Greektown Holdings |
|
|
|
|
|
|
| ||
10.750% 12/01/13 (a) |
|
|
| 245,000 |
| 243,162 |
| ||
Hard Rock Hotel, Inc. |
|
|
|
|
|
|
| ||
8.875% 06/01/13 |
|
|
| 300,000 |
| 324,000 |
| ||
Inn of the Mountain Gods Resort & Casino |
|
|
|
|
|
|
| ||
12.000% 11/15/10 |
|
|
| 205,000 |
| 202,950 |
| ||
Kerzner International Ltd. |
|
|
|
|
|
|
| ||
6.750% 10/01/15 (a) |
|
|
| 275,000 |
| 266,750 |
| ||
MGM Mirage |
|
|
|
|
|
|
| ||
6.750% 09/01/12 |
|
|
| 250,000 |
| 255,000 |
| ||
8.500% 09/15/10 |
|
|
| 65,000 |
| 70,525 |
| ||
Mohegan Tribal Gaming Authority |
|
|
|
|
|
|
| ||
6.125% 02/15/13 |
|
|
| 125,000 |
| 123,438 |
| ||
Penn National Gaming, Inc. |
|
|
|
|
|
|
| ||
6.750% 03/01/15 |
|
|
| 340,000 |
| 333,625 |
| ||
San Pasqual Casino |
|
|
|
|
|
|
| ||
8.000% 09/15/13 (a) |
|
|
| 155,000 |
| 155,775 |
| ||
Seneca Gaming Corp. |
|
|
|
|
|
|
| ||
7.250% 05/01/12 |
|
|
| 55,000 |
| 55,344 |
| ||
Station Casinos, Inc. |
|
|
|
|
|
|
| ||
6.000% 04/01/12 |
|
|
| 220,000 |
| 221,650 |
| ||
Wynn Las Vegas LLC |
|
|
|
|
|
|
| ||
6.625% 12/01/14 |
|
|
| 270,000 |
| 263,250 |
| ||
|
|
|
|
|
| 3,348,198 |
| ||
Retail—0.8% |
|
|
|
|
|
|
| ||
Retail – Automobiles—0.1% |
|
|
|
|
|
|
| ||
Asbury Automotive Group, Inc. |
|
|
|
|
|
|
| ||
8.000% 03/15/14 |
|
|
| 200,000 |
| 190,500 |
|
See Accompanying Notes to Financial Statements.
25
|
|
|
| Par |
| Value |
| ||
Retail – Drug Stores—0.1% |
|
|
|
|
|
|
| ||
Rite Aid Corp. |
|
|
|
|
|
|
| ||
7.500% 01/15/15 |
|
|
| $ | 130,000 |
| $ | 122,687 |
|
Retail – Home Furnishings—0.2% |
|
|
|
|
|
|
| ||
Tempur-Pedic, Inc. |
|
|
|
|
|
|
| ||
10.250% 08/15/10 |
|
|
| 218,000 |
| 234,895 |
| ||
Retail – Propane Distributors—0.2% |
|
|
|
|
|
|
| ||
Ferrellgas Partners LP |
|
|
|
|
|
|
| ||
8.750% 06/15/12 |
|
|
| 180,000 |
| 178,200 |
| ||
Suburban Propane Partners LP/Suburban Energy Finance Corp. |
|
|
|
|
|
|
| ||
6.875% 12/15/13 |
|
|
| 100,000 |
| 93,000 |
| ||
|
|
|
|
|
| 271,200 |
| ||
Retail – Restaurants—0.1% |
|
|
|
|
|
|
| ||
Landry’s Restaurants, Inc. |
|
|
|
|
|
|
| ||
7.500% 12/15/14 |
|
|
| 175,000 |
| 163,625 |
| ||
Retail – Video Rental—0.1% |
|
|
|
|
|
|
| ||
Movie Gallery, Inc. |
|
|
|
|
|
|
| ||
11.000% 05/01/12 |
|
|
| 145,000 |
| 113,100 |
| ||
Textiles—0.1% |
|
|
|
|
|
|
| ||
Textile – Products—0.1% |
|
|
|
|
|
|
| ||
INVISTA |
|
|
|
|
|
|
| ||
9.250% 05/01/12 (a) |
|
|
| 135,000 |
| 144,450 |
| ||
Consumer Non-Cyclical—5.6% |
|
|
|
|
|
|
| ||
Agriculture—0.1% |
|
|
|
|
|
|
| ||
Tobacco—0.1% |
|
|
|
|
|
|
| ||
Alliance One International, Inc. |
|
|
|
|
|
|
| ||
11.000% 05/15/12 (a) |
|
|
| 140,000 |
| 123,200 |
| ||
Beverages—0.1% |
|
|
|
|
|
|
| ||
Beverages – Wine/Spirits—0.1% |
|
|
|
|
|
|
| ||
Constellation Brands, Inc. |
|
|
|
|
|
|
| ||
8.125% 01/15/12 |
|
|
| 145,000 |
| 151,888 |
| ||
Biotechnology—0.2% |
|
|
|
|
|
|
| ||
Medical – Biomedical/Gene—0.2% |
|
|
|
|
|
|
| ||
Bio-Rad Laboratories, Inc. |
|
|
|
|
|
|
| ||
7.500% 08/15/13 |
|
|
| 220,000 |
| 232,100 |
| ||
Commercial Services—1.5% |
|
|
|
|
|
|
| ||
Commercial Services—0.2% |
|
|
|
|
|
|
| ||
Iron Mountain, Inc. |
|
|
|
|
|
|
| ||
7.750% 01/15/15 |
|
|
| 225,000 |
| 227,250 |
| ||
Mac-Gray Corp. |
|
|
|
|
|
|
| ||
7.625% 08/15/15 |
|
|
| 55,000 |
| 55,963 |
| ||
|
|
|
|
|
| 283,213 |
| ||
Commercial Services – Finance—0.1% |
|
|
|
|
|
|
| ||
Dollar Financial Group, Inc. |
|
|
| �� |
|
|
| ||
9.750% 11/15/11 |
|
|
| 230,000 |
| 237,475 |
| ||
Consulting Services—0.1% |
|
|
|
|
|
|
| ||
FTI Consulting |
|
|
|
|
|
|
| ||
7.625% 06/15/13 (a) |
|
|
| 120,000 |
| 123,600 |
| ||
Funeral Services & Related Items—0.2% |
|
|
|
|
|
|
| ||
Service Corp. International |
|
|
|
|
|
|
| ||
7.700% 04/15/09 |
|
|
| 275,000 |
| 288,750 |
| ||
|
|
|
|
|
|
|
| ||
Printing – Commercial—0.2% |
|
|
|
|
|
|
| ||
Sheridan Group |
|
|
|
|
|
|
| ||
10.250% 08/15/11 |
|
|
| $ | 155,000 |
| $ | 161,975 |
|
Vertis, Inc. |
|
|
|
|
|
|
| ||
13.500% 12/07/09 (a) |
|
|
| 140,000 |
| 111,650 |
| ||
|
|
|
|
|
| 273,625 |
| ||
Private Corrections—0.3% |
|
|
|
|
|
|
| ||
Corrections Corp. of America |
|
|
|
|
|
|
| ||
6.250% 03/15/13 |
|
|
| 190,000 |
| 188,100 |
| ||
GEO Group, Inc. |
|
|
|
|
|
|
| ||
8.250% 07/15/13 |
|
|
| 195,000 |
| 191,344 |
| ||
|
|
|
|
|
| 379,444 |
| ||
Rental Auto/Equipment—0.4% |
|
|
|
|
|
|
| ||
Ashtead Holdings PLC |
|
|
|
|
|
|
| ||
8.625% 08/01/15 (a) |
|
|
| 220,000 |
| 226,600 |
| ||
Hertz Corp. |
|
|
|
|
|
|
| ||
8.875% 01/01/14 (a) |
|
|
| 160,000 |
| 163,200 |
| ||
NationsRent, Inc. |
|
|
|
|
|
|
| ||
9.500% 10/15/10 |
|
|
| 175,000 |
| 191,187 |
| ||
|
|
|
|
|
| 580,987 |
| ||
Cosmetics/Personal Care—0.2% |
|
|
|
|
|
|
| ||
Cosmetics & Toiletries—0.2% |
|
|
|
|
|
|
| ||
DEL Laboratories, Inc. |
|
|
|
|
|
|
| ||
8.000% 02/01/12 |
|
|
| 175,000 |
| 138,250 |
| ||
Elizabeth Arden, Inc. |
|
|
|
|
|
|
| ||
7.750% 01/15/14 |
|
|
| 190,000 |
| 191,663 |
| ||
|
|
|
|
|
| 329,913 |
| ||
Food—0.7% |
|
|
|
|
|
|
| ||
Food – Confectionery—0.1% |
|
|
|
|
|
|
| ||
Merisant Co. |
|
|
|
|
|
|
| ||
9.500% 07/15/13 |
|
|
| 140,000 |
| 86,100 |
| ||
Merisant Worldwide, Inc. (d) 05/15/14 |
|
|
|
|
|
|
| ||
(12.250% 11/15/08) |
|
|
| 455,000 |
| 64,837 |
| ||
|
|
|
|
|
| 150,937 |
| ||
Food – Miscellaneous/Diversified—0.4% |
|
|
|
|
|
|
| ||
Dole Food Co., Inc. |
|
|
|
|
|
|
| ||
8.625% 05/01/09 |
|
|
| 218,000 |
| 224,540 |
| ||
Pinnacle Foods Holding Corp. |
|
|
|
|
|
|
| ||
8.250% 12/01/13 |
|
|
| 245,000 |
| 233,975 |
| ||
Reddy Ice Holdings, Inc. (d) 11/01/12 |
|
|
|
|
|
|
| ||
(10.500% 11/01/08) |
|
|
| 140,000 |
| 111,300 |
| ||
|
|
|
|
|
| 569,815 |
| ||
Food – Retail—0.2% |
|
|
|
|
|
|
| ||
Stater Brothers Holdings, Inc. |
|
|
|
|
|
|
| ||
8.125% 06/15/12 |
|
|
| 240,000 |
| 238,800 |
| ||
Healthcare Services—1.3% |
|
|
|
|
|
|
| ||
Dialysis Centers—0.1% |
|
|
|
|
|
|
| ||
DaVita, Inc. |
|
|
|
|
|
|
| ||
7.250% 03/15/15 |
|
|
| 215,000 |
| 217,956 |
| ||
Medical – HMO—0.2% |
|
|
|
|
|
|
| ||
Coventry Health Care, Inc. |
|
|
|
|
|
|
| ||
8.125% 02/15/12 |
|
|
| 220,000 |
| 233,475 |
|
See Accompanying Notes to Financial Statements.
26
|
|
|
| Par |
| Value |
| ||||
Medical – Hospitals—0.4% |
|
|
|
|
|
|
| ||||
HCA, Inc. |
|
|
|
|
|
|
| ||||
7.875% 02/01/11 |
|
|
| $ | 200,000 |
| $ | 215,722 |
| ||
Tenet Healthcare Corp. |
|
|
|
|
|
|
| ||||
9.875% 07/01/14 |
|
|
| 380,000 |
| 385,700 |
| ||||
|
|
|
|
|
| 601,422 |
| ||||
Medical – Outpatient/Home Medical—0.1% |
|
|
|
|
|
|
| ||||
Select Medical Corp. |
|
|
|
|
|
|
| ||||
7.625% 02/01/15 |
|
|
| 125,000 |
| 120,938 |
| ||||
MRI/Medical Diagnostic Imaging—0.3% |
|
|
|
|
|
|
| ||||
InSight Health Services Corp. |
|
|
|
|
|
|
| ||||
9.875% 11/01/11 |
|
|
| 50,000 |
| 38,875 |
| ||||
MedQuest, Inc. |
|
|
|
|
|
|
| ||||
11.875% 08/15/12 |
|
|
| 90,000 |
| 88,425 |
| ||||
MQ Associates, Inc. (d) 08/15/12 |
|
|
|
|
|
|
| ||||
(12.250% 08/15/08) |
|
|
| 480,000 |
| 276,000 |
| ||||
|
|
|
|
|
| 403,300 |
| ||||
Physician Practice Management—0.2% |
|
|
|
|
|
|
| ||||
US Oncology Holdings, Inc. |
|
|
|
|
|
|
| ||||
9.264% 03/15/15 (b) |
|
|
| 85,000 |
| 84,362 |
| ||||
US Oncology, Inc. |
|
|
|
|
|
|
| ||||
9.000% 08/15/12 |
|
|
| 235,000 |
| 251,450 |
| ||||
|
|
|
|
|
| 335,812 |
| ||||
Household Products/Wares—0.5% |
|
|
|
|
|
|
| ||||
Consumer Products – Miscellaneous—0.4% |
|
|
|
|
|
|
| ||||
Amscan Holdings, Inc. |
|
|
|
|
|
|
| ||||
8.750% 05/01/14 |
|
|
| 185,000 |
| 156,325 |
| ||||
Jostens IH Corp. |
|
|
|
|
|
|
| ||||
7.625% 10/01/12 |
|
|
| 145,000 |
| 145,000 |
| ||||
Playtex Products, Inc. |
|
|
|
|
|
|
| ||||
9.375% 06/01/11 |
|
|
| 200,000 |
| 211,000 |
| ||||
|
|
|
|
|
| 512,325 |
| ||||
Office Supplies & Forms—0.1% |
|
|
|
|
|
|
| ||||
ACCO Brands Corp. |
|
|
|
|
|
|
| ||||
7.625% 08/15/15 |
|
|
| 155,000 |
| 146,088 |
| ||||
Pharmaceuticals—1.0% |
|
|
|
|
|
|
| ||||
Medical – Drugs—0.3% |
|
|
|
|
|
|
| ||||
Elan Finance PLC |
|
|
|
|
|
|
| ||||
7.750% 11/15/11 |
|
|
| 260,000 |
| 243,100 |
| ||||
Warner Chilcott Corp. |
|
|
|
|
|
|
| ||||
8.750% 02/01/15 (a) |
|
|
| 155,000 |
| 142,987 |
| ||||
|
|
|
|
|
| 386,087 |
| ||||
Medical – Generic Drugs—0.2% |
|
|
|
|
|
|
| ||||
Mylan Laboratories, Inc. |
|
|
|
|
|
|
| ||||
6.375% 08/15/15 (a) |
|
|
| 245,000 |
| 245,612 |
| ||||
Medical – Wholesale Drug Distribution—0.3% |
|
|
|
|
|
|
| ||||
AmerisourceBergen Corp. |
|
|
|
|
|
|
| ||||
5.875% 09/15/15 (a) |
|
|
| 185,000 |
| 185,925 |
| ||||
Nycomed A/S, PIK |
|
|
|
|
|
|
| ||||
11.750% 09/15/13 (a) |
|
|
| EUR | 184,938 |
| 221,247 |
| |||
|
|
|
|
|
| 407,172 |
| ||||
|
|
|
|
|
|
|
| ||||
Pharmacy Services—0.1% |
|
|
|
|
|
|
| ||||
Omnicare, Inc. |
|
|
|
|
|
|
| ||||
6.750% 12/15/13 |
|
|
| USD | 95,000 |
| $ | 96,544 |
| ||
6.875% 12/15/15 |
|
|
| 95,000 |
| 97,019 |
| ||||
|
|
|
|
|
| 193,563 |
| ||||
Vitamins & Nutrition Products—0.1% |
|
|
|
|
|
|
| ||||
NBTY, Inc. |
|
|
|
|
|
|
| ||||
7.125% 10/01/15 (a) |
|
|
| 150,000 |
| 142,875 |
| ||||
Energy—5.9% |
|
|
|
|
|
|
| ||||
Coal—0.4% |
|
|
|
|
|
|
| ||||
Coal—0.4% |
|
|
|
|
|
|
| ||||
Arch Western Finance LLC |
|
|
|
|
|
|
| ||||
6.750% 07/01/13 |
|
|
| 250,000 |
| 253,125 |
| ||||
Massey Energy Co. |
|
|
|
|
|
|
| ||||
6.875% 12/15/13 (a) |
|
|
| 305,000 |
| 306,525 |
| ||||
|
|
|
|
|
| 559,650 |
| ||||
Oil & Gas—2.4% |
|
|
|
|
|
|
| ||||
Oil & Gas Drilling—0.1% |
|
|
|
|
|
|
| ||||
Pride International, Inc. |
|
|
|
|
|
|
| ||||
7.375% 07/15/14 |
|
|
| 130,000 |
| 140,075 |
| ||||
Oil Companies – Exploration & Production—2.0% |
|
|
|
|
|
|
| ||||
Chesapeake Energy Corp. |
|
|
|
|
|
|
| ||||
7.500% 06/15/14 |
|
|
| 220,000 |
| 233,200 |
| ||||
6.375% 06/15/15 |
|
|
| 90,000 |
| 90,000 |
| ||||
Compton Petroleum Corp. |
|
|
|
|
|
|
| ||||
7.625% 12/01/13 (a) |
|
|
| 180,000 |
| 181,800 |
| ||||
Delta Petroleum Corp. |
|
|
|
|
|
|
| ||||
7.000% 04/01/15 |
|
|
| 110,000 |
| 101,750 |
| ||||
Forest Oil Corp. |
|
|
|
|
|
|
| ||||
8.000% 12/15/11 |
|
|
| 130,000 |
| 142,838 |
| ||||
Magnum Hunter Resources, Inc. |
|
|
|
|
|
|
| ||||
9.600% 03/15/12 |
|
|
| 141,000 |
| 153,338 |
| ||||
PEMEX Finance Ltd. |
|
|
|
|
|
|
| ||||
9.150% 11/15/18 |
|
|
| 310,000 |
| 389,047 |
| ||||
10.610% 08/15/17 |
|
|
| 215,000 |
| 280,895 |
| ||||
PEMEX Project Funding Master Trust |
|
|
|
|
|
|
| ||||
5.010% 12/03/12 (a)(b) |
|
|
| 600,000 |
| 599,856 |
| ||||
Pogo Producing Co. |
|
|
|
|
|
|
| ||||
6.625% 03/15/15 |
|
|
| 130,000 |
| 126,750 |
| ||||
Ras Laffan LNG III |
|
|
|
|
|
|
| ||||
5.838% 09/30/27 (a) |
|
|
| 250,000 |
| 249,927 |
| ||||
Whiting Petroleum Corp. |
|
|
|
|
|
|
| ||||
7.250% 05/01/12 |
|
|
| 315,000 |
| 318,937 |
| ||||
|
|
|
|
|
| 2,868,338 |
| ||||
Oil Refining & Marketing—0.3% |
|
|
|
|
|
|
| ||||
Premcor Refining Group, Inc. |
|
|
|
|
|
|
| ||||
7.500% 06/15/15 |
|
|
| 165,000 |
| 176,138 |
| ||||
Tesoro Corp. |
|
|
|
|
|
|
| ||||
6.625% 11/01/15 (a) |
|
|
| 190,000 |
| 190,950 |
| ||||
|
|
|
|
|
| 367,088 |
| ||||
See Accompanying Notes to Financial Statements.
27
|
|
|
| Par |
| Value |
| |||
Oil & Gas Services—1.3% |
|
|
|
|
|
|
| |||
Oil – Field Services—1.3% |
|
|
|
|
|
|
| |||
Gazprom |
|
|
|
|
|
|
| |||
9.625% 03/01/13 |
|
|
| $ | 630,000 |
| $ | 758,898 |
| |
Gazprom International SA |
|
|
|
|
|
|
| |||
7.201% 02/01/20 |
|
|
| 575,000 |
| 612,663 |
| |||
Hornbeck Offshore Services, Inc. |
|
|
|
|
|
|
| |||
6.125% 12/01/14 (a) |
|
|
| 210,000 |
| 204,750 |
| |||
Newpark Resources, Inc. |
|
|
|
|
|
|
| |||
8.625% 12/15/07 |
|
|
| 185,000 |
| 185,000 |
| |||
|
|
|
|
|
| 1,761,311 |
| |||
Pipelines—1.8% |
|
|
|
|
|
|
| |||
Pipelines—1.8% |
|
|
|
|
|
|
| |||
Atlas Pipeline Partners LP |
|
|
|
|
|
|
| |||
8.125% 12/15/15 (a) |
|
|
| 130,000 |
| 131,625 |
| |||
Coastal Corp. |
|
|
|
|
|
|
| |||
7.625% 09/01/08 |
|
|
| 135,000 |
| 137,194 |
| |||
7.750% 06/15/10 |
|
|
| 250,000 |
| 255,000 |
| |||
Colorado Interstate Gas Co. |
|
|
|
|
|
|
| |||
6.800% 11/15/15 (a) |
|
|
| 270,000 |
| 271,012 |
| |||
Northwest Pipeline Corp. |
|
|
|
|
|
|
| |||
8.125% 03/01/10 |
|
|
| 85,000 |
| 90,313 |
| |||
Pacific Energy Partners LP/Pacific Energy Finance Corp. |
|
|
|
|
|
|
| |||
6.250% 09/15/15 (a) |
|
|
| 235,000 |
| 231,475 |
| |||
Sonat, Inc. |
|
|
|
|
|
|
| |||
7.625% 07/15/11 |
|
|
| 645,000 |
| 657,094 |
| |||
Southern Natural Gas Co. |
|
|
|
|
|
|
| |||
8.875% 03/15/10 |
|
|
| 130,000 |
| 139,262 |
| |||
Williams Companies, Inc. |
|
|
|
|
|
|
| |||
6.375% 10/01/10 (a) |
|
|
| 395,000 |
| 395,987 |
| |||
8.125% 03/15/12 |
|
|
| 225,000 |
| 245,250 |
| |||
|
|
|
|
|
| 2,554,212 |
| |||
Financials—1.9% |
|
|
|
|
|
|
| |||
Diversified Financial Services—1.7% |
|
|
|
|
|
|
| |||
Finance – Auto Loans—0.6% |
|
|
|
|
|
|
| |||
Ford Motor Credit Co. |
|
|
|
|
|
|
| |||
7.375% 02/01/11 |
|
|
| 210,000 |
| 184,048 |
| |||
General Motors Acceptance Corp. |
|
|
|
|
|
|
| |||
8.000% 11/01/31 |
|
|
| 665,000 |
| 645,941 |
| |||
|
|
|
|
|
| 829,989 |
| |||
Finance – Consumer Loans—0.5% |
|
|
|
|
|
|
| |||
SLM Corp. |
|
|
|
|
|
|
| |||
6.500% 06/15/10 |
|
|
| NZD | 1,100,000 |
| 743,301 |
| ||
Finance – Investment Banker/Broker—0.6% |
|
|
|
|
|
|
| |||
E*Trade Financial Corp. |
|
|
|
|
|
|
| |||
8.000% 06/15/11 |
|
|
| USD | 210,000 |
| 217,875 |
| ||
LaBranche & Co., Inc. |
|
|
|
|
|
|
| |||
11.000% 05/15/12 |
|
|
| 490,000 |
| 543,900 |
| |||
|
|
|
|
|
| 761,775 |
| |||
Real Estate Investment Trusts—0.1% |
|
|
|
|
|
|
| |||
REIT – Mortgage—0.1% |
|
|
|
|
|
|
| |||
Thornburg Mortgage, Inc. |
|
|
|
|
|
|
| |||
8.000% 05/15/13 |
|
|
| 140,000 |
| 137,900 |
| |||
Savings & Loans—0.1% |
|
|
|
|
|
|
| |||
Savings & Loans/Thrifts – Western US—0.1% |
|
|
|
|
|
|
| |||
Western Financial Bank |
|
|
|
|
|
|
| |||
9.625% 05/15/12 |
|
|
| $ | 150,000 |
| $ | 167,625 |
| |
Industrials—6.2% |
|
|
|
|
|
|
| |||
Aerospace & Defense—0.8% |
|
|
|
|
|
|
| |||
Aerospace/Defense – Equipment—0.7% |
|
|
|
|
|
|
| |||
Argo-Tech Corp. |
|
|
|
|
|
|
| |||
9.250% 06/01/11 |
|
|
| 165,000 |
| 170,775 |
| |||
BE Aerospace, Inc. |
|
|
|
|
|
|
| |||
8.500% 10/01/10 |
|
|
| 245,000 |
| 262,150 |
| |||
Sequa Corp. |
|
|
|
|
|
|
| |||
8.875% 04/01/08 |
|
|
| 105,000 |
| 109,725 |
| |||
9.000% 08/01/09 |
|
|
| 90,000 |
| 95,850 |
| |||
Standard Aero Holdings, Inc. |
|
|
|
|
|
|
| |||
8.250% 09/01/14 |
|
|
| 145,000 |
| 119,987 |
| |||
TransDigm, Inc. |
|
|
|
|
|
|
| |||
8.375% 07/15/11 |
|
|
| 155,000 |
| 162,750 |
| |||
|
|
|
|
|
| 921,237 |
| |||
Electronics – Military—0.1% |
|
|
|
|
|
|
| |||
L-3 Communications Corp. |
|
|
|
|
|
|
| |||
6.375% 10/15/15 (a) |
|
|
| 215,000 |
| 215,538 |
| |||
Building Materials—0.3% |
|
|
|
|
|
|
| |||
Building & Construction Products – Miscellaneous—0.2% |
|
|
|
|
|
|
| |||
Nortek, Inc. |
|
|
|
|
|
|
| |||
8.500% 09/01/14 |
|
|
| 120,000 |
| 115,800 |
| |||
NTK Holdings, Inc. (d) 03/01/14 |
|
|
|
|
|
|
| |||
(10.750% 09/01/09) |
|
|
| 175,000 |
| 108,938 |
| |||
|
|
|
|
|
| 224,738 |
| |||
Building Products – Cement/Aggregation—0.1% |
|
|
|
|
|
|
| |||
RMCC Acquisition Co. |
|
|
|
|
|
|
| |||
9.500% 11/01/12 (a) |
|
|
| 145,000 |
| 145,725 |
| |||
Electrical Components & Equipment—0.1% |
|
|
|
|
|
|
| |||
Wire & Cable Products—0.1% |
|
|
|
|
|
|
| |||
Coleman Cable, Inc. |
|
|
|
|
|
|
| |||
9.875% 10/01/12 |
|
|
| 115,000 |
| 93,150 |
| |||
Electronics—0.2% |
|
|
|
|
|
|
| |||
Electronic Components – Miscellaneous—0.2% |
|
|
|
|
|
|
| |||
Flextronics International Ltd. |
|
|
|
|
|
|
| |||
6.250% 11/15/14 |
|
|
| 205,000 |
| 201,925 |
| |||
Sanmina-SCI Corp. |
|
|
|
|
|
|
| |||
6.750% 03/01/13 |
|
|
| 110,000 |
| 104,775 |
| |||
|
|
|
|
|
| 306,700 |
| |||
Engineering & Construction—0.2% |
|
|
|
|
|
|
| |||
Building & Construction – Miscellaneous—0.2% |
|
|
|
|
|
|
| |||
J. Ray McDermott SA |
|
|
|
|
|
|
| |||
11.500% 12/15/13 (a) |
|
|
| 230,000 |
| 270,250 |
| |||
Environmental Control—0.6% |
|
|
|
|
|
|
| |||
Non-Hazardous Waste Disposal—0.5% |
|
|
|
|
|
|
| |||
Allied Waste North America, Inc. |
|
|
|
|
|
|
| |||
7.250% 03/15/15 |
|
|
| 80,000 |
| 80,600 |
| |||
7.875% 04/15/13 |
|
|
| 490,000 |
| 504,700 |
| |||
Waste Services, Inc. |
|
|
|
|
|
|
| |||
9.500% 04/15/14 |
|
|
| 175,000 |
| 175,000 |
| |||
|
|
|
|
|
| 760,300 |
| |||
See Accompanying Notes to Financial Statements.
28
|
|
|
| Par |
| Value |
| |||
Recycling—0.1% |
|
|
|
|
|
|
| |||
Aleris International, Inc. |
|
|
|
|
|
|
| |||
9.000% 11/15/14 |
|
|
| $ | 70,000 |
| $ | 72,100 |
| |
Machinery – Diversified—0.3% |
|
|
|
|
|
|
| |||
Machinery – General Industry—0.1% |
|
|
|
|
|
|
| |||
Douglas Dynamics LLC |
|
|
|
|
|
|
| |||
7.750% 01/15/12 (a) |
|
|
| 195,000 |
| 188,175 |
| |||
Machinery – Material Handling—0.2% |
|
|
|
|
|
|
| |||
Columbus McKinnon Corp. |
|
|
|
|
|
|
| |||
8.875% 11/01/13 (a) |
|
|
| 260,000 |
| 271,050 |
| |||
Metal Fabricate/Hardware—0.5% |
|
|
|
|
|
|
| |||
Metal Processors & Fabrication—0.4% |
|
|
|
|
|
|
| |||
Mueller Group, Inc. |
|
|
|
|
|
|
| |||
10.000% 05/01/12 |
|
|
| 200,000 |
| 212,000 |
| |||
Mueller Holdings, Inc. (d) 04/15/14 |
|
|
|
|
|
|
| |||
(14.750% 04/15/09) |
|
|
| 150,000 |
| 114,000 |
| |||
TriMas Corp. |
|
|
|
|
|
|
| |||
9.875% 06/15/12 |
|
|
| 205,000 |
| 170,150 |
| |||
|
|
|
|
|
| 496,150 |
| |||
Metal Products – Fasteners—0.1% |
|
|
|
|
|
|
| |||
FastenTech, Inc. |
|
|
|
|
|
|
| |||
11.500% 05/01/11 |
|
|
| 170,000 |
| 167,025 |
| |||
Miscellaneous Manufacturing—0.8% |
|
|
|
|
|
|
| |||
Diversified Manufacturing Operators—0.7% |
|
|
|
|
|
|
| |||
Bombardier, Inc. |
|
|
|
|
|
|
| |||
6.300% 05/01/14 (a) |
|
|
| 395,000 |
| 345,625 |
| |||
J.B. Poindexter & Co. |
|
|
|
|
|
|
| |||
8.750% 03/15/14 |
|
|
| 155,000 |
| 130,975 |
| |||
Koppers Industries, Inc. |
|
|
|
|
|
|
| |||
9.875% 10/15/13 |
|
|
| 210,000 |
| 227,850 |
| |||
Trinity Industries, Inc. |
|
|
|
|
|
|
| |||
6.500% 03/15/14 |
|
|
| 310,000 |
| 306,900 |
| |||
|
|
|
|
|
| 1,011,350 |
| |||
Miscellaneous Manufacturing—0.1% |
|
|
|
|
|
|
| |||
Samsonite Corp. |
|
|
|
|
|
|
| |||
8.875% 06/01/11 |
|
|
| 175,000 |
| 181,125 |
| |||
Packaging & Containers—1.1% |
|
|
|
|
|
|
| |||
Containers – Metal/Glass—0.6% |
|
|
|
|
|
|
| |||
Crown Americas LLC & Crown Americas Capital Corp. |
|
|
|
|
|
|
| |||
7.750% 11/15/15 (a) |
|
|
| 225,000 |
| 232,875 |
| |||
Owens-Brockway Glass |
|
|
|
|
|
|
| |||
Container, Inc. |
|
|
|
|
|
|
| |||
6.750% 12/01/14 |
|
|
| 160,000 |
| 155,200 |
| |||
8.250% 05/15/13 |
|
|
| 370,000 |
| 382,025 |
| |||
Owens-Illinois, Inc. |
|
|
|
|
|
|
| |||
7.500% 05/15/10 |
|
|
| 80,000 |
| 80,000 |
| |||
|
|
|
|
|
| 850,100 |
| |||
Containers – Paper/Plastic—0.5% |
|
|
|
|
|
|
| |||
Consolidated Container Co. LLC (d) 06/15/09 |
|
|
|
|
|
|
| |||
(10.750% 06/15/07) |
|
|
| 125,000 |
| 105,625 |
| |||
Jefferson Smurfit Corp. |
|
|
|
|
|
|
| |||
8.250% 10/01/12 |
|
|
| 165,000 |
| 158,400 |
| |||
PIK, |
|
|
|
|
|
|
| |||
11.500% 10/01/15 (a) |
|
|
| EUR | 253,121 |
| 269,837 |
| ||
MDP Acquisitions PLC |
|
|
|
|
|
|
| |||
9.625% 10/01/12 |
|
|
| $ | 220,000 |
| $ | 220,000 |
| |
|
|
|
|
|
| 753,862 |
| |||
Transportation—1.3% |
|
|
|
|
|
|
| |||
Transportation – Marine—0.5% |
|
|
|
|
|
|
| |||
Ship Finance International Ltd. |
|
|
|
|
|
|
| |||
8.500% 12/15/13 |
|
|
| 375,000 |
| 352,500 |
| |||
Stena AB |
|
|
|
|
|
|
| |||
7.500% 11/01/13 |
|
|
| 235,000 |
| 226,187 |
| |||
9.625% 12/01/12 |
|
|
| 170,000 |
| 185,513 |
| |||
|
|
|
|
|
| 764,200 |
| |||
Transportation – Railroad—0.2% |
|
|
|
|
|
|
| |||
TFM SA de CV |
|
|
|
|
|
|
| |||
9.375% 05/01/12 (a) |
|
|
| 220,000 |
| 240,625 |
| |||
12.500% 06/15/12 |
|
|
| 60,000 |
| 68,400 |
| |||
|
|
|
|
|
| 309,025 |
| |||
Transportation – Services—0.4% |
|
|
|
|
|
|
| |||
CHC Helicopter Corp. |
|
|
|
|
|
|
| |||
7.375% 05/01/14 |
|
|
| 300,000 |
| 303,750 |
| |||
Petroleum Helicopters, Inc. |
|
|
|
|
|
|
| |||
9.375% 05/01/09 |
|
|
| 195,000 |
| 205,237 |
| |||
|
|
|
|
|
| 508,987 |
| |||
Transportation – Trucks—0.2% |
|
|
|
|
|
|
| |||
QDI LLC |
|
|
|
|
|
|
| |||
9.000% 11/15/10 |
|
|
| 240,000 |
| 213,600 |
| |||
Technology—0.2% |
|
|
|
|
|
|
| |||
Office/Business Equipment—0.1% |
|
|
|
|
|
|
| |||
Office Automation & Equipment—0.1% |
|
|
|
|
|
|
| |||
Xerox Corp. |
|
|
|
|
|
|
| |||
7.125% 06/15/10 |
|
|
| 135,000 |
| 140,400 |
| |||
Semiconductors—0.1% |
|
|
|
|
|
|
| |||
Electronic Components – Semiconductors—0.1% |
|
|
|
|
|
|
| |||
Amkor Technology, Inc. |
|
|
|
|
|
|
| |||
9.250% 02/15/08 |
|
|
| 180,000 |
| 174,600 |
| |||
Utilities—2.2% |
|
|
|
|
|
|
| |||
Electric—2.2% |
|
|
|
|
|
|
| |||
Electric – Generation—0.6% |
|
|
|
|
|
|
| |||
AES Corp. |
|
|
|
|
|
|
| |||
9.000% 05/15/15 (a) |
|
|
| 70,000 |
| 76,650 |
| |||
9.500% 06/01/09 |
|
|
| 267,000 |
| 287,359 |
| |||
Edison Mission Energy |
|
|
|
|
|
|
| |||
7.730% 06/15/09 |
|
|
| 290,000 |
| 300,150 |
| |||
Texas Genco LLC |
|
|
|
|
|
|
| |||
6.875% 12/15/14 (a) |
|
|
| 150,000 |
| 162,562 |
| |||
|
|
|
|
|
| 826,721 |
| |||
Electric – Integrated—0.6% |
|
|
|
|
|
|
| |||
CMS Energy Corp. |
|
|
|
|
|
|
| |||
6.875% 12/15/15 |
|
|
| 100,000 |
| 101,000 |
| |||
8.500% 04/15/11 |
|
|
| 65,000 |
| 70,850 |
| |||
Nevada Power Co. |
|
|
|
|
|
|
| |||
9.000% 08/15/13 |
|
|
| 81,000 |
| 89,230 |
| |||
10.875% 10/15/09 |
|
|
| 140,000 |
| 152,950 |
| |||
See Accompanying Notes to Financial Statements.
29
|
|
|
| Par |
| Value |
| |||
Sierra Pacific Resources |
|
|
|
|
|
|
| |||
6.750% 08/15/17 (a) |
|
|
| $ | 185,000 |
| $ | 184,075 |
| |
TECO Energy, Inc. |
|
|
|
|
|
|
| |||
7.000% 05/01/12 |
|
|
| 165,000 |
| 173,662 |
| |||
|
|
|
|
|
| 771,767 |
| |||
Independent Power Producer—1.0% |
|
|
|
|
|
|
| |||
Dynegy Holdings, Inc. |
|
|
|
|
|
|
| |||
6.875% 04/01/11 |
|
|
| 300,000 |
| 295,500 |
| |||
7.125% 05/15/18 |
|
|
| 5,000 |
| 4,463 |
| |||
9.875% 07/15/10 (a) |
|
|
| 190,000 |
| 208,050 |
| |||
Mirant North America LLC |
|
|
|
|
|
|
| |||
7.375% 12/31/13 (a) |
|
|
| 270,000 |
| 273,375 |
| |||
MSW Energy Holdings LLC |
|
|
|
|
|
|
| |||
7.375% 09/01/10 |
|
|
| 90,000 |
| 92,475 |
| |||
8.500% 09/01/10 |
|
|
| 215,000 |
| 229,512 |
| |||
Orion Power Holdings, Inc. |
|
|
|
|
|
|
| |||
12.000% 05/01/10 |
|
|
| 300,000 |
| 339,000 |
| |||
|
|
|
|
|
| 1,442,375 |
| |||
Total Corporate Fixed-Income Bonds & Notes |
|
|
|
|
| 57,458,395 |
| |||
MORTGAGE-BACKED SECURITIES—2.1% |
|
|
|
|
|
|
| |||
Federal Home Loan Mortgage Corp. |
|
|
|
|
|
|
| |||
8.000% 10/01/26 |
|
|
| 94,618 |
| 101,117 |
| |||
Federal National Mortgage Association, TBA |
|
|
|
|
|
|
| |||
6.500% 12/01/35 (f) |
|
|
| 2,795,000 |
| 2,866,622 |
| |||
Total Mortgage-Backed Securities |
|
|
|
|
| 2,967,739 |
| |||
ASSET-BACKED SECURITIES—0.8% |
|
|
|
|
|
|
| |||
Equity One ABS, Inc. |
|
|
|
|
|
|
| |||
4.205% 04/25/34 |
|
|
| 625,000 |
| 597,875 |
| |||
GMAC Mortgage Corp. |
|
|
|
|
|
|
| |||
4.865% 09/25/34 |
|
|
| 520,000 |
| 509,330 |
| |||
Total Asset-Backed Securities |
|
|
|
|
| 1,107,205 |
| |||
CONVERTIBLE BONDS—0.3% |
|
|
|
|
|
|
| |||
Communications—0.3% |
|
|
|
|
|
|
| |||
Telecommunication Services—0.3% |
|
|
|
|
|
|
| |||
Telecommunication Equipment—0.3% |
|
|
|
|
|
|
| |||
Nortel Networks Corp. |
|
|
|
|
|
|
| |||
4.250% 09/01/08 |
|
|
| 385,000 |
| 360,937 |
| |||
Telephone – Integrated—0.0% |
|
|
|
|
|
|
| |||
Qwest Communications |
|
|
|
|
|
|
| |||
International, Inc. |
|
|
|
|
|
|
| |||
3.500% 11/15/25 |
|
|
| 45,000 |
| 52,144 |
| |||
Total Convertible Bonds |
|
|
|
|
| 413,081 |
| |||
MUNICIPAL BOND (TAXABLE)—0.2% |
|
|
|
|
|
|
| |||
California—0.2% |
|
|
|
|
|
|
| |||
CA Cabazon Band Mission Indians |
|
|
|
|
|
|
| |||
13.000% 10/01/11 |
|
|
| $ | 350,000 |
| $ | 355,001 |
| |
Total Municipal Bond (Taxable) |
|
|
|
|
| 355,001 |
| |||
|
|
|
| Shares |
|
|
| |||
COMMON STOCKS—0.0% |
|
|
|
|
|
|
| |||
Consumer Discretionary—0.0% |
|
|
|
|
|
|
| |||
Hotels, Restaurants & Leisure—0.0% |
|
|
|
|
|
|
| |||
Shreveport Gaming |
|
|
|
|
|
|
| |||
Holdings, Inc. (g)(h) |
|
|
| 3,071 |
| 44,591 |
| |||
Industrials—0.0% |
|
|
|
|
|
|
| |||
Commercial Services & Supplies—0.0% |
|
|
|
|
|
|
| |||
Fairlane Management Corp. (g)(h)(i) |
|
|
| 2,000 |
| — |
| |||
Total Common Stocks |
|
|
|
|
| 44,591 |
| |||
|
|
|
| Units |
|
|
| |||
WARRANTS (h)—0.0% |
|
|
|
|
|
|
| |||
Communications—0.0% |
|
|
|
|
|
|
| |||
Telecommunication Services—0.0% |
|
|
|
|
|
|
| |||
Cellular Telecommunications—0.0% |
|
|
|
|
|
|
| |||
UbiquiTel, Inc. |
|
|
|
|
|
|
| |||
Expires 04/15/10 (a)(g) |
|
|
| 225 |
| 2 |
| |||
Telecommunication Services—0.0% |
|
|
|
|
|
|
| |||
Jazztel PLC |
|
|
|
|
|
|
| |||
Expires 07/15/10 (g)(i) |
|
|
| 95 |
| — |
| |||
Industrials—0.0% |
|
|
|
|
|
|
| |||
Transportation—0.0% |
|
|
|
|
|
|
| |||
Transportation – Trucks—0.0% |
|
|
|
|
|
|
| |||
QDI LLC |
|
|
|
|
|
|
| |||
Expires 01/15/07 (a)(g) |
|
|
| 1,020 |
| 5,131 |
| |||
Total Warrants |
|
|
|
|
| 5,133 |
| |||
|
|
|
| Par |
|
|
| |||
SHORT-TERM OBLIGATION—2.3% |
|
|
|
|
|
|
| |||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Bond maturing 08/15/12, market value of $3,230,547 (repurchase proceeds $3,168,189) |
|
|
| $ | 3,167,000 |
| 3,167,000 |
| ||
Total Short-Term Obligation |
|
|
|
|
| 3,167,000 |
| |||
Total Investments—99.9% |
|
|
|
|
| 140,014,992 |
| |||
Other Assets & Liabilities, Net—0.1% |
|
|
|
|
| 78,682 |
| |||
Net Assets—100.0% |
|
|
|
|
| $ | 140,093,674 |
| ||
See Accompanying Notes to Financial Statements.
30
Notes to Investment Portfolio:
(a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, these securities, which did not include any illiquid securities except for the following, amounted to $12,560,881, which represents 9.0% of net assets.
Security |
| Acquisition |
| Par/Units |
| Acquisition |
| Value |
| |||
Hollinger, Inc |
| 03/05/03 |
| $ | 117,000 |
| $ | 116,271 |
| $ | 123,435 |
|
|
| 09/30/04 |
| 81,000 |
| 81,000 |
| 81,000 |
| |||
UbiquiTel, Inc. |
| 04/11/00 |
| 225 |
| 11,400 |
| 2 |
| |||
QDI LLC |
| 06/01/02 |
| 1,020 |
| — |
| 5,131 |
| |||
|
|
|
|
|
|
|
| $ | 209,568 |
| ||
(b) The interest rate shown on floating rate or variable rate securities reflects the rate at December 31, 2005.
(c) Step bond. Shown parenthetically is the next interest rate to be paid and the date the Fund will begin accruing at this rate.
(d) Step bond. This security is currently not paying coupon. Shown parenthetically is the next interest rate to be paid and the date the Fund will begin accruing at this rate.
(e) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. At December 31, 2005, the value of these securities amounted to $23,625, which represents 0.0% of net assets.
(f) Security purchased on a delayed delivery basis.
(g) Represents fair value as determined in good faith under procedures approved by the Board of Trustees.
(h) Non-income producing security.
(i) Security has no value.
(j) Cost for federal income tax purposes is $138,117,455.
At December 31, 2005, the asset allocation of the Fund is as follows:
Asset Allocation (Unaudited) |
| % of |
|
Government & Agency Obligations |
| 53.2 | % |
Corporate Fixed-Income Bonds & Notes |
| 41.0 |
|
Mortgage-Backed Securities |
| 2.1 |
|
Asset-Backed Securities |
| 0.8 |
|
Convertible Bonds |
| 0.3 |
|
Municipal Bond (Taxable) |
| 0.2 |
|
Common Stocks |
| 0.0 | * |
Warrants |
| 0.0 | * |
Short-Term Obligation |
| 2.3 |
|
Other Assets & Liabilities, Net |
| 0.1 |
|
|
| 100.0 | % |
*Rounds to less than 0.1%.
At December 31, 2005, the Fund had entered into the following forward currency exchange contracts:
Forward |
|
|
|
|
|
|
|
|
| |||
GBP |
| $ | 705,326 |
| $ | 706,840 |
| 01/23/06 |
| $ | (1,514 | ) |
Forward |
|
|
|
|
|
|
|
|
| |||
AUD |
| $ | 951,989 |
| $ | 959,302 |
| 02/01/06 |
| $ | 7,313 |
|
EUR |
| 554,910 |
| 551,430 |
| 01/17/06 |
| (3,480 | ) | |||
EUR |
| 1,244,326 |
| 1,236,795 |
| 01/17/06 |
| (7,531 | ) | |||
EUR |
| 141,070 |
| 140,182 |
| 01/23/06 |
| (888 | ) | |||
EUR |
| 2,726,565 |
| 2,711,631 |
| 01/23/06 |
| (14,934 | ) | |||
EUR |
| 1,410,856 |
| 1,396,524 |
| 01/25/06 |
| (14,332 | ) | |||
EUR |
| 1,452,833 |
| 1,440,967 |
| 01/31/06 |
| (11,866 | ) | |||
NOK |
| 723,251 |
| 743,140 |
| 01/23/06 |
| 19,889 |
| |||
GBP |
| 705,326 |
| 715,860 |
| 01/23/06 |
| 10,534 |
| |||
GBP |
| 1,534,514 |
| 1,557,432 |
| 01/23/06 |
| 22,918 |
| |||
SEK |
| 1,102,878 |
| 1,072,304 |
| 01/17/06 |
| (30,574 | ) | |||
|
|
|
|
|
|
|
| $ | (22,951 | ) | ||
Acronym |
| Name |
AUD |
| Australian Dollar |
CAD |
| Canadian Dollar |
EUR |
| Euro |
GBP |
| British Pound |
NOK |
| Norwegian Krone |
NZD |
| New Zealand Dollar |
PIK |
| Payment-In-Kind |
PLN |
| Polish Zloty |
REIT |
| Real Estate Investment Trust |
SEK |
| Swedish Krona |
TBA |
| To Be Announced |
USD |
| United States Dollar |
See Accompanying Notes to Financial Statements.
31
Statement of Assets & Liabilities
Colonial Strategic Income Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost |
| $ | 135,841,323 |
|
Investments, at value |
| $ | 140,014,992 |
|
Cash |
| 233,402 |
| |
Unrealized appreciation on forward foreign currency contracts |
| 60,654 |
| |
Receivable for: |
|
|
| |
Fund shares sold |
| 186,985 |
| |
Interest |
| 2,817,534 |
| |
Dollar roll fee income |
| 2,620 |
| |
Expense reimbursement due from Distributor |
| 4,015 |
| |
Deferred Trustees’ compensation plan |
| 13,204 |
| |
Total Assets |
| 143,333,406 |
| |
Liabilities: |
|
|
| |
Unrealized depreciation on foreign forward currency contracts |
| 85,119 |
| |
Payable for: |
|
|
| |
Investments purchased on a delayed delivery basis |
| 2,867,806 |
| |
Fund shares repurchased |
| 119,010 |
| |
Investment advisory fee |
| 71,619 |
| |
Transfer agent fee |
| 33 |
| |
Pricing and bookkeeping fees |
| 15,471 |
| |
Trustees’ fees |
| 512 |
| |
Audit fee |
| 31,498 |
| |
Custody fee |
| 6,525 |
| |
Distribution fee—Class B |
| 12,883 |
| |
Chief compliance officer expenses |
| 1,705 |
| |
Deferred dollar roll fee income |
| 749 |
| |
Deferred Trustees’ fees |
| 13,204 |
| |
Other liabilities |
| 13,598 |
| |
Total Liabilities |
| 3,239,732 |
| |
Net Assets |
| $ | 140,093,674 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 151,613,157 |
|
Undistributed net investment income |
| 10,507,969 |
| |
Accumulated net realized loss |
| (26,155,707 | ) | |
Net unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| 4,173,669 |
| |
Foreign currency translations |
| (45,414 | ) | |
Net Assets |
| $ | 140,093,674 |
|
Class A: |
|
|
| |
Net assets |
| $ | 83,586,279 |
|
Shares outstanding |
| 8,256,691 |
| |
Net asset value per share |
| $ | 10.12 |
|
Class B: |
|
|
| |
Net assets |
| $ | 56,507,395 |
|
Shares outstanding |
| 5,600,742 |
| |
Net asset value per share |
| $ | 10.09 |
|
See Accompanying Notes to Financial Statements.
32
Statement of Operations
Colonial Strategic Income Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Interest |
| $ | 10,351,743 |
|
Dollar roll fee income |
| 35,504 |
| |
Total Investment Income |
| 10,387,247 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 905,391 |
| |
Distribution fee—Class B |
| 147,333 |
| |
Transfer agent fee |
| 6,303 |
| |
Pricing and bookkeeping fees |
| 99,073 |
| |
Trustees’ fees |
| 10,007 |
| |
Custody fee |
| 38,445 |
| |
Chief compliance officer expenses (See Note 4) |
| 5,013 |
| |
Non-recurring costs (See Note 6) |
| 3,111 |
| |
Other expenses |
| 90,779 |
| |
Total Expenses |
| 1,305,455 |
| |
Fees waived by Transfer Agent |
| (1,209 | ) | |
Fees reimbursed by Distributor—Class B |
| (4,015 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 6) |
| (3,111 | ) | |
Custody earnings credit |
| (1,724 | ) | |
Net Expenses |
| 1,295,396 |
| |
Net Investment Income |
| 9,091,851 |
| |
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency: |
|
|
| |
Net realized gain on: |
|
|
| |
Investments |
| 1,028,994 |
| |
Foreign currency transactions |
| 1,385,226 |
| |
Net realized gain |
| 2,414,220 |
| |
Net change in unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| (9,319,558 | ) | |
Foreign currency translations |
| 20,822 |
| |
Net change in unrealized appreciation (depreciation) |
| (9,298,736 | ) | |
Net Loss |
| (6,884,516 | ) | |
Net Increase in Net Assets from Operations |
| $ | 2,207,335 |
|
See Accompanying Notes to Financial Statements.
33
Statement of Changes in Net Assets
Columbia Strategic Income Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 9,091,851 |
| $ | 9,642,011 |
|
Net realized gain on investments and foreign currency transactions |
| 2,414,220 |
| 6,247,432 |
| ||
Net change in unrealized appreciation (depreciation) on investments and foreign currency translations |
| (9,298,736 | ) | (733,434 | ) | ||
Net Increase from Operations |
| 2,207,335 |
| 15,156,009 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (7,965,743 | ) | ||
Class B |
| — |
| (4,548,504 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (12,514,247 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 4,274,647 |
| 4,779,974 |
| ||
Distributions reinvested |
| — |
| 7,965,743 |
| ||
Redemptions |
| (24,741,749 | ) | (21,801,483 | ) | ||
Net Decrease |
| (20,467,102 | ) | (9,055,766 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 6,858,887 |
| 8,617,658 |
| ||
Distributions reinvested |
| — |
| 4,548,504 |
| ||
Redemptions |
| (11,327,805 | ) | (9,649,517 | ) | ||
Net Increase (Decrease) |
| (4,468,918 | ) | 3,516,645 |
| ||
Net Decrease from Share Transactions |
| (24,936,020 | ) | (5,539,121 | ) | ||
Total Decrease in Net Assets |
| (22,728,685 | ) | (2,897,359 | ) | ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 162,822,359 |
| 165,719,718 |
| ||
End of period |
| $ | 140,093,674 |
| $ | 162,822,359 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 10,507,969 |
| $ | (1,431,078 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 427,736 |
| 471,285 |
| ||
Issued for distributions reinvested |
| — |
| 799,774 |
| ||
Redemptions |
| (2,477,958 | ) | (2,175,844 | ) | ||
Net Decrease |
| (2,050,222 | ) | (904,785 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 684,908 |
| 862,989 |
| ||
Issued for distributions reinvested |
| — |
| 457,136 |
| ||
Redemptions |
| (1,137,763 | ) | (965,905 | ) | ||
Net Increase (Decrease) |
| (452,855 | ) | 354,220 |
|
See Accompanying Notes to Financial Statements.
34
Notes to Financial Statements
Colonial Strategic Income Fund, Variable Series / December 31, 2005
Note 1. Organization
Colonial Strategic Income Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks current income consistent with prudent risk. The Fund also seeks maximum total return.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Debt securities generally are valued by pricing services approved by the Fund’s Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange (“NYSE”). The values of such securities used in computing the net asset value of the Fund’s shares are determined as of such times. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund’s net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under Colonial Strategic Income Fund, Variable Series / December 31, 2005 consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Forward Foreign Currency Exchange Contracts—Forward foreign currency exchange contracts are agreements to exchange one currency for another at a
35
future date at a specified price. These contracts are used to minimize the exposure to foreign exchange rate fluctuations during the period between trade and settlement date of the contracts. The Fund may utilize forward foreign currency exchange contracts in connection with the settlement of purchases and sales of securities. The Fund may also enter into these contracts to hedge certain other foreign currency denominated assets. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund’s investments against currency fluctuations. Forward currency contracts are valued daily at the current exchange rate of the underlying currency, resulting in unrealized gains (losses) which become realized at the time the foreign currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions. The use of forward currency contracts does not eliminate fluctuations in the prices of the Fund’s portfolio securities. While the maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened, exposure is typically limited to the change in value of the contract (in U.S. dollars) over the period it remains open. The Fund could also be exposed to risk if the counterparties of the contracts are unable to fulfill the terms of the contracts.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Mortgage Dollar Roll Transactions—The Fund may enter into mortgage dollar roll transactions. A mortgage dollar roll transaction involves a sale by the Fund of investments from its portfolio with an agreement by the Fund to repurchase similar, but not identical, securities at an agreed upon price and date. During the period between the sale and repurchase, the Fund will not be entitled to accrue interest and receive principal payment on the securities sold. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price or that the other party may default on its obligations. The Fund identifies U.S. Government securities or other liquid high grade debt obligations in an amount equal to the mortgage dollar roll transactions.
Delayed Delivery Securities—The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a “when-issued” basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian in an amount equal to the delayed delivery commitment.
Income Recognition—Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Corporate actions and dividend income are recorded on the ex-date except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings. Fee income attributable to mortgage dollar roll transactions is recorded on the accrual basis over the term of the transaction. The value of additional securities received as an income payment is recorded as income and as the cost basis of such securities.
Foreign Currency Transactions—The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day’s exchange rates. Net realized and unrealized Colonial Strategic Income Fund, Variable Series / December 31, 2005 gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
36
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for Section 988 bond bifurcation, discount accretion/premium amortization on debt securities, market discount reclassifications and paydown reclassifications were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | 2,847,196 |
| $ | (2,847,196 | ) | $ | — |
|
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
|
|
|
|
|
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income |
| $ | — |
| $ | 12,514,247 |
|
Long-term capital gains |
| — |
| — |
| ||
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 12,732,932 |
| $ | — |
| $ | 1,901,054 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales and discount accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 7,209,832 |
|
Unrealized depreciation |
| (5,312,295 | ) | |
Net unrealized appreciation |
| $ | 1,897,537 |
|
The following capital loss carryforwards, determined as of December 31, 2005, may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of |
| Capital Loss |
| |
2008 |
| $ | 3,347,414 |
|
2009 |
| 11,079,118 |
| |
2010 |
| 11,028,566 |
| |
2013 |
| 159,225 |
| |
|
| $ | 25,614,323 |
|
Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2005, post-October capital losses of $502,061 attributed to security transactions were deferred to January 1, 2006.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $500 million |
| 0.60 | % |
$500 million to $1 billion |
| 0.55 | % |
$1 billion to $1.5 billion |
| 0.52 | % |
Over $1.5 billion |
| 0.49 | % |
For the year ended December 31, 2005, as a result of the settlement with the New York Attorney General discussed in Note 6, the Fund’s effective investment advisory fee rate was 0.59%. This rate included a retroactive reduction for the period November 1, 2004 through December 31, 2004.
37
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.065% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,209 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was less than 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Columbia and the Distributor have voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 1.00% annually of the Fund’s average daily net assets. The Distributor will first reimburse the Class B distribution fee up to 0.25% annually to reach the 1.00% limit on Class B expenses. If additional reimbursement is needed to meet the limit for each class, Columbia will then reimburse other expenses to the extent necessary. If additional reimbursement is still needed in order to reach the expense limit, Columbia will then waive a portion of its investment advisory fee to the extent necessary. Columbia or the Distributor, at their discretion, may revise or discontinue this arrangement any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
38
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,662 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $58,618,860 and $72,115,351 of which $438,012 and $1,575,327, respectively were U.S. Government securities.
Note 6. Disclosure of Significant Risks and Contingencies
Foreign Securities—There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The risk of foreign investments is typically increased in less developed countries. These countries are also more likely to experience high levels of inflation, deflation or currency devaluation which could hurt their economies and securities markets.
High-Yield Securities—Investing in high-yield securities may involve greater credit risk and considerations not typically associated with investing in U.S. government bonds and other higher quality fixed income securities. These securities are non-investment grade securities, often referred to as “junk” bonds. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid to the extent that there is no established secondary market.
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases
39
were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $3,111 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
40
Financial Highlights
Colonial Strategic Income Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 9.96 |
| $ | 9.80 |
| $ | 8.90 |
| $ | 8.92 |
| $ | 9.43 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.61 |
| 0.61 |
| 0.62 |
| 0.65 |
| 0.81 | (b) | |||||
Net realized and unrealized gain (loss) on investments and foreign currency |
| (0.45 | ) | 0.39 |
| 1.03 |
| 0.10 |
| (0.46 | )(b) | |||||
Total from Investment Operations |
| 0.16 |
| 1.00 |
| 1.65 |
| 0.75 |
| 0.35 |
| |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.84 | ) | (0.75 | ) | (0.75 | ) | (0.84 | ) | |||||
Return of capital |
| — |
| — |
| — |
| (0.02 | ) | (0.02 | ) | |||||
Total Distributions Declared to Shareholders |
| — |
| (0.84 | ) | (0.75 | ) | (0.77 | ) | (0.86 | ) | |||||
Net Asset Value, End of Period |
| $ | 10.12 |
| $ | 9.96 |
| $ | 9.80 |
| $ | 8.90 |
| $ | 8.92 |
|
Total return (c)(d) |
| 1.61 | %(e) | 10.16 | % | 18.54 | % | 8.41 | % | 3.68 | % | |||||
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (f) |
| 0.76 | % | 0.80 | % | 0.80 | % | 0.76 | % | 0.85 | % | |||||
Net investment income (f) |
| 6.06 | % | 6.08 | % | 6.42 | % | 7.16 | % | 8.42 | %(b) | |||||
Waiver/reimbursement |
| — | %(g) | — |
| — |
| — |
| — |
| |||||
Portfolio turnover rate |
| 40 | % | 103 | % | 61 | % | 62 | % | 62 | % | |||||
Net assets, end of period (000’s) |
| $ | 83,586 |
| $ | 102,612 |
| $ | 109,894 |
| $ | 106,415 |
| $ | 123,041 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.03, increase net realized and unrealized gain/loss per share by $0.03 and decrease the ratio of net investment income to average net assets from 8.70% to 8.42%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(e) Had the Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
41
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust
and the Class A Shareholders of Colonial Strategic Income Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Colonial Strategic Income Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 21, 2006
42
Portfolio Managers’ Discussion
Columbia High Yield Fund, Variable Series / December 31, 2005
Columbia High Yield Fund, Variable Series seeks a high level of current income by investing primarily in lower-rated fixed-income securities. Capital appreciation is a secondary goal when consistent with the goal of high current income.
Stephen Peacher, Kevin L. Cronk and Thomas A. LaPointe have co-managed the fund since September 2005. Mr. Peacher has been associated with Columbia Management Advisors, LLC since April 2005. Mr. Cronk and Mr. LaPointe have been associated with the advisor since 1999.
During the 12-month period ended December 31, 2005, the fund performed generally in line with its Lipper(1) peer group average and its two primary benchmarks, the JPMorgan Chase Developed BB High Yield Index(2) and the Merrill Lynch US High Yield, Cash Pay Only Index(3).
A changed environment for high-yield sector
After several years of strong performance, high yield bonds came under some pressure in 2005 and their modest returns reflected a changed environment. Early in the year, the credit rating downgrades of General Motors Corp. and Ford Motor Co. cast a negative pall over the sector, and high-yield mutual funds experienced record cash outflows in the first quarter. However, the high-yield market rebounded as the economy maintained considerable forward momentum through the summer months. In this environment, lower-rated CCC securities lagged higher quality high-yield bonds.
A defensive approach aided performance
The fund benefited by a significant underweight relative to its benchmarks in lower-rated securities, which delivered negative returns for the year versus a modest gain for the rest of the high-yield market. An underweight exposure to the auto/transportation sector also aided performance as the bonds of Ford, General Motors and auto parts manufacturers struggled during the period.
Our defensive approach was not unilaterally rewarded. The fund had less exposure to wireline and wireless telecommunications bonds, an area of the market that has come under considerable competitive pressure. However, both groups bounced back and outperformed the broad high-yield market in 2005, returning 7.9% and 10.4% respectively.
Sector weights brought in line, diversification expanded under new managers
The fund maintained a conservative profile during a year of change and transition for the high-yield sector. No major changes were made in the fund’s positioning during the year. However, sector weights were adjusted in line with benchmarks and the fund’s diversification was broadened under new management, which took over in the fourth quarter. We added between 20-25 new holdings and trimmed exposure to some of the fund’s largest holdings. We expect to continue to diversify the fund’s holdings, adding names that are consistent with the fund’s “high quality, high-yield” style.
Looking ahead
We believe that US economic growth is likely to slow in response to high energy prices and higher interest rates in the coming year. However, we also believe that a recession is unlikely. Default rates may increase marginally, but we expect them to remain at or near their historical lows. In this environment, we believe the capital markets should remain generally open to high-yield companies, providing access to varied sources of liquidity.
We also believe that the high-yield markets are currently fairly valued. The difference in yield between Treasuries and high-yield securities of comparable maturities, which is a key measure of value in the high-yield market, is at a level consistent with historical periods of solid economic growth and low default rates. However, the yield spread has narrowed considerably over the past few years. As a result, we believe that the potential for volatility is higher than it has been in recent years and there is less margin for error. In this environment, we believe that the fund’s conservative, “up-in-quality” philosophy has the potential to benefit the fund going forward.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
An investment in the Columbia High Yield Fund, Variable Series may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high yield securities or “junk” bonds offers the potential for higher current income and attractive total return but involves certain risks. Changes in economic conditions or other circumstances may adversely affect a high-yield bond issuer’s ability to make timely principal and interest payments.
Holdings are disclosed as of December 31, 2005, and are subject to change.
(1) Lipper Inc., a widely respected provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund.
(2) JPMorgan Chase Developed BB High Yield Index, an unmanaged index that is designed to mirror the investable universe of the US dollar developed, BB-rated, high yield corporate debt market.
(3) Merrill Lynch US High Yield, Cash Pay Only Index, an unmanaged index that tracks the performance of non-investment-grade corporate bonds.
It is not possible to invest directly in an index.
43
Performance Information
Columbia High Yield Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| Life |
|
Class A (03/03/98) |
| 2.51 |
| 6.11 |
| 5.65 |
|
JPMorgan Chase Developed BB High Yield Index(1) |
| 2.58 |
| 9.34 |
| 7.45 |
|
Merrill Lynch US High Yield, Cash Pay Only Index(2) |
| 2.83 |
| 8.76 |
| 5.46 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 9.55 |
| 9.79 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 03/03/98 – 12/31/05
The graph compares the result of a hypothetical $10,000 investment in the fund with the indexes. The Indexes are unmanaged and returns for the indexes and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes are due.
Total return performance includes changes in share price and reinvestment of all distributions. Beginning in 2005, the Fund’s benchmark was changed to the JPMorgan Chase Developed BB High Yield Index, an unmanaged index that is designed to mirror the investable universe of the US dollar developed, BB-rated, high yield corporate debt market. Previously, the Fund’s returns were compared to the Merrill Lynch US High Yield, Cash Pay Only Index, an unmanaged index that tracks the performance of non-investment-grade corporate bonds. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
(1) Index performance for the life of the fund is from February 28, 1998.
(2) Index performance for the life of the fund is from March 3, 1998.
44
Understanding Your Expenses
Columbia High Yield Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 – |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s annualized |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| (%) |
|
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,013.51 |
| 1,022.18 |
| 3.05 |
| 3.06 |
| 0.60 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the investment advisor and transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
45
Investment Portfolio
Columbia High Yield Fund, Variable Series / December 31, 2005
|
| Par |
| Value |
| ||
CORPORATE FIXED-INCOME BONDS & NOTES—81.3% |
|
|
|
|
| ||
Basic Materials—3.7% |
|
|
|
|
| ||
Chemicals—2.0% |
|
|
|
|
| ||
Chemicals – Diversified—1.0% |
|
|
|
|
| ||
EquiStar Chemicals LP |
|
|
|
|
| ||
10.125% 09/01/08 |
| $ | 155,000 |
| $ | 168,175 |
|
10.625% 05/01/11 |
| 805,000 |
| 885,500 |
| ||
NOVA Chemicals Corp. |
|
|
|
|
| ||
6.500% 01/15/12 |
| 440,000 |
| 425,700 |
| ||
7.561% 11/15/13 (a)(b) |
| 190,000 |
| 194,275 |
| ||
|
|
|
| 1,673,650 |
| ||
Chemicals – Specialty—0.4% |
|
|
|
|
| ||
Nalco Co. |
|
|
|
|
| ||
7.750% 11/15/11 |
| 625,000 |
| 641,406 |
| ||
Industrial – Gases—0.6% |
|
|
|
|
| ||
Airgas, Inc. |
|
|
|
|
| ||
9.125% 10/01/11 |
| 925,000 |
| 985,125 |
| ||
Forest Products & Paper—0.8% |
|
|
|
|
| ||
Paper & Related Products—0.8% |
|
|
|
|
| ||
Boise Cascade LLC |
|
|
|
|
| ||
7.125% 10/15/14 |
| 1,445,000 |
| 1,351,075 |
| ||
Iron/Steel—0.9% |
|
|
|
|
| ||
Steel – Producers—0.9% |
|
|
|
|
| ||
Russel Metals, Inc. |
|
|
|
|
| ||
6.375% 03/01/14 |
| 850,000 |
| 822,375 |
| ||
United States Steel Corp. |
|
|
|
|
| ||
9.750% 05/15/10 |
| 500,000 |
| 543,750 |
| ||
|
|
|
| 1,366,125 |
| ||
Communications—12.5% |
|
|
|
|
| ||
Media—9.7% |
|
|
|
|
| ||
Cable TV—3.7% |
|
|
|
|
| ||
DirecTV Holdings LLC |
|
|
|
|
| ||
6.375% 06/15/15 |
| 230,000 |
| 225,400 |
| ||
8.375% 03/15/13 |
| 1,476,000 |
| 1,594,080 |
| ||
EchoStar DBS Corp. |
|
|
|
|
| ||
5.750% 10/01/08 |
| 605,000 |
| 593,656 |
| ||
6.625% 10/01/14 |
| 1,775,000 |
| 1,708,438 |
| ||
Rogers Cable, Inc. |
|
|
|
|
| ||
6.250% 06/15/13 |
| 625,000 |
| 612,500 |
| ||
7.875% 05/01/12 |
| 1,110,000 |
| 1,187,700 |
| ||
|
|
|
| 5,921,774 |
| ||
Multimedia—2.2% |
|
|
|
|
| ||
Emmis Operating Co. |
|
|
|
|
| ||
6.875% 05/15/12 |
| 675,000 |
| 666,563 |
| ||
Lamar Media Corp. |
|
|
|
|
| ||
7.250% 01/01/13 |
| 2,825,000 |
| 2,945,062 |
| ||
|
|
|
| 3,611,625 |
| ||
Publishing – Periodicals—2.9% |
|
|
|
|
| ||
Dex Media West LLC |
|
|
|
|
| ||
5.875% 11/15/11 |
| 1,450,000 |
| 1,457,250 |
| ||
9.875% 08/15/13 |
| 1,640,000 |
| 1,818,350 |
| ||
|
|
|
|
|
| ||
R.H. Donnelley Finance Corp. |
|
|
|
|
| ||
10.875% 12/15/12 (a) |
| $ | 190,000 |
| $ | 215,650 |
|
10.875% 12/15/12 |
| 1,100,000 |
| 1,248,500 |
| ||
|
|
|
| 4,739,750 |
| ||
Television—0.9% |
|
|
|
|
| ||
LIN Television Corp. |
|
|
|
|
| ||
6.500% 05/15/13 |
| 1,125,000 |
| 1,080,000 |
| ||
Sinclair Broadcast Group, Inc. |
|
|
|
|
| ||
8.750% 12/15/11 |
| 400,000 |
| 420,500 |
| ||
|
|
|
| 1,500,500 |
| ||
Telecommunication Services—2.8% |
|
|
|
|
| ||
Cellular Telecommunications—1.6% |
|
|
|
|
| ||
Nextel Communications, Inc. |
|
|
|
|
| ||
7.375% 08/01/15 |
| 1,275,000 |
| 1,344,844 |
| ||
Rogers Wireless, Inc. |
|
|
|
|
| ||
7.500% 03/15/15 |
| 210,000 |
| 226,800 |
| ||
8.000% 12/15/12 |
| 940,000 |
| 996,400 |
| ||
|
|
|
| 2,568,044 |
| ||
Telephone – Integrated—1.2% |
|
|
|
|
| ||
Citizens Communications Co. |
|
|
|
|
| ||
9.000% 08/15/31 |
| 690,000 |
| 700,350 |
| ||
Qwest Corp. |
|
|
|
|
| ||
8.875% 03/15/12 |
| 1,140,000 |
| 1,279,650 |
| ||
|
|
|
| 1,980,000 |
| ||
Consumer Cyclical—16.7% |
|
|
|
|
| ||
Apparel—0.4% |
|
|
|
|
| ||
Apparel Manufacturers—0.4% |
|
|
|
|
| ||
Phillips-Van Heusen Corp. |
|
|
|
|
| ||
7.250% 02/15/11 |
| 640,000 |
| 646,400 |
| ||
Auto Manufacturers—0.3% |
|
|
|
|
| ||
Auto – Medium & Heavy Duty Trucks—0.3% |
|
|
|
|
| ||
Navistar International Corp. |
|
|
|
|
| ||
7.500% 06/15/11 |
| 565,000 |
| 536,750 |
| ||
Auto Parts & Equipment—0.6% |
|
|
|
|
| ||
Auto/Truck Parts & Equipment – Original—0.6% |
|
|
|
|
| ||
Accuride Corp. |
|
|
|
|
| ||
8.500% 02/01/15 |
| 615,000 |
| 605,775 |
| ||
TRW Automotive, Inc. |
|
|
|
|
| ||
9.375% 02/15/13 |
| 320,000 |
| 346,400 |
| ||
|
|
|
| 952,175 |
| ||
Entertainment—2.4% |
|
|
|
|
| ||
Music—0.8% |
|
|
|
|
| ||
Warner Music Group |
|
|
|
|
| ||
7.375% 04/15/14 |
| 1,275,000 |
| 1,271,812 |
| ||
Racetracks—0.8% |
|
|
|
|
| ||
Speedway Motorsports, Inc. |
|
|
|
|
| ||
6.750% 06/01/13 |
| 1,190,000 |
| 1,204,875 |
| ||
Theaters—0.8% |
|
|
|
|
| ||
Cinemark USA, Inc. |
|
|
|
|
| ||
9.000% 02/01/13 |
| 1,285,000 |
| 1,355,675 |
|
See Accompanying Notes to Financial Statements.
46
|
|
| Par |
| Value |
| |||
| Home Builders—2.1% |
|
|
|
|
| |||
| Building – Residential/Commercial—2.1% |
|
|
|
|
| |||
| Beazer Homes USA, Inc. |
|
|
|
|
| |||
| 6.875% 07/15/15 |
| $ | 860,000 |
| $ | 825,600 |
| |
| K. Hovnanian Enterprises, Inc. |
|
|
|
|
| |||
| 6.000% 01/15/10 |
| 315,000 |
| 298,463 |
| |||
| 6.375% 12/15/14 |
| 270,000 |
| 253,800 |
| |||
| 6.500% 01/15/14 |
| 840,000 |
| 802,200 |
| |||
| KB Home |
|
|
|
|
| |||
| 5.875% 01/15/15 |
| 750,000 |
| 705,000 |
| |||
| 7.750% 02/01/10 |
| 250,000 |
| 255,625 |
| |||
| 8.625% 12/15/08 |
| 250,000 |
| 262,500 |
| |||
|
|
|
|
| 3,403,188 |
| |||
| Home Furnishings—0.7% |
|
|
|
|
| |||
| Home Furnishings—0.7% |
|
|
|
|
| |||
| Sealy Mattress Co. |
|
|
|
|
| |||
| 8.250% 06/15/14 |
| 1,080,000 |
| 1,112,400 |
| |||
| Leisure Time—1.8% |
|
|
|
|
| |||
| Cruise Lines—1.3% |
|
|
|
|
| |||
| Royal Caribbean Cruises Ltd. |
|
|
|
|
| |||
| 6.875% 12/01/13 |
| 550,000 |
| 579,563 |
| |||
| 8.750% 02/02/11 |
| 1,390,000 |
| 1,570,700 |
| |||
|
|
|
|
| 2,150,263 |
| |||
| Leisure & Recreational Products—0.5% |
|
|
|
|
| |||
| Leslie’s Poolmart |
|
|
|
|
| |||
| 7.750% 02/01/13 |
| 850,000 |
| 852,125 |
| |||
| Lodging—5.5% |
|
|
|
|
| |||
| Casino Hotels—5.0% |
|
|
|
|
| |||
| Caesars Entertainment, Inc. |
|
|
|
|
| |||
| 7.875% 03/15/10 |
| 685,000 |
| 734,662 |
| |||
| 9.375% 02/15/07 |
| 100,000 |
| 104,125 |
| |||
| CCM Merger, Inc. |
|
|
|
|
| |||
| 8.000% 08/01/13 (a) |
| 725,000 |
| 697,813 |
| |||
| Chukchansi Economic Development Authority |
|
|
|
|
| |||
| 8.000% 11/15/13 (a) |
| 480,000 |
| 490,800 |
| |||
| Kerzner International Ltd. |
|
|
|
|
| |||
| 6.750% 10/01/15 (a) |
| 745,000 |
| 722,650 |
| |||
| MGM Mirage |
|
|
|
|
| |||
| 6.000% 10/01/09 |
| 1,450,000 |
| 1,442,750 |
| |||
| 8.500% 09/15/10 |
| 815,000 |
| 884,275 |
| |||
| Station Casinos, Inc. |
|
|
|
|
| |||
| 6.500% 02/01/14 |
| 795,000 |
| 804,937 |
| |||
| 6.875% 03/01/16 |
| 1,220,000 |
| 1,247,450 |
| |||
| Wynn Las Vegas LLC |
|
|
|
|
| |||
| 6.625% 12/01/14 |
| 965,000 |
| 940,875 |
| |||
|
|
|
|
| 8,070,337 |
| |||
| Hotels & Motels—0.5% |
|
|
|
|
| |||
| Starwood Hotels & Resorts Worldwide, Inc. |
|
|
|
|
| |||
| 7.875% 05/01/12 |
| 810,000 |
| 893,025 |
| |||
| Retail—2.9% |
|
|
|
|
| |||
| Retail – Automobiles—1.5% |
|
|
|
|
| |||
| AutoNation, Inc. |
|
|
|
|
| |||
| 9.000% 08/01/08 |
| 1,420,000 |
| 1,522,950 |
| |||
| Group 1 Automotive, Inc. |
|
|
|
|
| |||
| 8.250% 08/15/13 |
| 860,000 |
| 814,850 |
| |||
|
|
|
|
| 2,337,800 |
| |||
| Retail – Convenience Store—0.8% |
|
|
|
|
| |||
| Couche-Tard |
|
|
|
|
| |||
| 7.500% 12/15/13 |
| $ | 1,235,000 |
| $ | 1,265,875 |
| |
| Retail – Propane Distributors—0.2% |
|
|
|
|
| |||
| Suburban Propane Partners LP/Suburban Energy Finance Corp. |
|
|
|
|
| |||
| 6.875% 12/15/13 |
| 400,000 |
| 372,000 |
| |||
| Retail – Restaurants—0.4% |
|
|
|
|
| |||
| Domino’s, Inc. |
|
|
|
|
| |||
| 8.250% 07/01/11 |
| 650,000 |
| 676,000 |
| |||
| Consumer Non-Cyclical—15.5% |
|
|
|
|
| |||
| Beverages—2.1% |
|
|
|
|
| |||
| Beverages – Non-Alcoholic—1.2% |
|
|
|
|
| |||
| Cott Beverages, Inc. |
|
|
|
|
| |||
| 8.000% 12/15/11 |
| 1,910,000 |
| 1,957,750 |
| |||
| Beverages – Wine/Spirits—0.9% |
|
|
|
|
| |||
| Constellation Brands, Inc. |
|
|
|
|
| |||
| 8.000% 02/15/08 |
| 575,000 |
| 599,438 |
| |||
| 8.125% 01/15/12 |
| 825,000 |
| 864,187 |
| |||
|
|
|
|
| 1,463,625 |
| |||
| Commercial Services—4.4% |
|
|
|
|
| |||
| Commercial Services—1.8% |
|
|
|
|
| |||
Iron Mountain, Inc. |
|
|
|
|
| ||||
7.750% 01/15/15 |
| 530,000 |
| 535,300 |
| ||||
8.625% 04/01/13 |
| 1,420,000 |
| 1,483,900 |
| ||||
Mac-Gray Corp. |
|
|
|
|
| ||||
7.625% 08/15/15 |
| 950,000 |
| 966,625 |
| ||||
|
|
|
| 2,985,825 |
| ||||
Funeral Services & Related Items—0.6% |
|
|
|
|
| ||||
Stewart Enterprises, Inc. |
|
|
|
|
| ||||
6.250% 02/15/13 (a) |
| 1,015,000 |
| 974,400 |
| ||||
Private Corrections—1.3% |
|
|
|
|
| ||||
Corrections Corp. of America |
|
|
|
|
| ||||
6.250% 03/15/13 |
| 700,000 |
| 693,000 |
| ||||
7.500% 05/01/11 |
| 1,360,000 |
| 1,400,800 |
| ||||
|
|
|
| 2,093,800 |
| ||||
Rental Auto/Equipment—0.7% |
|
|
|
|
| ||||
NationsRent, Inc. |
|
|
|
|
| ||||
9.500% 10/15/10 |
| 395,000 |
| 431,537 |
| ||||
United Rentals, Inc. |
|
|
|
|
| ||||
7.000% 02/15/14 |
| 25,000 |
| 23,375 |
| ||||
7.750% 11/15/13 |
| 610,000 |
| 594,750 |
| ||||
|
|
|
| 1,049,662 |
| ||||
Food—0.8% |
|
|
|
|
| ||||
Food – Miscellaneous/Diversified—0.8% |
|
|
|
|
| ||||
Del Monte Corp. |
|
|
|
|
| ||||
6.750% 02/15/15 |
| 1,335,000 |
| 1,301,625 |
| ||||
Healthcare Services—5.4% |
|
|
|
|
| ||||
Medical – HMO—0.9% |
|
|
|
|
| ||||
Coventry Health Care, Inc. |
|
|
|
|
| ||||
5.875% 01/15/12 |
| 1,445,000 |
| 1,450,419 |
| ||||
See Accompanying Notes to Financial Statements.
47
|
| Par |
| Value |
| ||
Medical – Hospitals—2.8% |
|
|
|
|
| ||
Community Health Systems |
|
|
|
|
| ||
6.500% 12/15/12 |
| $ | 340,000 |
| $ | 332,350 |
|
HCA, Inc. |
|
|
|
|
| ||
6.950% 05/01/12 |
| 2,470,000 |
| 2,559,760 |
| ||
Triad Hospitals, Inc. |
|
|
|
|
| ||
7.000% 05/15/12 |
| 525,000 |
| 536,812 |
| ||
7.000% 11/15/13 |
| 1,100,000 |
| 1,105,500 |
| ||
|
|
|
| 4,534,422 |
| ||
Medical – Nursing Homes—0.4% |
|
|
|
|
| ||
Extendicare Health Services, Inc. |
|
|
|
|
| ||
6.875% 05/01/14 |
| 640,000 |
| 622,400 |
| ||
9.500% 07/01/10 |
| 45,000 |
| 47,869 |
| ||
|
|
|
| 670,269 |
| ||
Medical – Outpatient/Home Medical—0.5% |
|
|
|
|
| ||
Select Medical Corp. |
|
|
|
|
| ||
7.625% 02/01/15 |
| 820,000 |
| 793,350 |
| ||
Medical Products—0.8% |
|
|
|
|
| ||
Fisher Scientific International, Inc. |
|
|
|
|
| ||
6.750% 08/15/14 |
| 1,310,000 |
| 1,372,225 |
| ||
Household Products/Wares—0.8% |
|
|
|
|
| ||
Consumer Products – Miscellaneous—0.8% |
|
|
|
|
| ||
Scotts Miracle-Gro Co. |
|
|
|
|
| ||
6.625% 11/15/13 |
| 1,375,000 |
| 1,399,063 |
| ||
Pharmaceuticals—2.0% |
|
|
|
|
| ||
Medical – Generic Drugs—0.4% |
|
|
|
|
| ||
Mylan Laboratories, Inc. |
|
|
|
|
| ||
6.375% 08/15/15 (a) |
| 610,000 |
| 611,525 |
| ||
Medical – Wholesale Drug Distribution—0.6% |
|
|
|
|
| ||
AmerisourceBergen Corp. |
|
|
|
|
| ||
5.625% 09/15/12 (a) |
| 975,000 |
| 972,562 |
| ||
Pharmacy Services—1.0% |
|
|
|
|
| ||
Omnicare, Inc. |
|
|
|
|
| ||
6.125% 06/01/13 |
| 945,000 |
| 933,187 |
| ||
6.750% 12/15/13 |
| 335,000 |
| 340,444 |
| ||
6.875% 12/15/15 |
| 335,000 |
| 342,119 |
| ||
|
|
|
| 1,615,750 |
| ||
Energy—13.2% |
|
|
|
|
| ||
Coal—2.8% |
|
|
|
|
| ||
Coal—2.8% |
|
|
|
|
| ||
Arch Western Finance LLC |
|
|
|
|
| ||
6.750% 07/01/13 |
| 1,500,000 |
| 1,518,750 |
| ||
Massey Energy Co. |
|
|
|
|
| ||
6.875% 12/15/13 (a) |
| 740,000 |
| 743,700 |
| ||
Peabody Energy Corp. |
|
|
|
|
| ||
5.875% 04/15/16 |
| 375,000 |
| 363,750 |
| ||
6.875% 03/15/13 |
| 1,905,000 |
| 1,983,581 |
| ||
|
|
|
| 4,609,781 |
| ||
Oil & Gas—6.0% |
|
|
|
|
| ||
Oil & Gas Drilling—0.7% |
|
|
|
|
| ||
Pride International, Inc. |
|
|
|
|
| ||
7.375% 07/15/14 |
| 1,025,000 |
| 1,104,438 |
| ||
Oil Companies – Exploration & Production—5.0% |
|
|
|
|
| ||
Chesapeake Energy Corp. |
|
|
|
|
| ||
6.375% 06/15/15 |
| $ | 1,265,000 |
| $ | 1,265,000 |
|
7.500% 09/15/13 |
| 735,000 |
| 786,450 |
| ||
7.750% 01/15/15 |
| 550,000 |
| 583,000 |
| ||
Compton Petroleum Corp. |
|
|
|
|
| ||
7.625% 12/01/13 (a) |
| 395,000 |
| 398,950 |
| ||
Newfield Exploration Co. |
|
|
|
|
| ||
6.625% 09/01/14 |
| 1,800,000 |
| 1,840,500 |
| ||
Plains Exploration & Production Co. |
|
|
|
|
| ||
7.125% 06/15/14 |
| 1,170,000 |
| 1,210,950 |
| ||
Pogo Producing Co. |
|
|
|
|
| ||
6.625% 03/15/15 |
| 495,000 |
| 482,625 |
| ||
8.250% 04/15/11 |
| 455,000 |
| 475,475 |
| ||
Vintage Petroleum, Inc. |
|
|
|
|
| ||
7.875% 05/15/11 |
| 650,000 |
| 679,250 |
| ||
8.250% 05/01/12 |
| 465,000 |
| 498,712 |
| ||
|
|
|
| 8,220,912 |
| ||
Oil Refining & Marketing—0.3% |
|
|
|
|
| ||
Tesoro Corp. |
|
|
|
|
| ||
6.625% 11/01/15 (a) |
| 415,000 |
| 417,075 |
| ||
Oil & Gas Services—2.2% |
|
|
|
|
| ||
Oil – Field Services—1.3% |
|
|
|
|
| ||
Hornbeck Offshore Services, Inc. |
|
|
|
|
| ||
6.125% 12/01/14 |
| 875,000 |
| 853,125 |
| ||
Universal Compression, Inc. |
|
|
|
|
| ||
7.250% 05/15/10 |
| 1,195,000 |
| 1,214,419 |
| ||
|
|
|
| 2,067,544 |
| ||
Oil Field Machinery & Equipment—0.9% |
|
|
|
|
| ||
Grant Prideco, Inc. |
|
|
|
|
| ||
6.125% 08/15/15 (a) |
| 1,455,000 |
| 1,458,637 |
| ||
Pipelines—2.2% |
|
|
|
|
| ||
Pipelines—2.2% |
|
|
|
|
| ||
Atlas Pipeline Partners LP |
|
|
|
|
| ||
8.125% 12/15/15 (a) |
| 330,000 |
| 334,125 |
| ||
Colorado Interstate Gas Co. |
|
|
|
|
| ||
6.800% 11/15/15 (a) |
| 570,000 |
| 572,137 |
| ||
MarkWest Energy Partners |
|
|
|
|
| ||
LP 6.875% 11/01/14 (a) |
| 545,000 |
| 501,400 |
| ||
Williams Companies, Inc. |
|
|
|
|
| ||
6.375% 10/01/10 (a) |
| 415,000 |
| 416,038 |
| ||
8.125% 03/15/12 |
| 1,660,000 |
| 1,809,400 |
| ||
|
|
|
| 3,633,100 |
| ||
Financials—1.0% |
|
|
|
|
| ||
Diversified Financial Services—0.5% |
|
|
|
|
| ||
Finance – Investment Banker/Broker—0.5% |
|
|
|
|
| ||
E*Trade Financial Corp. |
|
|
|
|
| ||
7.375% 09/15/13 (a) |
| 780,000 |
| 789,750 |
| ||
LaBranche & Co., Inc. |
|
|
|
|
| ||
11.000% 05/15/12 |
| 75,000 |
| 83,250 |
| ||
|
|
|
| 873,000 |
|
See Accompanying Notes to Financial Statements.
48
|
| Par |
| Value |
| ||
Real Estate Investment Trusts—0.5% |
|
|
|
|
| ||
REIT – Hotels—0.5% |
|
|
|
|
| ||
Host Marriott LP |
|
|
|
|
| ||
6.375% 03/15/15 |
| $ | 745,000 |
| $ | 744,069 |
|
Industrials—13.4% |
|
|
|
|
| ||
Aerospace & Defense—2.0% |
|
|
|
|
| ||
Aerospace/Defense – Equipment—0.8% |
|
|
|
|
| ||
Sequa Corp. |
|
|
|
|
| ||
9.000% 08/01/09 |
| 530,000 |
| 564,450 |
| ||
TransDigm, Inc. |
|
|
|
|
| ||
8.375% 07/15/11 |
| 625,000 |
| 656,250 |
| ||
|
|
|
| 1,220,700 |
| ||
Electronics – Military—1.2% |
|
|
|
|
| ||
L-3 Communications Corp. |
|
|
|
|
| ||
6.375% 10/15/15 (a) |
| 935,000 |
| 937,338 |
| ||
7.625% 06/15/12 |
| 960,000 |
| 1,010,400 |
| ||
|
|
|
| 1,947,738 |
| ||
Environmental Control—0.8% |
|
|
|
|
| ||
Non-Hazardous Waste Disposal—0.8% |
|
|
|
|
| ||
Allied Waste North America, Inc. |
|
|
|
|
| ||
6.375% 04/15/11 |
| 825,000 |
| 800,250 |
| ||
6.500% 11/15/10 |
| 560,000 |
| 553,000 |
| ||
|
|
|
| 1,353,250 |
| ||
Machinery – Diversified—1.3% |
|
|
|
|
| ||
Machinery – General Industry—1.3% |
|
|
|
|
| ||
Manitowoc Co., Inc. |
|
|
|
|
| ||
7.125% 11/01/13 |
| 885,000 |
| 909,338 |
| ||
Westinghouse Air Brake Technologies Corp. |
|
|
|
|
| ||
6.875% 07/31/13 |
| 1,260,000 |
| 1,278,900 |
| ||
|
|
|
| 2,188,238 |
| ||
Miscellaneous Manufacturing—0.7% |
|
|
|
|
| ||
Diversified Manufacturing Operators—0.7% |
|
|
|
|
| ||
Bombardier, Inc. |
|
|
|
|
| ||
6.300% 05/01/14 (a) |
| 715,000 |
| 625,625 |
| ||
Trinity Industries, Inc. |
|
|
|
|
| ||
6.500% 03/15/14 |
| 575,000 |
| 569,250 |
| ||
|
|
|
| 1,194,875 |
| ||
Packaging & Containers—4.9% |
|
|
|
|
| ||
Containers – Metal/Glass—4.0% |
|
|
|
|
| ||
Ball Corp. |
|
|
|
|
| ||
6.875% 12/15/12 |
| 2,260,000 |
| 2,310,850 |
| ||
Crown Americas LLC & Crown Americas Capital Corp. |
|
|
|
|
| ||
7.750% 11/15/15 (a) |
| 585,000 |
| 605,475 |
| ||
Owens-Brockway Glass Container, Inc. |
|
|
|
|
| ||
6.750% 12/01/14 |
| 125,000 |
| 121,250 |
| ||
8.875% 02/15/09 |
| 290,000 |
| 302,325 |
| ||
Owens-Illinois, Inc. |
|
|
|
|
| ||
7.500% 05/15/10 |
| 1,425,000 |
| 1,425,000 |
| ||
Silgan Holdings, Inc. |
|
|
|
|
| ||
6.750% 11/15/13 |
| 1,735,000 |
| 1,726,325 |
| ||
|
|
|
| 6,491,225 |
| ||
|
|
|
|
|
| ||
Containers – Paper/Plastic—0.9% |
|
|
|
|
| ||
Jefferson Smurfit Corp. |
|
|
|
|
| ||
8.250% 10/01/12 |
| $ | 400,000 |
| $ | 384,000 |
|
Smurfit-Stone Container Corp. |
|
|
|
|
| ||
8.375% 07/01/12 |
| 535,000 |
| 517,612 |
| ||
Stone Container Finance |
|
|
|
|
| ||
7.375% 07/15/14 |
| 625,000 |
| 568,750 |
| ||
|
|
|
| 1,470,362 |
| ||
Transportation—3.7% |
|
|
|
|
| ||
Transportation – Marine—2.8% |
|
|
|
|
| ||
Overseas Shipholding Group |
|
|
|
|
| ||
8.250% 03/15/13 |
| 1,165,000 |
| 1,226,162 |
| ||
Stena AB |
|
|
|
|
| ||
7.500% 11/01/13 |
| 1,250,000 |
| 1,203,125 |
| ||
Teekay Shipping Corp. |
|
|
|
|
| ||
8.875% 07/15/11 |
| 1,835,000 |
| 2,073,550 |
| ||
|
|
|
| 4,502,837 |
| ||
Transportation – Services—0.9% |
|
|
|
|
| ||
Offshore Logistics, Inc. |
|
|
|
|
| ||
6.125% 06/15/13 |
| 1,570,000 |
| 1,460,100 |
| ||
Technology—1.0% |
|
|
|
|
| ||
Office/Business Equipment—0.2% |
|
|
|
|
| ||
Office Automation & Equipment—0.2% |
|
|
|
|
| ||
Xerox Corp. |
|
|
|
|
| ||
7.125% 06/15/10 |
| 385,000 |
| 400,400 |
| ||
Semiconductors—0.8% |
|
|
|
|
| ||
Electronic Components – Semiconductors—0.8% |
|
|
|
|
| ||
Freescale Semiconductor, Inc. |
|
|
|
|
| ||
6.875% 07/15/11 |
| 1,165,000 |
| 1,220,338 |
| ||
Utilities—4.3% |
|
|
|
|
| ||
Electric—4.3% |
|
|
|
|
| ||
Electric – Generation—1.9% |
|
|
|
|
| ||
AES Corp. |
|
|
|
|
| ||
7.750% 03/01/14 |
| 1,680,000 |
| 1,761,900 |
| ||
Texas Genco LLC |
|
|
|
|
| ||
6.875% 12/15/14 (a) |
| 1,200,000 |
| 1,300,500 |
| ||
|
|
|
| 3,062,400 |
| ||
Electric – Integrated—1.7% |
|
|
|
|
| ||
CMS Energy Corp. |
|
|
|
|
| ||
6.875% 12/15/15 |
| 300,000 |
| 303,000 |
| ||
8.500% 04/15/11 |
| 190,000 |
| 207,100 |
| ||
Nevada Power Co. |
|
|
|
|
| ||
5.875% 01/15/15 |
| 775,000 |
| 769,877 |
| ||
6.500% 04/15/12 |
| 200,000 |
| 200,500 |
| ||
NorthWestern Corp. |
|
|
|
|
| ||
5.875% 11/01/14 |
| 50,000 |
| 49,813 |
| ||
TECO Energy, Inc. |
|
|
|
|
| ||
6.750% 05/01/15 |
| 675,000 |
| 704,531 |
| ||
7.000% 05/01/12 |
| 595,000 |
| 626,238 |
| ||
|
|
|
| 2,861,059 |
|
See Accompanying Notes to Financial Statements.
49
|
| Par |
| Value |
| ||
Independent Power Producer—0.7% |
|
|
|
|
| ||
Mirant North America LLC |
|
|
|
|
| ||
7.375% 12/31/13 (a) |
| $ | 670,000 |
| $ | 678,375 |
|
MSW Energy Holdings LLC |
|
|
|
|
| ||
7.375% 09/01/10 |
| 400,000 |
| 411,000 |
| ||
|
|
|
| 1,089,375 |
| ||
Total Corporate Fixed-Income Bonds & Notes |
|
|
| 132,277,499 |
| ||
|
| Units |
|
|
| ||
WARRANTS (c)—0.0% |
|
|
|
|
| ||
Communications—0.0% |
|
|
|
|
| ||
Telecommunication Services—0.0% |
|
|
|
|
| ||
Cellular Telecommunications—0.0% |
|
|
|
|
| ||
UbiquiTel, Inc. |
|
|
|
|
| ||
Expires 04/15/10 (a)(d) |
| 50 |
| 1 |
| ||
Industrials—0.0% |
|
|
|
|
| ||
Transportation—0.0% |
|
|
|
|
| ||
Transportation – Trucks—0.0% |
|
|
|
|
| ||
QDI LLC |
|
|
|
|
| ||
Expires 01/15/07 (a)(d) |
| 153 |
| 769 |
| ||
Total Warrants |
|
|
| 770 |
| ||
|
| Par |
|
|
| ||
SHORT-TERM OBLIGATION—17.1% |
|
|
|
|
| ||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Bond maturing 02/15/12, market value of $28,368,946 (repurchase proceeds $27,818,443) |
| $ | 27,808,000 |
| 27,808,000 |
| |
Total Short-Term Obligation |
|
|
| 27,808,000 |
| ||
Total Investments—98.4% |
|
|
| 160,086,269 |
| ||
Other Assets & Liabilities, Net—1.6% |
|
|
| 2,589,607 |
| ||
Net Assets—100.0% |
|
|
| $ | 162,675,876 |
|
Notes to Investment Portfolio:
(a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, these securities, which did not include any illiquid securities except for the following, amounted to $14,659,570, which represents 9.0% of net assets.
Acquisition |
| Date |
| Acquisition |
| Cost |
| Value |
| ||
UbiquiTel, Inc. |
| 04/11/00 |
| 50 |
| $ | 2,500 |
| $ | 1 |
|
QDI LLC |
| 06/01/02 |
| 153 |
| — |
| 769 |
| ||
|
|
|
|
|
|
|
| $ | 770 |
| |
(b) The interest rate shown on floating rate or variable rate securities reflects the rate at December 31, 2005.
(c) Non-income producing security.
(d) Represents fair value as determined in good faith under procedures approved by the Board of Trustees.
(e) Cost for federal income tax purposes is $162,382,075.
At December 31, 2005, the asset allocation of the Fund is as follows:
Asset Allocation (Unaudited) |
| % of |
|
Corporate Fixed-Income Bonds & Notes |
| 81.3 | % |
Warrants |
| 0.0 | * |
Short-Term Obligation |
| 17.1 |
|
Other Assets & Liabilities, Net |
| 1.6 |
|
|
| 100.0 | % |
* Rounds to less than 0.1%.
Acronym |
| Name |
REIT |
| Real Estate Investment Trust |
See Accompanying Notes to Financial Statements.
50
Statement of Assets & Liabilities
Columbia High Yield Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost (including repurchase agreement) |
| $ | 161,740,479 |
|
Investments, at value |
| $ | 132,278,269 |
|
Repurchase agreement |
| 27,808,000 |
| |
Cash |
| 97 |
| |
Receivable for: |
|
|
| |
Fund shares sold |
| 243,809 |
| |
Interest |
| 2,446,621 |
| |
Expense reimbursement due from Investment Advisor |
| 31,519 |
| |
Deferred Trustees’ compensation plan |
| 5,205 |
| |
Total Assets |
| 162,813,520 |
| |
Liabilities: |
|
|
| |
Payable for: |
|
|
| |
Fund shares repurchased |
| 7,492 |
| |
Investment advisory fee |
| 79,167 |
| |
Transfer agent fee |
| 19 |
| |
Pricing and bookkeeping fees |
| 6,387 |
| |
Trustees’ fees |
| 500 |
| |
Audit fee |
| 20,658 |
| |
Custody fee |
| 1,043 |
| |
Distribution fee–Class B |
| 7,827 |
| |
Chief compliance officer expenses |
| 1,659 |
| |
Deferred Trustees’ fees |
| 5,205 |
| |
Other liabilities |
| 7,687 |
| |
Total Liabilities |
| 137,644 |
| |
Net Assets |
| $ | 162,675,876 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 167,109,089 |
|
Undistributed net investment income |
| 6,783,628 |
| |
Accumulated net realized loss |
| (9,562,631 | ) | |
Net unrealized depreciation on investments |
| (1,654,210 | ) | |
Net Assets |
| $ | 162,675,876 |
|
Class A: |
|
|
| |
Net assets |
| $ | 7,535,074 |
|
Shares outstanding |
| 769,681 |
| |
Net asset value per share |
| $ | 9.79 |
|
Class B: |
|
|
| |
Net assets |
| $ | 155,140,802 |
|
Shares outstanding |
| 15,840,094 |
| |
Net asset value per share |
| $ | 9.79 |
|
See Accompanying Notes to Financial Statements.
51
Statement of Operations
Columbia High Yield Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Interest |
| $ | 7,581,049 |
|
Expenses: |
|
|
| |
Investment advisory fee |
| 727,879 |
| |
Distribution fee–Class B |
| 281,928 |
| |
Transfer agent fee |
| 4,204 |
| |
Pricing and bookkeeping fees |
| 41,942 |
| |
Trustees’ fees |
| 9,512 |
| |
Custody fee |
| 9,582 |
| |
Chief compliance officer expenses (See Note 4) |
| 4,593 |
| |
Non-recurring costs (See Note 6) |
| 2,295 |
| |
Other expenses |
| 78,255 |
| |
Total Expenses |
| 1,160,190 |
| |
Fees and expenses waived or reimbursed by Investment Advisor |
| (145,706 | ) | |
Fees waived by Transfer Agent |
| (795 | ) | |
Fees waived by Distributor–Class B |
| (214,265 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 6) |
| (2,295 | ) | |
Custody earnings credit |
| (1,587 | ) | |
Net Expenses |
| 795,542 |
| |
Net Investment Income |
| 6,785,507 |
| |
Net Realized and Unrealized Gain (Loss) on Investments: |
|
|
| |
Net realized gain on investments |
| 21,272 |
| |
Net changed in unrealized appreciation (depreciation) on investments |
| (3,365,241 | ) | |
Net Loss |
| (3,343,969 | ) | |
Net Increase in Net Assets from Operations |
| $ | 3,441,538 |
|
See Accompanying Notes to Financial Statements.
52
Statement of Changes in Net Assets
Columbia High Yield Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 6,785,507 |
| $ | 3,093,238 |
|
Net realized gain on investments and foreign currency transactions |
| 21,272 |
| 375,783 |
| ||
Net change in unrealized appreciation (depreciation) on investments and foreign currency translations |
| (3,365,241 | ) | 698,623 |
| ||
Net Increase from Operations |
| 3,441,538 |
| 4,167,644 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (566,446 | ) | ||
Class B |
| — |
| (2,926,406 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (3,492,852 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 519,602 |
| 3,321,916 |
| ||
Distributions reinvested |
| — |
| 566,446 |
| ||
Redemptions |
| (2,899,313 | ) | (6,454,849 | ) | ||
Net Decrease |
| (2,379,711 | ) | (2,566,487 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 86,891,231 |
| 48,472,376 |
| ||
Distributions reinvested |
| — |
| 2,926,406 |
| ||
Redemptions |
| (6,761,376 | ) | (8,511,450 | ) | ||
Net Increase |
| 80,129,855 |
| 42,887,332 |
| ||
Net Increase from Share Transactions |
| 77,750,144 |
| 40,320,845 |
| ||
Total Increase in Net Assets |
| 81,191,682 |
| 40,995,637 |
| ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 81,484,194 |
| 40,488,557 |
| ||
End of period |
| $ | 162,675,876 |
| $ | 81,484,194 |
|
Undistributed (overdistrbuted) net investment income at end of period |
| $ | 6,783,628 |
| $ | (334,201 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 54,106 |
| 352,089 |
| ||
Issued for distributions reinvested |
| — |
| 59,622 |
| ||
Redemptions |
| (302,064 | ) | (682,101 | ) | ||
Net Decrease |
| (247,958 | ) | (270,390 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 9,039,366 |
| 5,089,040 |
| ||
Issued for distributions reinvested |
| — |
| 306,985 |
| ||
Redemptions |
| (702,899 | ) | (902,982 | ) | ||
Net Increase |
| 8,336,467 |
| 4,493,043 |
|
See Accompanying Notes to Financial Statements.
53
Notes to Financial Statements
Columbia High Yield Fund, Variable Series / December 31, 2005
Note 1. Organization
Columbia High Yield Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks a high level of current income by investing primarily in lower-rated fixed income securities. Capital appreciation is a secondary goal when consistent with the goal of high current income.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Debt securities generally are valued by pricing services approved by the Fund’s Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange (“NYSE”). The values of such securities used in computing the net asset value of the Fund’s shares are determined as of such times. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund’s net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a
54
repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Corporate actions and dividend income are recorded on the ex-date.
Foreign Currency Transactions—The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day’s exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations) and realized and unrealized gains (losses) are allocated to each class of the Fund on a daily basis for purposes of determining the net asset value of each class. Income and expenses are allocated to each class based on the settled shares method, while realized and unrealized gains (losses) are allocated based on the relative net assets of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for discount accretion/premium amortization on debt securities and market discount reclassifications were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | 332,322 |
| $ | (332,322 | ) | $ | — |
|
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income* |
| $ | — |
| $ | 3,492,852 |
|
Long-term capital gains |
| — |
| — |
| ||
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions.
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 7,382,254 |
| $ | — |
| $ | (2,295,806 | ) |
* The differences between book-basis and tax-basis net unrealized depreciation are primarily due to deferral of losses from wash sales and discount accretion/premium amortization on debt securities.
55
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 660,284 |
|
Unrealized depreciation |
| (2,956,090 | ) | |
Net unrealized depreciation |
| $ | (2,295,806 | ) |
The following capital loss carryforwards, determined as of December 31, 2005, may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of Expiration |
| Capital Loss |
| |
2007 |
| $ | 1,061,194 |
|
2008 |
| 2,794,418 |
| |
2009 |
| 4,226,387 |
| |
2010 |
| 260,165 |
| |
2011 |
| 908,941 |
| |
2013 |
| 97,587 |
| |
|
| $ | 9,348,692 |
|
Of the capital loss carryforwards attributable to the Fund, $7,971,674 ($1,027,358 expiring 12/31/07, $2,734,633 expiring 12/31/08, $4,075,815 expiring 12/31/09 and $133,868 expiring 12/31/10) remain from the Fund’s merger with Colonial High Yield Securities Fund, Variable Series. Utilization of these losses could be subject to limitations imposed by the Internal Revenue Code.
Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2005, post-October capital losses of $166,809 attributed to security transactions were deferred to January 1, 2006.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $1 billion |
| 0.60 | % |
Next $500 million |
| 0.55 | % |
Over $1.5 billion |
| 0.50 | % |
For the year ended December 31, 2005, the Fund’s effective investment advisory fee rate was 0.60%.
Administration Fee—Columbia provides administrative and other services to the Fund. The Fund is not charged a fee for these services.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.035% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $5,000.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended
56
December 31, 2005, the Transfer Agent waived fees of $795 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was less than 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Effective January 1, 2005, Columbia has voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of distribution fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 0.60% annually of the Fund’s average daily net assets. In addition, the Distributor has voluntarily agreed to waive Class B distribution fees at an annual rate of 0.19% of the Class B average daily net assets. Columbia or the Distributor, at their discretion, may revise or discontinue these arrangements any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,580 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $93,497,453 and $31,777,740, respectively.
Note 6. Disclosure of Significant Risks and Contingencies
High-Yield Securities—Investing in high-yield securities may involve greater credit risk and considerations not typically associated with investing in U.S. government bonds and other higher quality fixed income securities. These securities are non-investment grade securities, often referred to as “junk” bonds. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid to the extent that there is no established secondary market.
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Foreign Securities—There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in
57
disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $2,295 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
Note 7. Proposed Reorganization
The Board of Trustees of the Fund has approved a proposal to merge the Fund into the Nations High Yield Bond Portfolio, a series of Nations Separate Account Trust. The proposal is subject to approval by shareholders of the Fund and the satisfaction of certain other conditions. The merger, if approved, is expected to be completed on or about April 28, 2006. If the merger is not approved, the Fund would be reimbursed for any related merger costs.
58
Financial Highlights
Columbia High Yield Fund, Variable Series—Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 9.55 |
| $ | 9.42 |
| $ | 8.96 |
| $ | 9.29 |
| $ | 9.35 |
|
Income from Investment Operations: |
|
|
|
|
|
|
| |||||||||
Net investment income |
| 0.54 | (b) | 0.54 | (b) | 0.56 | (b) | 0.59 |
| 0.64 | (c) | |||||
Net realized and unrealized gain (loss) on investments and foreign currency |
| (0.30 | ) | 0.11 |
| 0.52 |
| (0.35 | ) | (0.07 | )(c) | |||||
Total from Investment Operations |
| 0.24 |
| 0.65 |
| 1.08 |
| 0.24 |
| 0.57 |
| |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
| |||||||||
From net investment income |
| — |
| (0.52 | ) | (0.60 | ) | (0.57 | ) | (0.63 | ) | |||||
From net realized gains |
| — |
| — |
| (0.02 | ) | — |
| — |
| |||||
Total Distributions Declared to Shareholders |
| — |
| (0.52 | ) | (0.62 | ) | (0.57 | ) | (0.63 | ) | |||||
Net Asset Value, End of Period |
| $ | 9.79 |
| $ | 9.55 |
| $ | 9.42 |
| $ | 8.96 |
| $ | 9.29 |
|
Total return (d)(e)(f) |
| 2.51 | % | 7.07 | % | 12.37 | % | 2.74 | % | 6.18 | % | |||||
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
| |||||||||
Expenses (g) |
| 0.60 | % | 0.60 | % | 0.77 | % | 1.68 | % | 1.60 | % | |||||
Net investment income (g) |
| 5.64 | % | 5.71 | % | 6.06 | % | 6.46 | % | 6.89 | %(c) | |||||
Waiver/reimbursement |
| 0.12 | % | 0.16 | % | 0.36 | % | 1.68 | % | 1.63 | % | |||||
Portfolio turnover rate |
| 30 | % | 38 | % | 112 | % | 49 | % | 54 | % | |||||
Net assets, end of period (000’s) |
| $ | 7,535 |
| $ | 9,722 |
| $ | 12,132 |
| $ | 2,197 |
| $ | 2,421 |
|
(a) The information shown in this table for the periods prior to April 14, 2003, relates to shares of the Galaxy VIP Columbia High Yield Fund II, the predecessor to the Columbia High Yield Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the period.
(c) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective January 1, 2001. The effect of the changes for the year ended December 31, 2001 (which is reflected in the amounts shown above) on the net investment income per share, the net realized and unrealized gain (loss) per share and the ratio of net investment income to average net assets is $0.01, $(0.01) and 0.25%, respectively.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(f) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) The benefits derived from custody credits had an impact of less than 0.01%.
59
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia High Yield Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Columbia High Yield Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the years ended December 31, 2005, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for periods prior to January 1, 2003 were audited by another independent registered public accounting firm whose report dated February 7, 2003 expressed an unqualified opinion on those highlights.
PricewaterhouseCoopers LLP |
Boston, Massachusetts |
February 21, 2006 |
60
Portfolio Manager’s Discussion
Columbia International Fund, Variable Series / December 31, 2005
Columbia International Fund, Variable Series seeks long-term growth.
Fred Copper has managed or co-managed the fund since October 2005. Mr. Copper has been associated with Columbia Management Advisors, LLC since September 2005.
International equities produced outstanding returns in 2005, buoyed by low interest rates, a wave of corporate restructuring and a surge in demand for natural resources. Performance was positive in nearly every international market represented in the fund’s benchmark. Emerging market returns surpassed developed market returns and the fund’s performance relative to the MSCI EAFE Index(1) benefited from its out-of-index weight in emerging markets. An overweight in Japan also aided performance relative to the fund’s benchmark. However, the fund’s return fell short of the return of the MSCI All Country World ex US Index(2) because its exposure to emerging markets was less than that of this index.
Beginning in 2005, the fund’s benchmark was changed to the MSCI EAFE Index. Previously, the fund’s returns were compared to the MSCI All Country World ex US Index. We believe that the MSCI EAFE Index offers shareholders a more useful comparison of the fund’s relative performance.
A decision to underweight the materials sector also detracted from return. Materials was one of the top-performing sectors for the year, and the fund missed out on the strong gains, particularly from steel companies, which were the beneficiaries of soaring demand from China.
Japan led the developed markets
The portfolio benefited from a decision to emphasize Japanese stocks above their weight in the indices. Japan was the best-performing developed market, the beneficiary of a relatively strong economy and a return to inflation after several years of deflation. The portfolio’s two top performers were Japanese stocks Komatsu Ltd., a manufacturer of heavy equipment, and Yamada Denki Co. Ltd., a consumer electronics retailer (1.1% and 0.6% of net assets, respectively). We invested in both Komatsu and Yamada Denki because we believed that the market had undervalued the companies based on our estimates of their potential for earnings growth. Komatsu reaped the rewards of increased spending on infrastructure development throughout the world. Yamada Denki benefited from good brand recognition, a superior business model and great bargaining power within its industry.
Performance was also aided by a decision to underweight the United Kingdom (UK). A relatively tight monetary policy had a negative impact on UK stocks and the UK was one of the worst-performing markets.
Stock selection produced mixed results
As international markets moved higher, prices on certain stocks were bid up well beyond what we believed they deserved on the basis of their earning potential. As a result, our focus on stocks with attractive valuations, which is a key component of the fund’s investment strategy, kept us out of some big performers. Softbank Corp., a Japanese Internet incubator company, is an example of a stock that looked expensive, but which had tremendous performance for the index.
For most of the year, the portfolio was overweight in energy but when prices began to decline, we significantly reduced the position and locked in earlier gains. EnCana Corp. (0.4% of net assets), one of the largest oil and gas exploration companies in North America was a particularly strong performer for the fund. The company’s annual production growth and operating margins were significantly above its industry peers, and it was rewarded with a significantly higher return.
A positive outlook for international investors
We believe that relatively low global interest rates, modest inflation and continued economic growth have the potential to support the equity markets in 2006. We think that the emerging markets have more upside potential than developed markets and plan to maintain our out-of-index weight. We believe that the Japanese market may be over-valued, and we expect some near-term price declines. As a result, we may decrease our commitment to Japan with the expectation that we would rebuild the position on weakness. After the dollar’s strong run-up in 2005, we believe that it could decline over the next several months. A lower dollar should be positive for US-based investors, because the value of their investments would be enhanced when converted back to a weaker currency.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
An investment in the Columbia International Fund, Variable Series may present certain risks, including stock market fluctuations that occur in response to economic and business developments. International investing may involve certain risks, including foreign taxation, currency fluctuations, risks associated with possible differences in financial standards and other monetary and political risks.
Since the fund may invest a greater percentage of its total assets in a single issuer, it may have increased risk compared to a similar diversified fund.
Holdings are disclosed as of December 31, 2005 and are subject to change.
(1) The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US and Canada.
(2) The MSCI All Country World ex US Index is an unmanaged index of global stock market performance that includes developed and emerging markets but excludes the US.
It is not possible to invest directly in an index.
61
Performance Information
Columbia International Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| 10-year |
|
Class A (05/02/94) |
| 13.16 |
| 2.72 |
| 4.22 |
|
MSCI EAFE Index |
| 13.54 |
| 4.55 |
| 5.84 |
|
MSCI All Country World ex US Index |
| 17.11 |
| 6.66 |
| 6.70 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($ ) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 1.90 |
| 2.15 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 01/01/96 – 12/31/05
The graph compares the result of a hypothetical $10,000 investment in the fund with the indexes. The Indexes are unmanaged and returns for the indexes and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes are due.
Total return performance includes changes in share price and reinvestment of all distributions. Beginning in 2005, the Fund’s benchmark was changed to MSCI EAFE Index. The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US and Canada. The MSCI All Country World ex US Index is an unmanaged index of global stock market performance that includes developed and emerging markets but excludes the US. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
62
Understanding Your Expenses
Columbia International Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00 which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s |
| ||||||
Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| ||||
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,155.92 |
| 1,020.42 |
| 5.16 |
| 4.84 |
| 0.95 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the investment advisor and transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
63
Investment Portfolio
Columbia International Fund, Variable Series / December 31, 2005
|
| Shares |
| Value |
| |
COMMON STOCKS—98.0% |
|
|
|
|
| |
Consumer Discretionary—10.0% |
|
|
|
|
| |
Auto Components — 1.7% |
|
|
|
|
| |
Compagnie Generale des Etablissements Michelin, Class B |
| 5,172 |
| $ | 290,727 |
|
Continental AG |
| 4,684 |
| 415,793 |
| |
Denso Corp. |
| 13,400 |
| 462,441 |
| |
|
|
|
| 1,168,961 |
| |
Automobiles—2.7% |
|
|
|
|
| |
Nissan Motor Co., Ltd. |
| 25,400 |
| 257,371 |
| |
Renault SA |
| 3,610 |
| 294,470 |
| |
Toyota Motor Corp. |
| 24,200 |
| 1,255,810 |
| |
|
|
|
| 1,807,651 |
| |
Hotels, Restaurants & Leisure—0.5% |
|
|
|
|
| |
Accor SA |
| 6,245 |
| 343,500 |
| |
Household Durables—2.1% |
|
|
|
|
| |
Daiwa House Industry Co., Ltd. |
| 20,000 |
| 312,714 |
| |
Matsushita Electric Industrial Co., Ltd. |
| 34,000 |
| 655,870 |
| |
Sharp Corp. |
| 12,000 |
| 182,541 |
| |
Sony Corp. |
| 6,700 |
| 273,829 |
| |
|
|
|
| 1,424,954 |
| |
Leisure Equipment & Products—0.6% |
|
|
|
|
| |
Fuji Photo Film Co., Ltd. |
| 5,300 |
| 175,266 |
| |
Sega Sammy Holdings, Inc. |
| 6,000 |
| 200,958 |
| |
|
|
|
| 376,224 |
| |
Media—1.8% |
|
|
|
|
| |
British Sky Broadcasting Group PLC |
| 34,739 |
| 296,751 |
| |
Pearson PLC |
| 19,614 |
| 232,003 |
| |
Vivendi Universal SA |
| 22,621 |
| 708,625 |
| |
|
|
|
| 1,237,379 |
| |
Specialty Retail—0.6% |
|
|
|
|
| |
Yamada Denki Co., Ltd. |
| 3,200 |
| 400,492 |
| |
Consumer Staples—7.9% |
|
|
|
|
| |
Beverages—0.7% |
|
|
|
|
| |
Diageo PLC |
| 33,219 |
| 481,517 |
| |
Food & Staples Retailing—0.3% |
|
|
|
|
| |
FamilyMart Co., Ltd. |
| 6,600 |
| 223,292 |
| |
Food Products—3.6% |
|
|
|
|
| |
Nestle SA, Registered Shares |
| 4,851 |
| 1,450,815 |
| |
Royal Numico NV (a) |
| 9,477 |
| 392,469 |
| |
Unilever PLC |
| 57,904 |
| 574,332 |
| |
|
|
|
| 2,417,616 |
| |
Household Products—1.3% |
|
|
|
|
| |
Kao Corp. |
| 19,000 |
| 509,094 |
| |
Reckitt Benckiser PLC |
| 10,858 |
| 358,679 |
| |
|
|
|
| 867,773 |
| |
Tobacco—2.0% |
|
|
|
|
| |
British American Tobacco PLC |
| 25,234 |
| 564,397 |
| |
Imperial Tobacco Group PLC |
| 15,700 |
| 469,196 |
| |
Japan Tobacco, Inc. |
| 23 |
| 335,439 |
| |
|
|
|
| 1,369,032 |
| |
Energy—8.6% |
|
|
|
|
| |
Energy Equipment & Services—0.8% |
|
|
|
|
| |
Saipem S.p.A. |
| 23,517 |
| $ | 385,887 |
|
Stolt Offshore SA (a) |
| 15,000 |
| 174,463 |
| |
|
|
|
| 560,350 |
| |
Oil, Gas & Consumable Fuels—7.8% |
|
|
|
|
| |
BG Group PLC |
| 37,052 |
| 366,232 |
| |
BP PLC |
| 108,607 |
| 1,156,654 |
| |
CNOOC Ltd. |
| 301,000 |
| 199,925 |
| |
EnCana Corp. |
| 6,700 |
| 302,939 |
| |
ENI S.p.A. |
| 24,657 |
| 683,955 |
| |
LUKOIL, ADR |
| 2,440 |
| 143,960 |
| |
OMV AG |
| 4,098 |
| 238,888 |
| |
Royal Dutch Shell PLC, Class A |
| 18,473 |
| 562,874 |
| |
Royal Dutch Shell PLC, Class B |
| 14,396 |
| 460,196 |
| |
Statoil ASA |
| 10,100 |
| 231,950 |
| |
Total SA |
| 3,620 |
| 909,429 |
| |
|
|
|
| 5,257,002 |
| |
Financials—30.2% |
|
|
|
|
| |
Capital Markets—3.9% |
|
|
|
|
| |
Credit Suisse Group, Registered Shares |
| 12,100 |
| 616,947 |
| |
Deutsche Bank AG, Registered Shares |
| 7,806 |
| 756,881 |
| |
Nomura Holdings, Inc. |
| 34,100 |
| 653,462 |
| |
UBS AG, Registered Shares |
| 6,343 |
| 603,865 |
| |
|
|
|
| 2,631,155 |
| |
Commercial Banks—16.2% |
|
|
|
|
| |
Australia & New Zealand Banking Group Ltd. |
| 28,493 |
| 500,273 |
| |
Banco Bilbao Vizcaya Argentaria SA |
| 53,605 |
| 957,021 |
| |
Banco Santander Central Hispano SA |
| 46,936 |
| 619,578 |
| |
Barclays PLC |
| 86,303 |
| 907,240 |
| |
BNP Paribas SA |
| 11,213 |
| 907,351 |
| |
Commerzbank AG |
| 9,906 |
| 305,155 |
| |
DNB NOR ASA |
| 12,600 |
| 134,414 |
| |
ForeningsSparbanken AB |
| 9,700 |
| 264,340 |
| |
HBOS PLC |
| 49,476 |
| 845,277 |
| |
HSBC Holdings PLC |
| 65,281 |
| 1,047,909 |
| |
Mitsubishi UFJ Financial Group, Inc. |
| 63 |
| 854,708 |
| |
Mizuho Financial Group, Inc. |
| 101 |
| 801,594 |
| |
National Bank of Greece SA |
| 10,105 |
| 429,961 |
| |
Societe Generale |
| 6,709 |
| 825,255 |
| |
Sumitomo Mitsui Financial Group, Inc. |
| 45 |
| 476,958 |
| |
Sumitomo Trust & Banking Co. Ltd. |
| 33,000 |
| 337,177 |
| |
United Overseas Bank Ltd. |
| 35,000 |
| 307,341 |
| |
Westpac Banking Corp. |
| 24,981 |
| 416,634 |
| |
|
|
|
| 10,938,186 |
|
See Accompanying Notes to Financial Statements.
64
|
| Shares |
| Value |
| |
Consumer Finance—1.1% |
|
|
|
|
| |
Aiful Corp. |
| 3,100 |
| $ | 258,914 |
|
ORIX Corp. |
| 1,400 |
| 356,722 |
| |
Takefuji Corp. |
| 2,540 |
| 172,513 |
| |
|
|
|
| 788,149 |
| |
Diversified Financial Services—1.6% |
|
|
|
|
| |
Fortis |
| 11,523 |
| 367,654 |
| |
ING Groep NV |
| 18,498 |
| 641,664 |
| |
Suncorp-Metway Ltd. |
| 6,831 |
| 100,406 |
| |
|
|
|
| 1,109,724 |
| |
Insurance—5.9% |
|
|
|
|
| |
Allianz AG, Registered Shares |
| 5,027 |
| 761,430 |
| |
Aviva PLC |
| 46,448 |
| 563,393 |
| |
AXA |
| 23,224 |
| 749,511 |
| |
Mitsui Sumitomo Insurance Co., Ltd. |
| 41,000 |
| 501,658 |
| |
Muenchener Rueckversicherungs AG, Registered Shares |
| 1,756 |
| 237,788 |
| |
QBE Insurance Group Ltd. |
| 23,127 |
| 332,306 |
| |
Sampo Oyj, Class A |
| 33,900 |
| 590,775 |
| |
Storebrand ASA |
| 27,800 |
| 239,929 |
| |
|
|
|
| 3,976,790 |
| |
Real Estate—1.5% |
|
|
|
|
| |
CapitaLand Ltd. |
| 193,000 |
| 399,314 |
| |
Sun Hung Kai Properties Ltd. |
| 32,000 |
| 312,627 |
| |
Swire Pacific Ltd., Class A |
| 36,500 |
| 327,169 |
| |
|
|
|
| 1,039,110 |
| |
Health Care—8.0% |
|
|
|
|
| |
Health Care Equipment & Supplies—0.8% |
|
|
|
|
| |
GN Store Nord A/S |
| 29,200 |
| 382,260 |
| |
Terumo Corp. |
| 5,500 |
| 162,759 |
| |
|
|
|
| 545,019 |
| |
Pharmaceuticals—7.2% |
|
|
|
|
| |
Astellas Pharma, Inc. |
| 4,900 |
| 191,122 |
| |
AstraZeneca PLC |
| 15,569 |
| 757,790 |
| |
Eisai Co., Ltd. |
| 6,000 |
| 251,834 |
| |
GlaxoSmithKline PLC |
| 31,508 |
| 796,338 |
| |
Novartis AG, Registered Shares |
| 12,607 |
| 662,466 |
| |
Roche Holding AG, Genusschein Shares |
| 3,434 |
| 515,603 |
| |
Sanofi-Aventis |
| 4,674 |
| 409,482 |
| |
Takeda Pharmaceutical Co., Ltd. |
| 9,400 |
| 508,517 |
| |
Teva Pharmaceutical Industries Ltd., ADR |
| 18,500 |
| 795,685 |
| |
|
|
|
| 4,888,837 |
| |
Industrials—11.0% |
|
|
|
|
| |
Aerospace & Defense—0.4% |
|
|
|
|
| |
Singapore Technologies Engineering Ltd. |
| 148,000 |
| 254,582 |
| |
Air Freight & Logistics—0.3% |
|
|
|
|
| |
Deutsche Post AG, Registered Shares |
| 8,392 |
| 203,475 |
| |
Building Products—0.3% |
|
|
|
|
| |
Nippon Sheet Glass Co., Ltd. |
| 48,000 |
| $ | 209,607 |
|
Commercial Services & Supplies—0.6% |
|
|
|
|
| |
Randstad Holding NV |
| 5,660 |
| 245,855 |
| |
Securitas AB, Class B |
| 10,200 |
| 169,476 |
| |
|
|
|
| 415,331 |
| |
Construction & Engineering—1.7% |
|
|
|
|
| |
Shimizu Corp. |
| 93,000 |
| 683,690 |
| |
Vinci SA |
| 5,523 |
| 475,035 |
| |
|
|
|
| 1,158,725 |
| |
Electrical Equipment—1.6% |
|
|
|
|
| |
ABB Ltd. (a) |
| 38,252 |
| 371,152 |
| |
Mitsubishi Electric Corp. |
| 60,000 |
| 424,810 |
| |
Shanghai Electric Group Co., Ltd., Class H (a) |
| 738,000 |
| 252,230 |
| |
|
|
|
| 1,048,192 |
| |
Industrial Conglomerates—1.7% |
|
|
|
|
| |
Hutchison Whampoa Ltd. |
| 34,000 |
| 324,054 |
| |
SembCorp Industries Ltd. |
| 120,140 |
| 197,987 |
| |
Siemens AG, Registered Shares |
| 3,268 |
| 280,115 |
| |
Smiths Group PLC |
| 19,995 |
| 359,839 |
| |
|
|
|
| 1,161,995 |
| |
Machinery—2.0% |
|
|
|
|
| |
Atlas Copco AB, Class B |
| 24,600 |
| 490,792 |
| |
Komatsu Ltd. |
| 44,000 |
| 727,892 |
| |
THK Co., Ltd. |
| 6,000 |
| 156,697 |
| |
|
|
|
| 1,375,381 |
| |
Marine—0.4% |
|
|
|
|
| |
Kawasaki Kisen Kaisha Ltd. |
| 38,000 |
| 238,436 |
| |
Road & Rail—1.1% |
|
|
|
|
| |
Canadian Pacific Railway Ltd. |
| 4,600 |
| 192,753 |
| |
ComfortDelGro Corp., Ltd. |
| 180,000 |
| 173,217 |
| |
East Japan Railway Co. |
| 53 |
| 364,464 |
| |
|
|
|
| 730,434 |
| |
Trading Companies & Distributors—0.9% |
|
|
|
|
| |
Mitsubishi Corp. |
| 28,900 |
| 639,581 |
| |
Information Technology—7.0% |
|
|
|
|
| |
Communications Equipment—1.3% |
|
|
|
|
| |
Nokia Oyj |
| 21,550 |
| 394,177 |
| |
Telefonaktiebolaget LM Ericsson, ADR |
| 13,400 |
| 460,960 |
| |
|
|
|
| 855,137 |
| |
Computers & Peripherals—0.6% |
|
|
|
|
| |
FUJITSU Ltd. |
| 17,000 |
| 129,444 |
| |
Toshiba Corp. |
| 51,000 |
| 304,439 |
| |
|
|
|
| 433,883 |
| |
Electronic Equipment & Instruments—1.4% |
|
|
|
|
| |
Hoya Corp. |
| 10,100 |
| 363,115 |
| |
Murata Manufacturing Co., Ltd. |
| 5,500 |
| 352,567 |
| |
Omron Corp. |
| 10,500 |
| 242,168 |
| |
|
|
|
| 957,850 |
|
See Accompanying Notes to Financial Statements.
65
|
| Shares |
| Value |
| |
Office Electronics—0.7% |
|
|
|
|
| |
Canon, Inc. |
| 7,700 |
| $ | 450,502 |
|
Semiconductors & Semiconductor Equipment—1.8% |
|
|
|
|
| |
Advantest Corp. |
| 2,100 |
| 211,718 |
| |
ASML Holding NV (a) |
| 15,906 |
| 318,246 |
| |
Samsung Electronics Co., Ltd., GDR (b) |
| 1,408 |
| 463,936 |
| |
Taiwan Semiconductor Manufacturing Co., Ltd., ADR |
| 20,499 |
| 203,145 |
| |
|
|
|
| 1,197,045 |
| |
Software—1.2% |
|
|
|
|
| |
Cognos, Inc. (a) |
| 8,800 |
| 305,448 |
| |
Sage Group PLC |
| 40,398 |
| 179,322 |
| |
SAP AG |
| 1,866 |
| 338,355 |
| |
|
|
|
| 823,125 |
| |
Materials—6.7% |
|
|
|
|
| |
Chemicals—5.0% |
|
|
|
|
| |
BASF AG |
| 11,987 |
| 918,326 |
| |
Bayer AG |
| 11,124 |
| 464,759 |
| |
Shin-Etsu Chemical Co., Ltd. |
| 7,700 |
| 409,370 |
| |
Sumitomo Chemical Co., Ltd. |
| 71,000 |
| 487,642 |
| |
Syngenta AG (a) |
| 4,001 |
| 497,822 |
| |
Teijin Ltd. |
| 44,000 |
| 279,442 |
| |
Yara International ASA |
| 22,400 |
| 326,078 |
| |
|
|
|
| 3,383,439 |
| |
Metals & Mining—1.7% |
|
|
|
|
| |
Anglo American PLC |
| 15,906 |
| 541,579 |
| |
Kobe Steel Ltd. |
| 39,000 |
| 126,324 |
| |
Rio Tinto PLC |
| 10,441 |
| 476,937 |
| |
|
|
|
| 1,144,840 |
| |
Telecommunication Services—3.8% |
|
|
|
|
| |
Diversified Telecommunication Services—2.1% |
|
|
|
|
| |
Deutsche Telekom AG, Registered Shares |
| 32,780 |
| 546,420 |
| |
France Telecom SA |
| 9,611 |
| 238,834 |
| |
Nippon Telegraph & Telephone Corp. |
| 49 |
| 222,699 |
| |
Telekom Austria AG |
| 19,419 |
| 436,059 |
| |
|
|
|
| 1,444,012 |
| |
Wireless Telecommunication Services—1.7% |
|
|
|
|
| |
China Mobile Hong Kong Ltd. |
| 46,000 |
| 217,433 |
| |
NTT DoCoMo, Inc. |
| 127 |
| 193,836 |
| |
Vodafone Group PLC |
| 347,589 |
| 750,524 |
| |
|
|
|
| 1,161,793 |
| |
Utilities—4.8% |
|
|
|
|
| |
Electric Utilities—2.9% |
|
|
|
|
| |
E.ON AG |
| 7,829 |
| $ | 809,996 |
|
Fortum Oyj |
| 18,600 |
| 348,805 |
| |
Scottish & Southern Energy PLC |
| 23,475 |
| 409,542 |
| |
Tokyo Electric Power Co., Inc. |
| 18,200 |
| 442,134 |
| |
|
|
|
| 2,010,477 |
| |
Gas Utilities—0.5% |
|
|
|
|
| |
Tokyo Gas Co., Ltd. |
| 76,000 |
| 337,678 |
| |
Multi-Utilities—1.4% |
|
|
|
|
| |
RWE AG |
| 3,025 |
| 224,010 |
| |
Veolia Environnement |
| 15,515 |
| 702,400 |
| |
|
|
|
| 926,410 |
| |
Total Common Stocks |
|
|
| 66,414,643 |
| |
INVESTMENT COMPANIES—2.6% |
|
|
|
|
| |
iShares MSCI EAFE Index Fund |
| 18,675 |
| 1,110,416 |
| |
iShares MSCI South Korea Index Fund |
| 6,635 |
| 296,916 |
| |
iShares MSCI Taiwan Index Fund |
| 29,469 |
| 367,773 |
| |
Total Investment Companies |
|
|
| 1,775,105 |
| |
Total Investments—100.6% |
|
|
| 68,189,748 |
| |
Other Assets & Liabilities, Net—(0.6)% |
|
|
| (415,169 | ) | |
Net Assets—100.0% |
|
|
| $ | 67,774,579 |
|
Notes to Investment Portfolio:
(a) Non-income producing security.
(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the value of this security, which is not illiquid, represents 0.7% of net assets.
(c) Cost for federal income tax purposes is $53,827,335.
See Accompanying Notes to Financial Statements.
66
Columbia International Fund, Variable Series / December 31, 2005
The Fund was invested in the following countries at December 31, 2005:
Country (Unaudited) |
| Value |
| % of Total |
| |
Japan |
| $ | 18,771,310 |
| 27.5 | % |
United Kingdom |
| 13,158,521 |
| 19.3 |
| |
France |
| 6,854,619 |
| 10.0 |
| |
Germany |
| 6,262,503 |
| 9.2 |
| |
Switzerland |
| 4,718,670 |
| 6.9 |
| |
Netherlands |
| 1,598,234 |
| 2.3 |
| |
Spain |
| 1,576,599 |
| 2.3 |
| |
Sweden |
| 1,385,568 |
| 2.0 |
| |
Hong Kong |
| 1,381,208 |
| 2.0 |
| |
Australia |
| 1,349,619 |
| 2.0 |
| |
Finland |
| 1,333,757 |
| 2.0 |
| |
Singapore |
| 1,332,441 |
| 1.9 |
| |
United States |
| 1,110,416 |
| 1.6 |
| |
Italy |
| 1,069,842 |
| 1.6 |
| |
Norway |
| 932,371 |
| 1.4 |
| |
Canada |
| 801,140 |
| 1.2 |
| |
Israel |
| 795,685 |
| 1.2 |
| |
South Korea |
| 760,852 |
| 1.2 |
| |
Austria |
| 674,947 |
| 1.0 |
| |
Taiwan |
| 570,918 |
| 0.8 |
| |
Greece |
| 429,961 |
| 0.6 |
| |
Denmark |
| 382,260 |
| 0.6 |
| |
Belgium |
| 367,654 |
| 0.5 |
| |
China |
| 252,230 |
| 0.4 |
| |
Luxembourg |
| 174,463 |
| 0.3 |
| |
Russian Federation |
| 143,960 |
| 0.2 |
| |
|
| $ | 68,189,748 |
| 100.0 | % |
Certain securities are listed by country of underlying exposure but may trade predominantly on other exchanges.
Acronym |
| Name |
ADR |
| American Depositary Receipt |
|
|
|
GDR |
| Global Depositary Receipt |
See Accompanying Notes to Financial Statements.
67
Statement of Assets & Liabilities
Columbia International Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost |
| $ | 53,772,750 |
|
Investments, at value |
| $ | 68,189,748 |
|
Foreign currency (cost of $127,497) |
| 127,461 |
| |
Receivable for: |
|
|
| |
Investments sold |
| 1,082,104 |
| |
Dividends |
| 61,421 |
| |
Foreign tax reclaims |
| 33,884 |
| |
Expense reimbursement due from Investment Advisor |
| 32,962 |
| |
Deferred Trustees’ compensation plan |
| 8,041 |
| |
Total Assets |
| 69,535,621 |
| |
Liabilities: |
|
|
| |
Payable to custodian bank |
| 75,237 |
| |
Payable for: |
|
|
| |
Investments purchased |
| 1,208,582 |
| |
Fund shares repurchased |
| 360,526 |
| |
Investment advisory fee |
| 50,785 |
| |
Transfer agent fee |
| 14 |
| |
Pricing and bookkeeping fees |
| 8,141 |
| |
Trustees’ fees |
| 196 |
| |
Audit fee |
| 26,428 |
| |
Custody fee |
| 12,873 |
| |
Distribution fee—Class B |
| 1,764 |
| |
Chief compliance officer expenses |
| 1,432 |
| |
Deferred Trustees’ fees |
| 8,041 |
| |
Other liabilities |
| 7,023 |
| |
Total Liabilities |
| 1,761,042 |
| |
Net Assets |
| $ | 67,774,579 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 56,015,810 |
|
Undistributed net investment income |
| 869,244 |
| |
Accumulated net realized loss |
| (3,522,985 | ) | |
Net unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| 14,416,998 |
| |
Foreign currency translations |
| (4,488 | ) | |
Net Assets |
| $ | 67,774,579 |
|
Class A: |
|
|
| |
Net assets |
| $ | 61,525,433 |
|
Shares outstanding |
| 28,584,537 |
| |
Net asset value per share |
| $ | 2.15 |
|
Class B: |
|
|
| |
Net assets |
| $ | 6,249,146 |
|
Shares outstanding |
| 2,920,283 |
| |
Net asset value per share |
| $ | 2.14 |
|
See Accompanying Notes to Financial Statements.
68
Statement of Operations
Columbia International Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Dividends |
| $ | 1,695,092 |
|
Interest |
| 21,012 |
| |
Total Investment Income (net of foreign taxes withheld of $181,908) |
| 1,716,104 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 610,277 |
| |
Distribution fee—Class B |
| 15,352 |
| |
Transfer agent fee |
| 6,297 |
| |
Pricing and bookkeeping fees |
| 45,980 |
| |
Trustees’ fees |
| 8,627 |
| |
Custody fee |
| 75,203 |
| |
Chief compliance officer expenses (See Note 4) |
| 4,291 |
| |
Non-recurring costs (See Note 6) |
| 1,449 |
| |
Other expenses |
| 64,816 |
| |
Total Expenses |
| 832,292 |
| |
Fees and expenses waived or reimbursed by Investment Advisor |
| (143,575 | ) | |
Fees waived by Transfer Agent |
| (1,222 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 6) |
| (1,449 | ) | |
Custody earnings credit |
| (190 | ) | |
Net Expenses |
| 685,856 |
| |
Net Investment Income |
| 1,030,248 |
| |
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| 8,770,714 |
| |
Foreign currency transactions |
| (153,337 | ) | |
Net realized gain |
| 8,617,377 |
| |
Net change in unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| (1,288,733 | ) | |
Foreign currency translations |
| (7,926 | ) | |
Net change in unrealized appreciation (depreciation) |
| (1,296,659 | ) | |
Net Gain |
| 7,320,718 |
| |
Net Increase in Net Assets from Operations |
| $ | 8,350,966 |
|
See Accompanying Notes to Financial Statements.
69
Statement of Changes in Net Assets
Columbia International Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 1,030,248 |
| $ | 736,608 |
|
Net realized gain on investments, foreign currency transactions and foreign capital gains tax |
| 8,617,377 |
| 12,851,838 |
| ||
Net change in unrealized appreciation (depreciation) on investments, foreign currency translations and foreign capital gains tax |
| (1,296,659 | ) | (3,993,415 | ) | ||
Net Increase from Operations |
| 8,350,966 |
| 9,595,031 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (812,607 | ) | ||
Class B |
| — |
| (62,958 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (875,565 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 2,070,410 |
| 2,715,897 |
| ||
Distributions reinvested |
| — |
| 812,607 |
| ||
Redemptions |
| (18,556,564 | ) | (16,270,373 | ) | ||
Net Decrease |
| (16,486,154 | ) | (12,741,869 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 402,432 |
| 504,785 |
| ||
Distributions reinvested |
| — |
| 62,958 |
| ||
Redemptions |
| (1,676,477 | ) | (1,363,336 | ) | ||
Net Decrease |
| (1,274,045 | ) | (795,593 | ) | ||
Net Decrease from Share Transactions |
| (17,760,199 | ) | (13,537,462 | ) | ||
Total Decrease in Net Assets |
| (9,409,233 | ) | (4,817,996 | ) | ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 77,183,812 |
| 82,001,808 |
| ||
End of period |
| $ | 67,774,579 |
| $ | 77,183,812 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 869,244 |
| $ | (7,668 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 1,090,195 |
| 1,543,162 |
| ||
Issued for distributions reinvested |
| — |
| 432,171 |
| ||
Redemptions |
| (9,507,657 | ) | (9,365,532 | ) | ||
Net Decrease |
| (8,417,462 | ) | (7,390,199 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 208,470 |
| 302,309 |
| ||
Issued for distributions reinvested |
| — |
| 33,751 |
| ||
Redemptions |
| (870,287 | ) | (790,682 | ) | ||
Net Decrease |
| (661,817 | ) | (454,622 | ) |
See Accompanying Notes to Financial Statements.
70
Notes to Financial Statements
Columbia International Fund, Variable Series / December 31, 2005
Note 1. Organization
Columbia International Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a non-diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks long-term growth.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Equity securities and securities of certain investment companies are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange (“NYSE”). The values of such securities used in computing the net asset value of the Fund’s shares are determined as of such times. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund’s net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees. The Fund may use a systematic fair valuation model provided by an independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Forward Foreign Currency Exchange Contracts—Forward foreign currency exchange contracts are agreements to exchange one currency for another at a future date at a specified price. These contracts are used to minimize the exposure to foreign exchange rate fluctuations during the period between trade and settlement date of the contracts. The Fund may utilize forward foreign currency exchange contracts in connection with the settlement of purchases and sales of securities. The Fund may also enter into these contracts to hedge certain other foreign currency denominated assets. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund’s investments against currency fluctuations. Forward currency contracts are valued daily at the current exchange rate of the underlying currency, resulting in unrealized gains (losses) which become realized at the time the foreign currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions. The use of
71
forward currency contracts does not eliminate fluctuations in the prices of the Fund’s portfolio securities. While the maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened, exposure is typically limited to the change in value of the contract (in U.S. dollars) over the period it remains open. The Fund could also be exposed to risk if the counterparties of the contracts are unable to fulfill the terms of the contracts.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date, except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings.
Foreign Currency Transactions—The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day’s exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for Section 988 bond bifurcation were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | (153,336) |
| $ | 153,337 |
| $ | (1 | ) |
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income |
| $ | — |
| $ | 875,565 |
|
Long-term capital gains |
| — |
| — |
| ||
72
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 1,098,430 |
| $ | 4,168,745 |
| $ | 14,357,992 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales and changes in the value of assets and liabilities resulting from changes in exchange rates.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 14,953,894 |
|
Unrealized depreciation |
| (591,481 | ) | |
Net unrealized appreciation |
| $ | 14,362,413 |
|
The following capital loss carryforwards may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of |
| Capital Loss |
| ||
2007 |
|
| $ | 153,762 |
|
2008 |
|
| 602,544 |
| |
2009 |
|
| 3,734,787 |
| |
2010 |
|
| 3,027,462 |
| |
2011 |
|
| 339,845 |
| |
|
|
| $ | 7,858,400 |
|
Of the capital loss carryforwards attributable to the Fund, $865,030 ($519,018 expiring 12/31/08, $173,006 expiring 12/31/09 and $173,006 expiring 12/31/10) remain from the Fund’s merger with Colonial International Horizons Fund, Variable Series and $395,480 ($153,762 expiring 12/31/07, $83,526 expiring 12/31/08, $79,096 expiring 12/31/09 and $79,096 expiring 12/31/10) remain from the Fund’s merger with Colonial Global Equity Fund, Variable Series. Utilization of these losses, as well as the remaining capital loss carryforwards of the Fund, could be subject to limitations imposed by the Internal Revenue Code.
Capital loss carryforwards of $3,909,749 were utilized during the year ended December 31, 2005.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $500 million |
| 0.87 | % |
$500 million to $1 billion |
| 0.82 | % |
$1 billion to $1.5 billion |
| 0.77 | % |
$1.5 billion to $3 billion |
| 0.72 | % |
$3 billion to $6 billion |
| 0.70 | % |
Over $6 billion |
| 0.68 | % |
For the year ended December 31, 2005, as a result of the settlement with the New York Attorney General discussed in Note 6, the Fund’s effective investment advisory fee rate was 0.86%. This rate included a retroactive reduction for the period November 1, 2004 through December 31, 2004.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.065% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston
73
Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,222 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Effective February 1, 2005, Columbia has voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of distribution fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 0.95% annually of the Fund’s average daily net assets. Columbia, at its discretion, may revise or discontinue this arrangement any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,577 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $46,453,367 and $61,899,810, respectively.
Note 6. Disclosure of Significant Risks and Contingencies
Foreign Securities—There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The risk of foreign investments is typically increased in less developed countries. These countries are also more likely to experience high levels of inflation, deflation or currency devaluation which could hurt their economies and securities markets.
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Issuer Focus—As a non-diversified fund, the Fund may invest a greater percentage of its total assets in the securities of fewer issuers than a diversified fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and
74
consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $1,449 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
75
Financial Highlights
Columbia International Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 1.90 |
| $ | 1.69 |
| $ | 1.26 |
| $ | 1.46 |
| $ | 1.93 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.03 |
| 0.02 |
| 0.03 |
| 0.01 |
| 0.01 |
| |||||
Net realized and unrealized gain (loss) on investments, foreign currency and foreign capital gains tax |
| 0.22 |
| 0.21 |
| 0.42 |
| (0.20 | ) | (0.48 | ) | |||||
Total from Investment Operations |
| 0.25 |
| 0.23 |
| 0.45 |
| (0.19 | ) | (0.47 | ) | |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.02 | ) | (0.02 | ) | (0.01 | ) | — |
| |||||
Net Asset Value, End of Period |
| $ | 2.15 |
| $ | 1.90 |
| $ | 1.69 |
| $ | 1.26 |
| $ | 1.46 |
|
Total return (b)(c) |
| 13.16 | %(d) | 13.73 | %(d)(e) | 35.54 | %(d) | (13.35 | )% | (24.35 | )% | |||||
Ratios to Average Net Assets/ Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (f) |
| 0.95 | % | 0.95 | % | 0.97 | % | 1.13 | % | 1.23 | % | |||||
Net investment income (f) |
| 1.49 | % | 0.98 | % | 1.84 | % | 0.62 | % | 0.41 | % | |||||
Waiver/reimbursement |
| 0.20 | % | 0.21 | % | 0.18 | % | — |
| — |
| |||||
Portfolio turnover rate |
| 67 | % | 101 | % | 104 | % | 39 | % | 34 | % | |||||
Net assets, end of period (000’s) |
| $ | 61,525 |
| $ | 70,391 |
| $ | 75,184 |
| $ | 28,883 |
| $ | 41,299 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss on an investment not meeting the Fund’s investment restrictions. This reimbursement had an impact of less than 0.01% on the Fund’s total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
76
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia International Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Columbia International Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP |
Boston, Massachusetts |
February 21, 2006 |
77
Unaudited Information
Columbia International Fund, Variable Series
Federal Income Tax Information
For the fiscal year ended December 31, 2005, the Fund designates long-term capital gains of $4,168,745.
78
Portfolio Managers’ Discussion
Liberty Growth & Income Fund, Variable Series / December 31, 2005
Liberty Growth & Income Fund, Variable Series seeks long-term growth and income.
Lori Ensinger, David I. Hoffman, Noah Petrucci and Diane L. Sobin are co-managers of the fund. Ms. Ensinger has been with Columbia Management Advisors, LLC and its predecessors (“Columbia”) since 2001. Mr. Hoffman joined Columbia in August 2001. Mr. Petrucci joined Columbia in February 2002. Ms. Sobin has been with Columbia since August 2001.
Value stocks outperformed growth stocks by nearly two percentage points in 2005, which helped the fund, its benchmark and peer group average generated a solid positive return that was higher than the broader market. Consumer discretionary, energy, financials and health care stocks all contributed to the fund’s overall performance. The fund’s conservative tilt in technology and stock selection within the basic materials sector accounted for a slight shortfall in performance compared to the index.
New management at the helm
In May 2005, the management team of the fund was changed. The fund’s new managers restructured the fund with a more defensive posture. Sizable holdings in technology and basic materials were reduced in line with the fund’s benchmark. The total number of holdings in the portfolio was increased to help minimize stock-specific risk. And, greater emphasis was placed on companies that had demonstrated the potential to generate free cash flow regardless of the pace of economic growth and to distribute dividend payments to shareholders.
Positive performance from a range of sectors
Consumer discretionary, energy, financials and health care were the fund’s top sectors for the year. In the consumer discretionary sector, Starwood Hotels & Resorts Worldwide, Inc., McDonald’s Corp., J.C. Penney Co. Inc., Federated Department Stores, Inc., and Office Depot, Inc. were standout performers (1.3%, 1.2%, 1.5%, 1.0% and 0.6% of net assets, respectively). These companies were identified through our bottom-up stock selection process because we believed they had the potential for improved operating margins and revenue growth.
The fund’s energy holdings also performed strongly, with those representing a “pure” investment in the rising price of crude oil topping the list. These included ConocoPhillips, Exxon Mobil Corp. and Marathon Oil Corp. (0.9%, 4.2%, and 0.8% of net assets, respectively). Williams Companies, Inc., Schlumberger Ltd. and Halliburton Co. (1.3%, 0.8% and 1.0% of net assets, respectively) also did well.
During much of the year, we maintained a relatively light exposure to financials, which helped performance as short-term interest rates rose. However, we increased financial holdings when it appeared that the Federal Reserve Board was poised to end its rate-hiking cycle. The fund added to regional bank stocks, many of which we believed had become fairly valued. Among those that performed well were Wachovia Corp. and Golden West Financial Corp. (2.2% and 1.1% of net assets, respectively). The fund’s emphasis on healthcare services (such as HMOs) and European pharmaceutical companies, with more new products in development than US pharmaceutical companies, also boosted returns.
Technology and basic materials stocks detracted from relative returns
Several of the fund’s technology holdings underperformed the sector average during the period, which detracted slightly from overall return. We focused on more defensive holdings, such as tech heavyweights International Business Machines Corp., Dell, Inc. and Intel Corp. (0.9%, 0.3%, and 0.3% of net assets, respectively). However, these companies underperformed those in the semiconductor capital equipment area, which benefited as investors turned to issues with higher return potential — and higher risk. Basic materials stocks generated mixed results for the fund. Chemical holdings underperformed but metals, including steel producers Nucor Corp. and United States Steel Corp. (each 0.5% of net assets), outperformed.
Potentially benefiting from a global commodities boom
We believe that the trend toward strong growth in emerging markets, which is helping to drive a worldwide commodities boom, has produced attractive opportunities, especially in the technology, energy and metals and mining sectors. We plan to continue to seek opportunities within these sectors with an emphasis on companies that have the potential to generate free cash flow, dividend growth and/or repurchase their own shares.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in response to economic and business developments.
Value stocks are stocks 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 and, in the advisor’s opinion, undervalued. If the advisor’s assessment of a company’s prospects is wrong, the price of the company’s stock may not approach the value the advisor has placed on it.
Holdings are disclosed as of December 31, 2005, and are subject to change.
79
Performance Information
Liberty Growth & Income Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| 10-year |
|
Class A (07/05/94) |
| 6.38 |
| 2.38 |
| 9.71 |
|
Russell 1000 Value Index |
| 7.05 |
| 5.28 |
| 10.94 |
|
S&P 500 Index |
| 4.91 |
| 0.54 |
| 9.07 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($ ) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 15.82 |
| 16.83 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 01/01/96 – 12/31/05
The graph compares the result of a hypothetical $10,000 investment in the fund with the indexes. The Indexes are unmanaged and returns for the indexes and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes are due.
Total return performance includes changes in share price and reinvestment of all distributions. The fund’s primary benchmark was changed to the Russell 1000 Value Index. Previously, the fund’s returns were compared to the S&P 500 Index. The Russell 1000 Value Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Standard & Poor’s (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization US stocks. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
80
Understanding Your Expenses
Liberty Growth & Income Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| (%) |
|
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,057.22 |
| 1,021.17 |
| 4.15 |
| 4.08 |
| 0.80 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the investment advisor and transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
81
Investment Portfolio
Liberty Growth & Income Fund, Variable Series / December 31, 2005
|
| Shares |
| Value |
| |
COMMON STOCKS—99.5% |
|
|
|
|
| |
Consumer Discretionary—9.1% |
|
|
|
|
| |
Auto Components—0.8% |
|
|
|
|
| |
Johnson Controls, Inc. |
| 22,500 |
| $ | 1,640,475 |
|
Hotels, Restaurants & Leisure—3.1% |
|
|
|
|
| |
Carnival Corp. |
| 22,500 |
| 1,203,075 |
| |
McDonald’s Corp. |
| 78,121 |
| 2,634,240 |
| |
Starwood Hotels & Resorts Worldwide, Inc. |
| 44,300 |
| 2,828,998 |
| |
|
|
|
| 6,666,313 |
| |
Media—1.3% |
|
|
|
|
| |
News Corp., Class A |
| 114,000 |
| 1,772,700 |
| |
Viacom, Inc., Class A |
| 28,751 |
| 941,883 |
| |
|
|
|
| 2,714,583 |
| |
Multiline Retail—2.5% |
|
|
|
|
| |
Federated Department Stores, Inc. |
| 33,204 |
| 2,202,421 |
| |
J.C. Penney Co., Inc. |
| 55,913 |
| 3,108,763 |
| |
|
|
|
| 5,311,184 |
| |
Specialty Retail—1.4% |
|
|
|
|
| |
Office Depot, Inc. (a) |
| 39,300 |
| 1,234,020 |
| |
Staples, Inc. |
| 80,300 |
| 1,823,613 |
| |
|
|
|
| 3,057,633 |
| |
Consumer Staples—6.2% |
|
|
|
|
| |
Beverages—2.0% |
|
|
|
|
| |
Diageo PLC, ADR |
| 36,257 |
| 2,113,783 |
| |
PepsiCo, Inc. |
| 36,702 |
| 2,168,354 |
| |
|
|
|
| 4,282,137 |
| |
Food Products—1.0% |
|
|
|
|
| |
Cadbury Schweppes PLC, ADR |
| 56,500 |
| 2,163,385 |
| |
Household Products—1.0% |
|
|
|
|
| |
Kimberly-Clark Corp. |
| 35,658 |
| 2,127,000 |
| |
Tobacco—2.2% |
|
|
|
|
| |
Altria Group, Inc. |
| 62,916 |
| 4,701,084 |
| |
Energy—13.2% |
|
|
|
|
| |
Energy Equipment & Services—2.6% |
|
|
|
|
| |
Halliburton Co. |
| 33,224 |
| 2,058,559 |
| |
Nabors Industries Ltd. (a) |
| 8,100 |
| 613,575 |
| |
National-Oilwell Varco, Inc. (a) |
| 17,800 |
| 1,116,060 |
| |
Schlumberger Ltd. |
| 17,730 |
| 1,722,470 |
| |
|
|
|
| 5,510,664 |
| |
Oil, Gas & Consumable Fuels—10.6% |
|
|
|
|
| |
Chevron Corp. |
| 38,420 |
| 2,181,103 |
| |
ConocoPhillips |
| 33,986 |
| 1,977,306 |
| |
EOG Resources, Inc. |
| 15,000 |
| 1,100,550 |
| |
Exxon Mobil Corp. |
| 158,694 |
| 8,913,842 |
| |
Marathon Oil Corp. |
| 27,053 |
| 1,649,421 |
| |
Murphy Oil Corp. |
| 15,800 |
| 853,042 |
| |
Occidental Petroleum Corp. |
| 38,900 |
| 3,107,332 |
| |
Williams Companies, Inc. |
| 118,700 |
| 2,750,279 |
| |
|
|
|
| 22,532,875 |
| |
Financials—35.4% |
|
|
|
|
| |
Capital Markets—7.3% |
|
|
|
|
| |
Bank of New York Co., Inc. |
| 75,891 |
| $ | 2,417,129 |
|
Deutsche Bank AG |
| 5,700 |
| 552,159 |
| |
Franklin Resources, Inc. |
| 14,630 |
| 1,375,366 |
| |
Goldman Sachs Group, Inc. |
| 16,651 |
| 2,126,499 |
| |
Lehman Brothers Holdings, Inc. |
| 10,100 |
| 1,294,517 |
| |
Merrill Lynch & Co., Inc. |
| 72,664 |
| 4,921,533 |
| |
Morgan Stanley |
| 28,450 |
| 1,614,253 |
| |
Nuveen Investments, Class A |
| 29,100 |
| 1,240,242 |
| |
|
|
|
| 15,541,698 |
| |
Commercial Banks—11.5% |
|
|
|
|
| |
Marshall & Ilsley Corp. |
| 54,581 |
| 2,349,166 |
| |
Mitsubishi UFJ Financial Group, Inc., ADR |
| 98,300 |
| 1,345,727 |
| |
North Fork Bancorporation, Inc. |
| 86,661 |
| 2,371,045 |
| |
PNC Financial Services Group, Inc. |
| 35,490 |
| 2,194,347 |
| |
SunTrust Banks, Inc. |
| 12,600 |
| 916,776 |
| |
U.S. Bancorp |
| 161,209 |
| 4,818,537 |
| |
UnionBanCal Corp. |
| 8,600 |
| 590,992 |
| |
Wachovia Corp. |
| 89,105 |
| 4,710,090 |
| |
Wells Fargo & Co. |
| 79,305 |
| 4,982,733 |
| |
|
|
|
| 24,279,413 |
| |
Diversified Financial Services—4.3% |
|
|
|
|
| |
CIT Group, Inc. |
| 26,500 |
| 1,372,170 |
| |
Citigroup, Inc. |
| 110,755 |
| 5,374,940 |
| |
JPMorgan Chase & Co. |
| 60,692 |
| 2,408,866 |
| |
|
|
|
| 9,155,976 |
| |
Insurance—8.8% |
|
|
|
|
| |
ACE Ltd. |
| 34,100 |
| 1,822,304 |
| |
Allstate Corp. |
| 41,317 |
| 2,234,010 |
| |
Ambac Financial Group, Inc. |
| 29,176 |
| 2,248,303 |
| |
American International Group, Inc. |
| 49,896 |
| 3,404,404 |
| |
Genworth Financial, Inc., Class A |
| 63,200 |
| 2,185,456 |
| |
Hartford Financial Services Group, Inc. |
| 27,665 |
| 2,376,147 |
| |
St. Paul Travelers Companies, Inc. |
| 47,000 |
| 2,099,490 |
| |
UnumProvident Corp. |
| 56,700 |
| 1,289,925 |
| |
XL Capital Ltd., Class A |
| 16,569 |
| 1,116,419 |
| |
|
|
|
| 18,776,458 |
| |
Real Estate—2.4% |
|
|
|
|
| |
Archstone-Smith Trust, REIT |
| 37,108 |
| 1,554,454 |
| |
Host Marriott Corp., REIT |
| 94,700 |
| 1,794,565 |
| |
Kimco Realty Corp., REIT |
| 21,000 |
| 673,680 |
| |
ProLogis Trust, REIT |
| 24,100 |
| 1,125,952 |
| |
|
|
|
| 5,148,651 |
| |
Thrifts & Mortgage Finance—1.1% |
|
|
|
|
| |
Golden West Financial Corp. |
| 36,000 |
| 2,376,000 |
| |
Health Care—7.6% |
|
|
|
|
| |
Health Care Equipment��& Supplies—0.9% |
|
|
|
|
| |
Baxter International, Inc. |
| 52,200 |
| 1,965,330 |
|
See Accompanying Notes to Financial Statements.
82
|
| Shares |
| Value |
| |
Health Care Providers & Services—1.7% |
|
|
|
|
| |
Aetna, Inc. |
| 15,788 |
| $ | 1,488,966 |
|
CIGNA Corp. |
| 19,011 |
| 2,123,529 |
| |
|
|
|
| 3,612,495 |
| |
Pharmaceuticals—5.0% |
|
|
|
|
| |
AstraZeneca PLC, ADR |
| 48,400 |
| 2,352,240 |
| |
GlaxoSmithKline PLC, ADR |
| 24,323 |
| 1,227,825 |
| |
Novartis AG, ADR |
| 40,243 |
| 2,111,953 |
| |
Pfizer, Inc. |
| 116,805 |
| 2,723,892 |
| |
Sanofi-Aventis |
| 49,100 |
| 2,155,490 |
| |
|
|
|
| 10,571,400 |
| |
Industrials—9.9% |
|
|
|
|
| |
Aerospace & Defense —4.3% |
|
|
|
|
| |
General Dynamics Corp. |
| 18,722 |
| 2,135,244 |
| |
Goodrich Corp. |
| 52,900 |
| 2,174,190 |
| |
Honeywell International, Inc. |
| 44,000 |
| 1,639,000 |
| |
United Technologies Corp. |
| 57,080 |
| 3,191,343 |
| |
|
|
|
| 9,139,777 |
| |
Building Products—0.8% |
|
|
|
|
| |
American Standard Companies, Inc. |
| 41,300 |
| 1,649,935 |
| |
Industrial Conglomerates—0.9% |
|
|
|
|
| |
General Electric Co. |
| 54,888 |
| 1,923,825 |
| |
Machinery—2.9% |
|
|
|
|
| |
Caterpillar, Inc. |
| 44,800 |
| 2,588,096 |
| |
Eaton Corp. |
| 22,914 |
| 1,537,300 |
| |
Ingersoll-Rand Co., Ltd., Class A |
| 52,800 |
| 2,131,536 |
| |
|
|
|
| 6,256,932 |
| |
Road & Rail—1.0% |
|
|
|
|
| |
Burlington Northern Santa Fe Corp. |
| 28,300 |
| 2,004,206 |
| |
Information Technology—4.3% |
|
|
|
|
| |
Communications Equipment—0.5% |
|
|
|
|
| |
Motorola, Inc. |
| 50,500 |
| 1,140,795 |
| |
Computers & Peripherals—2.4% |
|
|
|
|
| |
Dell, Inc. (a) |
| 19,300 |
| 578,807 |
| |
Hewlett-Packard Co. |
| 86,400 |
| 2,473,632 |
| |
International Business Machines Corp. |
| 24,351 |
| 2,001,652 |
| |
|
|
|
| 5,054,091 |
| |
Electronic Equipment & Instruments—0.5% |
|
|
|
|
| |
Agilent Technologies, Inc. (a) |
| 31,000 |
| 1,031,990 |
| |
Semiconductors & Semiconductor Equipment—0.9% |
|
|
|
|
| |
Intel Corp. |
| 25,675 |
| 640,848 |
| |
Taiwan Semiconductor Manufacturing Co., Ltd., ADR |
| 133,300 |
| 1,321,003 |
| |
|
|
|
| 1,961,851 |
| |
Materials—4.2% |
|
|
|
|
| |
Chemicals—2.4% |
|
|
|
|
| |
Dow Chemical Co. |
| 36,400 |
| $ | 1,595,048 |
|
E.I. du Pont de Nemours & Co. |
| 29,900 |
| 1,270,750 |
| |
PPG Industries, Inc. |
| 13,597 |
| 787,266 |
| |
Rohm and Haas Co. |
| 29,700 |
| 1,438,074 |
| |
|
|
|
| 5,091,138 |
| |
Containers & Packaging—0.5% |
|
|
|
|
| |
Crown Holdings, Inc. (a) |
| 56,600 |
| 1,105,398 |
| |
Metals & Mining—1.3% |
|
|
|
|
| |
Nucor Corp. |
| 16,500 |
| 1,100,880 |
| |
Rio Tinto PLC |
| 2,900 |
| 530,091 |
| |
United States Steel Corp. |
| 22,700 |
| 1,091,189 |
| |
|
|
|
| 2,722,160 |
| |
Telecommunication Services—3.2% |
|
|
|
|
| |
Diversified Telecommunication Services—3.2% |
|
|
|
|
| |
AT&T, Inc. |
| 104,285 |
| 2,553,940 |
| |
BellSouth Corp. |
| 61,109 |
| 1,656,054 |
| |
Verizon Communications, Inc. |
| 87,845 |
| 2,645,891 |
| |
|
|
|
| 6,855,885 |
| |
Utilities—6.4% |
|
|
|
|
| |
Electric Utilities—4.4% |
|
|
|
|
| |
Edison International |
| 49,800 |
| 2,171,778 |
| |
Entergy Corp. |
| 35,819 |
| 2,458,974 |
| |
Exelon Corp. |
| 65,658 |
| 3,489,066 |
| |
FPL Group, Inc. |
| 30,600 |
| 1,271,736 |
| |
|
|
|
| 9,391,554 |
| |
Independent Power Producers & Energy Traders—0.5% |
|
|
|
|
| |
Duke Energy Corp. |
| 36,500 |
| 1,001,925 |
| |
Multi-Utilities—1.5% |
|
|
|
|
| |
Dominion Resources, Inc. |
| 13,301 |
| 1,026,837 |
| |
PG&E Corp. |
| 59,130 |
| 2,194,906 |
| |
|
|
|
| 3,221,743 |
| |
Total Common Stocks (cost of $186,263,268) |
|
|
| 211,687,959 |
| |
CONVERTIBLE PREFERRED STOCK—0.5% |
|
|
|
|
| |
Financials—0.5% |
|
|
|
|
| |
Insurance—0.5% |
|
|
|
|
| |
XL Capital Ltd. |
| 43,053 |
| 1,096,129 |
| |
Total Convertible Preferred Stock |
|
|
| 1,096,129 |
|
See Accompanying Notes to Financial Statements.
83
|
| Par |
| Value |
| ||
SHORT-TERM OBLIGATION—0.5% |
|
|
|
|
| ||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Note maturing 08/15/12, market value of $1,151,583 (repurchase proceeds $1,129,424) |
| $ | 1,129,000 |
| $ | 1,129,000 |
|
Total Short-Term Obligation |
|
|
| 1,129,000 |
| ||
Total Investments—100.5% |
|
|
| 213,913,088 |
| ||
Other Assets & Liabilities, Net—(0.5)% |
|
|
| (1,017,590 | ) | ||
Net Assets—100.0% |
|
|
| $ | 212,895,498 |
| |
Notes to Investment Portfolio:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $188,613,527.
At December 31, 2005, the Fund held investments in the following sectors:
Sector (Unaudited) |
| % of |
|
Financials |
| 35.9 | % |
Energy |
| 13.2 |
|
Industrials |
| 9.9 |
|
Consumer Discretionary |
| 9.1 |
|
Health Care |
| 7.6 |
|
Utilities |
| 6.4 |
|
Consumer Staples |
| 6.2 |
|
Information Technology |
| 4.3 |
|
Materials |
| 4.2 |
|
Telecommunication Services |
| 3.2 |
|
Short-Term Obligation |
| 0.5 |
|
Other Assets & Liabilities, Net |
| (0.5 | ) |
|
| 100.0 | % |
Acronym |
| Name |
ADR |
| American Depositary Receipt |
|
|
|
REIT |
| Real Estate Investment Trust |
See Accompanying Notes to Financial Statements.
84
Statement of Assets & Liabilities
Liberty Growth & Income Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost |
| $ | 188,475,883 |
|
Investments, at value |
| $ | 213,913,088 |
|
Cash |
| 881 |
| |
Receivable for: |
|
|
| |
Interest |
| 212 |
| |
Dividends |
| 390,402 |
| |
Expense reimbursement due from Investment Advisor/Distributor |
| 27,326 |
| |
Deferred Trustees’ compensation plan |
| 24,724 |
| |
Total Assets |
| 214,356,633 |
| |
Liabilities: |
|
|
| |
Payable for: |
|
|
| |
Investments purchased |
| 639,364 |
| |
Fund shares repurchased |
| 586,223 |
| |
Investment advisory fee |
| 141,643 |
| |
Transfer agent fee |
| 32 |
| |
Pricing and bookkeeping fees |
| 7,989 |
| |
Trustees’ fees |
| 270 |
| |
Audit fee |
| 27,988 |
| |
Custody fee |
| 3,000 |
| |
Distribution fee—Class B |
| 9,335 |
| |
Chief compliance officer expenses |
| 1,957 |
| |
Deferred Trustees’ fees |
| 24,724 |
| |
Other liabilities |
| 18,610 |
| |
Total Liabilities |
| 1,461,135 |
| |
Net Assets |
| $ | 212,895,498 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 208,154,392 |
|
Undistributed net investment income |
| 3,569,889 |
| |
Accumulated net realized loss |
| (24,265,988 | ) | |
Net unrealized appreciation on investments |
| 25,437,205 |
| |
Net Assets |
| $ | 212,895,498 |
|
Class A: |
|
|
| |
Net assets |
| $ | 170,488,974 |
|
Shares outstanding |
| 10,128,960 |
| |
Net asset value per share |
| $ | 16.83 |
|
Class B: |
|
|
| |
Net assets |
| $ | 42,406,524 |
|
Shares outstanding |
| 2,527,942 |
| |
Net asset value per share |
| $ | 16.78 |
|
See Accompanying Notes to Financial Statements.
85
Statement of Operations
Liberty Growth & Income Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Dividends |
| $ | 5,568,367 |
|
Interest |
| 39,954 |
| |
Total Investment Income (net of foreign taxes withheld of $26,195) |
| 5,608,321 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 1,770,009 |
| |
Distribution fee—Class B |
| 110,353 |
| |
Transfer agent fee |
| 6,301 |
| |
Pricing and bookkeeping fees |
| 70,208 |
| |
Trustees’ fees |
| 13,196 |
| |
Custody fee |
| 23,600 |
| |
Chief compliance officer expenses (See Note 4) |
| 5,720 |
| |
Non-recurring costs (See Note 7) |
| 4,750 |
| |
Other expenses |
| 90,276 |
| |
Total Expenses |
| 2,094,413 |
| |
Fees and expenses waived or reimbursed by Investment Advisor |
| (124,613 | ) | |
Fees waived by Transfer Agent |
| (1,212 | ) | |
Fees waived by Distributor—Class B |
| (8,828 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 7) |
| (4,750 | ) | |
Custody earnings credit |
| (80 | ) | |
Net Expenses |
| 1,954,930 |
| |
Net Investment Income |
| 3,653,391 |
| |
Net Realized and Unrealized Gain (Loss) on Investments: |
|
|
| |
Net realized gain on: |
|
|
| |
Investments |
| 34,743,694 |
| |
Net realized loss on disposal of investments purchased in error (See Note 6) |
| — |
| |
Net realized gain |
| 34,743,694 |
| |
Net change in unrealized appreciation (depreciation) on investments |
| (24,797,968 | ) | |
Net Gain |
| 9,945,726 |
| |
Net Increase in Net Assets from Operations |
| $ | 13,599,117 |
|
See Accompanying Notes to Financial Statements.
86
Statement of Changes in Net Assets
Liberty Growth & Income Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 3,653,391 |
| $ | 4,158,446 |
|
Net realized gain on investments |
| 34,743,694 |
| 15,629,602 |
| ||
Net change in unrealized appreciation (depreciation) on investments |
| (24,797,968 | ) | 12,488,990 |
| ||
Net Increase from Operations |
| 13,599,117 |
| 32,277,038 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (3,575,650 | ) | ||
Class B |
| — |
| (703,626 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (4,279,276 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 2,331,172 |
| 4,999,188 |
| ||
Distributions reinvested |
| — |
| 3,575,650 |
| ||
Redemptions |
| (49,578,160 | ) | (41,791,870 | ) | ||
Net Decrease |
| (47,246,988 | ) | (33,217,032 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 1,486,254 |
| 2,762,038 |
| ||
Distributions reinvested |
| — |
| 703,626 |
| ||
Redemptions |
| (8,034,138 | ) | (6,672,090 | ) | ||
Net Decrease |
| (6,547,884 | ) | (3,206,426 | ) | ||
Net Decrease from Share Transactions |
| (53,794,872 | ) | (36,423,458 | ) | ||
Total Decrease in Net Assets |
| (40,195,755 | ) | (8,425,696 | ) | ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 253,091,253 |
| 261,516,949 |
| ||
End of period |
| $ | 212,895,498 |
| $ | 253,091,253 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 3,569,889 |
| $ | (16,722 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 146,529 |
| 341,822 |
| ||
Issued for distributions reinvested |
| — |
| 226,127 |
| ||
Redemptions |
| (3,082,737 | ) | (2,834,667 | ) | ||
Net Decrease |
| (2,936,208 | ) | (2,266,718 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 93,144 |
| 189,109 |
| ||
Issued for distributions reinvested |
| — |
| 44,566 |
| ||
Redemptions |
| (501,030 | ) | (452,411 | ) | ||
Net Decrease |
| (407,886 | ) | (218,736 | ) |
See Accompanying Notes to Financial Statements.
87
Notes to Financial Statements
Liberty Growth & Income Fund, Variable Series / December 31, 2005
Note 1. Organization
Liberty Growth & Income Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks long-term growth and income.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date. Distributions paid by real estate investment trusts (REITs) in excess of their income are recorded as a reduction of the cost of the related investments. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
88
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for REIT adjustments were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | (66,780 | ) | $ | 66,780 |
| $ | — |
|
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income |
| $ | — |
| $ | 4,279,276 |
|
Long-term capital gains |
| — |
| — |
| ||
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 3,593,389 |
| $ | — |
| $ | 25,299,561 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 29,041,557 |
|
Unrealized depreciation |
| (3,741,996 | ) | |
Net unrealized appreciation |
| $ | 25,299,561 |
|
The following capital loss carryforwards may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of |
| Capital Loss |
| ||
2009 |
|
| $ | 1,866,627 |
|
2010 |
|
| 5,951,672 |
| |
2011 |
|
| 16,310,045 |
| |
|
|
| $ | 24,128,344 |
|
Of the capital loss carryforwards attributable to the Fund, $7,818,299 (estimated) ($1,866,627 expiring 12/31/09 and $5,951,672 (estimated) expiring 12/31/10) remain from the Fund’s merger with Liberty Value Fund, Variable Series. Utilization of these losses could be subject to limitations imposed by the Internal Revenue Code.
Capital loss carryforwards of $34,713,021 were utilized during the year ended December 31, 2005.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $500 million |
| 0.77 | % |
$500 million to $1 billion |
| 0.72 | % |
$1 billion to $1.5 billion |
| 0.67 | % |
$1.5 billion to $3 billion |
| 0.62 | % |
$3 billion to $6 billion |
| 0.60 | % |
Over $6 billion |
| 0.58 | % |
For the year ended December 31, 2005, as a result of the settlement with the New York Attorney General discussed in Note 7, the Fund’s effective investment advisory fee rate was 0.76%. This rate included a retroactive reduction for the period November 1, 2004 through December 31, 2004.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any
12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any
89
month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.030% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,212 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was less than 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Effective January 1, 2005, Columbia has voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of distribution fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 0.80% annually of the Fund’s average daily net assets. Prior to January 1, 2005, Columbia voluntarily reimbursed certain fees of the Fund at the annual rate of 0.11% of the Fund’s average daily net assets. In addition, the Distributor has voluntarily agreed to waive Class B distribution fees at the annual rate of 0.02% of the Class B average daily net assets. Columbia or the Distributor, at their discretion, may revise or discontinue these arrangements any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,752 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $168,551,588 and $219,168,282, respectively.
Note 6. Other
During the year ended December 31, 2005, the Fund had a realized loss due to a trading error. This loss of $4,022 was reimbursed by Columbia.
Note 7. Disclosure of Significant Risks and Contingencies
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into
90
Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $4,750 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
91
Financial Highlights
Liberty Growth & Income Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 15.82 |
| $ | 14.15 |
| $ | 11.97 |
| $ | 15.55 |
| $ | 18.27 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.26 |
| 0.25 |
| 0.21 |
| 0.15 |
| 0.16 |
| |||||
Net realized and unrealized gain (loss) on investments |
| 0.75 |
| 1.70 |
| 2.16 |
| (3.56 | ) | (0.35 | ) | |||||
Total from Investment Operations |
| 1.01 |
| 1.95 |
| 2.37 |
| (3.41 | ) | (0.19 | ) | |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.28 | ) | (0.19 | ) | (0.17 | ) | (0.15 | ) | |||||
From net realized gains |
| — |
| — |
| — |
| — |
| (2.34 | ) | |||||
Return of capital |
| — |
| — |
| — |
| — |
| (0.04 | ) | |||||
Total Distributions Declared to Shareholders |
| — |
| (0.28 | ) | (0.19 | ) | (0.17 | ) | (2.53 | ) | |||||
Net Asset Value, End of Period |
| $ | 16.83 |
| $ | 15.82 |
| $ | 14.15 |
| $ | 11.97 |
| $ | 15.55 |
|
Total return (b)(c) |
| 6.38 | %(d)(e) | 13.76 | %(d) | 19.79 | %(d) | (21.95 | )% | (0.60 | )% | |||||
Ratios to Average Net Assets/ Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (f) |
| 0.80 | % | 0.76 | % | 0.80 | % | 0.88 | % | 0.96 | % | |||||
Net investment income (f) |
| 1.62 | % | 1.68 | % | 1.66 | % | 1.08 | % | 0.92 | % | |||||
Waiver/reimbursement |
| 0.05 | % | 0.11 | % | 0.09 | % | — |
| — |
| |||||
Portfolio turnover rate |
| 73 | % | 37 | % | 73 | % | 69 | % | 53 | % | |||||
Net assets, end of period (000’s) |
| $ | 170,489 |
| $ | 206,695 |
| $ | 216,923 |
| $ | 113,335 |
| $ | 180,053 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund’s total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
92
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Growth & Income Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Liberty Growth & Income Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 21, 2006
93
Portfolio Manager’s Discussion
Liberty S&P 500 Index Fund, Variable Series / December 31, 2005
Liberty S&P 500 Index Fund, Variable Series seeks capital appreciation by closely approximating the performance of a benchmark index that measures the investment returns of stocks of large US companies.
Vikram J. Kuriyan has been the fund’s portfolio manager since August 2005. He has been affiliated with Columbia Management Advisors, LLC or its predecessors or affiliate organizations since 2000.
After a lackluster start, the US stock market picked up steam in the second half of the year and delivered a solid although modest return in 2005. Investors expressed concerns over rising energy prices, higher borrowing costs and the after effects of twin hurricanes, which devastated the Gulf Coast states late in the summer. However, the economy maintained its momentum, the job market remained resilient and corporate profits grew at an estimated pace of 13% in 2005. In the fourth quarter, these positive factors finally outweighed the negative and investors pushed stocks higher for the year. Fund performance was comparable to the index.
Mid-cap stocks outperformed both large- and small-cap stocks throughout the year. Value stocks led growth stocks in the first half, but growth stocks roared back in the second half.
Energy, financial and utilities stocks were top performers
Sector performance within the S&P 500 Index (the “S&P 500”)(1) ran the gamut from strongly positive to modestly negative, with energy and financial stocks taking top billing for the fund. Energy companies benefited from record high commodity prices. And although prices came down in the fourth quarter, the sector returned more than 29% for the year. Financial stocks attracted forward-looking investors who expect the sector to enjoy improved prospects when the Federal Reserve Board ends its cycle of short-term interest rate increases. Utilities offered attractive dividends and also benefited from a booming energy market.
Telecommunications and consumer discretionary sectors detracted from returns
While most sectors in the index managed to overcome first half of the year deficits to generate positive returns for the year, telecommunications and consumer discretionary stocks were the exception. Telecommunications companies faced intense competition. Those companies that came out ahead did not generate sufficient gains to offset losses sustained by companies that faltered. Consumer discretionary stocks, which include companies that make and sell goods that are considered optional purchases for consumers (as opposed to consumer “staples”, which are considered consumer necessities), lost ground as higher energy costs and economic worries had a negative impact on key segments within the sector, including big department stores, media companies and some specialty retailers. However, high-end retailers continued to thrive and helped offset some, but not all, of the sectors other losses.
How the fund is managed
Cost-effective trade execution is the hallmark of the fund’s management style. The fund is managed to include all the holdings in the S&P 500 in approximately the same weights. The fund is required to engage in a number of purchase and sale transactions, including, but not limited to, reinvestment of cash dividends, sale of securities to meet redemption demands or purchase of securities to invest new monies that come into the fund. Because the fund incurs associated trading costs required to maintain the appropriate weight of each security in the index and incurs administrative expenses, its return is typically lower than that of the index, which has no costs.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
Equity funds are subject to stock market fluctuations that occur in response to economic and business developments.
The primary risks involved with investing in the fund include equity risk, market risk and tracking error risk. Unlike the S&P 500, 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.
Holdings are disclosed as of December 31, 2005, and are subject to change.
(1) The Standard & Poor’s (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization US stocks.
It is not possible to invest directly in an index.
94
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| Life |
|
Class A (05/30/00) |
| 4.50 |
| 0.05 |
| -0.92 |
|
S&P 500 Index(1) |
| 4.91 |
| 0.54 |
| -0.16 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($ ) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 10.45 |
| 10.92 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 05/30/00 – 12/31/05
The graph compares the results of a hypothetical $10,000 investment in the fund with the index. The Index is unmanaged and returns for the index and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all distributions. The Standard & Poor’s (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization US stocks. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
(1) Index performance for the life of the fund is from May 30, 2000.
95
Understanding Your Expenses
Liberty S&P 500 Index Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| (%) |
|
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,055.10 |
| 1,022.99 |
| 2.28 |
| 2.24 |
| 0.44 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the investment advisor and transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
96
|
| Shares |
| Value |
| |
COMMON STOCKS—99.4% |
|
|
|
|
| |
Consumer Discretionary—10.7% |
|
|
|
|
| |
Auto Components—0.2% |
|
|
|
|
| |
Cooper Tire & Rubber Co. |
| 300 |
| $ | 4,596 |
|
Dana Corp. |
| 707 |
| 5,076 |
| |
Goodyear Tire & Rubber Co. (a) |
| 831 |
| 14,443 |
| |
Johnson Controls, Inc. |
| 882 |
| 64,307 |
| |
|
|
|
| 88,422 |
| |
Automobiles—0.3% |
|
|
|
|
| |
Ford Motor Co. |
| 8,600 |
| 66,392 |
| |
General Motors Corp. |
| 2,629 |
| 51,055 |
| |
Harley-Davidson, Inc. |
| 1,296 |
| 66,731 |
| |
|
|
|
| 184,178 |
| |
Distributors—0.1% |
|
|
|
|
| |
Genuine Parts Co. |
| 795 |
| 34,917 |
| |
Diversified Consumer Services—0.1% |
|
|
|
|
| |
Apollo Group, Inc., Class A (a) |
| 668 |
| 40,387 |
| |
H&R Block, Inc. |
| 1,514 |
| 37,169 |
| |
|
|
|
| 77,556 |
| |
Hotels, Restaurants & Leisure—1.5% |
|
|
|
|
| |
Carnival Corp. |
| 2,024 |
| 108,223 |
| |
Darden Restaurants, Inc. |
| 621 |
| 24,145 |
| |
Harrah’s Entertainment, Inc. |
| 869 |
| 61,951 |
| |
Hilton Hotels Corp. |
| 1,511 |
| 36,430 |
| |
International Game Technology |
| 1,547 |
| 47,617 |
| |
Marriott International, Inc., Class A |
| 776 |
| 51,969 |
| |
McDonald’s Corp. |
| 5,821 |
| 196,284 |
| |
Starbucks Corp. (a) |
| 3,576 |
| 107,316 |
| |
Starwood Hotels & Resorts Worldwide, Inc. |
| 1,031 |
| 65,840 |
| |
Wendy’s International, Inc. |
| 540 |
| 29,840 |
| |
Yum! Brands, Inc. |
| 1,313 |
| 61,553 |
| |
|
|
|
| 791,168 |
| |
Household Durables—0.7% |
|
|
|
|
| |
Black & Decker Corp. |
| 378 |
| 32,871 |
| |
Centex Corp. |
| 584 |
| 41,750 |
| |
D.R. Horton, Inc. |
| 1,250 |
| 44,663 |
| |
Fortune Brands, Inc. |
| 693 |
| 54,068 |
| |
KB Home |
| 380 |
| 27,611 |
| |
Leggett & Platt, Inc. |
| 866 |
| 19,883 |
| |
Lennar Corp., Class A |
| 650 |
| 39,663 |
| |
Maytag Corp. |
| 351 |
| 6,606 |
| |
Newell Rubbermaid, Inc. |
| 1,300 |
| 30,914 |
| |
Pulte Homes, Inc. |
| 980 |
| 38,573 |
| |
Snap-On, Inc. |
| 288 |
| 10,817 |
| |
Stanley Works |
| 331 |
| 15,901 |
| |
Whirlpool Corp. |
| 295 |
| 24,709 |
| |
|
|
|
| 388,029 |
| |
Internet & Catalog Retail—0.6% |
|
|
|
|
| |
Amazon.com, Inc. (a) |
| 1,400 |
| 66,010 |
| |
eBay, Inc. (a) |
| 5,280 |
| 228,360 |
| |
|
|
|
| 294,370 |
| |
Leisure Equipment & Products—0.2% |
|
|
|
|
| |
Brunswick Corp. |
| 441 |
| 17,931 |
| |
Eastman Kodak Co. |
| 1,307 |
| 30,584 |
| |
Hasbro, Inc. |
| 822 |
| $ | 16,588 |
|
Mattel, Inc. |
| 1,875 |
| 29,662 |
| |
|
|
|
| 94,765 |
| |
Media—3.3% |
|
|
|
|
| |
CCE Spinco, Inc. (a) |
| 1 |
| 7 |
| |
Clear Channel Communications, Inc. |
| 2,516 |
| 79,128 |
| |
Comcast Corp., Class A (a) |
| 10,040 |
| 260,638 |
| |
Dow Jones & Co., Inc. |
| 297 |
| 10,540 |
| |
EW Scripps Co. |
| 400 |
| 19,208 |
| |
Gannett Co., Inc. |
| 1,115 |
| 67,535 |
| |
Interpublic Group of Companies, Inc. (a) |
| 1,972 |
| 19,030 |
| |
Knight-Ridder, Inc. |
| 312 |
| 19,750 |
| |
McGraw-Hill Companies, Inc. |
| 1,722 |
| 88,907 |
| |
Meredith Corp. |
| 207 |
| 10,834 |
| |
New York Times Co., Class A |
| 657 |
| 17,378 |
| |
News Corp., Class A |
| 11,250 |
| 174,937 |
| |
Omnicom Group, Inc. |
| 815 |
| 69,381 |
| |
Time Warner, Inc. |
| 21,588 |
| 376,495 |
| |
Tribune Co. |
| 1,201 |
| 36,342 |
| |
Univision Communications, Inc., Class A (a) |
| 1,045 |
| 30,713 |
| |
Viacom, Inc., Class B |
| 7,166 |
| 233,612 |
| |
Walt Disney Co. |
| 8,935 |
| 214,172 |
| |
|
|
|
| 1,728,607 |
| |
Multiline Retail—1.1% |
|
|
|
|
| |
Big Lots, Inc. (a) |
| 551 |
| 6,618 |
| |
Dillard’s, Inc., Class A |
| 272 |
| 6,751 |
| |
Dollar General Corp. |
| 1,464 |
| 27,918 |
| |
Family Dollar Stores, Inc. |
| 712 |
| 17,650 |
| |
Federated Department Stores, Inc. |
| 1,257 |
| 83,377 |
| |
J.C. Penney Co., Inc. |
| 1,076 |
| 59,826 |
| |
Kohl’s Corp. (a) |
| 1,597 |
| 77,614 |
| |
Nordstrom, Inc. |
| 990 |
| 37,026 |
| |
Sears Holdings Corp. (a) |
| 467 |
| 53,953 |
| |
Target Corp. |
| 4,085 |
| 224,552 |
| |
|
|
|
| 595,285 |
| |
Specialty Retail—2.2% |
|
|
|
|
| |
Autonation, Inc. (a) |
| 854 |
| 18,557 |
| |
AutoZone, Inc. (a) |
| 238 |
| 21,836 |
| |
Bed Bath & Beyond, Inc. (a) |
| 1,377 |
| 49,779 |
| |
Best Buy Co., Inc. |
| 1,891 |
| 82,221 |
| |
Circuit City Stores, Inc. |
| 722 |
| 16,310 |
| |
Gap, Inc. |
| 2,636 |
| 46,499 |
| |
Home Depot, Inc. |
| 9,819 |
| 397,473 |
| |
Limited Brands, Inc. |
| 1,629 |
| 36,408 |
| |
Lowe’s Companies, Inc. |
| 3,607 |
| 240,443 |
| |
Office Depot, Inc. (a) |
| 1,426 |
| 44,776 |
| |
OfficeMax, Inc. |
| 350 |
| 8,876 |
| |
RadioShack Corp. |
| 606 |
| 12,744 |
| |
Sherwin-Williams Co. |
| 518 |
| 23,528 |
| |
Staples, Inc. |
| 3,391 |
| 77,010 |
| |
Tiffany & Co. |
| 639 |
| 24,467 |
| |
TJX Companies, Inc. |
| 2,135 |
| 49,596 |
| |
|
|
|
| 1,150,523 |
|
See Accompanying Notes to Financial Statements.
97
|
| Shares |
| Value |
| |
Textiles, Apparel & Luxury Goods—0.4% |
|
|
|
|
| |
Coach, Inc. (a) |
| 1,750 |
| $ | 58,345 |
|
Jones Apparel Group, Inc. |
| 531 |
| 16,312 |
| |
Liz Claiborne, Inc. |
| 506 |
| 18,125 |
| |
NIKE, Inc., Class B |
| 881 |
| 76,462 |
| |
Reebok International Ltd. |
| 235 |
| 13,684 |
| |
V.F. Corp. |
| 403 |
| 22,302 |
| |
|
|
|
| 205,230 |
| |
Consumer Staples—9.5% |
|
|
|
|
| |
Beverages—2.1% |
|
|
|
|
| |
Anheuser-Busch Companies, Inc. |
| 3,621 |
| 155,558 |
| |
Brown-Forman Corp., Class B |
| 362 |
| 25,094 |
| |
Coca-Cola Co. |
| 9,571 |
| 385,807 |
| |
Coca-Cola Enterprises, Inc. |
| 1,405 |
| 26,934 |
| |
Constellation Brands, Inc., Class A (a) |
| 900 |
| 23,607 |
| |
Molson Coors Brewing Co., Class B |
| 279 |
| 18,690 |
| |
Pepsi Bottling Group, Inc. |
| 632 |
| 18,081 |
| |
PepsiCo, Inc. |
| 7,683 |
| 453,912 |
| |
|
|
|
| 1,107,683 |
| |
Food & Staples Retailing—2.4% |
|
|
|
|
| |
Albertson’s, Inc. |
| 1,714 |
| 36,594 |
| |
Costco Wholesale Corp. |
| 2,172 |
| 107,449 |
| |
CVS Corp. |
| 3,790 |
| 100,132 |
| |
Kroger Co. (a) |
| 3,350 |
| 63,248 |
| |
Safeway, Inc. |
| 2,072 |
| 49,024 |
| |
SUPERVALU, Inc. |
| 629 |
| 20,430 |
| |
Sysco Corp. |
| 2,862 |
| 88,865 |
| |
Wal-Mart Stores, Inc. |
| 11,585 |
| 542,178 |
| |
Walgreen Co. |
| 4,711 |
| 208,509 |
| |
Whole Foods Market, Inc. |
| 650 |
| 50,303 |
| |
|
|
|
| 1,266,732 |
| |
Food Products—1.0% |
|
|
|
|
| |
Archer-Daniels-Midland Co. |
| 3,028 |
| 74,670 |
| |
Campbell Soup Co. |
| 841 |
| 25,037 |
| |
ConAgra Foods, Inc. |
| 2,406 |
| 48,794 |
| |
General Mills, Inc. |
| 1,641 |
| 80,934 |
| |
H.J. Heinz Co. |
| 1,564 |
| 52,738 |
| |
Hershey Co. |
| 842 |
| 46,521 |
| |
Kellogg Co. |
| 1,179 |
| 50,956 |
| |
McCormick & Co., Inc. |
| 613 |
| 18,954 |
| |
Sara Lee Corp. |
| 3,496 |
| 66,074 |
| |
Tyson Foods, Inc., Class A |
| 1,150 |
| 19,665 |
| |
Wrigley (Wm.) Jr. Co. |
| 834 |
| 55,453 |
| |
|
|
|
| 539,796 |
| |
Household Products—2.3% |
|
|
|
|
| |
Clorox Co. |
| 676 |
| 38,458 |
| |
Colgate-Palmolive Co. |
| 2,424 |
| 132,956 |
| |
Kimberly-Clark Corp. |
| 2,186 |
| 130,395 |
| |
Procter & Gamble Co. |
| 15,514 |
| 897,950 |
| |
|
|
|
| 1,199,759 |
| |
Personal Products—0.2% |
|
|
|
|
| |
Alberto-Culver Co., Class B |
| 328 |
| 15,006 |
| |
Avon Products, Inc. |
| 2,146 |
| 61,268 |
| |
|
|
|
| 76,274 |
| |
Tobacco—1.5% |
|
|
|
|
| |
Altria Group, Inc. |
| 9,657 |
| $ | 721,571 |
|
Reynolds American, Inc. |
| 400 |
| 38,132 |
| |
UST, Inc. |
| 774 |
| 31,603 |
| |
|
|
|
| 791,306 |
| |
Energy—9.3% |
|
|
|
|
| |
Energy Equipment & Services—1.7% |
|
|
|
|
| |
Baker Hughes, Inc. |
| 1,562 |
| 94,938 |
| |
BJ Services Co. |
| 1,512 |
| 55,445 |
| |
Halliburton Co. |
| 2,386 |
| 147,837 |
| |
Nabors Industries Ltd. (a) |
| 734 |
| 55,600 |
| |
National-Oilwell Varco, Inc. (a) |
| 800 |
| 50,160 |
| |
Noble Corp. |
| 617 |
| 43,523 |
| |
Rowan Companies, Inc. |
| 490 |
| 17,464 |
| |
Schlumberger Ltd. |
| 2,746 |
| 266,774 |
| |
Transocean, Inc. (a) |
| 1,537 |
| 107,114 |
| |
Weatherford International Ltd. (a) |
| 1,600 |
| 57,920 |
| |
|
|
|
| 896,775 |
| |
Oil, Gas & Consumable Fuels—7.6% |
|
|
|
|
| |
Amerada Hess Corp. |
| 390 |
| 49,460 |
| |
Anadarko Petroleum Corp. |
| 1,105 |
| 104,699 |
| |
Apache Corp. |
| 1,544 |
| 105,795 |
| |
Burlington Resources, Inc. |
| 1,762 |
| 151,884 |
| |
Chevron Corp. |
| 10,417 |
| 591,373 |
| |
ConocoPhillips |
| 6,410 |
| 372,934 |
| |
Devon Energy Corp. |
| 2,036 |
| 127,331 |
| |
El Paso Corp. |
| 3,064 |
| 37,258 |
| |
EOG Resources, Inc. |
| 1,140 |
| 83,642 |
| |
Exxon Mobil Corp. |
| 28,855 |
| 1,620,785 |
| |
Kerr-McGee Corp. |
| 536 |
| 48,701 |
| |
Kinder Morgan, Inc. |
| 492 |
| 45,239 |
| |
Marathon Oil Corp. |
| 1,685 |
| 102,734 |
| |
Murphy Oil Corp. |
| 750 |
| 40,493 |
| |
Occidental Petroleum Corp. |
| 1,875 |
| 149,775 |
| |
Sunoco, Inc. |
| 628 |
| 49,223 |
| |
Valero Energy Corp. |
| 2,850 |
| 147,060 |
| |
Williams Companies, Inc. |
| 2,658 |
| 61,586 |
| |
XTO Energy, Inc. |
| 1,700 |
| 74,698 |
| |
|
|
|
| 3,964,670 |
| |
Financials—21.1% |
|
|
|
|
| |
Capital Markets—3.2% |
|
|
|
|
| |
Ameriprise Financial, Inc. |
| 1,136 |
| 46,576 |
| |
Bank of New York Co., Inc. |
| 3,557 |
| 113,291 |
| |
Bear Stearns Companies, Inc. |
| 537 |
| 62,040 |
| |
Charles Schwab Corp. |
| 4,766 |
| 69,917 |
| |
E*Trade Financial Corp. (a) |
| 1,900 |
| 39,634 |
| |
Federated Investors, Inc., Class B |
| 378 |
| 14,001 |
| |
Franklin Resources, Inc. |
| 683 |
| 64,209 |
| |
Goldman Sachs Group, Inc. |
| 2,102 |
| 268,446 |
| |
Janus Capital Group, Inc. |
| 1,008 |
| 18,779 |
| |
Lehman Brothers Holdings, Inc. |
| 1,241 |
| 159,059 |
| |
Mellon Financial Corp. |
| 1,936 |
| 66,308 |
| |
Merrill Lynch & Co., Inc. |
| 4,235 |
| 286,837 |
|
See Accompanying Notes to Financial Statements.
98
|
| Shares |
| Value |
| |
Morgan Stanley |
| 4,978 |
| $ | 282,452 |
|
Northern Trust Corp. |
| 872 |
| 45,187 |
| |
State Street Corp. |
| 1,516 |
| 84,047 |
| |
T. Rowe Price Group, Inc. |
| 581 |
| 41,849 |
| |
|
|
|
| 1,662,632 |
| |
Commercial Banks—5.7% |
|
|
|
|
| |
AmSouth Bancorp |
| 1,595 |
| 41,805 |
| |
Bank of America Corp. (b) |
| 18,622 |
| 859,405 |
| |
BB&T Corp. |
| 2,515 |
| 105,404 |
| |
Comerica, Inc. |
| 788 |
| 44,727 |
| |
Compass Bancshares, Inc. |
| 600 |
| 28,974 |
| |
Fifth Third Bancorp |
| 2,587 |
| 97,582 |
| |
First Horizon National Corp. |
| 567 |
| 21,795 |
| |
Huntington Bancshares, Inc. |
| 1,061 |
| 25,199 |
| |
KeyCorp |
| 1,890 |
| 62,238 |
| |
M&T Bank Corp. |
| 350 |
| 38,168 |
| |
Marshall & Ilsley Corp. |
| 980 |
| 42,179 |
| |
National City Corp. |
| 2,534 |
| 85,066 |
| |
North Fork Bancorporation, Inc. |
| 2,218 |
| 60,684 |
| |
PNC Financial Services Group, Inc. |
| 1,356 |
| 83,842 |
| |
Regions Financial Corp. |
| 2,127 |
| 72,658 |
| |
SunTrust Banks, Inc. |
| 1,692 |
| 123,110 |
| |
Synovus Financial Corp. |
| 1,466 |
| 39,597 |
| |
U.S. Bancorp |
| 8,422 |
| 251,734 |
| |
Wachovia Corp. |
| 7,197 |
| 380,433 |
| |
Wells Fargo & Co. |
| 7,751 |
| 486,995 |
| |
Zions Bancorporation |
| 490 |
| 37,024 |
| |
|
|
|
| 2,988,619 |
| |
Consumer Finance—1.3% |
|
|
|
|
| |
American Express Co. |
| 5,732 |
| 294,969 |
| |
Capital One Financial Corp. |
| 1,371 |
| 118,454 |
| |
MBNA Corp. |
| 5,807 |
| 157,660 |
| |
SLM Corp. |
| 1,917 |
| 105,608 |
| |
|
|
|
| 676,691 |
| |
Diversified Financial Services—3.7% |
|
|
|
|
| |
CIT Group, Inc. |
| 950 |
| 49,191 |
| |
Citigroup, Inc. |
| 23,416 |
| 1,136,379 |
| |
JPMorgan Chase & Co. |
| 16,205 |
| 643,176 |
| |
Moody’s Corp. |
| 1,162 |
| 71,370 |
| |
Principal Financial Group, Inc. |
| 1,298 |
| 61,564 |
| |
|
|
|
| 1,961,680 |
| |
Insurance—4.9% |
|
|
|
|
| |
ACE Ltd. |
| 1,483 |
| 79,252 |
| |
AFLAC, Inc. |
| 2,315 |
| 107,462 |
| |
Allstate Corp. |
| 3,008 |
| 162,643 |
| |
Ambac Financial Group, Inc. |
| 486 |
| 37,451 |
| |
American International Group, Inc. |
| 12,036 |
| 821,216 |
| |
Aon Corp. |
| 1,481 |
| 53,242 |
| |
Chubb Corp. |
| 916 |
| 89,447 |
| |
Cincinnati Financial Corp. |
| 796 |
| 35,565 |
| |
Genworth Financial, Inc., Class A |
| 1,750 |
| 60,515 |
| |
Hartford Financial Services Group, Inc. |
| 1,395 |
| 119,817 |
| |
Jefferson-Pilot Corp. |
| 645 |
| 36,720 |
| |
Lincoln National Corp. |
| 817 |
| 43,326 |
| |
Loews Corp. |
| 613 |
| $ | 58,143 |
|
Marsh & McLennan Companies, Inc. |
| 2,533 |
| 80,448 |
| |
MBIA, Inc. |
| 646 |
| 38,863 |
| |
MetLife, Inc. |
| 3,490 |
| 171,010 |
| |
Progressive Corp. |
| 890 |
| 103,934 |
| |
Prudential Financial, Inc. |
| 2,344 |
| 171,557 |
| |
SAFECO Corp. |
| 555 |
| 31,357 |
| |
St. Paul Travelers Companies, Inc. |
| 3,189 |
| 142,453 |
| |
Torchmark Corp. |
| 487 |
| 27,077 |
| |
UnumProvident Corp. |
| 1,364 |
| 31,031 |
| |
XL Capital Ltd., Class A |
| 828 |
| 55,791 |
| |
|
|
|
| 2,558,320 |
| |
Real Estate—0.7% |
|
|
|
|
| |
Apartment Investment & Management Co., Class A, REIT |
| 450 |
| 17,042 |
| |
Archstone-Smith Trust, REIT |
| 1,000 |
| 41,890 |
| |
Equity Office Properties Trust, REIT |
| 1,862 |
| 56,474 |
| |
Equity Residential Property Trust, REIT |
| 1,331 |
| 52,069 |
| |
Plum Creek Timber Co., Inc., REIT |
| 831 |
| 29,958 |
| |
ProLogis Trust, REIT |
| 1,150 |
| 53,728 |
| |
Public Storage, Inc., REIT |
| 400 |
| 27,088 |
| |
Simon Property Group, Inc., REIT |
| 850 |
| 65,135 |
| |
Vornado Realty Trust, REIT |
| 550 |
| 45,908 |
| |
|
|
|
| 389,292 |
| |
Thrifts & Mortgage Finance—1.6% |
|
|
|
|
| |
Countrywide Financial Corp. |
| 2,784 |
| 95,185 |
| |
Fannie Mae |
| 4,462 |
| 217,790 |
| |
Freddie Mac |
| 3,186 |
| 208,205 |
| |
Golden West Financial Corp. |
| 1,186 |
| 78,276 |
| |
MGIC Investment Corp. |
| 413 |
| 27,184 |
| |
Sovereign Bancorp, Inc. |
| 1,650 |
| 35,673 |
| |
Washington Mutual, Inc. |
| 4,553 |
| 198,055 |
| |
|
|
|
| 860,368 |
| |
Health Care—13.2% |
|
|
|
|
| |
Biotechnology—1.5% |
|
|
|
|
| |
Amgen, Inc. (a) |
| 5,703 |
| 449,739 |
| |
Applera Corp. - Applied |
|
|
|
|
| |
Biosystems Group |
| 854 |
| 22,682 |
| |
Biogen Idec, Inc. (a) |
| 1,566 |
| 70,987 |
| |
Chiron Corp. (a) |
| 490 |
| 21,785 |
| |
Genzyme Corp. (a) |
| 1,192 |
| 84,370 |
| |
Gilead Sciences, Inc. (a) |
| 2,100 |
| 110,523 |
| |
MedImmune, Inc. (a) |
| 1,156 |
| 40,483 |
| |
|
|
|
| 800,569 |
| |
Health Care Equipment & Supplies—2.1% |
|
|
|
|
| |
Bausch & Lomb, Inc. |
| 229 |
| 15,549 |
| |
Baxter International, Inc. |
| 2,868 |
| 107,980 |
| |
Becton, Dickinson & Co. |
| 1,149 |
| 69,032 |
| |
Biomet, Inc. |
| 1,167 |
| 42,677 |
| |
Boston Scientific Corp. (a) |
| 2,754 |
| 67,445 |
| |
C.R. Bard, Inc. |
| 476 |
| 31,378 |
| |
Fisher Scientific International, Inc. (a) |
| 550 |
| 34,023 |
| |
Guidant Corp. |
| 1,526 |
| 98,809 |
|
See Accompanying Notes to Financial Statements.
99
|
| Shares |
| Value |
| |
Hospira, Inc. (a) |
| 745 |
| $ | 31,871 |
|
Medtronic, Inc. |
| 5,615 |
| 323,256 |
| |
Millipore Corp. (a) |
| 251 |
| 16,576 |
| |
PerkinElmer, Inc. |
| 587 |
| 13,830 |
| |
St. Jude Medical, Inc. (a) |
| 1,692 |
| 84,938 |
| |
Stryker Corp. |
| 1,330 |
| 59,092 |
| |
Thermo Electron Corp. (a) |
| 727 |
| 21,905 |
| |
Waters Corp. (a) |
| 489 |
| 18,484 |
| |
Zimmer Holdings, Inc. (a) |
| 1,169 |
| 78,837 |
| |
|
|
|
| 1,115,682 |
| |
Health Care Providers & Services—3.2% |
|
|
|
|
| |
Aetna, Inc. |
| 1,312 |
| 123,735 |
| |
AmerisourceBergen Corp. |
| 1,002 |
| 41,483 |
| |
Cardinal Health, Inc. |
| 1,985 |
| 136,469 |
| |
Caremark Rx, Inc. (a) |
| 2,093 |
| 108,396 |
| |
CIGNA Corp. |
| 565 |
| 63,110 |
| |
Coventry Health Care, Inc. (a) |
| 750 |
| 42,720 |
| |
Express Scripts, Inc. (a) |
| 650 |
| 54,470 |
| |
HCA, Inc. |
| 1,987 |
| 100,343 |
| |
Health Management Associates, Inc., Class A |
| 1,126 |
| 24,727 |
| |
Humana, Inc. (a) |
| 767 |
| 41,671 |
| |
IMS Health, Inc. |
| 1,067 |
| 26,590 |
| |
Laboratory Corp. of America Holdings (a) |
| 600 |
| 32,310 |
| |
Manor Care, Inc. |
| 358 |
| 14,238 |
| |
McKesson Corp. |
| 1,449 |
| 74,754 |
| |
Medco Health Solutions, Inc. (a) |
| 1,430 |
| 79,794 |
| |
Patterson Companies, Inc. (a) |
| 650 |
| 21,710 |
| |
Quest Diagnostics, Inc. |
| 792 |
| 40,772 |
| |
Tenet Healthcare Corp. (a) |
| 2,180 |
| 16,699 |
| |
UnitedHealth Group, Inc. |
| 6,328 |
| 393,222 |
| |
WellPoint, Inc. (a) |
| 3,062 |
| 244,317 |
| |
|
|
|
| 1,681,530 |
| |
Pharmaceuticals—6.4% |
|
|
|
|
| |
Abbott Laboratories |
| 7,201 |
| 283,935 |
| |
Allergan, Inc. |
| 602 |
| 64,992 |
| |
Bristol-Myers Squibb Co. |
| 9,070 |
| 208,429 |
| |
Eli Lilly & Co. |
| 5,286 |
| 299,135 |
| |
Forest Laboratories, Inc. (a) |
| 1,574 |
| 64,030 |
| |
Johnson & Johnson |
| 13,792 |
| 828,899 |
| |
King Pharmaceuticals, Inc. (a) |
| 1,127 |
| 19,069 |
| |
Merck & Co., Inc. |
| 10,128 |
| 322,172 |
| |
Mylan Laboratories, Inc. |
| 1,000 |
| 19,960 |
| |
Pfizer, Inc. |
| 34,163 |
| 796,681 |
| |
Schering-Plough Corp. |
| 6,857 |
| 142,968 |
| |
Watson Pharmaceuticals, Inc. (a) |
| 462 |
| 15,020 |
| |
Wyeth |
| 6,239 |
| 287,431 |
| |
|
|
|
| 3,352,721 |
| |
Industrials—11.3% |
|
|
|
|
| |
Aerospace & Defense—2.2% |
|
|
|
|
| |
Boeing Co. |
| 3,728 |
| 261,855 |
| |
General Dynamics Corp. |
| 945 |
| 107,777 |
| |
Goodrich Corp. |
| 585 |
| 24,044 |
| |
Honeywell International, Inc. |
| 3,914 |
| $ | 145,796 |
|
L-3 Communications Holdings, Inc. |
| 550 |
| 40,892 |
| |
Lockheed Martin Corp. |
| 1,633 |
| 103,908 |
| |
Northrop Grumman Corp. |
| 1,630 |
| 97,979 |
| |
Raytheon Co. |
| 2,065 |
| 82,910 |
| |
Rockwell Collins, Inc. |
| 823 |
| 38,245 |
| |
United Technologies Corp. |
| 4,700 |
| 262,777 |
| |
|
|
|
| 1,166,183 |
| |
Air Freight & Logistics—1.0% |
|
|
|
|
| |
FedEx Corp. |
| 1,395 |
| 144,229 |
| |
Ryder System, Inc. |
| 314 |
| 12,880 |
| |
United Parcel Service, Inc., Class B |
| 5,093 |
| 382,739 |
| |
|
|
|
| 539,848 |
| |
Airlines—0.1% |
|
|
|
|
| |
Southwest Airlines Co. |
| 3,239 |
| 53,217 |
| |
Building Products—0.2% |
|
|
|
|
| |
American Standard Companies, Inc. |
| 870 |
| 34,757 |
| |
Masco Corp. |
| 1,960 |
| 59,172 |
| |
|
|
|
| 93,929 |
| |
Commercial Services & Supplies—0.7% |
|
|
|
|
| |
Allied Waste Industries, Inc. (a) |
| 1,020 |
| 8,915 |
| |
Avery Dennison Corp. |
| 531 |
| 29,348 |
| |
Cendant Corp. |
| 4,751 |
| 81,955 |
| |
Cintas Corp. |
| 632 |
| 26,026 |
| |
Equifax, Inc. |
| 596 |
| 22,660 |
| |
Monster Worldwide, Inc. (a) |
| 550 |
| 22,451 |
| |
Pitney Bowes, Inc. |
| 1,052 |
| 44,447 |
| |
R.R. Donnelley & Sons Co. |
| 1,031 |
| 35,270 |
| |
Robert Half International, Inc. |
| 800 |
| 30,312 |
| |
Waste Management, Inc. |
| 2,565 |
| 77,848 |
| |
|
|
|
| 379,232 |
| |
Construction & Engineering—0.1% |
|
|
|
|
| |
Fluor Corp. |
| 409 |
| 31,599 |
| |
Electrical Equipment—0.4% |
|
|
|
|
| |
American Power Conversion Corp. |
| 793 |
| 17,446 |
| |
Cooper Industries Ltd., Class A |
| 449 |
| 32,777 |
| |
Emerson Electric Co. |
| 1,923 |
| 143,648 |
| |
Rockwell Automation, Inc. |
| 809 |
| 47,861 |
| |
|
|
|
| 241,732 |
| |
Industrial Conglomerates—4.4% |
|
|
|
|
| |
3M Co. |
| 3,519 |
| 272,722 |
| |
General Electric Co. |
| 48,956 |
| 1,715,908 |
| |
Textron, Inc. |
| 611 |
| 47,035 |
| |
Tyco International Ltd. |
| 9,329 |
| 269,235 |
| |
|
|
|
| 2,304,900 |
| |
Machinery—1.4% |
|
|
|
|
| |
Caterpillar, Inc. |
| 3,134 |
| 181,051 |
| |
Cummins, Inc. |
| 230 |
| 20,638 |
| |
Danaher Corp. |
| 1,092 |
| 60,912 |
| |
Deere & Co. |
| 1,097 |
| 74,717 |
| |
Dover Corp. |
| 940 |
| 38,060 |
| |
Eaton Corp. |
| 666 |
| 44,682 |
| |
Illinois Tool Works, Inc. |
| 933 |
| 82,094 |
| |
Ingersoll-Rand Co., Ltd., Class A |
| 1,556 |
| 62,816 |
|
See Accompanying Notes to Financial Statements.
100
|
| Shares |
| Value |
| |
ITT Industries, Inc. |
| 431 |
| $ | 44,315 |
|
Navistar International Corp. (a) |
| 271 |
| 7,756 |
| |
Paccar, Inc. |
| 769 |
| 53,238 |
| |
Pall Corp. |
| 600 |
| 16,116 |
| |
Parker Hannifin Corp. |
| 556 |
| 36,674 |
| |
|
|
|
| 723,069 |
| |
Road & Rail—0.7% |
|
|
|
|
| |
Burlington Northern Santa Fe Corp. |
| 1,732 |
| 122,660 |
| |
CSX Corp. |
| 1,013 |
| 51,430 |
| |
Norfolk Southern Corp. |
| 1,862 |
| 83,474 |
| |
Union Pacific Corp. |
| 1,239 |
| 99,752 |
| |
|
|
|
| 357,316 |
| |
Trading Companies & Distributors—0.1% |
|
|
|
|
| |
W.W. Grainger, Inc. |
| 375 |
| 26,662 |
| |
Information Technology—15.0% |
|
|
|
|
| |
Communications Equipment—2.7% |
|
|
|
|
| |
ADC Telecommunications, Inc. (a) |
| 537 |
| 11,997 |
| |
Andrew Corp. (a) |
| 737 |
| 7,908 |
| |
Avaya, Inc. (a) |
| 1,948 |
| 20,785 |
| |
CIENA Corp. (a) |
| 2,669 |
| 7,927 |
| |
Cisco Systems, Inc. (a) |
| 28,485 |
| 487,663 |
| |
Comverse Technology, Inc. (a) |
| 921 |
| 24,489 |
| |
Corning, Inc. (a) |
| 7,059 |
| 138,780 |
| |
JDS Uniphase Corp. (a) |
| 7,643 |
| 18,038 |
| |
Lucent Technologies, Inc. (a) |
| 20,598 |
| 54,791 |
| |
Motorola, Inc. |
| 11,558 |
| 261,095 |
| |
QUALCOMM, Inc. |
| 7,633 |
| 328,830 |
| |
Scientific-Atlanta, Inc. |
| 705 |
| 30,364 |
| |
Tellabs, Inc. (a) |
| 2,091 |
| 22,792 |
| |
|
|
|
| 1,415,459 |
| |
Computers & Peripherals—3.7% |
|
|
|
|
| |
Apple Computer, Inc. (a) |
| 3,922 |
| 281,953 |
| |
Dell, Inc. (a) |
| 10,904 |
| 327,011 |
| |
EMC Corp. (a) |
| 11,056 |
| 150,583 |
| |
Gateway, Inc. (a) |
| 1,245 |
| 3,125 |
| |
Hewlett-Packard Co. |
| 13,259 |
| 379,605 |
| |
International Business Machines Corp. |
| 7,310 |
| 600,882 |
| |
Lexmark International, Inc., Class A (a) |
| 545 |
| 24,432 |
| |
NCR Corp. (a) |
| 860 |
| 29,188 |
| |
Network Appliance, Inc. (a) |
| 1,734 |
| 46,818 |
| |
QLogic Corp. (a) |
| 355 |
| 11,541 |
| |
Sun Microsystems, Inc. (a) |
| 15,825 |
| 66,307 |
| |
|
|
|
| 1,921,445 |
| |
Electronic Equipment & Instruments—0.3% |
|
|
|
|
| |
Agilent Technologies, Inc. (a) |
| 1,923 |
| 64,017 |
| |
Jabil Circuit, Inc. (a) |
| 815 |
| 30,228 |
| |
Molex, Inc. |
| 665 |
| 17,257 |
| |
Sanmina-SCI Corp. (a) |
| 2,453 |
| 10,450 |
| |
Solectron Corp. (a) |
| 4,236 |
| 15,504 |
| |
Symbol Technologies, Inc. |
| 1,141 |
| 14,627 |
| |
Tektronix, Inc. |
| 387 |
| 10,917 |
| |
|
|
|
| 163,000 |
| |
Internet Software & Services—0.5% |
|
|
|
|
| |
Yahoo!, Inc. (a) |
| 5,838 |
| $ | 228,733 |
|
IT Services—1.0% |
|
|
|
|
| |
Affiliated Computer Services, Inc., Class A (a) |
| 600 |
| 35,508 |
| |
Automatic Data Processing, Inc. |
| 2,650 |
| 121,609 |
| |
Computer Sciences Corp. (a) |
| 841 |
| 42,588 |
| |
Convergys Corp. (a) |
| 630 |
| 9,986 |
| |
Electronic Data Systems Corp. |
| 2,441 |
| 58,682 |
| |
First Data Corp. |
| 3,529 |
| 151,782 |
| |
Fiserv, Inc. (a) |
| 864 |
| 37,385 |
| |
Paychex, Inc. |
| 1,559 |
| 59,429 |
| |
Sabre Holdings Corp., Class A |
| 608 |
| 14,659 |
| |
Unisys Corp. (a) |
| 1,587 |
| 9,252 |
| |
|
|
|
| 540,880 |
| |
Office Electronics—0.1% |
|
|
|
|
| |
Xerox Corp. (a) |
| 4,459 |
| 65,324 |
| |
Semiconductors & Semiconductor Equipment—3.2% |
|
|
|
|
| |
Advanced Micro Devices, Inc. (a) |
| 1,887 |
| 57,742 |
| |
Altera Corp. (a) |
| 1,667 |
| 30,889 |
| |
Analog Devices, Inc. |
| 1,708 |
| 61,266 |
| |
Applied Materials, Inc. |
| 7,540 |
| 135,268 |
| |
Applied Micro Circuits Corp. (a) |
| 1,404 |
| 3,608 |
| |
Broadcom Corp., Class A (a) |
| 1,341 |
| 63,228 |
| |
Freescale Semiconductor, Inc., Class B (a) |
| 1,881 |
| 47,345 |
| |
Intel Corp. |
| 27,959 |
| 697,857 |
| |
KLA-Tencor Corp. |
| 913 |
| 45,038 |
| |
Linear Technology Corp. |
| 1,423 |
| 51,328 |
| |
LSI Logic Corp. (a) |
| 1,791 |
| 14,328 |
| |
Maxim Integrated Products, Inc. |
| 1,537 |
| 55,701 |
| |
Micron Technology, Inc. (a) |
| 2,865 |
| 38,133 |
| |
National Semiconductor Corp. |
| 1,590 |
| 41,308 |
| |
Novellus Systems, Inc. (a) |
| 642 |
| 15,485 |
| |
NVIDIA Corp. (a) |
| 780 |
| 28,517 |
| |
PMC-Sierra, Inc. (a) |
| 848 |
| 6,538 |
| |
Teradyne, Inc. (a) |
| 926 |
| 13,492 |
| |
Texas Instruments, Inc. |
| 7,513 |
| 240,942 |
| |
Xilinx, Inc. |
| 1,626 |
| 40,991 |
| |
|
|
|
| 1,689,004 |
| |
Software—3.5% |
|
|
|
|
| |
Adobe Systems, Inc. |
| 2,780 |
| 102,749 |
| |
Autodesk, Inc. |
| 1,050 |
| 45,098 |
| |
BMC Software, Inc. (a) |
| 1,012 |
| 20,736 |
| |
Citrix Systems, Inc. (a) |
| 793 |
| 22,823 |
| |
Computer Associates International, Inc. |
| 2,148 |
| 60,552 |
| |
Compuware Corp. (a) |
| 1,786 |
| 16,020 |
| |
Electronic Arts, Inc. (a) |
| 1,378 |
| 72,083 |
| |
Intuit, Inc. (a) |
| 813 |
| 43,333 |
| |
Mercury Interactive Corp. (a) |
| 407 |
| 11,311 |
| |
Microsoft Corp. |
| 42,395 |
| 1,108,629 |
| |
Novell, Inc. (a) |
| 1,786 |
| 15,770 |
| |
Oracle Corp. (a) |
| 17,442 |
| 212,967 |
| |
Parametric Technology Corp. (a) |
| 1,241 |
| 7,570 |
|
See Accompanying Notes to Financial Statements.
101
|
| Shares |
| Value |
| |
Siebel Systems, Inc. |
| 2,448 |
| $ | 25,900 |
|
Symantec Corp. (a) |
| 5,023 |
| 87,902 |
| |
|
|
|
| 1,853,443 |
| |
Materials—3.0% |
|
|
|
|
| |
Chemicals—1.5% |
|
|
|
|
| |
Air Products & Chemicals, Inc. |
| 1,042 |
| 61,676 |
| |
Ashland, Inc. |
| 326 |
| 18,875 |
| |
Dow Chemical Co. |
| 4,460 |
| 195,437 |
| |
E.I. du Pont de Nemours & Co. |
| 4,274 |
| 181,645 |
| |
Eastman Chemical Co. |
| 367 |
| 18,934 |
| |
Ecolab, Inc. |
| 870 |
| 31,555 |
| |
Engelhard Corp. |
| 534 |
| 16,100 |
| |
Hercules, Inc. (a) |
| 533 |
| 6,023 |
| |
International Flavors & Fragrances, Inc. |
| 366 |
| 12,261 |
| |
Monsanto Co. |
| 1,255 |
| 97,300 |
| |
PPG Industries, Inc. |
| 771 |
| 44,641 |
| |
Praxair, Inc. |
| 1,490 |
| 78,911 |
| |
Rohm and Haas Co. |
| 681 |
| 32,974 |
| |
Sigma-Aldrich Corp. |
| 301 |
| 19,050 |
| |
|
|
|
| 815,382 |
| |
Construction Materials—0.1% |
|
|
|
|
| |
Vulcan Materials Co. |
| 472 |
| 31,978 |
| |
Containers & Packaging—0.2% |
|
|
|
|
| |
Ball Corp. |
| 480 |
| 19,066 |
| |
Bemis Co., Inc. |
| 496 |
| 13,823 |
| |
Pactiv Corp. (a) |
| 672 |
| 14,784 |
| |
Sealed Air Corp. (a) |
| 390 |
| 21,906 |
| |
Temple-Inland, Inc. |
| 526 |
| 23,591 |
| |
|
|
|
| 93,170 |
| |
Metals & Mining—0.8% |
|
|
|
|
| |
Alcoa, Inc. |
| 4,032 |
| 119,226 |
| |
Allegheny Technologies, Inc. |
| 382 |
| 13,782 |
| |
Freeport-McMoRan Copper & Gold, Inc., Class B |
| 830 |
| 44,654 |
| |
Newmont Mining Corp. |
| 2,089 |
| 111,553 |
| |
Nucor Corp. |
| 738 |
| 49,239 |
| |
Phelps Dodge Corp. |
| 464 |
| 66,756 |
| |
United States Steel Corp. |
| 509 |
| 24,468 |
| |
|
|
|
| 429,678 |
| |
Paper & Forest Products—0.4% |
|
|
|
|
| |
International Paper Co. |
| 2,270 |
| 76,295 |
| |
Louisiana-Pacific Corp. |
| 470 |
| 12,911 |
| |
MeadWestvaco Corp. |
| 861 |
| 24,134 |
| |
Weyerhaeuser Co. |
| 1,107 |
| 73,438 |
| |
|
|
|
| 186,778 |
| |
Telecommunication Services—3.0% |
|
|
|
|
| |
Diversified Telecommunication Services—2.2% |
|
|
|
|
| |
AT&T, Inc. |
| 18,089 |
| 443,010 |
| |
BellSouth Corp. |
| 8,482 |
| 229,862 |
| |
CenturyTel, Inc. |
| 589 |
| 19,531 |
| |
Citizens Communications Co. |
| 1,529 |
| 18,700 |
| |
Qwest Communications International, Inc. (a) |
| 7,156 |
| $ | 40,431 |
|
Verizon Communications, Inc. |
| 12,805 |
| 385,687 |
| |
|
|
|
| 1,137,221 |
| |
Wireless Telecommunication Services—0.8% |
|
|
|
|
| |
ALLTEL Corp. |
| 1,793 |
| 113,138 |
| |
Sprint Nextel Corp. |
| 13,678 |
| 319,518 |
| |
|
|
|
| 432,656 |
| |
Utilities—3.3% |
|
|
|
|
| |
Electric Utilities—1.6% |
|
|
|
|
| |
Allegheny Energy, Inc. (a) |
| 767 |
| 24,275 |
| |
American Electric Power Co., Inc. |
| 1,832 |
| 67,949 |
| |
Cinergy Corp. |
| 928 |
| 39,403 |
| |
Edison International |
| 1,506 |
| 65,677 |
| |
Entergy Corp. |
| 978 |
| 67,140 |
| |
Exelon Corp. |
| 3,098 |
| 164,628 |
| |
FirstEnergy Corp. |
| 1,532 |
| 75,053 |
| |
FPL Group, Inc. |
| 1,850 |
| 76,886 |
| |
Pinnacle West Capital Corp. |
| 462 |
| 19,104 |
| |
PPL Corp. |
| 1,764 |
| 51,861 |
| |
Progress Energy, Inc. |
| 1,179 |
| 51,782 |
| |
Southern Co. |
| 3,431 |
| 118,472 |
| |
|
|
|
| 822,230 |
| |
Gas Utilities—0.0% |
|
|
|
|
| |
Nicor, Inc. |
| 195 |
| 7,665 |
| |
Peoples Energy Corp. |
| 152 |
| 5,331 |
| |
|
|
|
| 12,996 |
| |
Independent Power Producers & Energy Traders—0.6% |
|
|
|
|
| |
AES Corp. (a) |
| 3,026 |
| 47,901 |
| |
Constellation Energy Group, Inc. |
| 837 |
| 48,211 |
| |
Duke Energy Corp. |
| 4,286 |
| 117,651 |
| |
Dynegy, Inc., Class A (a) |
| 1,400 |
| 6,776 |
| |
TXU Corp. |
| 2,256 |
| 113,229 |
| |
|
|
|
| 333,768 |
| |
Multi-Utilities—1.1% |
|
|
|
|
| |
Ameren Corp. |
| 964 |
| 49,395 |
| |
CenterPoint Energy, Inc. |
| 1,443 |
| 18,542 |
| |
CMS Energy Corp. (a) |
| 1,000 |
| 14,510 |
| |
Consolidated Edison, Inc. |
| 1,160 |
| 53,743 |
| |
Dominion Resources, Inc. |
| 1,595 |
| 123,134 |
| |
DTE Energy Co. |
| 804 |
| 34,725 |
| |
KeySpan Corp. |
| 819 |
| 29,230 |
| |
NiSource, Inc. |
| 1,259 |
| 26,263 |
| |
PG&E Corp. |
| 1,572 |
| 58,353 |
| |
Public Service Enterprise Group, Inc. |
| 1,150 |
| 74,715 |
| |
Sempra Energy |
| 1,184 |
| 53,091 |
| |
TECO Energy, Inc. |
| 950 |
| 16,321 |
| |
Xcel Energy, Inc. |
| 1,857 |
| 34,280 |
| |
|
|
|
| 586,302 |
| |
Total Common Stocks |
|
|
| 52,201,283 |
|
See Accompanying Notes to Financial Statements.
102
|
| Par |
| Value |
| ||
SHORT-TERM OBLIGATIONS—0.7% |
|
|
|
|
| ||
Repurchase Agreement—0.6% |
|
|
|
|
| ||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Bond maturing 11/15/15, market value of $347,121 (repurchase proceeds $338,127) |
| $ | 338,000 |
| $ | 338,000 |
|
U.S. Government Obligations—0.1% |
|
|
|
|
| ||
U.S. Treasury Bill 3.750% 03/16/06 (c) |
| 50,000 |
| 49,526 |
| ||
Total Short-Term Obligations |
|
|
| 387,526 |
| ||
Total Investments—100.1% |
|
|
| 52,588,809 |
| ||
Other Assets & Liabilities, Net—(0.1)% |
|
|
| (62,991 | ) | ||
Net Assets—100.0% |
|
|
| $ | 52,525,818 |
| |
Notes to Investment Portfolio:
(a) Non-income producing security.
(b) Investments in affiliates during the year ended December 31, 2005:
Security name: |
| Bank of America Corp. |
| |
Shares as of 12/31/04: |
| 19,372 |
| |
Shares purchased: |
| 1,100 |
| |
Shares sold: |
| (1,850 | ) | |
Shares as of 12/31/05: |
| 18,622 |
| |
Net realized loss: |
| $ | (418 | ) |
Dividend income earned: |
| $ | 36,047 |
|
Value at end of period: |
| $ | 859,405 |
|
(c) Security pledged as collateral for open futures contracts.
(d) Cost for federal income tax purposes is $45,841,957.
At December 31, 2005, the Fund held the following open long futures contracts:
Type |
| Number of |
| Value |
| Aggregate |
| Expiration |
| Unrealized |
| |||
S&P 500 Index |
| 1 |
| $ | 313,700 |
| $ | 317,029 |
| Mar-06 |
| $ | (3,329 | ) |
At December 31, 2005, the Fund held investments in the following sectors:
Sector (Unaudited) |
| % of |
|
Financials |
| 21.1 | % |
Information Technology |
| 15.0 |
|
Health Care |
| 13.2 |
|
Industrials |
| 11.3 |
|
Consumer Discretionary |
| 10.7 |
|
Consumer Staples |
| 9.5 |
|
Energy |
| 9.3 |
|
Utilities |
| 3.3 |
|
Telecommunication Services |
| 3.0 |
|
Materials |
| 3.0 |
|
Short-Term Obligations |
| 0.7 |
|
Other Assets & Liabilities, Net |
| (0.1 | ) |
|
| 100.0 | % |
Acronym |
| Name |
REIT |
| Real Estate Investment Trust |
See Accompanying Notes to Financial Statements.
103
Statement of Assets and Liabilities
Liberty S&P 500 Index Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Unaffiliated investments, at cost |
| $ | 43,120,179 |
|
Affiliated investments, at cost |
| 565,354 |
| |
Unaffiliated investments, at value |
| $ | 51,729,404 |
|
Affiliated investments, at value |
| 859,405 |
| |
Cash |
| 1,142 |
| |
Receivable for: |
|
|
| |
Investments sold |
| 3,730 |
| |
Fund shares sold |
| 4,963 |
| |
Interest |
| 152 |
| |
Dividends |
| 69,283 |
| |
Deferred Trustees’ compensation plan |
| 5,382 |
| |
Total Assets |
| 52,673,461 |
| |
Liabilities: |
|
|
| |
Payable for: |
|
|
| |
Investments purchased |
| 66,307 |
| |
Fund shares repurchased |
| 9,638 |
| |
Futures variation margin |
| 1,325 |
| |
Investment advisory fee |
| 11,250 |
| |
Transfer agent fee |
| 6 |
| |
Pricing and bookkeeping fees |
| 6,633 |
| |
Trustees’ fees |
| 437 |
| |
Audit fee |
| 21,508 |
| |
Custody fee |
| 4,384 |
| |
Distribution fee—Class B |
| 12,162 |
| |
Chief compliance officer expenses |
| 1,379 |
| |
Deferred Trustees’ fees |
| 5,382 |
| |
Other liabilities |
| 7,232 |
| |
Total Liabilities |
| 147,643 |
| |
Net Assets |
| $ | 52,525,818 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 47,691,298 |
|
Undistributed net investment income |
| 625,632 |
| |
Accumulated net realized loss |
| (4,691,059 | ) | |
Net unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| 8,903,276 |
| |
Futures contracts |
| (3,329 | ) | |
Net Assets |
| $ | 52,525,818 |
|
Class A: |
|
|
| |
Net assets |
| $ | 94,967 |
|
Shares outstanding |
| 8,695 |
| |
Net asset value per share |
| $ | 10.92 |
|
Class B: |
|
|
| |
Net assets |
| $ | 52,430,851 |
|
Shares outstanding |
| 4,824,671 |
| |
Net asset value per share |
| $ | 10.87 |
|
See Accompanying Notes to Financial Statements.
104
Statement of Operations
Liberty S&P 500 Index Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Dividends |
| $ | 937,564 |
|
Dividends from affiliates |
| 36,047 |
| |
Interest |
| 25,080 |
| |
Total Investment Income |
| 998,691 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 105,518 |
| |
Distribution fee—Class B |
| 132,979 |
| |
Transfer agent fee |
| 6,262 |
| |
Pricing and bookkeeping fees |
| 50,910 |
| |
Trustees’ fees |
| 8,503 |
| |
Custody fee |
| 26,234 |
| |
Audit fee |
| 23,746 |
| |
Chief compliance officer expenses (See Note 4) |
| 4,131 |
| |
Non-recurring costs (See Note 7) |
| 1,076 |
| |
Other expenses |
| 13,663 |
| |
Total Expenses |
| 373,022 |
| |
Fees and expenses waived or reimbursed by Investment Advisor |
| (5,648 | ) | |
Fees waived by Transfer Agent |
| (1,237 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 7) |
| (1,076 | ) | |
Custody earnings credit |
| (91 | ) | |
Net Expenses |
| 364,970 |
| |
Net Investment Income |
| 633,721 |
| |
Net Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Unaffiliated investments |
| (1,071,706 | ) | |
Affiliated investments |
| (418 | ) | |
Futures contracts |
| 37,504 |
| |
Net realized loss on disposal of investments purchased in error (See Note 6) |
| — |
| |
Net realized loss |
| (1,034,620 | ) | |
Net change in unrealized appreciation (depreciation) on: |
|
|
| |
Investments |
| 2,608,423 |
| |
Futures contracts |
| (12,309 | ) | |
Net change in unrealized appreciation (depreciation) |
| 2,596,114 |
| |
Net Gain |
| 1,561,494 |
| |
Net Increase in Net Assets from Operations |
| $ | 2,195,215 |
|
See Accompanying Notes to Financial Statements.
105
Statement of Changes in Net Assets
Liberty S&P 500 Index Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 633,721 |
| $ | 659,754 |
|
Net realized loss on investments and future contracts |
| (1,034,620 | ) | (297,579 | ) | ||
Net change in unrealized appreciation (depreciation) on investments and future contracts |
| 2,596,114 |
| 4,701,061 |
| ||
Net Increase from Operations |
| 2,195,215 |
| 5,063,236 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (1,243 | ) | ||
Class B |
| — |
| (677,613 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (678,856 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Distributions reinvested |
| — |
| 1,243 |
| ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 2,439,004 |
| 6,819,068 |
| ||
Distributions reinvested |
| — |
| 677,613 |
| ||
Redemptions |
| (6,845,177 | ) | (5,669,755 | ) | ||
Net Increase (Decrease) |
| (4,406,173 | ) | 1,826,926 |
| ||
Net Increase (Decrease) from Share Transactions |
| (4,406,173 | ) | 1,828,169 |
| ||
Total Increase (Decrease) in Net Assets |
| (2,210,958 | ) | 6,212,549 |
| ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 54,736,776 |
| 48,524,227 |
| ||
End of period |
| $ | 52,525,818 |
| $ | 54,736,776 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 625,632 |
| $ | (1,760 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Issued for distributions reinvested |
| — |
| 119 |
| ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 235,385 |
| 700,537 |
| ||
Issued for distributions reinvested |
| — |
| 64,905 |
| ||
Redemptions |
| (652,279 | ) | (573,226 | ) | ||
Net Increase (Decrease) |
| (416,894 | ) | 192,216 |
|
See Accompanying Notes to Financial Statements.
106
Notes to Financial Statements
Liberty S&P 500 Index Fund, Variable Series / December 31, 2005
Note 1. Organization
Liberty S&P 500 Index Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Futures Contracts—The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund will invest in these instruments to hedge against the effects of changes in the value of portfolio securities due to anticipated changes in interest rates and/or market conditions, for duration management, or when the transactions are economically appropriate to the reduction of risk inherent in the management of the Fund and not for trading purposes. The use of futures contracts involves certain risks, which include: (1) imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out positions due to differing trading hours, or the temporary absence of a liquid market, for either the instrument or the underlying securities, or (3) an inaccurate prediction by Columbia Management Advisors, LLC of the future direction of interest rates. Any of these risks may involve amounts exceeding the variation margin recorded in the Fund’s Statement of Assets and Liabilities at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities with the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as variation margin receivable or payable and offset in unrealized gains or losses. The Fund also identifies portfolio securities as segregated with the custodian in a separate account in an amount equal to the futures contract. The Fund recognizes a realized gain or loss when the contract is closed or expires.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a
107
possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date. Distributions paid by real estate investment trusts (REITs) in excess of their income are recorded as a reduction of the cost of the related investments. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for REIT adjustments were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | (6,329 | ) | $ | 6,690 |
| $ | (361 | ) |
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income |
| $ | — |
| $ | 678,856 |
|
Long-term capital gains |
| — |
| — |
| ||
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 629,710 |
| $ | — |
| $ | 6,746,852 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 10,832,855 |
|
Unrealized depreciation |
| (4,086,003 | ) | |
Net unrealized appreciation |
| $ | 6,746,852 |
|
The following capital loss carryforwards may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of Expiration |
| Capital Loss Carryforward |
| ||
2008 |
|
| $ | 19,479 |
|
2009 |
|
| 243,840 |
| |
2010 |
|
| 1,209,651 |
| |
2011 |
|
| 9,406 |
| |
2012 |
|
| 61,449 |
| |
2013 |
|
| 717,217 |
| |
|
|
| $ | 2,261,042 |
|
Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2005, post-October capital losses of $275,746 attributed to security transactions were deferred to January 1, 2006.
108
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee at the annual rate of 0.20% of the Fund’s average daily net assets. Effective November 1, 2005, Columbia has voluntarily agreed to reduce the investment advisory fee by the annual rate of 0.064% of the Fund’s average daily net assets. This fee waiver can be removed at any time. For the year ended December 31, 2005, the Fund’s effective investment advisory fee rate was 0.19%.
Sub-Advisory Fee—Prior to August 22, 2005, State Street Global Advisors (“SSgA”) was retained by Columbia as sub-advisor to the Fund. As the sub-advisor, SSgA was responsible for daily investment operations, including placing all orders for the purchase and sale of portfolio securities for the Fund. Columbia, from the investment advisory fee it received, paid SSgA a monthly sub-advisory fee at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
| |
First $50 million |
| $ | 25,000 |
|
Over $50 million |
| 0.05 | % | |
Effective August 22, 2005, SSgA is no longer the sub-advisor to the Fund. Columbia currently runs the Fund’s day-to-day business, including placing all orders for the purchase and sale of the Fund’s portfolio securities.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.096% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,237 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Columbia and the Distributor have voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of
109
brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 0.75% annually of the Fund’s average daily net assets. The Distributor will first reimburse the Class B distribution fee up to 0.25% annually to reach the 0.75% limit on Class B expenses. If additional reimbursement is needed to meet the limit for each class, Columbia will then reimburse other expenses to the extent necessary. If additional reimbursement is still needed in order to reach the expense limit, Columbia will then waive a portion of its investment advisory fee to the extent necessary. Columbia or the Distributor, at their discretion, may revise or discontinue this arrangement any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31, 2005, the Fund paid $1,555 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $3,785,512 and $7,039,596, respectively.
Note 6. Other
During the year ended December 31, 2005, the Fund was reimbursed $211 by the sub-advisor for trading costs and a loss on a security sale due to a trading error.
Note 7. Disclosure of Significant Risks and Contingencies
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
110
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $1,076 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
111
Financial Highlights
Liberty S&P 500 Index Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 10.45 |
| $ | 9.62 |
| $ | 7.59 |
| $ | 9.90 |
| $ | 11.31 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.15 |
| 0.14 | (b) | 0.09 |
| 0.09 |
| 0.07 |
| |||||
Net realized and unrealized gain (loss) on investments and futures contracts |
| 0.32 |
| 0.83 |
| 2.02 |
| (2.32 | ) | (1.42 | ) | |||||
Total from Investment Operations |
| 0.47 |
| 0.97 |
| 2.11 |
| (2.23 | ) | (1.35 | ) | |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.14 | ) | (0.08 | ) | (0.07 | ) | (0.06 | ) | |||||
Return of capital |
| — |
| — |
| — |
| (0.01 | ) | — |
| |||||
Total Distributions Declared to Shareholders |
| — |
| (0.14 | ) | (0.08 | ) | (0.08 | ) | (0.06 | ) | |||||
Net Asset Value, End of Period |
| $ | 10.92 |
| $ | 10.45 |
| $ | 9.62 |
| $ | 7.59 |
| $ | 9.90 |
|
Total return (c)(d) |
| 4.50 | %(e)(f) | 10.13 | % | 27.80 | %(e) | (22.55 | )% | (11.98 | )%(e) | |||||
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (g) |
| 0.44 | % | 0.64 | % | 0.69 | % | 0.64 | % | 0.75 | % | |||||
Net investment income (g) |
| 1.44 | % | 1.42 | % | 1.11 | % | 0.99 | % | 0.72 | % | |||||
Waiver/reimbursement |
| 0.01 | % | — |
| 0.03 | % | — |
| 0.28 | % | |||||
Portfolio turnover rate |
| 7 | % | 6 | % | 3 | % | 17 | % | 7 | % | |||||
Net assets, end of period (000’s) |
| $ | 95 |
| $ | 91 |
| $ | 82 |
| $ | 65 |
| $ | 83 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.03 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(e) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. The reimbursement had an impact of less than 0.01% on the Fund’s total return.
(g) The benefits derived from custody credits had an impact of less than 0.01%.
112
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty S&P 500 Index Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Liberty S&P 500 Index Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 21, 2006
113
Portfolio Managers’ Discussion
Liberty Select Value Fund, Variable Series / December 31, 2005
Liberty Select Value Fund, Variable Series seeks long-term growth.
Diane L. Sobin, the lead manager, along with David I. Hoffman, Lori J. Ensinger and Noah J. Petrucci co-manage the fund. Ms. Sobin, Mr. Hoffman and Ms. Ensinger have been with Columbia Management Advisors, Inc. or its predecessors or affiliate organizations since 2001. Mr. Petrucci has been affiliated with the advisor or its predecessors or affiliates since 2002.
During the 12-month period that ended December 31, 2005, mid-cap value stocks outperformed the broader stock market by a wide margin and the fund, with its overall focus on mid-cap stocks, reflected this strength. Energy, industrials and materials stocks were among the fund’s top contributors. The fund also benefited from its minimal exposure to consumer discretionary stocks. A poor showing from consumer staples holdings and weakness in the telecommunications sector detracted from performance.
Energy, basic materials and industrial stocks were top contributors for fund
The global economy grew at a healthy pace in 2005. As a result, spending on building and infrastructure benefited basic materials stocks, such as Martin Marietta Materials, Inc. (0.6% of net assets). Strong copper pricing, due to rising demand from China, boosted Freeport-McMoRan Copper & Gold, Inc. (0.5% of net assets). Bottle and can manufacturer, Crown Holdings, Inc. (1.1% of net assets) also contributed to the fund’s performance as the company reduced costs and debt. On the technology side, companies benefiting from industrial trends also saw gains, including precision scale manufacturer Mettler-Toledo International, Inc. (0.9% of net assets).
Increased corporate spending helped many of the fund’s industrial holdings. Goodrich Corp. (1.1% of net assets), which manufactures landing gear for large airplanes, advanced on increased air traffic and rising demand for larger aircraft. Rail service improvements and increased use of trains to import and ship goods helped Burlington Northern Santa Fe Corp. and Norfolk Southern Corp. (0.6% and 0.8% of net assets, respectively). High demand for coal, which is shipped via rail, also aided these stocks. In the energy sector, coal producers, including Peabody Energy Corp. (0.5% of net assets), enjoyed gains as energy commodity prices rose. The rising price of oil and natural gas contributed to standout performance from XTO Energy, Inc., the US-based natural gas company, and Amerada Hess Corp., an integrated oil company (0.8% and 0.5% of net assets, respectively).
The fund’s performance was aided by three additional factors: it had less exposure to the weak-performing consumer discretionary area than the index. And some of the consumer stocks that the fund owned were solid performers, including retailers J.C. Penney Co., Inc. and Federated Department Stores, Inc. (each 1.1% of net assets). In the financial sector, the fund’s emphasis on companies with a business-focused customer base also boosted performance.
Consumer staples, telecommunications services stocks disappointed
Despite rising short-term interest rates, soaring energy prices and the uncertain aftereffects of a devastating hurricane season, US consumers remained fairly resilient. Yet there were signs of increased caution in spending patterns and several of the fund’s holdings in the consumer staples sector were disappointing. UST, Inc. (0.5% of net assets) was hurt as consumers substituted lower cost products for the company’s high-end chewing tobacco. Del Monte Foods, which was one of the fund’s long-term holdings, failed to meet our expectations for efficiencies that would lead to expanded operating margins. We sold the stock. The telecommunications services sector also underperformed as firms faced greater competition all around.
Looking ahead
Because we believe that economic growth could slow in the US and other developed markets, we have positioned the fund to take advantage of the strong economic growth trend that continues among large emerging markets, such as China, India, and Brazil. In that regard, we have invested in companies that could benefit from increased spending in the areas of engineering and new product design. We plan to continue to seek out opportunities among mid-cap companies with experienced management teams. We believe that mid-caps are generally both nimble and efficient; and, in a growing economy, they are also attractive acquisition candidates for larger companies.
Economic and market conditions frequently change. There is no assurance that the trends described here will continue or commence. The opinions expressed here are strictly those of Columbia Management and are subject to change without notice. Other divisions of Bank of America and/or affiliates of Columbia Management may have opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in response to economic and business developments.
Investing in mid-cap stocks may present special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.
Value stocks are stocks 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 and, in the advisor’s opinion, undervalued. If the advisor’s assessment of a company’s prospects is wrong, the price of the company’s stock may not approach the value the advisor has placed on it.
Holdings are disclosed as of December 31, 2005, and are subject to change.
114
Performance Information
Liberty Select Value Fund, Variable Series / December 31, 2005
Average annual total return as of December 31, 2005 (%)
|
| 1-year |
| 5-year |
| Life |
|
Class A (05/30/00) |
| 12.34 |
| 8.82 |
| 9.95 |
|
Russell Midcap Value Index(1) |
| 12.65 |
| 12.21 |
| 14.12 |
|
Inception date of share class is in parenthesis.
Net asset value per share ($) |
| 12/31/04 |
| 12/31/05 |
|
Class A |
| 17.66 |
| 19.84 |
|
Performance data quoted represents past performance and current performance may be higher or lower. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. For current month-end performance information, please contact your insurance company.
Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower.
Performance numbers reflect all fund expenses, but do not include any insurance charges imposed by your insurance company’s separate accounts. If performance included the effect of these additional charges, it would be lower.
Growth of a $10,000 investment, 05/30/00 – 12/31/05
The graph compares the results of a hypothetical $10,000 investment in the fund with the index. The Index is unmanaged and returns for the index and the fund include reinvested dividends and capital gains. It is not possible to invest directly in an index. Investment earnings, if any, are income tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all distributions. The Russell Midcap Value Index is an unmanaged index that measures the performance of those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. Indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
(1) Index performance for the life of the fund is from May 30, 2000.
115
Understanding Your Expenses
Liberty Select Value Fund, Variable Series / December 31, 2005
As a Variable Series fund shareholder, you incur ongoing costs, which generally include investment advisory, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the ongoing costs of investing in other mutual funds.
Analyzing your fund’s expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the fund during the reporting period. The information in the following table is based on an initial investment of $1,000.00 which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “actual” column is calculated using actual operating expenses and total return for the period. The amount listed in the “hypothetical” column assumes that the return each year is 5% before expenses and includes the actual expense ratio. You should not use the hypothetical account value and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period.
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled “Expenses paid during the period,” locate the amount in the column labeled “actual.” Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period
07/01/05 |
| Account value at the |
| Account value at the |
| Expenses paid |
| Fund’s annualized |
| ||||||
12/31/05 |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| Actual |
| Hypothetical |
| (%) |
|
Class A |
| 1,000.00 |
| 1,000.00 |
| 1,084.19 |
| 1,020.16 |
| 5.25 |
| 5.09 |
| 1.00 |
|
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund’s most recent fiscal half-year and divided by 365.
Had the transfer agent not waived/reimbursed a portion of expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the share class of the fund. As a shareholder of the fund, you do not incur any transaction costs, such as sales charges, redemption or exchange fees. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
The hypothetical examples provided are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees, that may be incurred by shareholders of other funds. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate accounts.
116
Investment Portfolio
Liberty Select Value Fund, Variable Series / December 31, 2005
|
| Shares |
| Value |
| |
COMMON STOCKS—98.3% |
|
|
|
|
| |
Consumer Discretionary—11.5% |
|
|
|
|
| |
Auto Components—1.6% |
|
|
|
|
| |
BorgWarner, Inc. |
| 4,200 |
| $ | 254,646 |
|
Johnson Controls, Inc. |
| 6,200 |
| 452,042 |
| |
|
|
|
| 706,688 |
| |
Hotels, Restaurants & Leisure—2.8% |
|
|
|
|
| |
Brinker International, Inc. |
| 5,500 |
| 212,630 |
| |
Harrah’s Entertainment, Inc. |
| 4,000 |
| 285,160 |
| |
Outback Steakhouse, Inc. |
| 6,600 |
| 274,626 |
| |
Starwood Hotels & Resorts Worldwide, Inc. |
| 7,100 |
| 453,406 |
| |
|
|
|
| 1,225,822 |
| |
Media—0.8% |
|
|
|
|
| |
Dow Jones & Co., Inc. |
| 9,100 |
| 322,959 |
| |
Multiline Retail—3.0% |
|
|
|
|
| |
Dollar General Corp. |
| 18,500 |
| 352,795 |
| |
Federated Department Stores, Inc. |
| 7,054 |
| 467,892 |
| |
J.C. Penney Co., Inc. |
| 8,900 |
| 494,840 |
| |
|
|
|
| 1,315,527 |
| |
Specialty Retail—3.3% |
|
|
|
|
| |
Office Depot, Inc. (a) |
| 14,000 |
| 439,600 |
| |
Pacific Sunwear of California, Inc. (a) |
| 6,800 |
| 169,456 |
| |
Sherwin-Williams Co. |
| 7,900 |
| 358,818 |
| |
TJX Companies, Inc. |
| 19,100 |
| 443,693 |
| |
|
|
|
| 1,411,567 |
| |
Consumer Staples—5.5% |
|
|
|
|
| |
Beverages—1.0% |
|
|
|
|
| |
Fomento Economico Mexicano SA de CV, ADR |
| 1,900 |
| 137,769 |
| |
Pepsi Bottling Group, Inc. |
| 10,900 |
| 311,849 |
| |
|
|
|
| 449,618 |
| |
Food & Staples Retailing—1.7% |
|
|
|
|
| |
Kroger Co. (a) |
| 17,300 |
| 326,624 |
| |
SUPERVALU, Inc. |
| 12,600 |
| 409,248 |
| |
|
|
|
| 735,872 |
| |
Food Products—2.3% |
|
|
|
|
| |
Corn Products International, Inc. |
| 13,400 |
| 320,126 |
| |
Dean Foods Co. (a) |
| 11,200 |
| 421,792 |
| |
Tyson Foods, Inc., Class A |
| 14,900 |
| 254,790 |
| |
|
|
|
| 996,708 |
| |
Tobacco—0.5% |
|
|
|
|
| |
UST, Inc. |
| 4,900 |
| 200,067 |
| |
Energy—6.6% |
|
|
|
|
| |
Energy Equipment & Services—2.8% |
|
|
|
|
| |
Dresser-Rand Group, Inc. (a) |
| 4,700 |
| 113,646 |
| |
National-Oilwell Varco, Inc. (a) |
| 5,400 |
| 338,580 |
| |
Noble Corp. |
| 2,750 |
| 193,985 |
| |
Technip SA, ADR |
| 3,700 |
| 224,886 |
| |
Weatherford International Ltd. (a) |
| 9,000 |
| 325,800 |
| |
|
|
|
| 1,196,897 |
| |
Oil, Gas & Consumable Fuels—3.8% |
|
|
|
|
| |
Amerada Hess Corp. |
| 1,700 |
| $ | 215,594 |
|
EOG Resources, Inc. |
| 2,300 |
| 168,751 |
| |
Marathon Oil Corp. |
| 1,182 |
| 72,066 |
| |
Murphy Oil Corp. |
| 2,400 |
| 129,576 |
| |
Peabody Energy Corp. |
| 2,700 |
| 222,534 |
| |
Williams Companies, Inc. |
| 21,400 |
| 495,838 |
| |
XTO Energy, Inc. |
| 7,688 |
| 337,811 |
| |
|
|
|
| 1,642,170 |
| |
Financials—26.2% |
|
|
|
|
| |
Capital Markets—1.1% |
|
|
|
|
| |
Bear Stearns Companies, Inc. |
| 4,200 |
| 485,226 |
| |
Commercial Banks—8.8% |
|
|
|
|
| |
Bank of Hawaii Corp. |
| 7,700 |
| 396,858 |
| |
City National Corp. |
| 6,100 |
| 441,884 |
| |
Cullen/Frost Bankers, Inc. |
| 8,900 |
| 477,752 |
| |
Marshall & Ilsley Corp. |
| 12,900 |
| 555,216 |
| |
Mercantile Bankshares Corp. |
| 6,200 |
| 349,928 |
| |
North Fork Bancorporation, Inc. |
| 16,839 |
| 460,715 |
| |
UnionBanCal Corp. |
| 5,300 |
| 364,216 |
| |
Whitney Holding Corp. |
| 7,900 |
| 217,724 |
| |
Zions Bancorporation |
| 7,200 |
| 544,032 |
| |
|
|
|
| 3,808,325 |
| |
Diversified Financial Services—1.0% |
|
|
|
|
| |
CIT Group, Inc. |
| 8,200 |
| 424,596 |
| |
Insurance—7.5% |
|
|
|
|
| |
ACE Ltd. |
| 6,900 |
| 368,736 |
| |
Ambac Financial Group, Inc. |
| 5,550 |
| 427,683 |
| |
Endurance Specialty Holdings Ltd. |
| 9,400 |
| 336,990 |
| |
Genworth Financial, Inc., Class A |
| 9,400 |
| 325,052 |
| |
Hartford Financial Services Group, Inc. |
| 2,800 |
| 240,492 |
| |
Lincoln National Corp. |
| 6,800 |
| 360,604 |
| |
Loews Corp. |
| 4,600 |
| 436,310 |
| |
Old Republic International Corp. |
| 12,800 |
| 336,128 |
| |
Willis Group Holdings Ltd. |
| 5,700 |
| 210,558 |
| |
XL Capital Ltd., Class A |
| 3,200 |
| 215,616 |
| |
|
|
|
| 3,258,169 |
| |
Real Estate—4.5% |
|
|
|
|
| |
Archstone-Smith Trust, REIT |
| 6,100 |
| 255,529 |
| |
Boston Properties, Inc., REIT |
| 4,600 |
| 340,998 |
| |
Equity Office Properties Trust, REIT |
| 10,600 |
| 321,498 |
| |
Host Marriott Corp., REIT |
| 27,200 |
| 515,440 |
| |
ProLogis Trust, REIT |
| 10,900 |
| 509,248 |
| |
|
|
|
| 1,942,713 |
| |
Thrifts & Mortgage Finance—3.3% |
|
|
|
|
| |
Golden West Financial Corp. |
| 10,000 |
| 660,000 |
| |
PMI Group, Inc. |
| 11,400 |
| 468,198 |
| |
Sovereign Bancorp, Inc. |
| 14,600 |
| 315,652 |
| |
|
|
|
| 1,443,850 |
|
See Accompanying Notes to Financial Statements.
117
|
| Shares |
| Value |
| |
Health Care—5.2% |
|
|
|
|
| |
Biotechnology—0.2% |
|
|
|
|
| |
Charles River Laboratories International, Inc. (a) |
| 2,400 |
| $ | 101,688 |
|
Health Care Equipment & Supplies—1.7% |
|
|
|
|
| |
Hospira, Inc. (a) |
| 6,800 |
| 290,904 |
| |
Millipore Corp. (a) |
| 6,900 |
| 455,676 |
| |
|
|
|
| 746,580 |
| |
Health Care Providers & Services—1.6% |
|
|
|
|
| |
CIGNA Corp. |
| 3,700 |
| 413,290 |
| |
Community Health Systems, Inc. (a) |
| 7,100 |
| 272,214 |
| |
|
|
|
| 685,504 |
| |
Pharmaceuticals—1.7% |
|
|
|
|
| |
IVAX Corp. (a) |
| 11,000 |
| 344,630 |
| |
Shire Pharmaceuticals Group PLC, ADR |
| 10,100 |
| 391,779 |
| |
|
|
|
| 736,409 |
| |
Industrials—14.4% |
|
|
|
|
| |
Aerospace & Defense—1.9% |
|
|
|
|
| |
Goodrich Corp. |
| 11,400 |
| 468,540 |
| |
Northrop Grumman Corp. |
| 6,000 |
| 360,660 |
| |
|
|
|
| 829,200 |
| |
Building Products—0.8% |
|
|
|
|
| |
American Standard Companies, Inc. |
| 9,200 |
| 367,540 |
| |
Commercial Services & Supplies—2.1% |
|
|
|
|
| |
ARAMARK Corp., Class B |
| 8,400 |
| 233,352 |
| |
Avery Dennison Corp. |
| 4,300 |
| 237,661 |
| |
Manpower, Inc. |
| 5,000 |
| 232,500 |
| |
Pitney Bowes, Inc. |
| 5,200 |
| 219,700 |
| |
|
|
|
| 923,213 |
| |
Construction & Engineering—1.2% |
|
|
|
|
| |
Fluor Corp. |
| 3,100 |
| 239,506 |
| |
Jacobs Engineering Group, Inc. (a) |
| 3,975 |
| 269,783 |
| |
|
|
|
| 509,289 |
| |
Electrical Equipment—0.8% |
|
|
| �� |
| |
Cooper Industries Ltd., Class A |
| 4,700 |
| 343,100 |
| |
Industrial Conglomerates—1.0% |
|
|
|
|
| |
Textron, Inc. |
| 5,700 |
| 438,786 |
| |
Machinery—4.7% |
|
|
|
|
| |
Dover Corp. |
| 9,100 |
| 368,459 |
| |
Eaton Corp. |
| 5,000 |
| 335,450 |
| |
Harsco Corp. |
| 3,400 |
| 229,534 |
| |
Ingersoll-Rand Co., Ltd., Class A |
| 10,400 |
| 419,848 |
| |
Kennametal, Inc. |
| 6,500 |
| 331,760 |
| |
Parker Hannifin Corp. |
| 5,200 |
| 342,992 |
| |
|
|
|
| 2,028,043 |
| |
Road & Rail—1.3% |
|
|
|
|
| |
Burlington Northern Santa Fe Corp. |
| 3,400 |
| 240,788 |
| |
Norfolk Southern Corp. |
| 7,500 |
| 336,225 |
| |
|
|
|
| 577,013 |
| |
Trading Companies & Distributors—0.6% |
|
|
|
|
| |
United Rentals, Inc. (a) |
| 10,300 |
| 240,917 |
| |
|
|
|
|
|
| |
Information Technology—6.9% |
|
|
|
|
| |
Electronic Equipment & Instruments—3.9% |
|
|
|
|
| |
Agilent Technologies, Inc. (a) |
| 9,100 |
| $ | 302,939 |
|
Arrow Electronics, Inc. (a) |
| 13,200 |
| 422,796 |
| |
Ingram Micro, Inc., Class A (a) |
| 14,500 |
| 288,985 |
| |
Mettler-Toledo International, Inc. (a) |
| 7,000 |
| 386,400 |
| |
Tektronix, Inc. |
| 9,500 |
| 267,995 |
| |
|
|
|
| 1,669,115 |
| |
Semiconductors & Semiconductor Equipment—2.0% |
|
|
|
|
| |
ATI Technologies, Inc. (a) |
| 10,800 |
| 183,492 |
| |
Cypress Semiconductor Corp. (a) |
| 6,300 |
| 89,775 |
| |
Fairchild Semiconductor International, Inc. (a) |
| 6,300 |
| 106,533 |
| |
KLA-Tencor Corp. |
| 4,400 |
| 217,052 |
| |
Lam Research Corp. (a) |
| 2,800 |
| 99,904 |
| |
MEMC Electronic Materials, Inc. (a) |
| 8,300 |
| 184,011 |
| |
|
|
|
| 880,767 |
| |
Software—1.0% |
|
|
|
|
| |
Activision, Inc. (a) |
| 8,400 |
| 115,416 |
| |
Cadence Design Systems, Inc. (a) |
| 7,500 |
| 126,900 |
| |
Electronic Arts, Inc. (a) |
| 2,000 |
| 104,620 |
| |
Synopsys, Inc. (a) |
| 3,500 |
| 70,210 |
| |
|
|
|
| 417,146 |
| |
Materials—11.1% |
|
|
|
|
| |
Chemicals—6.6% |
|
|
|
|
| |
Air Products & Chemicals, Inc. |
| 5,900 |
| 349,221 |
| |
Ashland, Inc. |
| 3,800 |
| 220,020 |
| |
Celanese Corp., Series A |
| 11,300 |
| 216,056 |
| |
Cytec Industries, Inc. |
| 5,000 |
| 238,150 |
| |
Eastman Chemical Co. |
| 4,000 |
| 206,360 |
| |
Engelhard Corp. |
| 7,300 |
| 220,095 |
| |
Lubrizol Corp. |
| 9,100 |
| 395,213 |
| |
Nalco Holding Co. (a) |
| 14,600 |
| 258,566 |
| |
PPG Industries, Inc. |
| 6,100 |
| 353,190 |
| |
Rohm and Haas Co. |
| 8,800 |
| 426,096 |
| |
|
|
|
| 2,882,967 |
| |
Construction Materials—0.6% |
|
|
|
|
| |
Martin Marietta Materials, Inc. |
| 3,500 |
| 268,520 |
| |
Containers & Packaging—1.9% |
|
|
|
|
| |
Bemis Co., Inc. |
| 12,600 |
| 351,162 |
| |
Crown Holdings, Inc. (a) |
| 23,300 |
| 455,049 |
| |
|
|
|
| 806,211 |
| |
Metals & Mining—2.0% |
|
|
|
|
| |
Alumina Ltd., ADR |
| 10,200 |
| 222,666 |
| |
Freeport-McMoRan Copper & Gold, Inc., Class B |
| 4,200 |
| 225,960 |
| |
Nucor Corp. |
| 6,200 |
| 413,664 |
| |
|
|
|
| 862,290 |
|
See Accompanying Notes to Financial Statements.
118
|
| Shares |
| Value |
| ||
Telecommunication Services—1.4% |
|
|
|
|
| ||
Wireless Telecommunication Services—1.4% |
|
|
|
|
| ||
Telephone & Data Systems, Inc. |
| 8,500 |
| $ | 306,255 |
| |
Telephone & Data Systems, Inc., Special Shares |
| 8,500 |
| 294,185 |
| ||
|
|
|
| 600,440 |
| ||
Utilities—9.5% |
|
|
|
|
| ||
Electric Utilities—5.0% |
|
|
|
|
| ||
Edison International |
| 9,100 |
| 396,851 |
| ||
Entergy Corp. |
| 5,800 |
| 398,170 |
| ||
Exelon Corp. |
| 8,800 |
| 467,632 |
| ||
FPL Group, Inc. |
| 9,000 |
| 374,040 |
| ||
Hawaiian Electric Industries, Inc. |
| 8,000 |
| 207,200 |
| ||
PPL Corp. |
| 11,400 |
| 335,160 |
| ||
|
|
|
| 2,179,053 |
| ||
Gas Utilities—0.5% |
|
|
|
|
| ||
AGL Resources, Inc. |
| 5,900 |
| 205,379 |
| ||
Independent Power Producers & Energy Traders—1.3% |
|
|
|
|
| ||
AES Corp. (a) |
| 14,400 |
| 227,952 |
| ||
Constellation Energy Group, Inc. |
| 5,800 |
| 334,080 |
| ||
|
|
|
| 562,032 |
| ||
Multi-Utilities—2.7% |
|
|
|
|
| ||
Energy East Corp. |
| 11,300 |
| 257,640 |
| ||
PG&E Corp. |
| 15,300 |
| 567,936 |
| ||
Sempra Energy |
| 7,400 |
| 331,816 |
| ||
|
|
|
| 1,157,392 |
| ||
Total Common Stocks |
|
|
| 42,585,368 |
| ||
CONVERTIBLE BOND—0.3% |
|
|
|
|
| ||
Telecommunication Services—0.3% |
|
|
|
|
| ||
Telecommunication Services—0.3% |
|
|
|
|
| ||
Lucent Technologies, Inc., Series B 2.750% 06/15/25 |
| $ | 153,000 |
| 156,634 |
| |
Total Convertible Bond |
|
|
| 156,634 |
| ||
CONVERTIBLE PREFERRED STOCK—0.1% |
|
|
|
|
| ||
Materials—0.1% |
|
|
|
|
| ||
Chemicals—0.1% |
|
|
|
|
| ||
Celanese Corp. |
| 1,600 |
| $ | 44,800 |
| |
Total Convertible Preferred Stock |
|
|
| 44,800 |
| ||
SHORT-TERM OBLIGATION—1.7% |
|
|
|
|
| ||
Repurchase agreement with State Street Bank & Trust Co., dated 12/30/05, due 01/03/06 at 3.380%, collateralized by a U.S. Treasury Note maturing 08/15/12, market value of $749,039 (repurchase proceeds $730,274) |
| $ | 730,000 |
| 730,000 |
| |
Total Short-Term Obligation |
|
|
| 730,000 |
| ||
Total Investments—100.4% |
|
|
| 43,516,802 |
| ||
Other Assets & Liabilities, Net—(0.4)% |
|
|
| (185,306 | ) | ||
Net Assets—100.0% |
|
|
| $ | 43,331,496 |
|
Notes to Investment Portfolio:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $35,055,722.
At December 31, 2005, the Fund held investments in the following sectors:
Sector (Unaudited) |
| % of Net Assets |
|
Financials |
| 26.2 | % |
Industrials |
| 14.4 |
|
Consumer Discretionary |
| 11.5 |
|
Materials |
| 11.2 |
|
Utilities |
| 9.5 |
|
Information Technology |
| 6.9 |
|
Energy |
| 6.6 |
|
Consumer Staples |
| 5.5 |
|
Health Care |
| 5.2 |
|
Telecommunication Services |
| 1.7 |
|
Short-Term Obligation |
| 1.7 |
|
Other Assets & Liabilities, Net |
| (0.4 | ) |
|
| 100.0 | % |
Acronym |
| Name |
ADR |
| American Depositary Receipt |
|
|
|
REIT |
| Real Estate Investment Trust |
See Accompanying Notes to Financial Statements.
119
Statement of Assets and Liabilities
Liberty Select Value Fund, Variable Series / December 31, 2005
Assets: |
|
|
| |
Investments, at cost |
| $ | 35,040,743 |
|
Investments, at value |
| $ | 43,516,802 |
|
Cash |
| 496 |
| |
Receivable for: |
|
|
| |
Investments sold |
| 105,373 |
| |
Fund shares sold |
| 127 |
| |
Interest |
| 324 |
| |
Dividends |
| 57,910 |
| |
Expense reimbursement due from Distributor |
| 29,435 |
| |
Deferred Trustees’ compensation plan |
| 5,065 |
| |
Total Assets |
| 43,715,532 |
| |
Liabilities: |
|
|
| |
Payable for: |
|
|
| |
Investments purchased |
| 222,335 |
| |
Fund shares repurchased |
| 88,655 |
| |
Investment advisory fee |
| 25,355 |
| |
Transfer agent fee |
| 102 |
| |
Pricing and bookkeeping fees |
| 5,205 |
| |
Trustees’ fees |
| 239 |
| |
Audit fee |
| 20,408 |
| |
Custody fee |
| 1,733 |
| |
Distribution fee—Class B |
| 8,994 |
| |
Chief compliance officer expenses |
| 1,346 |
| |
Deferred Trustees’ fees |
| 5,065 |
| |
Other liabilities |
| 4,599 |
| |
Total Liabilities |
| 384,036 |
| |
Net Assets |
| $ | 43,331,496 |
|
Composition of Net Assets: |
|
|
| |
Paid-in capital |
| $ | 27,613,933 |
|
Undistributed net investment income |
| 210,084 |
| |
Accumulated net realized gain |
| 7,031,420 |
| |
Net unrealized appreciation on investments |
| 8,476,059 |
| |
Net Assets |
| $ | 43,331,496 |
|
Class A: |
|
|
| |
Net assets |
| $ | 1,915,223 |
|
Shares outstanding |
| 96,565 |
| |
Net asset value per share |
| $ | 19.84 |
|
Class B: |
|
|
| |
Net assets |
| $ | 41,416,273 |
|
Shares outstanding |
| 2,094,456 |
| |
Net asset value per share |
| $ | 19.77 |
|
See Accompanying Notes to Financial Statements.
120
Statement of Operations
Liberty Select Value Fund, Variable Series
For the Year Ended December 31, 2005
Investment Income: |
|
|
| |
Dividends |
| $ | 671,118 |
|
Interest |
| 25,963 |
| |
Total Investment Income (net of foreign taxes withheld of $963) |
| 697,081 |
| |
Expenses: |
|
|
| |
Investment advisory fee |
| 298,536 |
| |
Distribution fee—Class B |
| 102,171 |
| |
Transfer agent fee |
| 6,363 |
| |
Pricing and bookkeeping fees |
| 19,980 |
| |
Trustees’ fees |
| 7,718 |
| |
Custody fee |
| 10,872 |
| |
Audit fee |
| 30,636 |
| |
Chief compliance officer expenses (See Note 4) |
| 4,037 |
| |
Non-recurring costs (See Note 6) |
| 859 |
| |
Other expenses |
| 22,928 |
| |
Total Expenses |
| 504,100 |
| |
Fees waived by Transfer Agent |
| (1,227 | ) | |
Fees reimbursed by Distributor—Class B |
| (36,309 | ) | |
Non-recurring costs assumed by Investment Advisor (See Note 6) |
| (859 | ) | |
Custody earnings credit |
| (178 | ) | |
Net Expenses |
| 465,527 |
| |
Net Investment Income |
| 231,554 |
| |
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency: |
|
|
| |
Net realized gain (loss) on: |
|
|
| |
Investments |
| 7,089,934 |
| |
Foreign currency transactions |
| (8 | ) | |
Net realized gain |
| 7,089,926 |
| |
Net change in unrealized appreciation (depreciation) on investments |
| (2,448,970 | ) | |
Net Gain |
| 4,640,956 |
| |
Net Increase in Net Assets from Operations |
| $ | 4,872,510 |
|
See Accompanying Notes to Financial Statements.
121
Statement of Changes in Net Assets
Liberty Select Value Fund, Variable Series
|
| Year Ended December 31, |
| ||||
Increase (Decrease) in Net Assets: |
| 2005 |
| 2004 |
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
| $ | 231,554 |
| $ | 93,250 |
|
Net realized gain on investments and foreign currency transactions |
| 7,089,926 |
| 895,509 |
| ||
Net change in unrealized appreciation (depreciation) on investments |
| (2,448,970 | ) | 4,793,118 |
| ||
Net Increase from Operations |
| 4,872,510 |
| 5,781,877 |
| ||
Distributions Declared to Shareholders: |
|
|
|
|
| ||
From net investment income: |
|
|
|
|
| ||
Class A |
| — |
| (7,134 | ) | ||
Class B |
| — |
| (107,354 | ) | ||
From net realized gains: |
|
|
|
|
| ||
Class A |
| — |
| (7,660 | ) | ||
Class B |
| — |
| (196,158 | ) | ||
Total Distributions Declared to Shareholders |
| — |
| (318,306 | ) | ||
Share Transactions: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 377,451 |
| 321,105 |
| ||
Distributions reinvested |
| — |
| 14,794 |
| ||
Redemptions |
| (285,408 | ) | (337,200 | ) | ||
Net Increase (Decrease) |
| 92,043 |
| (1,301 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 1,962,815 |
| 3,272,086 |
| ||
Distributions reinvested |
| — |
| 303,512 |
| ||
Redemptions |
| (6,332,684 | ) | (4,501,454 | ) | ||
Net Decrease |
| (4,369,869 | ) | (925,856 | ) | ||
Net Decrease from Share Transactions |
| (4,277,826 | ) | (927,157 | ) | ||
Total Increase in Net Assets |
| 594,684 |
| 4,536,414 |
| ||
Net Assets: |
|
|
|
|
| ||
Beginning of period |
| 42,736,812 |
| 38,200,398 |
| ||
End of period |
| $ | 43,331,496 |
| $ | 42,736,812 |
|
Undistributed (overdistributed) net investment income at end of period |
| $ | 210,084 |
| $ | (2,641 | ) |
Changes in Shares: |
|
|
|
|
| ||
Class A: |
|
|
|
|
| ||
Subscriptions |
| 20,615 |
| 19,659 |
| ||
Issued for distributions reinvested |
| — |
| 837 |
| ||
Redemptions |
| (15,323 | ) | (21,172 | ) | ||
Net Increase (Decrease) |
| 5,292 |
| (676 | ) | ||
Class B: |
|
|
|
|
| ||
Subscriptions |
| 107,646 |
| 203,481 |
| ||
Issued for distributions reinvested |
| — |
| 17,196 |
| ||
Redemptions |
| (344,887 | ) | (276,030 | ) | ||
Net Decrease |
| (237,241 | ) | (55,353 | ) |
See Accompanying Notes to Financial Statements.
122
Notes to Financial Statements
Liberty Select Value Fund, Variable Series / December 31, 2005
Note 1. Organization
Liberty Select Value Fund, Variable Series (the “Fund”), a series of Liberty Variable Investment Trust (the “Trust”) is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
Investment Goal—The Fund seeks long-term growth.
Fund Shares—The Fund may issue an unlimited number of shares and offers two classes of shares: Class A and Class B. Each share class has its own expense structure. Shares of the Fund are available exclusively as a pooled funding vehicle for variable annuity contracts (“VA Contracts”) and Variable Life Insurance Policies (“VLI Policies”) offered by the separate accounts of certain life insurance companies (“Participating Insurance Companies”). The Participating Insurance Companies and their separate accounts own all the shares of the Fund.
Note 2. Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation—Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a “fair value”, such value is likely to be different from the last quoted market price for the security.
Debt securities generally are valued by pricing services approved by the Fund’s Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation.
Security Transactions—Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Repurchase Agreements—The Fund may engage in repurchase agreement transactions with institutions that the Fund’s investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Income Recognition—Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date. Distributions paid by real estate investment trusts (REITs) in excess of their income are recorded as a reduction of the cost of the related investments. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains.
Determination of Class Net Asset Values—All income, expenses (other than class-specific expenses, as shown on the Statement of Operations), and realized and unrealized gains (losses), are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class.
Federal Income Tax Status—The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other
123
amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders—Distributions to shareholders are recorded on ex-date. Dividends from net investment income, if any, are generally declared and distributed at least annually. Net realized capital gains, if any, are distributed at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value as of the record date of the distribution.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for REIT adjustments and Section 988 reclassifications were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed |
| Accumulated |
| Paid-In |
| |||
$ | (18,829 | ) | $ | 18,831 |
| $ | (2 | ) |
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years ended December 31, 2005 and December 31, 2004 was as follows:
|
| December 31, |
| December 31, |
| ||
Distributions paid from: |
|
|
|
|
| ||
Ordinary income |
| $ | — |
| $ | 199,464 |
|
Long-term capital gains |
| — |
| 198,842 |
| ||
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed |
| Undistributed |
| Net |
| |||
$ | 1,228,680 |
| $ | 6,032,697 |
| $ | 8,461,080 |
|
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2005, based on cost of investments for federal income tax purposes was:
Unrealized appreciation |
| $ | 8,858,435 |
|
Unrealized depreciation |
| (397,355 | ) | |
Net unrealized appreciation |
| $ | 8,461,080 |
|
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee—Columbia Management Advisors, LLC (“Columbia”), an indirect wholly owned subsidiary of Bank of America Corporation (“BOA”), is the investment advisor to the Fund and provides administrative and other services to the Fund. Prior to September 30, 2005, Columbia Management Advisors, Inc. was the investment advisor to the Fund under the same fee structure. On September 30, 2005, Columbia Management Advisors, Inc. merged into Banc of America Capital Management, LLC. At that time, the investment advisor was then renamed Columbia Management Advisors, LLC. Columbia receives a monthly investment advisory fee based on the Fund’s average daily net assets at the following annual rates:
Average Daily Net Assets |
| Annual Fee Rate |
|
First $500 million |
| 0.70 | % |
$500 million to $1 billion |
| 0.65 | % |
Over $1 billion |
| 0.60 | % |
For the year ended December 31, 2005, the Fund’s effective investment advisory fee rate was 0.70%.
Pricing and Bookkeeping Fees—Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the “Outsourcing Agreement”), Columbia has delegated those functions to State Street Corporation (“State Street”). As a result, the total fees payable under the pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of $10,000 paid monthly, and in any month that the Fund’s average daily net assets exceeded $50 million, an additional monthly fee, calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees
124
payable to third parties for pricing the Fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended December 31, 2005, the effective pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.047% of the Fund’s average daily net assets.
Transfer Agent Fee—Columbia Management Services, Inc. (formerly Columbia Funds Services, Inc.) (the “Transfer Agent”), an affiliate of Columbia and a wholly owned subsidiary of BOA, provides shareholder services to the Fund. The Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. Effective November 1, 2005, the Transfer Agent is entitled to receive a fee for its services, paid monthly, at the annual rate of $15.23 per open account. The Transfer Agent may also retain as additional compensation for its services credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund. Prior to November 1, 2005, the Transfer Agent received a monthly fee at the annual rate of $7,500.
For the period September 1, 2005 through October 31, 2005, the Transfer Agent voluntarily waived a portion of its fees to reflect the reduced contractual fees charged to the Fund effective November 1, 2005. For the year ended December 31, 2005, the Transfer Agent waived fees of $1,227 for the Fund.
For the year ended December 31, 2005, the effective transfer agent fee rate, net of fee waivers, was 0.01% of the Fund’s average daily net assets.
Distribution Fees—Columbia Management Distributors, Inc. (the “Distributor”), an affiliate of Columbia and a wholly owned subsidiary of BOA, is the principal underwriter of the Fund. On August 22, 2005, Columbia Funds Distributor, Inc. was renamed Columbia Management Distributors, Inc. The Fund has adopted a 12b-1 plan which allows the payment of a monthly distribution fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B shares.
Fee Waivers—Columbia and the Distributor have voluntarily agreed to waive fees and reimburse the Fund for certain expenses so that total expenses (exclusive of brokerage commissions, interest, taxes and extraordinary expenses, if any) will not exceed 1.10% annually of the Fund’s average daily net assets. The Distributor will first reimburse the Class B distribution fee up to 0.25% annually to reach the 1.10% limit on Class B expenses. If additional reimbursement is needed to meet the limit for each class, Columbia will then reimburse other expenses to the extent necessary. If additional reimbursement is still needed in order to reach the expense limit, Columbia will then waive a portion of its investment advisory fee to the extent necessary. Columbia or the Distributor, at their discretion, may revise or discontinue this arrangement any time.
Custody Credits—The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement.
Fees Paid to Officers and Trustees—All officers of the Fund, with the exception of the Fund’s Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund’s expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund’s Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund’s assets.
Other—Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended December 31¸ 2005, the Fund paid $1,542 to Columbia for such services. This amount is included in “Other expenses” on the Statement of Operations.
Note 5. Purchases and Sales of Securities
For the year ended December 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $26,621,391 and $30,439,310, respectively.
Note 6. Disclosure of Significant Risks and Contingencies
Industry Focus—The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified.
Legal Proceedings—On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) (“Columbia”) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the “Distributor”) (collectively, the “Columbia Group”) entered into an Assurance of Discontinuance with the New York Attorney General (“NYAG”) (the “NYAG Settlement”) and
125
consented to the entry of a cease-and-desist order by the Securities and Exchange Commission (“SEC”) (the “SEC Order”). The SEC Order and the NYAG Settlement are referred to collectively as the “Settlements”. The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group’s applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the “MDL”). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On November 3, 2005, the U.S. District Court for the District of Maryland dismissed the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims against Columbia and others. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (“the CDSC Lawsuit”). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended December 31, 2005, Columbia has assumed $859 of legal, consulting services and Trustees’ fees incurred by the Fund in connection with these matters.
126
Financial Highlights
Liberty Select Value Fund, Variable Series—Class A Shares
Selected data for a share outstanding throughout each period is as follows:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
Net Asset Value, Beginning of Period |
| $ | 17.66 |
| $ | 15.42 |
| $ | 12.12 |
| $ | 13.66 |
| $ | 13.24 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (a) |
| 0.14 |
| 0.08 |
| 0.05 |
| 0.03 |
| 0.05 |
| |||||
Net realized and unrealized gain (loss) on investments and foreign currency |
| 2.04 |
| 2.32 |
| 3.30 |
| (1.54 | ) | 0.42 |
| |||||
Total from Investment Operations |
| 2.18 |
| 2.40 |
| 3.35 |
| (1.51 | ) | 0.47 |
| |||||
Less Distributions Declared to Shareholders: |
|
|
|
|
|
|
|
|
|
|
| |||||
From net investment income |
| — |
| (0.08 | ) | (0.05 | ) | (0.03 | ) | (0.03 | ) | |||||
From net realized gains |
| — |
| (0.08 | ) | — |
| — |
| (0.02 | ) | |||||
Total Distributions Declared to Shareholders |
| — |
| (0.16 | ) | (0.05 | ) | (0.03 | ) | (0.05 | ) | |||||
Net Asset Value, End of Period |
| $ | 19.84 |
| $ | 17.66 |
| $ | 15.42 |
| $ | 12.12 |
| $ | 13.66 |
|
Total return (b)(c) |
| 12.34 | %(d) | 15.59 | % | 27.61 | % | (11.07 | )% | 3.55 | %(d) | |||||
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses (e) |
| 0.94 | % | 0.86 | % | 0.95 | % | 0.93 | % | 1.10 | % | |||||
Net investment income (e) |
| 0.70 | % | 0.47 | % | 0.35 | % | 0.26 | % | 0.34 | % | |||||
Waiver/reimbursement |
| — | %(f) | — |
| — |
| — |
| 0.48 | % | |||||
Portfolio turnover rate |
| 64 | % | 17 | % | 12 | % | 21 | % | 15 | % | |||||
Net assets, end of period (000’s) |
| $ | 1,915 |
| $ | 1,612 |
| $ | 1,418 |
| $ | 632 |
| $ | 115 |
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return does not include any insurance company charges imposed by your insurance company’s separate accounts. If included, total return would be reduced.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
(f) Rounds to less than 0.01%.
127
Report of Independent Registered Public Accounting Firm
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Select Value Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the Class A financial highlights present fairly, in all material respects, the financial position of Liberty Select Value Fund, Variable Series (the “Fund”) (a series of Liberty Variable Investment Trust) at December 31, 2005, and the results of its operations, the changes in its net assets and the Class A financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the Class A financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2005 by correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 21, 2006
128
Unaudited Information
Liberty Select Value Fund, Variable Series
Federal Income Tax Information
For the fiscal year ended December 31, 2005, the Fund designates long-term capital gains of $6,032,697.
129
Trustees and Officers
Liberty Variable Investment Trust
The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five year, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
Name, year of birth and address, Position with |
| Principal occupation(s) during past five years, Number of portfolios in Columbia |
|
|
|
Disinterested Trustees |
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|
|
|
|
Douglas A. Hacker (Born 1955) |
| Executive Vice President-Strategy of United Airlines (airline) since December, 2002 (formerly President of UAL Loyalty Services (airline) from September, 2001 to December, 2002; Executive Vice President and Chief Financial Officer of United Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July, 1999). Oversees 83, Nash Finch Company (food distributor) |
|
|
|
Janet Langford Kelly (Born 1957) |
| Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm) since March, 2005; Adjunct Professor of Law, Northwestern University, since September, 2004 (formerly Chief Administrative Officer and Senior Vice President, Kmart Holding Corporation (consumer goods), from September, 2003 to March, 2004; Executive Vice President-Corporate Development and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January, 1995 to September, 1999). Oversees 83, UAL Corporation (airline) |
|
|
|
Richard W. Lowry (Born 1936) |
| Private Investor since August, 1987 (formerly Chairman and Chief Executive Officer, U.S. Plywood Corporation (building products manufacturer)). Oversees 85(3), None |
|
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|
Charles R. Nelson (Born 1943) |
| Professor of Economics, University of Washington, since January, 1976; Ford and Louisa Van Voorhis Professor of Political Economy, University of Washington, since September, 1993 (formerly Director, Institute for Economic Research, University of Washington from September, 2001 to June, 2003); Adjunct Professor of Statistics, University of Washington, since September, 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; consultant on econometric and statistical matters. Oversees 83, None |
|
|
|
John J. Neuhauser (Born 1942) |
| University Professor since December 2005, Boston College (formerly Academic Vice President and Dean of Faculties from August 1999 to December 2005, Boston College). Oversees 85(3), Saucony, Inc. (athletic footwear) |
|
|
|
Patrick J. Simpson (Born 1944) |
| Partner, Perkins Coie LLP (law firm). Oversees 83, None |
130
Name, year of birth and address, Position with |
| Principal occupation(s) during past five years, Number of portfolios in Columbia |
|
|
|
Disinterested Trustees |
|
|
|
|
|
Thomas E. Stitzel (Born 1936) |
| Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, College of Business, Boise State University); Chartered Financial Analyst. Oversees 83, None |
|
|
|
Thomas C. Theobald (Born 1937) |
| Partner and Senior Advisor, Chicago Growth Partners (private equity investing) since September, 2004 (formerly Managing Director, William Blair Capital Partners (private equity investing) from September, 1994 to September, 2004). Oversees 83, Anixter International (network support equipment distributor); Ventas, Inc. (real estate investment trust); Jones Lang LaSalle (real estate management services) and Ambac Financial Group (financial guaranty insurance) |
|
|
|
Anne-Lee Verville (Born 1945) |
| Retired since 1997 (formerly General Manager, Global Education Industry, IBM Corporation (computer and technology) from 1994 to 1997). Oversees 83, Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of giftware and collectibles) |
|
|
|
Richard L. Woolworth (Born 1941) |
| Retired since December, 2003 (formerly Chairman and Chief Executive Officer, The Regence Group (regional health insurer); Chairman and Chief Executive Officer, BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Company). Oversees 83, Northwest Natural Gas Co. (natural gas service provider) |
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Interested Trustee |
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William E. Mayer(2) (Born 1940) |
| Partner, Park Avenue Equity Partners (private equity) since February, 1999 (formerly Partner, Development Capital LLC from November, 1996 to February, 1999). Oversees 85(3), Lee Enterprises (print media), WR Hambrecht + Co. (financial service provider); Reader’s Digest (publishing); OPENFIELD Solutions (retail industry technology provider) |
(1) The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds Complex.
(2) Mr. Mayer is an “interested person” (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor.
The Statement of Additional Information includes additional information about the Trustees of the Funds and is available, without charge, upon request by calling 800-426-3750.
131
Name, year of birth and address, Position with |
| Principal occupation(s) during past five years |
|
|
|
Christopher L. Wilson (Born 1957) |
| Head of Mutual Funds since August, 2004 and Managing Director of the Advisor since September, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Funds since October, 2004; President and Chief Executive Officer of the Nations Funds since January, 2005; President of the President (since 2004) Galaxy Funds since April, 2005; Director of Bank of America Global Liquidity Funds, plc since May, 2005; Director of Banc of America Capital Management (Ireland), Limited since May, 2005; Director of FIM Funding, Inc. since January, 2005; Senior Vice President of Columbia Management Distributors, Inc. since January, 2005; Director of Columbia Management Services, Inc. since January, 2005 (formerly Senior Vice President of Columbia Management from January, 2005 to August, 2005; Senior Vice President of BACAP Distributors LLC from January, 2005 to July, 2005; President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to August, 2004). |
|
|
|
J. Kevin Connaughton (Born 1964) |
| Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, Stein Roe Funds and All-Star Funds since December, 2000; Managing Director of the Advisor since September, 2005 (formerly Vice President of Columbia Management from April, 2003 to August, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy Funds from September, 2002 to November, 2005 (formerly Treasurer from December, 2002 to December, 2004 and President from February, 2004 to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc. from February, 1998 to October, 2000). |
|
|
|
Mary Joan Hoene (Born 1949) |
| Senior Vice President and Chief Compliance Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004; Chief Compliance Officer of the Columbia Management Multi-Strategy Hedge Fund, LLC since August, 2004; Chief Compliance Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC since October, 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004; Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December, 2000; Vice President and Counsel, Equitable Life Assurance Society of the United States from April, 1998 to November, 1999). |
|
|
|
Michael G. Clarke (Born 1969) |
| Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since October, 2004; Managing Director of the Advisor since September, 2005 (formerly Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999). |
|
|
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Jeffrey R. Coleman (Born 1969) |
| Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since October, 2004 (formerly Vice President of CDC IXIS Asset Management Services, Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000). |
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|
R. Scott Henderson (Born 1959) |
| Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to September, 2004; Executive Director and General Counsel, Massachusetts Pension Reserves Investment Management Board from September, 1997 to March, 2001). |
132
Board Consideration and Approval of Investment Advisory Agreements
Liberty Variable Investment Trust
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or more times annually, usually in late summer, to review the advisory and sub-advisory agreements (collectively, the “Agreements”) of the funds for which the Trustees serve as trustees or directors (each a “fund”) and determine whether to recommend that the full Board approve the continuation of the Agreements for an additional one-year period. After the Committee has made its recommendation, the full Board, including the Independent Trustees, determines whether to approve the continuation of the Agreements. In addition, the Board, including the Independent Trustees, considers matters bearing on the Agreements at most of its other meetings throughout the year and meets regularly with the heads of each investment area within Columbia. The Trustees also meet with selected fund portfolio managers at various times throughout the year.
The Trustees receive and review all materials that they, their legal counsel or Columbia, the funds’ investment adviser, believe to be reasonably necessary for the Trustees to evaluate the Agreements and determine whether to approve the continuation of the Agreements. Those materials generally include, among other items, (i) information on the investment performance of each fund relative to the performance of peer groups of mutual funds and the fund’s performance benchmarks, (ii) information on each fund’s advisory fees and other expenses, including information comparing the fund’s expenses to those of peer groups of mutual funds and information about any applicable expense caps and fee “breakpoints,” (iii) sales and redemption data, (iv) information about the profitability of the Agreements to Columbia, and potential “fall-out” or ancillary benefits that Columbia and its affiliates may receive as a result of their relationships with the funds and (v) information obtained through Columbia’s response to a questionnaire prepared at the request of the Trustees by counsel to the funds and independent legal counsel to the Independent Trustees. The Trustees also consider other information such as (vi) Columbia’s financial results and financial condition, (vii) each fund’s investment objective and strategies and the size, education and experience of Columbia’s investment staffs and their use of technology, external research and trading cost measurement tools, (viii) the allocation of the funds’ brokerage, if any, including allocations to brokers affiliated with Columbia and the use of “soft” commission dollars to pay fund expenses and to pay for research products and services, (ix) Columbia’s resources devoted to, and its record of compliance with, the funds’ investment policies and restrictions, policies on personal securities transactions and other compliance policies, (x) Columbia’s response to various legal and regulatory proceedings since 2003 and (xi) the economic outlook generally and for the mutual fund industry in particular. The Trustees also consider information about Nordea Investment Management North America, Inc., which serves as sub-adviser for Liberty Asset Allocation Fund, Variable Series, including the sub-advisory fees paid by the fund and related performance information. In addition, the Trustees confer with their independent fee consultant and review materials relating to the Agreements that the independent fee consultant provides. Throughout the process, the Trustees have the opportunity to ask questions of and request additional materials from Columbia and to consult independent legal counsel to the Independent Trustees.
The Board of Trustees most recently approved the continuation of the Agreements at its October, 2005 meeting, following meetings of the Advisory Fees and Expenses Committee held in August, September, and October, 2005. In considering whether to approve the continuation of the Agreements, the Trustees, including the Independent Trustees, did not identify any single factor as determinative, and each weighed various factors as he or she deemed appropriate. The Trustees considered the following matters in connection with their approval of the continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the Agreements. The Trustees considered the nature, extent and quality of the services provided by Columbia and its affiliates to the funds and the resources dedicated to the funds by Columbia and its affiliates. The Trustees considered not only the advisory services provided by Columbia to the funds, but also the monitoring and oversight services that Columbia provides with respect to Liberty Asset Allocation Fund, Variable Series, and the sub-advisory services that Nordea Investment Management North America, Inc. provides. Among other things, the Trustees considered (i) Columbia’s ability, including its resources, compensation programs for personnel involved in fund management, reputation and other attributes, to attract and retain highly qualified research, advisory and supervisory investment professionals; (ii) the portfolio management services provided by those investment professionals; and (iii) the trade execution services provided on behalf of the funds. For each fund, the Trustees also considered the benefits to shareholders of investing in a mutual fund that is part of a family of funds offering exposure to a variety of asset classes and investment disciplines and providing for a variety of fund and shareholder services. After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the nature, extent and quality of services provided supported the continuation of the Agreements.
Investment performance of the funds and Columbia. The Trustees reviewed information about the performance of each fund over various time periods, including information prepared
133
by an independent third party that compared the performance of each fund to the performance of peer groups of mutual funds and performance benchmarks. The Trustees also reviewed a description of the third party’s methodology for identifying each fund’s peer group for purposes of performance and expense comparisons. The Trustees also considered additional information that the Advisory Fees and Expenses Committee requested from Columbia relating to funds that presented relatively weaker performance and/or relatively higher expenses.
In the case of each fund that had performance that lagged that of a relevant peer group for certain (although not necessarily all) periods, the Trustees concluded that other factors relevant to performance were sufficient, in light of other considerations, to warrant continuation of the fund’s Agreements. Those factors varied from fund to fund, but included one or more of the following: (i) that the fund’s performance, although lagging in certain recent periods, was stronger over the longer term; (ii) that the underperformance was attributable, to a significant extent, to investment decisions that were reasonable and consistent with the fund’s investment strategy and policies and that the fund was performing as expected, given market conditions and the fund’s investment strategy; (iii) that the fund’s performance was competitive when compared to other relevant performance benchmarks or peer groups; (iv) that Columbia had taken or was taking steps designed to help improve the fund’s investment performance, including, but not limited to, replacing portfolio managers or modifying investment strategies; (v) that the fund’s advisory fee had recently been, or was proposed to be, reduced, with the goal of helping the fund’s net return to shareholders become more competitive; and (vi) that other fund expenses, such as transfer agency or fund accounting fees, have recently been reduced, with the goal of helping the fund’s net return to shareholders become more competitive.
The Trustees also considered Columbia’s performance and reputation generally, the funds’ performance as a fund family generally, and Columbia’s historical responsiveness to Trustee concerns about performance and Columbia’s willingness to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the performance of each fund and Columbia was sufficient, in light of other considerations, to warrant the continuation of the Agreements.
The costs of the services provided and profits realized by Columbia and its affiliates from their relationships with the funds. The Trustees considered the fees charged to the funds for advisory services as well as the total expense levels of the funds. That information included comparisons (provided both by management and by an independent third party) of the funds’ advisory fees and total expense levels to those of their peer groups and information about the advisory fees charged by Columbia to comparable accounts. In considering the fees charged to comparable accounts, the Trustees took into account, among other things, management’s representations about the differences between managing mutual funds as compared to other types of accounts, including the additional resources required to effectively manage mutual funds and distribute mutual fund shares. In evaluating each fund’s advisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of the fund. The Trustees considered reductions in advisory fee rates, implementation of advisory fee breakpoints, institution of advisory fee waivers, and changes to expense caps, which benefited a number of the funds. Furthermore, the Trustees considered the projected impact on expenses resulting from the overall cost reductions that management anticipated would result from the shift to a common group of service providers for transfer agency, fund accounting and custody services for mutual funds advised by Bank of America affiliates. The Trustees also noted management’s stated justification for the fees charged to the funds, which included information about the performance of the funds, the services provided to the funds and management’s view as to why it was appropriate that some funds bear advisory fees or total expenses greater than their peer group medians.
The Trustees also considered the compensation directly or indirectly received by Columbia and its affiliates from their relationships with the funds. The Trustees reviewed information provided by management as to the profitability to Columbia and its affiliates of their relationships with the funds, and information about the allocation of expenses used to calculate profitability. When reviewing profitability, the Trustees also considered court cases in which adviser profitability was an issue in whole or in part, the performance of the relevant funds, the expense levels of the funds, and whether Columbia had implemented breakpoints and/or expense caps with respect to the funds.
After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the advisory fees charged to each of the funds were fair and reasonable, and that the costs of the advisory services generally, and the related profitability to Columbia and its affiliates of their relationships with the funds, supported the continuation of the Agreements.
Economies of Scale. The Trustees considered the existence of any economies of scale in the provision of services by Columbia to each fund and whether those economies were shared with the fund through breakpoints in the
134
investment advisory fees or other means, such as expense waivers. The Trustees noted that many of the funds benefited from breakpoints, expense caps, or both. In considering those issues, the Trustees also took note of the costs of the services provided (both on an absolute and a relative basis) and the profitability to Columbia and its affiliates of their relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the extent to which economies of scale were shared with the funds supported the continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but were not limited to the following:
• the extent to which each fund had operated in accordance with its investment objective and its record of compliance with its investment restrictions, and the compliance programs of the funds and Columbia. They also considered the compliance-related resources that Columbia and its affiliates were providing to the funds.
• the nature, quality, cost and extent of administrative and shareholder services performed by Columbia and its affiliates, both under the Agreements and under separate agreements for the provision of transfer agency and administrative services.
• so-called “fall-out benefits” to Columbia, such as the engagement of its affiliates to provide distribution, brokerage and transfer agency services to the funds, and the benefits of research made available to Columbia by reason of brokerage commissions generated by the funds’ securities transactions, as well as possible conflicts of interest associated with those fall-out and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor those possible conflicts of interest.
• the draft report provided by the independent fee consultant, which included information about and analysis of the funds’ fees, expenses and performance.
Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel and the independent fee consultant, the Trustees, including the Independent Trustees, approved the continuance of each of the Agreements through October 31, 2006.
135
Summary of Management Fee Evaluation by Independent Fee Consultant
Liberty Variable Investment Trust
Prepared Pursuant to the February 9, 2005
Assurance of Discontinuance
between the Office of
Attorney General of New York State and
Columbia Management Advisors, Inc. and
Columbia Funds Distributor, Inc.
October 11, 2005
I. Overview
Columbia Management Advisors, Inc. (“CMA”) and Columbia Funds Distributors, Inc. (“CFD”) (CFD together with CMA referred to herein as Columbia Management Group or “CMG1”), entered into an agreement with the New York Attorney General’s Office in the form of an Assurance of Discontinuance (the “AOD”). The AOD stipulated that CMA would be permitted to manage or advise the Columbia Funds only if the Independent Members (as such term is defined in the AOD) of the Columbia Funds’ Board of Trustees/Directors (collectively the “Trustees”) appointed a Senior Officer or an Independent Fee Consultant (“IFC”) who, among other things, is to manage the process by which management fees are negotiated. On May 15, 2005, the Independent Members of the Board appointed me as the IFC for the Columbia Funds. This report is the annual written evaluation of the Columbia Funds for 2005 that I have prepared in my capacity as IFC, as required by the AOD.
A. Duties of the Independent Fee Consultant
As part of the AOD, the Independent Members of the Columbia Funds’ Board of Trustees/Directors agreed to retain an independent fee consultant who was to participate in the management fee negotiation process. The IFC is charged with “... duties and responsibilities [that] include managing the process by which proposed management fees (including, but not limited to, advisory fees) to be charged the Columbia Fund[s] are negotiated so that they are negotiated in a manner which is at arms length and reasonable and consistent with this Assurance of Discontinuance.” However, the IFC does not replace the Trustees in their role of negotiating management and other fees with CMG and its affiliates. In particular, the AOD states that “Columbia Advisors may manage or advise a Columbia Fund only if the reasonableness of the proposed management fees is determined by the Board of Trustees of the Columbia Fund using ... an annual independent written evaluation prepared by or under the direction of the ... Independent Fee Consultant....” This report, pursuant to the AOD, constitutes the “annual independent written evaluation prepared by or under the direction of the... Independent Fee Consultant.”
The AOD requires the IFC report to consider at least the following:
a) Management fees (including any components thereof) charged by other mutual fund companies for like services;
b) Management fees (including any components thereof) charged to institutional and other clients of CMA for like services;
c) Costs to CMA and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit;
d) Profit margins of CMA and its affiliates from supplying such services;
e) Possible economies of scale as the CMA fund grows larger; and
f) The nature and quality of CMA services, including Columbia Funds’ performance.
This report is designed to assist the Board in evaluating the 2005 contract renewal for Columbia Funds. In addition, this report points out areas where the Board may deem additional information and analysis to be appropriate over time.
B. Sources of Information Used in My Evaluation
I have requested data from CMG and various third party industry data sources or independent research companies that work in the mutual fund arena. The following list generally describes the types of information I requested.
1. I collected data on performance, management fees, and expense ratios of both Columbia Funds and comparable non-Columbia Funds. The sources of this information were CMG, Lipper Inc. (“Lipper”) and Morningstar Inc. (“Morningstar”). While Lipper and Morningstar each selected a different group of peer funds it deemed appropriate against which to measure the relative performance and fees of Columbia Funds, I conducted an independent review of the appropriateness of each peer group.
2. I reviewed data on CMG’s expense and profitability that I obtained from CMA directly.
3. I have reviewed data on the organizational structure of CMG in general.
4. I collected information on profitability from Strategic Insight Mutual Fund Research and Consulting, LLC (“Strategic Insight”). I used this third-party independent research as an additional method to gauge the accuracy of the data collected in (2) above.
(1) Prior to the date of this report, CMA merged into an affiliated entity, Banc of America Capital Management, LLC (“BACAP”), and BACAP then changed its name to Columbia Management Advisors, LLC which carries on the business of CMA, and CFD changed its name to Columbia Management Distributors, Inc.
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5. I conducted interviews with various CMG staff, including members of the senior management team, legal staff, heads of affiliates, portfolio managers, and financial personnel.
6. I reviewed current 2005 Section 15(c) material provided to the Board and material presented to the Board in the 2004 fee and performance evaluation.
7. I have reviewed various academic research papers, industry publications, and other available literature dealing with mutual fund operations, profitability, and other issues. In addition, I have reviewed SEC releases and studies of mutual fund expenses.
8. I have reviewed documents pertaining to recent mutual fund litigation in general and publicly available information about litigation where CMG has been involved.
In addition, I have engaged NERA Economic Consulting (“NERA”) and independent consultant Dr. John Rea to assist me in data management and analysis. Both NERA and Dr. Rea have extensive experience in the mutual fund industry through consulting, government positions, or industry trade groups that provide unique insights and special knowledge pertaining to my independent analysis of fees, performance, and profitability. I have also retained Shearman & Sterling LLP as outside counsel to advise me in connection with my review.
C. Qualifications and Independence
I am the Walter H. Carpenter Chair and Professor of Finance at Babson College. Before this I was the Chief Economist of the U.S. Securities and Exchange Commission. I have no material relationship with Bank of America or CMG aside from acting as IFC, and am aware of no relationship with any of their affiliates. [Resume omitted]
II. EVALUATION OF THE GENERAL PROCESS USED TO NEGOTIATE THE ADVISORY CONTRACT
A. General Considerations
My analysis considered all factors and information I reviewed on the finances and operations of Columbia Funds. I gave each factor an appropriate weight in my overall findings, and no single factor was in itself the sole criterion for a finding or conclusion. My objective was to assess all of the information provided and conduct a robust evaluation of Columbia Funds’ operations, fees, and performance.
My analysis and thought processes will and, I believe, should, differ in certain ways from the processes used by Trustees in their evaluation of the management agreements. In particular, because of my technical and quantitative background, I may use techniques and data that Trustees have not previously felt would be useful. I view this supplemental analysis as appropriate because my role is to assist Trustees in their decisions, and to the extent that I bring new ideas or analysis to the evaluation, I believe this improves the process by which management fees for the Columbia Funds may be negotiated in accordance with the AOD.
Finally, as part of my role as IFC, I have, from time to time, sent to Trustees additional papers and reports produced by third parties that I felt had bearing on the fee negotiation process. I viewed these materials as educational in nature and felt they would aid Trustees in placing their work in context.
B. CMG Management Interviews
As a starting point of my analysis, I have met with members of CMG staff to gain an understanding of the organizational structure and personnel involved in running the Columbia fund family.
I have had general discussions and have received information about the management structure of CMG. My conversations with management have been informative. In addition, I have participated in Board meetings where Trustees and management have discussed issues relating to management agreements and performance of Columbia Funds. When I felt it was 6 appropriate, I added my opinions on particular matters, such as fund performance or fee levels, to the discussion.
C. Trustees’ Fee and Performance Evaluation Process
After making initial requests for information, members of the Trustees of the Columbia Funds met in advance of the October Section 15(c) contract approval meeting to review certain fee, performance and other data for the Columbia Funds and to ask questions and make requests of management. Trustees have developed a process to evaluate the fee and expense levels and performance of Columbia Funds. This process is used to highlight those funds that have been performing poorly, may have had higher management fees or expense ratios, or both.
The process involves providing instructions to Lipper to prepare specific data analyses tailored to the Trustees review framework. These instructions include highlighting funds that hit one or more fee performance “screens.” The six screens the Trustees use are as follows:
a. 5th Lipper quintile in actual management fee;
b. 5th Lipper quintile in total expense ratio;
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c. Three or more 5th Lipper quintile rankings in the 1-, 3-, 5- or 10-year performance rankings;
d. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile Rank (actual management fee) totals a number equal to or higher than 8;
e. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile Rank (total expense ratio) totals a number equal to or higher than 8; and
f. Sum of the Lipper Quintile Rank (3-year performance) and the Lipper Quintile Rank (total expense ratio) totals a number equal to or higher than 8.
If a fund hits one or more of these screens, it is highlighted for additional review by the Trustees. This method is only used as an aid for Trustees to highlight funds and is not the sole test of whether the Board will determine to take particular actions concerning fees or performance. Funds that have not been flagged by this screen also may be singled out for fee and performance reasons, and the Trustees may determine not to take action with respect to the fees or performance of funds that have been flagged by the screen. These screens contribute to the basis for discussions on Trustees’ views on the Columbia Funds.
III. FINDINGS
My findings based on my work as IFC are as follows:
1. The Trustees have the relevant information necessary to form an opinion on the reasonableness of fees and evaluate the performance of the Columbia Funds. The process the Trustees used in preparing to reach their determination has been open and informative. In my view, the 2005 process by which the management fees of the Columbia Funds have been negotiated thus far has been, to the extent practicable, at arm’s length and reasonable and consistent with the AOD.
2. Columbia Funds demonstrated a range of performance relative to their peers. I find that across the fund complex, 54.26 percent of Columbia Funds have performance higher than the median of their respective Lipper performance universe, and 42.55 percent of Columbia Funds have performance higher than the median of their respective Lipper performance group. In addition, Lipper performance universe and group comparison showed that Columbia Funds were distributed roughly evenly across these quintiles. The Trustees have worked with management to address issues of funds that have demonstrated consistent or significant underperformance.
3. Columbia Funds demonstrate a range of management fees and expense ratios relative to their peers. I find that across the fund complex, 58.51 percent of Columbia Funds have expenses below the median of their Lipper expense universe, and 53.19 percent of Columbia Funds have expenses below the median of their Lipper expense group. In addition, Lipper expense universe and group comparisons show that Columbia Funds are distributed roughly evenly across these quintiles. The Trustees have taken steps to limit shareholder expenses for certain funds having management fees significantly above their peers, often though the use of fee waivers to which CMG has agreed.
Consolidation of various funds and fund families managed by CMG has resulted in substantial savings in non-advisory expenses.
4. Profitability to CMG of the individual funds ranges widely, but the overall profitability to CMG of its relationship with the Columbia Funds appears to fall within a reasonable range. The method of cost allocation to funds is addressed in the material provided by CMG to the Trustees, but additional information may be necessary to make a judgment on fund level profitability. My review of profitability and cost allocation is ongoing, and I plan to continue to develop my views with regard to fund level profitability.
5. Columbia Funds have instituted fee schedules with breakpoints designed to enable investors to benefit from fund economies of scale, although 71% of the funds have not yet reached their first breakpoint. My analysis of the appropriateness of the breakpoint levels, which I expect will take into account the cost and profitability of the individual funds, is ongoing.
My work is ongoing and my views may develop over time in light of new information and analysis.
Respectfully submitted,
Erik R. Sirri
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Liberty Variable Investment Trust
Investment Manager and Administrator |
Columbia Management Advisors, LLC |
100 Federal Street |
Boston, MA 02110 |
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Transfer Agent |
Columbia Management Services, Inc. |
PO Box 8081 |
Boston, MA 02266-8081 |
Important Information
A description of the funds’ proxy voting policies and procedures is available (i) on the funds’ website, www.columbiamanagement.com; (ii) on the Securities and Exchange Commission’s website at www.sec.gov, and (iii) without charge, upon request, by calling 800-368-0346. Information regarding how the funds voted proxies relating to portfolio securities during the 12-month period ended June 30 is available from the SEC’s website. Information regarding how the funds voted proxies relating to portfolio securities is also available from the funds’ website.
The funds file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The funds’ Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Item 2. Code of Ethics.
(a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members of the registrant’s Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2) of this item’s instructions and collectively constitute the entire Audit Committee.
Item 4. Principal Accountant Fees and Services.
Fee information below is disclosed for the seven series of the registrant whose report to stockholders is included in this annual filing, as well as the three series of the registrant whose report to stockholders would have been included in this filing had they not merged into other funds or liquidated during the period.
(a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended December 31, 2005 and December 31, 2004 are approximately as follows:
2005 |
| 2004 |
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$ | 155,500 |
| $ | 192,500 |
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Audit Fees include amounts related to the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
(b) Aggregate Audit-Related Fees billed by the principal accountant for professional services rendered during the fiscal years ended December 31, 2005 and December 31, 2004 are approximately as follows:
2005 |
| 2004 |
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$ | 39,000 |
| $ | 41,600 |
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Audit-Related Fees include amounts for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported in Audit Fees above. In both fiscal years 2005 and 2004, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. In fiscal year 2005 Audit-Related Fees also include certain agreed-upon procedures related to the review of the registrant’s anti-money laundering program. Audit-Related Fees in both fiscal years 2005 and 2004 include agreed-upon procedures relating to fund mergers. In fiscal year 2005, approximately $10,900 of merger related fees were paid by the registrant’s investment adviser.
(c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended December 31, 2005 and December 31, 2004 are approximately as follows:
2005 |
| 2004 |
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$ | 40,400 |
| $ | 30,000 |
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Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of annual tax returns and include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. Fiscal year 2005 also includes agreed-upon procedures related to fund mergers and the review of final tax returns. In fiscal year 2005, approximately $10,000 of merger related tax fees were paid by the registrant’s investment adviser. Tax fees for fiscal year 2005 also include assistance with foreign tax filings. Tax fees for fiscal year 2004 include the review of calculations of required shareholder distributions.
(d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended December 31, 2005 and December 31, 2004 are approximately as follows:
2005 |
| 2004 |
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$ | 0 |
| $ | 0 |
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All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above.
None of the amounts described in paragraphs (a) through (d) above were approved pursuant to the “de minimis” exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of the registrant has adopted a formal policy (the “Policy”) which sets forth the procedures and the conditions pursuant to which the Audit Committee will pre-approve (i) all audit and non-audit (including audit related, tax and all other) services provided by the registrant’s independent auditor to the registrant and individual funds (collectively “Fund Services”), and (ii) all non-audit services provided by the registrant’s independent auditor to the funds’ adviser or a control affiliate of the adviser, that relate directly to the funds’ operations and financial reporting (collectively “Fund-related Adviser Services”). A “control affiliate” is an entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the funds, and the term “adviser” is deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser. The adviser and control affiliates are collectively referred to as “Adviser Entities.”
The Audit Committee uses a combination of specific (on a case-by-case basis as potential services are contemplated) and general (pre-determined list of permitted services) pre-approvals. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. If the timing of the project is critical and the project needs to commence before the next regularly scheduled meeting, the Chairperson of the Audit Committee may approve or deny the request on behalf of the Audit Committee. Pre-approval of non-audit services to the Funds or Adviser Entities may be waived provided that the “de minimis” exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is met. The Policy does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the independent auditor to management.
On an annual basis, the Fund Treasurer shall submit to the Audit Committee a schedule of the types of Fund Services and Fund-related Adviser Services that are subject to general pre-approval. These schedules will provide a description of each type of service that is subject to general pre-approval and, where possible, will provide estimated fees or fee caps for each instance of providing each service. The Audit Committee will review and approve the types of services and the projected fees for the one-year period and may add to, or subtract from, the list of general pre-approved services from time to time, based on subsequent determinations. This approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent auditor will be permitted to perform. The fee amounts will be updated to the extent necessary at other regularly scheduled meetings of the Audit Committee.
The Audit Committee recognizes that there are cases where services proposed to be provided by the independent auditor to the adviser or control affiliates are not
Fund-related Adviser Services within the meaning of the Policy, but nonetheless may be relevant to the Audit Committee’s ongoing evaluation of the auditor’s independence and objectivity with respect to its audit services to the funds. As a result, in all cases where an Adviser Entity engages the independent auditor to provide audit or non-audit services that are not Fund Services or Fund-related Adviser Services, were not subject to pre-approval by the Audit Committee and the projected fees for any such engagement exceeds a pre-determined threshold established by the Audit Committee; the independent auditor or Fund Treasurer will notify the Audit Committee not later than its next meeting. The notification will include sufficient information to allow the Audit Committee to determine whether the services provided to the adviser and Adviser Entities are compatible with maintaining the auditor’s independence with respect to the Funds.
The Fund Treasurer shall report to the Audit Committee at each of its regular meetings regarding all Fund Services or Fund-related Adviser Services initiated since the last such report was rendered, including a general description of the services, actual billed and projected fees, and the means by which such Fund Services or Fund-related Adviser Services were pre-approved by the Audit Committee.
In addition, the independent auditor shall report to the Audit Committee annually, and no more than 90 days prior to the filing of audit reports with the SEC, all non-audit services provided to entities in the funds’ “investment company complex,” as defined by SEC rules, that did not require pre-approval under the Policy.
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(e)(2) The percentage of services described in paragraphs (b) through (d) of this Item approved pursuant to the “de minimis” exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended December 31, 2005 and December 31, 2004 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant’s accountant for services rendered to the registrant for the fiscal years ended December 31, 2005 and December 31, 2004 are disclosed in (b) through (d) of this Item.
During the fiscal years ended December 31, 2005 and December 31, 2004, there were no Audit-Related Fees or Tax Fees that were approved for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. During the fiscal years ended December 31, 2005 and December 31, 2004, All Other Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately $104,200 and $93,500, respectively. For both fiscal years, All Other Fees consist primarily of internal controls reviews of the registrant’s transfer agent.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the “de minimis” exception during both fiscal years ended December 31, 2005 and December 31, 2004 was zero.
(h) The registrant’s Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant’s independence. The Audit Committee determined that the provision of such services is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
The registrant’s “Schedule I – Investments in securities of unaffiliated issuers” (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors, since those procedures were last disclosed in response to requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officers, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, has concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) |
| Liberty Variable Investment Trust |
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By (Signature and Title) |
| /S/ Christopher L. Wilson |
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| Christopher L. Wilson, President |
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Date |
| February 28, 2006 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) |
| /S/ Christopher L. Wilson |
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| Christopher L. Wilson, President |
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Date |
| February 28, 2006 |
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By (Signature and Title) |
| /S/ J. Kevin Connaughton |
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| J. Kevin Connaughton, Treasurer |
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Date |
| February 28, 2006 |
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