<Page>
-----------------------------
OMB APPROVAL
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OMB Number: 3235-0570
Expires: November 30, 2005
Estimated average burden
hours per response....... 5.0
-----------------------------
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
---------------------------------------------
Liberty Variable Investment Trust
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Russell L. Kane, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3363
----------------------------
Date of fiscal year end: December 31, 2003
--------------------------
Date of reporting period: December 31, 2003
-------------------------
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. Section 3507.
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS
ANNUAL REPORT
DECEMBER 31, 2003
[GRAPHIC]
LIBERTY VARIABLE INVESTMENT TRUST
2003 ANNUAL REPORT
LIBERTY VARIABLE INVESTMENT TRUST
<Page>
PRESIDENT'S MESSAGE
Liberty Variable Investment Trust
Dear Shareholder:
After three years of disappointment, the recovery in the US economy came as a
welcome relief. However, 2003 did not start on a strong note. During the first
four months of the 12-month period that ended December 31, 2003, the overall
mood of the country was restrained as war loomed, the US economy struggled to
maintain positive growth and the job picture worsened.
By May, many of the uncertainties that had plagued the economy showed signs of
dissipating and the stage was finally set for a full-blown economic recovery. An
end to the major military conflicts of the war with Iraq boosted consumer
confidence. Corporations began to report significantly higher profits. The
Federal Reserve Board cut short-term interest rates to a 45-year low of 1%--and
promised to keep rates low until the economy was on solid ground. A tax package
provided financial stimulus, which began to work its way into the economy during
the summer months. Many economists grew optimistic that official gross domestic
product (GDP) figures would reflect this renewed vigor. Yet, no one seemed
prepared for how extraordinary that growth might be--8.2% in the third quarter,
with estimates of 4% to 5% growth in the fourth quarter. The business sector had
finally kicked into gear. Industrial production rose in the second half of 2003
and business spending--especially on technology-related items--showed strength.
Even the labor market improved by year-end, with unemployment declining to 5.9%
from a peak of 6.4% earlier in the year.
The US financial markets anticipated the economy's rebound and many sectors
picked up in advance of the most positive economic news. The US stock market
came to life at the end of March. It suffered modest reversals as the period
commenced, but generally speaking, the direction was upward. The S&P 500 Index
returned 28.68% for the 12-month period as all major sectors of the market
benefited from renewed investor enthusiasm and rising corporate profits. Foreign
stock markets reported even higher gains. The MSCI EAFE Index rose 38.59% and
the MSCI AC Free Asia ex Japan Index returned 46.98%.
Most sectors of the US bond market also delivered positive returns for the
calendar year, but they experienced extraordinary volatility as interest rates
fell to historical lows, rose sharply as the economy improved and then came back
down in the final months of 2003. High-yield bonds led the fixed-income markets.
In fact, many high-yield bond funds outperformed stocks during the period. The
debt of companies that had been beaten down over the past three years got the
biggest boost as investors gained confidence that their prospects could improve
with a stronger economy and a more accommodating climate in which to refinance
debt at lower interest rates. Treasury and mortgage bonds suffered most from the
shift in interest rates. Municipal bonds, however, held onto solid gains by the
end of the period. Money market fund yields fell below 1%, reflecting
historically low short-term interest rates.
The recent rebound in economies and markets around the world serves as a strong
reminder that a diversified portfolio offers an investor the opportunity to
participate in the returns of a variety of markets over time. We encourage you
to speak with your financial professional about the diversification
opportunities offered by your annuity. And, we encourage you to read the
following reports, which provide more detailed information about the performance
and strategies used by individual portfolio managers.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
Not FDIC May Lose Value
Insured No Bank Guarantee
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
<Page>
PERFORMANCE AT A GLANCE
Liberty Variable Investment Trust
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/03 (%)
INCEPTION 1-YEAR 5-YEAR 10-YEAR LIFE
- ---------------------------------------------------------------------------------------------------------------------------
LIBERTY VARIABLE INVESTMENT TRUST
Colonial Small Cap Value Fund, Variable Series -- Class A 5/19/98 39.30 12.56 -- 8.33
Colonial Strategic Income Fund, Variable Series -- Class A 7/5/94 18.54 6.32 -- 7.93
Columbia High Yield Fund, Variable Series -- Class A 3/3/98 12.37 5.03 -- 5.95
Columbia International Fund, Variable Series -- Class A 5/2/94 35.54 0.36 -- 1.63
Columbia Real Estate Equity Fund, Variable Series -- Class A 3/3/98 33.69 12.09 -- 8.39
Liberty All-Star Equity Fund, Variable Series -- Class A 11/17/97 40.91 0.92 -- 3.75
Liberty Equity Fund, Variable Series -- Class A 1/11/93 24.14 -1.70 8.72 --
Liberty Growth & Income Fund, Variable Series -- Class A 7/5/94 19.79 1.52 -- 11.57
Liberty S&P 500 Index Fund, Variable Series -- Class A 5/30/00 27.80 -- -- -5.22
Liberty Select Value Fund, Variable Series -- Class A 5/30/00 27.61 -- -- 7.78
Newport Tiger Fund, Variable Series -- Class A 5/1/95 44.79 6.80 -- 1.63
</Table>
Past performance does not guarantee future results. Current performance may be
lower or higher than the performance data provided. For current month-end
performance information, please contact your insurance company.
<Page>
TABLE OF CONTENTS
Liberty Variable Investment Trust
<Table>
PORTFOLIO MANAGERS' DISCUSSIONS
Colonial Small Cap Value Fund, Variable Series 2
Colonial Strategic Income Fund, Variable Series 18
Columbia High Yield Fund, Variable Series 39
Columbia International Fund, Variable Series 55
Columbia Real Estate Equity Fund, Variable Series 70
Liberty All-Star Equity Fund, Variable Series 83
Liberty Equity Fund, Variable Series 99
Libery Growth & Income Fund, Variable Series 113
Liberty S&P 500 Index Fund, Variable Series 127
Liberty Select Value Fund, Variable Series 146
Newport Tiger Fund, Variable Series 159
FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series 4
Colonial Strategic Income Fund, Variable Series 20
Columbia High Yield Fund, Variable Series 41
Columbia International Fund, Variable Series 57
Columbia Real Estate Equity Fund, Variable Series 72
Liberty All-Star Equity Fund, Variable Series 85
Liberty Equity Fund, Variable Series 101
Libery Growth & Income Fund, Variable Series 115
Liberty S&P 500 Index Fund, Variable Series 129
Liberty Select Value Fund, Variable Series 148
Newport Tiger Fund, Variable Series 161
</Table>
Must be preceded or accompanied by a prospectus.
Columbia Funds Distributor, Inc. 2/2004
<Page>
LIBERTY VARIABLE INVESTMENT TRUST
Liberty Variable
Investment Trust
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Small Cap Value Fund, Variable Series / December 31, 2003
Colonial Small Cap Value Fund, Variable Series seeks long-term growth by
investing primarily in smaller capitalization equities.
Stephen Barbaro has managed the fund since June 2002.
For the year ended December 31, 2003, the fund delivered strong returns in line
with its benchmark, the S&P SmallCap 600/Barra Value Index, as stocks rose
sharply. The stock market's gains were propelled by an improving economy, strong
consumer spending and continued low interest rates. Small-cap stocks led the
market, benefiting from improved prospects that made bankers more willing to
offer financing at reasonable rates. Lower-quality stocks dominated the market's
gains, as many companies bounced back from the verge of bankruptcy in the first
half of the year. Higher-quality stocks regained favor in the second half of the
year.
HIGH-QUALITY BIAS AND GOOD SECTOR ALLOCATION HELPED PERFORMANCE
The fund maintained its focus on companies with strong competitive and financial
positions, good earnings growth prospects and reasonable stock valuations. Our
strategy was rewarded during the period as investors began to move away from
more speculative stocks and focused on higher-quality stocks with the potential
to do well in a steadily improving economy.
STRONGEST RETURNS CAME FROM ECONOMICALLY-SENSITIVE AND FINANCE STOCKS
The fund's biggest gains came from industrial and technology stocks, both of
which had suffered sharp declines during the recession but made strong comebacks
as the economy improved. In the industrial sector, the fund benefited from
strong stock selection among machinery and equipment, transportation, business
services and construction stocks. Within the technology sector, the fund owned a
mix of software and hardware names, including semiconductor stocks, which did
quite well. Many industrials and technology stocks with overseas sales also
benefited from the weak US dollar. The fund was underweight in thrifts and real
estate investment trusts, both of which trailed other financials. Our focus was
on banks, insurance companies and specialty finance stocks.
DISCIPLINED STOCK SELECTION DRIVES RETURNS FOR HEALTH CARE AND CONSUMER SECTORS
Consumer discretionary and health care stocks generated strong absolute returns
for the fund, even though we did not own what turned out to be the best
performers in each sector. In the consumer discretionary sector, we maintained
our focus on stocks with attractive valuations, which meant we did not hold some
of the more expensive stocks that posted the biggest gains. Our investments,
which included retailers and restaurants with attractive valuations, did,
however, fare well. In the health care sector, we avoided speculative
biotechnology stocks, which were especially strong gainers in the first half of
the year, as well as hospitals. Our investments included nursing homes,
specialty medical facilities and health maintenance organizations, which moved
up nicely during the year.
ECONOMY EXPECTED TO PLAY A KEY ROLE IN 2004
We expect the economy to continue to recover in 2004, providing a favorable
environment for the stock market. However, we expect that the pace of any gains
could slow as the recovery unfolds and interest rates edge higher. We believe
small-cap stocks remain reasonably valued and have the potential to participate
fully in any rally. We plan to maintain an economically-sensitive tilt to the
portfolio, focusing on small-cap companies with strong balance sheets, market
leadership positions and good earnings prospects.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
Investing in Colonial Small Cap Value Fund, Variable Series may present special
risks, including possible illiquidity and greater price volatility than stocks
of larger, more established companies.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the advisor's assessment of a company's
prospects is wrong, the price of its stock may not approach the value the
advisor has placed on it.
2
<Page>
PERFORMANCE INFORMATION
Colonial Small Cap Value Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- -------------------------------------------------------------
Class A (5/19/98) 39.30 12.56 8.33
S&P SmallCap 600/Barra
Value Index(1) 40.06 11.03 7.45
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- --------------------------------------------------------------
Class A 10.48 14.23
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/19/98 - 12/31/03
Class A: $15,676
<Table>
<Caption>
CLASS A SHARES S&P SMALLCAP 600/BARRA VALUE INDEX
5/1998 $ 10,000 $ 10,000
5/31/1998 $ 10,020 $ 10,000
6/30/1998 $ 10,050 $ 9,995
7/31/1998 $ 9,120 $ 9,070
8/31/1998 $ 7,201 $ 7,434
9/30/1998 $ 7,461 $ 7,829
10/31/1998 $ 7,881 $ 8,171
11/30/1998 $ 8,401 $ 8,520
12/31/1998 $ 8,675 $ 8,855
1/31/1999 $ 8,464 $ 8,753
2/28/1999 $ 7,626 $ 8,040
3/31/1999 $ 7,525 $ 8,009
4/30/1999 $ 8,030 $ 8,707
5/31/1999 $ 8,354 $ 9,055
6/30/1999 $ 8,788 $ 9,604
7/31/1999 $ 8,778 $ 9,454
8/31/1999 $ 8,324 $ 9,057
9/30/1999 $ 8,273 $ 8,891
10/31/1999 $ 8,313 $ 8,685
11/30/1999 $ 8,545 $ 8,879
12/31/1999 $ 9,226 $ 9,123
1/31/2000 $ 8,640 $ 8,656
2/29/2000 $ 9,216 $ 9,047
3/31/2000 $ 9,358 $ 9,381
4/30/2000 $ 9,459 $ 9,446
5/31/2000 $ 9,317 $ 9,292
6/30/2000 $ 9,702 $ 9,559
7/31/2000 $ 9,793 $ 9,747
8/31/2000 $ 10,582 $ 10,317
9/30/2000 $ 10,582 $ 10,296
10/31/2000 $ 10,633 $ 10,346
11/30/2000 $ 9,874 $ 9,662
12/31/2000 $ 10,969 $ 11,026
1/31/2001 $ 11,071 $ 11,899
2/28/2001 $ 10,744 $ 11,397
3/31/2001 $ 10,570 $ 10,923
4/30/2001 $ 11,358 $ 11,581
5/31/2001 $ 11,695 $ 11,877
6/30/2001 $ 11,777 $ 12,332
7/31/2001 $ 11,849 $ 12,216
8/31/2001 $ 11,614 $ 12,019
9/30/2001 $ 10,226 $ 10,298
10/31/2001 $ 10,462 $ 10,769
11/30/2001 $ 11,167 $ 11,630
12/31/2001 $ 11,990 $ 12,470
1/31/2002 $ 12,083 $ 12,703
2/28/2002 $ 12,321 $ 12,648
3/31/2002 $ 13,182 $ 13,747
4/30/2002 $ 13,421 $ 14,310
5/31/2002 $ 13,006 $ 13,767
6/30/2002 $ 12,591 $ 13,152
7/31/2002 $ 11,056 $ 11,013
8/31/2002 $ 11,305 $ 10,999
9/30/2002 $ 10,531 $ 10,190
10/31/2002 $ 10,749 $ 10,394
11/30/2002 $ 11,581 $ 10,956
12/31/2002 $ 11,255 $ 10,665
1/31/2003 $ 10,912 $ 10,225
2/28/2003 $ 10,353 $ 9,847
3/31/2003 $ 10,385 $ 9,816
4/30/2003 $ 11,202 $ 10,704
5/31/2003 $ 12,126 $ 11,702
6/30/2003 $ 12,384 $ 12,050
7/31/2003 $ 13,039 $ 12,639
8/31/2003 $ 13,630 $ 13,247
9/30/2003 $ 13,509 $ 12,812
10/31/2003 $ 14,598 $ 13,954
11/30/2003 $ 15,174 $ 14,530
12/31/2003 $ 15,676 $ 14,940
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The S&P Small Cap 600/Barra Value Index is an unmanaged index
that tracks the performance of value stocks, as determined by low price-to-book
ratios included in the S&P SmallCap 600 Index. 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.
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.
(1) Index performance is from May 31, 1998.
3
<Page>
INVESTMENT PORTFOLIO
Colonial Small Cap Value Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--97.4%
CONSUMER DISCRETIONARY--16.0%
AUTO COMPONENTS--1.2%
BorgWarner, Inc. 4,500 $ 382,815
Federal Signal Corp. 5,546 97,166
Modine Manufacturing Co. 6,950 187,511
Standard Motor Products, Inc. 15,800 191,970
------------
859,462
------------
HOTELS, RESTAURANTS & LEISURE--3.0%
Bally Total Fitness Holding Corp. (a) 29,100 203,700
Bob Evans Farms, Inc. 3,941 127,925
Buffalo Wild Wings, Inc. (a) 5,700 147,915
Landry's Restaurants, Inc. 15,250 392,230
Lone Star Steakhouse & Saloon 20,350 471,713
Prime Hospitality Corp. (a) 25,020 255,204
Scientific Games Corp., Class A (a) 27,600 469,476
------------
2,068,163
------------
HOUSEHOLD DURABLES--1.8%
American Greetings Corp. (a) 7,800 170,586
CSS Industries, Inc. 9,500 294,595
Interface, Inc., Class A (a) 31,400 173,642
Kimball International, Inc., Class B 20,500 318,775
Russ Berrie & Co, Inc. 3,200 108,480
Toro Co. 3,400 157,760
------------
1,223,838
------------
LEISURE EQUIPMENT & PRODUCTS--0.8%
Jakks Pacific, Inc. (a) 19,550 257,278
Johnson Outdoors, Inc. (a) 10,500 157,532
M&F Worldwide Corp. (a) 7,700 102,872
Travis Boats & Motors, Inc. (a) 18,136 11,970
------------
529,652
------------
MEDIA--2.4%
Alliance Atlantis
Communications, Inc. (a) 31,000 474,920
Catalina Marketing Corp. (a) 13,600 274,176
Journal Communications, Inc.,
Class A 12,100 224,213
Liberty Corp. 8,700 393,153
Media General, Inc. 5,100 332,010
------------
1,698,472
------------
MULTI-LINE RETAIL--0.6%
BJ's Wholesale Club, Inc. (a) 8,200 188,272
ShopKo Stores, Inc. (a) 13,650 208,162
------------
396,434
------------
SPECIALTY RETAIL--3.6%
Building Material Holding Corp. 9,100 141,323
Compucom Systems, Inc. (a) 31,997 167,664
Friedman's, Inc. 21,200 142,252
Gadzooks, Inc. (a) 23,100 35,805
GameStop Corp., Class A (a) 15,000 231,150
Goody's Family Clothing, Inc. 26,300 246,168
Linens 'n Things, Inc. (a) 8,100 243,648
Monro Muffler, Inc. (a) 19,975 399,700
Movie Gallery, Inc. 6,500 $ 121,420
Rent-Way, Inc. (a) 43,700 357,903
TBC Corp. (a) 5,550 143,246
United Rentals, Inc. (a) 14,700 283,122
------------
2,513,401
------------
TEXTILES, APPAREL & LUXURY GOODS--2.6%
Delta Apparel, Inc. 6,150 109,532
Hampshire Group Ltd. (a) 10,500 329,385
Kellwood Co. 13,550 555,550
Maxwell Shoe Co. (a) 21,250 360,612
Russell Corp. 15,000 263,400
Stride Rite Corp. 18,700 212,806
------------
1,831,285
------------
CONSUMER STAPLES--3.0%
FOOD & DRUG RETAILING--0.8%
NeighborCare, Inc. (a) 17,100 337,725
Winn-Dixie Stores, Inc. 20,900 207,955
------------
545,680
------------
FOOD PRODUCTS--2.0%
Central Garden and Pet Co. (a) 8,400 235,452
Corn Products International, Inc. 15,000 516,750
Omega Protein Corp. (a) 21,200 163,664
Ralcorp Holdings, Inc. (a) 16,250 509,600
------------
1,425,466
------------
TOBACCO--0.2%
Schweitzer-Mauduit
International, Inc. 4,600 136,988
------------
ENERGY--4.5%
ENERGY EQUIPMENT & SERVICES--1.5%
Lufkin Industries, Inc. 12,150 349,798
Universal Compression
Holdings, Inc. (a) 10,650 278,604
Willbros Group, Inc. (a) 32,540 391,131
------------
1,019,533
------------
OIL & GAS--3.0%
Harvest Natural Resources, Inc. (a) 26,550 264,172
Stone Energy Corp. (a) 10,500 445,725
Vintage Petroleum, Inc. 30,100 362,103
Western Gas Resources, Inc. 5,500 259,875
Westport Resources Corp. (a) 15,650 467,309
Whiting Petroleum Corp. (a) 16,300 299,920
------------
2,099,104
------------
FINANCIALS--22.4%
BANKS--11.0%
BancFirst Corp. 1,900 111,534
BancorpSouth, Inc. 14,100 334,452
BancTrust Financial Group, Inc. 4,942 79,171
Bank of Granite Corp. 13,500 294,030
</Table>
See Notes to Investment Portfolio.
4
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
Bryn Mawr Bank Corp. 16,700 $ 408,983
Capitol Bancorp Ltd. 6,100 173,240
Chemical Financial Corp. 13,467 490,064
Chittenden Corp. 15,400 518,056
Community First Bankshares, Inc. 10,650 308,211
Community Trust Bancorp, Inc. 8,284 250,177
Corus Bankshares, Inc. 14,300 451,308
First Citizens BancShares, Inc. 2,200 267,366
First Financial Bankshares, Inc. 6,875 286,687
Greater Bay Bancorp 10,900 310,432
Hancock Holding Co. 3,200 174,624
MainSource Financial Group, Inc. 5,445 166,998
MASSBANK Corp. 4,600 195,960
Merchants Bancshares, Inc. 10,900 332,995
MetroCorp. Bancshares, Inc. 2,150 32,014
Mid-State Bancshares 19,350 492,264
Northrim BanCorp., Inc. 10,000 229,500
Omega Financial Corp. 2,300 88,527
Riggs National Corp. 21,480 355,064
S.Y. Bancorp, Inc. 2,000 41,120
Simmons First National Corp. 10,000 279,000
Sterling Bancshares, Inc. 15,200 202,616
Trico Bancshares 13,750 433,950
Whitney Holding Corp. 7,900 323,821
------------
7,632,164
------------
DIVERSIFIED FINANCIALS--2.2%
Cash America International, Inc. 25,240 534,583
LaBranche & Co, Inc. 17,300 201,891
Metris Companies, Inc. 41,400 183,816
MFC Bancorp Ltd. (a) 33,400 614,560
------------
1,534,850
------------
INSURANCE--4.0%
AmerUs Group Co. 5,500 192,335
CNA Surety Corp. (a) 16,300 155,013
Commerce Group, Inc. 6,900 272,550
Delphi Financial Group 14,286 514,296
Horace Mann Educators Corp. 16,400 229,108
Kansas City Life Insurance Co. 1,600 73,920
Navigators Group, Inc. (a) 6,400 197,568
Phoenix Companies, Inc. 34,650 417,186
RLI Corp. 10,000 374,600
State Auto Financial Corp. 10,250 239,748
Universal American Financial
Corp. (a) 14,100 139,731
------------
2,806,055
------------
REAL ESTATE--5.2%
American Financial Realty
Trust, REIT 6,600 112,530
Boykin Lodging Co., REIT 27,700 253,455
EastGroup Properties, Inc., REIT 10,150 328,657
Equity One, Inc., REIT 16,200 273,456
First Potomac Realty Trust, REIT (a) 6,200 116,188
Getty Realty Corp. 10,750 281,112
Gladstone Commercial Corp. 13,000 219,050
Keystone Property Trust, REIT 10,950 $ 241,886
Mid-America Apartment
Communities, Inc., REIT 10,750 360,985
Nationwide Health
Properties, Inc., REIT 17,750 347,012
PS Business Parks, Inc., REIT 11,500 474,490
Tanger Factory Outlet
Centers, Inc., REIT 4,000 162,800
Universal Health Reality Income
Trust, REIT 7,200 216,720
Urstadt Biddle Properties, REIT 15,900 224,985
------------
3,613,326
------------
HEALTH CARE--4.4%
HEALTH CARE EQUIPMENT & SUPPLIES--0.3%
Sola International, Inc. (a) 10,000 188,000
------------
HEALTH CARE PROVIDERS & SERVICES--4.1%
Chronimed, Inc. (a) 21,800 184,864
Cross Country Healthcare, Inc. (a) 15,500 231,260
Genesis HealthCare Corp. (a) 8,500 193,630
Hooper Holmes, Inc. 16,700 103,206
Kindred Healthcare, Inc. (a) 9,100 473,018
MAXIMUS, Inc. (a) 5,500 215,215
Pediatrix Medical Group, Inc. (a) 7,900 435,211
Province Healthcare Co. (a) 10,900 174,400
Stewart Enterprises, Inc. (a) 51,400 291,952
US Oncology, Inc. (a) 53,070 571,033
------------
2,873,789
------------
INDUSTRIALS--19.6%
AEROSPACE & DEFENSE--2.4%
AAR Corp. (a) 21,223 317,284
Armor Holdings, Inc. (a) 8,500 223,635
Herley Industries, Inc. (a) 11,500 238,050
InVision Technologies, Inc. (a) 8,700 292,059
Ladish Co., Inc. (a) 24,350 197,503
Precision Castparts Corp. 9,400 426,854
------------
1,695,385
------------
AIR FREIGHT & LOGISTICS--0.6%
HUB Group, Inc., Class A (a) 2,456 52,902
Ryder System, Inc. 11,200 382,480
------------
435,382
------------
AIRLINES--0.8%
Atlantic Coast Airlines
Holdings, Inc. (a) 14,300 141,570
MAIR Holdings, Inc. (a) 13,050 95,004
Skywest, Inc. 17,100 309,852
------------
546,426
------------
BUILDING PRODUCTS--1.8%
Hughes Supply, Inc. 6,600 327,492
Jacuzzi Brands, Inc. (a) 29,800 211,282
NCI Building Systems, Inc. (a) 12,500 298,750
Watsco, Inc. 18,950 430,734
------------
1,268,258
------------
</Table>
See Notes to Investment Portfolio.
5
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMERCIAL SERVICES & SUPPLIES--6.5%
ActivCard Corp. (a) 26,500 $ 208,820
Angelica Corp. 7,200 158,400
Casella Waste Systems, Inc. (a) 38,700 529,803
Century Business Services, Inc. (a) 43,000 192,210
Consolidated Graphics, Inc. (a) 16,050 506,859
Danka Business Systems, ADR (a) 41,900 184,360
Electro Rent Corp. (a) 7,050 94,047
First Consulting Group, Inc. (a) 17,027 95,862
Healthcare Services Group, Inc. 13,700 264,273
Imagistics International, Inc. (a) 17,750 665,625
Ionics, Inc. (a) 9,700 308,945
Lightbridge. Inc. (a) 16,399 149,231
MPS Group, Inc. (a) 60,100 561,935
NCO Group, Inc. (a) 10,900 248,193
RemedyTemp, Inc., Class A (a) 685 7,473
SourceCorp. (a) 10,900 279,367
Teletech Holdings, Inc. (a) 3,132 35,392
------------
4,490,795
------------
CONSTRUCTION & ENGINEERING--1.7%
Comfort Systems USA, Inc. (a) 36,550 200,294
EMCOR Group, Inc. (a) 5,200 228,280
MasTec, Inc. (a) 6,600 97,746
Quanta Services, Inc. (a) 10,900 79,570
Shaw Group, Inc. (a) 17,850 243,117
Washington Group
International, Inc. (a) 10,200 346,494
------------
1,195,501
------------
ELECTRICAL EQUIPMENT--2.0%
C&D Technologies, Inc. 15,800 302,886
Genlyte Group, Inc. (a) 6,100 356,118
Tecumseh Products Co. 7,400 358,382
Woodward Governor Co. 6,000 340,980
------------
1,358,366
------------
MACHINERY--2.9%
Alamo Group, Inc. 7,700 117,502
Briggs & Stratton 5,600 377,440
Esterline Technologies Corp. (a) 15,800 421,386
Harsco Corp. 12,200 534,604
Kadant, Inc. (a) 16,000 346,400
UNOVA, Inc. (a) 8,900 204,255
------------
2,001,587
------------
ROAD & RAIL--0.9%
Covenant Transport, Inc. (a) 12,350 234,773
Dollar Thrifty Automotive
Group, Inc. (a) 10,800 280,152
U.S. Xpress Enterprises, Inc.,
Class A (a) 7,400 90,650
------------
605,575
------------
INFORMATION TECHNOLOGY--14.9%
COMMUNICATIONS EQUIPMENT--3.0%
Advanced Fibre
Communications, Inc. (a) 17,100 344,565
Anaren, Inc. (a) 21,900 309,228
Andrew Corp. (a) 25,915 $ 298,282
Black Box Corp. 6,600 304,062
Cable Design Technologies Corp. (a) 20,900 187,891
McDATA Corp., Class A (a) 25,900 246,827
Optical Communication
Products, Inc. (a) 43,100 159,470
Tollgrade Communications, Inc. (a) 13,350 234,026
------------
2,084,351
------------
COMPUTERS & PERIPHERALS--1.4%
Advanced Digital Information
Corp. (a) 4,500 63,000
Electronics for Imaging, Inc. (a) 11,200 291,424
Imation Corp. 3,000 105,450
Innovex, Inc. (a) 20,700 174,501
Intergraph Corp. (a) 6,866 164,235
Iomega Corp. (a) 29,500 176,410
------------
975,020
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.4%
Analogic Corp. 4,600 188,600
Anixter International, Inc. (a) 6,750 174,690
Benchmark Electronics, Inc. (a) 6,100 212,341
Checkpoint Systems, Inc. (a) 16,600 313,906
MTS Systems Corp. 18,150 349,024
NU Horizons Electronics Corp. (a) 27,700 271,460
OSI Systems, Inc. (a) 10,900 209,389
Planar Systems, Inc. (a) 8,000 194,560
Plexus Corp. (a) 8,400 144,228
Vishay Intertechnology, Inc. (a) 14,200 325,180
------------
2,383,378
------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--1.5%
Acxiom Corp. (a) 16,100 298,977
Agilysys, Inc. 13,350 148,852
American Management
Systems, Inc. (a) 18,900 284,823
Computer Horizons Corp. (a) 30,500 119,865
Inforte Corp. (a) 20,900 173,261
------------
1,025,778
------------
INTERNET SOFTWARE & SERVICES--1.3%
Equinix, Inc. (a) 18,400 518,880
Keynote Systems, Inc. (a) 21,100 251,090
Modem Media, Inc. (a) 19,700 160,949
------------
930,919
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.3%
Dupont Photomasks, Inc. (a) 11,950 288,473
Exar Corp. (a) 16,800 286,944
FSI International, Inc. (a) 17,300 127,674
Pericom Semiconductor Corp. (a) 16,800 179,088
------------
882,179
------------
SOFTWARE--3.0%
Captaris, Inc. (a) 30,800 173,096
Group 1 Software, Inc. (a) 15,700 276,634
Internet Security Systems, Inc. (a) 15,700 295,631
Lawson Software, Inc. (a) 20,900 172,007
MSC.Software Corp. (a) 27,100 256,095
</Table>
See Notes to Investment Portfolio.
6
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
PLATO Learning, Inc. (a) 40,562 $ 427,929
Sybase, Inc. (a) 12,900 265,482
Transaction Systems
Architects, Inc. (a) 8,100 183,303
------------
2,050,177
------------
MATERIALS--8.0%
CHEMICALS--3.2%
Cytec Industries, Inc. (a) 8,200 314,798
HB Fuller Co. 9,500 282,530
Hercules, Inc. (a) 12,100 147,620
Lubrizol Corp. 11,800 383,736
Minerals Technologies, Inc. 6,100 361,425
Schulman (A.), Inc. 12,450 265,434
Sensient Technologies Corp. 12,300 243,171
Stepan Co. 7,500 192,375
------------
2,191,089
------------
CONSTRUCTION MATERIALS--1.0%
AMCOL International Corp. 11,200 227,360
Centex Construction Products, Inc. 7,900 476,133
------------
703,493
------------
CONTAINERS & PACKAGING--1.0%
Aptargroup, Inc. 7,200 280,800
Greif, Inc., Class A 12,050 427,895
------------
708,695
------------
METALS & MINING--2.4%
Carpenter Technology Corp. 17,100 505,647
Peabody Energy Corp. 19,150 798,746
RTI International Metals, Inc. (a) 21,650 365,236
------------
1,669,629
------------
PAPER & FOREST PRODUCTS--0.4%
Glatfelter 9,100 113,295
Mercer International, Inc. (a) 21,200 135,256
------------
248,551
------------
TELECOMMUNICATION SERVICES--0.6%
DIVERSIFIED TELECOMMUNICATION SERVICES--0.3%
North Pittsburgh Systems, Inc. 12,800 242,048
------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Price Communications Corp. (a) 15,700 215,561
------------
UTILITIES--4.0%
ELECTRIC UTILITIES--3.0%
Central Vermont Public Service Corp. 18,000 423,000
CH Energy Group, Inc. 12,100 567,490
El Paso Electric Co. (a) 20,500 273,675
Maine & Maritimes Corp. 3,900 136,539
MGE Energy, Inc. 7,100 223,721
Northeast Utilities 14,500 292,465
Otter Tail Corp. 6,400 171,072
------------
2,087,962
------------
GAS UTILITIES--1.0%
Cascade Natural Gas Corp. 7,800 $ 164,502
MDU Resources Group, Inc. 7,400 176,194
Northwest Natural Gas Co. 5,800 178,350
WGL Holdings, Inc. 6,200 172,298
------------
691,344
------------
TOTAL COMMON STOCKS
(cost of $58,803,952) 67,683,111
------------
SINGLE PURPOSE TRUST--0.0%
MATERIALS--0.0%
PAPER & FOREST PRODUCTS--0.0%
PRT Forest Regeneration
Income Fund (a)
(cost of $16,809) 2,599 18,100
------------
<Caption>
PAR
------------
SHORT-TERM OBLIGATION--2.7%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04 at
0.780%, collateralized by a
U.S. Treasury Bond maturing
05/15/18, market value $1,889,081
(repurchase proceeds $1,846,080)
(cost of $1,846,000) $ 1,846,000 1,846,000
------------
TOTAL INVESTMENTS--100.1%
(cost of $60,666,761) (b) 69,547,211
------------
OTHER ASSETS & LIABILITIES, NET--(0.1)% (79,078)
------------
NET ASSETS--100.0% $ 69,468,133
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $60,661,428.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
7
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Small Cap Value Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 60,666,761
---------------
Investments, at value $ 69,547,211
Cash 872
Foreign currency (cost of $286) 286
Receivable for:
Investments sold 104,407
Fund shares sold 1,214,011
Interest 40
Dividends 50,462
Expense reimbursement due from Investment Advisor/Distributor 43,117
Deferred Trustees' compensation plan 3,463
---------------
TOTAL ASSETS 70,963,869
---------------
LIABILITIES:
Payable for:
Investments purchased 1,197,209
Fund shares repurchased 207,776
Investment advisory fee 42,609
Transfer agent fee 624
Pricing and bookkeeping fees 2,857
Trustees' fees 413
Audit fee 22,010
Custody fee 3,256
Distribution fee--Class B 11,150
Deferred Trustees' fees 3,463
Other liabilities 4,369
---------------
TOTAL LIABILITIES 1,495,736
---------------
NET ASSETS $ 69,468,133
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 59,263,006
Undistributed net investment income 26,748
Accumulated net realized gain 1,297,929
Net unrealized appreciation on investments 8,880,450
---------------
NET ASSETS $ 69,468,133
===============
CLASS A:
Net assets $ 10,738,479
Shares outstanding 754,473
===============
Net asset value per share $ 14.23
===============
CLASS B:
Net assets $ 58,729,654
Shares outstanding 4,129,378
===============
Net asset value per share $ 14.22
===============
</Table>
See Notes to Financial Statements.
8
<Page>
STATEMENT OF OPERATIONS
Colonial Small Cap Value Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 495,828
Interest 8,997
---------------
Total Investment Income (net of foreign taxes withheld of $1,250) 504,825
---------------
EXPENSES:
Investment advisory fee 243,991
Distribution fee--Class B 54,357
Transfer agent fee 7,500
Pricing and bookkeeping fees 16,947
Trustees' fees 7,533
Custody fee 43,488
Audit fee 34,317
Other expenses 16,131
---------------
Total Expenses 424,264
Fees and expenses waived or reimbursed by Investment Advisor (33,956)
Fees reimbursed by Distributor--Class B (54,357)
Custody earnings credit (57)
---------------
Net Expenses 335,894
---------------
Net Investment Income 168,931
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 2,016,791
Foreign currency transactions 213
---------------
Net realized gain 2,017,004
---------------
Net change in unrealized appreciation/depreciation on:
Investments 9,341,975
Foreign currency translations 23
---------------
Net change in unrealized appreciation/depreciation 9,341,998
---------------
Net Gain 11,359,002
---------------
Net Increase in Net Assets from Operations $ 11,527,933
===============
</Table>
See Notes to Financial Statements.
9
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Small Cap Value Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 168,931 $ 37,492
Net realized gain on investments and foreign currency transactions 2,017,004 1,098,128
Net change in unrealized appreciation/depreciation on investments and
foreign currency translations 9,341,998 (2,952,616)
--------------- ---------------
Net Increase (Decrease) from Operations 11,527,933 (1,816,996)
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (22,479) (8,389)
Class B (119,531) (12,808)
From net realized gains:
Class A (238,640) (263,235)
Class B (908,385) (401,913)
--------------- ---------------
Total Distributions Declared to Shareholders (1,289,035) (686,345)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,010,453 4,146,927
Distributions reinvested 259,626 271,624
Redemptions (2,180,602) (4,761,716)
--------------- ---------------
Net Increase (Decrease) 89,477 (343,165)
--------------- ---------------
Class B:
Subscriptions 40,839,812 6,130,731
Distributions reinvested 1,029,409 414,721
Redemptions (2,701,725) (2,107,183)
--------------- ---------------
Net Increase 39,167,496 4,438,269
--------------- ---------------
Net Increase from Share Transactions 39,256,973 4,095,104
--------------- ---------------
Total Increase in Net Assets 49,495,871 1,591,763
NET ASSETS:
Beginning of period 19,972,262 18,380,499
--------------- ---------------
End of period (including undistributed net investment income of $26,748 and
$4,356, respectively) $ 69,468,133 $ 19,972,262
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 173,870 350,768
Issued for distributions reinvested 19,197 25,946
Redemptions (191,845) (433,274)
--------------- ---------------
Net Increase (Decrease) 1,222 (56,560)
--------------- ---------------
Class B:
Subscriptions 3,132,027 524,962
Issued for distributions reinvested 74,615 39,619
Redemptions (230,723) (191,963)
--------------- ---------------
Net Increase 2,975,919 372,618
--------------- ---------------
</Table>
See Notes to Financial Statements.
10
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series / December 31, 2003
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 stocks of 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 at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments for which market quotations are not readily available 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.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are credit-worthy. 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.
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.
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, by distributing in each calendar year substantially all of its net
investment
11
<Page>
income, capital gains and certain other amounts, if any, the Fund will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency transactions, distribution
reclassifications and Real Estate Investment Trust ("REIT") adjustments were
identified and reclassified among the components of the Fund's net assets as
follows:
<Table>
<Caption>
UNDISTRIBUTED
NET INVESTMENT ACCUMULATED PAID-IN
INCOME NET REALIZED GAIN CAPITAL
-------------- ----------------- -------
$ (4,529) $ 4,529 $ --
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 977,202 $ 86,968
Long-Term Capital Gains 311,833 599,377
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ 1,050,494 $ 266,278 $ 8,885,783
</Table>
* 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, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 9,914,329
Unrealized depreciation (1,028,546)
-------------
Net unrealized appreciation $ 8,885,783
=============
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.80%
Next $500 million 0.75%
Over $1 billion 0.70%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.80% of the Fund's average daily net assets.
For the year ended December 31, 2003, 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
12
<Page>
("State Street"). Columbia pays the total fees collected to State Street under
the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.055%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
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) would 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. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $53,708,618 and $17,135,780, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions,
13
<Page>
financial penalties, damages or injunctions regarding Columbia or the
Distributor, and structural changes in the conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
14
<Page>
FINANCIAL HIGHLIGHTS
Colonial Small Cap Value Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.56 $ 10.73 $ 9.12 $ 8.59
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.07 0.02 0.02 0.07 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 4.03 (0.73) 0.98 1.65 0.52
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 4.10 (0.71) 1.00 1.72 0.54
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.03) (0.01) (0.02) (0.05) (0.01)
From net realized gains (0.32) (0.36) (0.15) (0.06) --
----------- ----------- ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.35) (0.37) (0.17) (0.11) (0.01)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.23 $ 10.48 $ 11.56 $ 10.73 $ 9.12
=========== =========== =========== =========== ===========
Total return (b)(c)(d) 39.30% (6.12)% 9.30% 18.88% 6.34%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (e) 1.10% 1.10% 1.10% 1.07% 1.00%
Net investment income (e) 0.59% 0.18% 0.22% 0.76% 0.23%
Waiver/reimbursement 0.11% 0.04% 0.22% 0.82% 2.66%
Portfolio turnover rate 55% 125% 56% 54% 74%
Net assets, end of period (000's) $ 10,738 $ 7,893 $ 9,361 $ 7,616 $ 3,817
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
15
<Page>
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
16
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
55.39% of the ordinary income distributed by the Fund, for the year ended
December 31, 2003, qualifies for the corporate dividends received deduction.
For the fiscal year ended December 31, 2003, the Fund designates long-term
capital gains of $443,998.
17
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Strategic Income Fund, Variable Series / December 31, 2003
Colonial Strategic Income Fund, Variable Series seeks current income consistent
with prudent risk and maximum total return.
Laura A. Ostrander is the fund's portfolio manager and has managed or co-managed
the fund since September 2000.
FUND BENEFITED FROM SURGING HIGH-YIELD MARKET
The fund set the stage for strong performance in 2003 by reducing its position
in US Treasuries and increasing holdings in high-yield securities. Our
motivation for this move was that Treasury yields had hit new lows in September
2002, and we believed that the spread between the yield on Treasuries and those
offered by high-yield bonds was excessively wide, especially in light of the
potential for an improving economy.
When a genuine economic recovery took shape in 2003, investors became
increasingly willing to assume the risks of lower quality bonds in return for
their significantly higher yields. And as money became more available to the
high-yield sector, issuers were able to improve their balance sheets by
refinancing their bank debt and reissuing debt at more favorable terms. The
result was a narrowing of yield spreads that resulted in one of the best years
ever for the high-yield sector. The CSFB High Yield Index, a measure of the
high-yield market, rose 27% for 2003. For the year ended December 31, 2003, the
fund outperformed its benchmark, the Lehman Brothers Government/Credit Bond
Index, due to the fund's investment in high yield and foreign government bonds,
both of which outperformed the US Government bond and US investment grade
corporate bond sectors included in the benchmark. The bonds of beleaguered
sectors such as telecom and electric utilities did especially well. The fund's
investments in Charter Communications, AES and Calpine (0.7%, 0.3% and 0.3% of
net assets, respectively) in these sectors also aided the fund's performance.
STRONG RETURNS FROM FOREIGN BONDS
The fund also benefited from its ongoing commitment to foreign bonds. Among
emerging markets, one particularly important holding for the fund was Brazil,
where a newly elected president gained investor confidence by appointing a
pro-market cabinet and initiating fiscal reforms. Russia was another important
fund holding. Russian bonds benefited from high oil prices, sound fiscal policy,
relative government stability and improving economic prospects.
The weakness of the US dollar contributed to the superior performance of many
other foreign markets. Bonds denominated in the Euro, the South African rand and
the Canadian, Australian and New Zealand dollars were all pushed higher in
dollar terms because of the appreciation of the underlying currency. Treasuries
were the worst performing major asset class for the year. Although they posted
strong gains during the first half of 2003, July and August were difficult
months for high quality, interest rate-sensitive bonds, which as a group eked
out only modest positive total returns for the year.
FUND POSITIONED FOR A RECOVERING ECONOMY
We anticipate that the US economy will continue to be a major driver of global
growth during 2004. Although economic recovery is clearly underway in the US, we
agree with the consensus opinion that the Federal Reserve is unlikely to raise
short-term interest rates in the near future because core inflation remains
extremely low and it is essential to maintain a relatively easy and generous
money flow within the economy to ensure sustainable growth. A substantial
current account deficit and growing fiscal deficit in the US is also likely to
continue to put pressure on the dollar. At some point the government may address
the fiscal deficit by cutting spending, but any such effort is likely to be
delayed by election year considerations.
With yields expected to remain in a fairly tight range, and with signs of
growth in the US and abroad, we continue to be favorably disposed to the
high-yield and emerging markets. At the end of the year, the fund held 39% of
its net assets in high-yield bonds, 33% in foreign government bonds, 24% in US
government securities and a small balance in short-term instruments and other
securities.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
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.
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 offers the potential for high current income
and attractive total return, but involves certain risks. Lower-rated bond risks
include default of the issuer, rising interest rates and risk associated with
investing in securities of foreign and emerging markets, including currency
exchange rate fluctuations and economic and political change.
Holdings are disclosed as of December 31, 2003, and are subject to
change.
18
<Page>
PERFORMANCE INFORMATION
Colonial Strategic Income Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- -------------------------------------------------------------
Class A (7/5/94) 18.54 6.32 7.93
Lehman Brothers Government/
Credit Bond Index(1) 4.67 6.66 7.84
JP Morgan Global
High Yield Index(2) 27.50 5.99 8.15
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- -------------------------------------------------------------
Class A 8.90 9.80
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/5/94 - 12/31/03
Class A: $20,639
<Table>
<Caption>
CLASS A SHARES LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX JP MORGAN GLOBAL HIGH YIELD INDEX
7/1994 $ 10,000 $ 10,000 $ 10,000
7/31/1994 $ 10,080 $ 10,168
8/31/1994 $ 10,130 $ 10,172 $ 10,040
9/30/1994 $ 10,091 $ 10,018 $ 10,039
10/31/1994 $ 10,131 $ 10,007 $ 10,054
11/30/1994 $ 10,021 $ 9,989 $ 9,962
12/31/1994 $ 10,110 $ 10,055 $ 10,260
1/31/1995 $ 10,244 $ 10,248 $ 10,392
2/28/1995 $ 10,492 $ 10,486 $ 10,762
3/31/1995 $ 10,678 $ 10,556 $ 10,870
4/30/1995 $ 10,875 $ 10,704 $ 11,151
5/31/1995 $ 11,174 $ 11,153 $ 11,469
6/30/1995 $ 11,225 $ 11,242 $ 11,515
7/31/1995 $ 11,328 $ 11,198 $ 11,694
8/31/1995 $ 11,328 $ 11,341 $ 11,740
9/30/1995 $ 11,524 $ 11,457 $ 11,879
10/31/1995 $ 11,679 $ 11,626 $ 11,990
11/30/1995 $ 11,792 $ 11,817 $ 12,068
12/31/1995 $ 11,959 $ 11,991 $ 12,263
1/31/1996 $ 12,134 $ 12,065 $ 12,496
2/29/1996 $ 12,036 $ 11,810 $ 12,571
3/31/1996 $ 11,982 $ 11,710 $ 12,530
4/30/1996 $ 12,036 $ 11,630 $ 12,608
5/31/1996 $ 12,046 $ 11,610 $ 12,703
6/30/1996 $ 12,122 $ 11,764 $ 12,758
7/31/1996 $ 12,220 $ 11,791 $ 12,843
8/31/1996 $ 12,362 $ 11,762 $ 13,034
9/30/1996 $ 12,612 $ 11,971 $ 13,342
10/31/1996 $ 12,807 $ 12,250 $ 13,465
11/30/1996 $ 13,112 $ 12,476 $ 13,713
12/31/1996 $ 13,134 $ 12,337 $ 13,860
1/31/1997 $ 13,099 $ 12,352 $ 13,969
2/28/1997 $ 13,195 $ 12,378 $ 14,209
3/31/1997 $ 13,005 $ 12,231 $ 13,978
4/30/1997 $ 13,171 $ 12,409 $ 14,109
5/31/1997 $ 13,386 $ 12,525 $ 14,435
6/30/1997 $ 13,576 $ 12,675 $ 14,626
7/31/1997 $ 13,898 $ 13,063 $ 15,015
8/31/1997 $ 13,803 $ 12,916 $ 15,024
9/30/1997 $ 14,101 $ 13,119 $ 15,323
10/31/1997 $ 14,125 $ 13,329 $ 15,301
11/30/1997 $ 14,197 $ 13,400 $ 15,439
12/31/1997 $ 14,335 $ 13,540 $ 15,578
1/31/1998 $ 14,566 $ 13,731 $ 15,819
2/28/1998 $ 14,604 $ 13,704 $ 15,941
3/31/1998 $ 14,706 $ 13,746 $ 16,102
4/30/1998 $ 14,771 $ 13,815 $ 16,183
5/31/1998 $ 14,836 $ 13,963 $ 16,205
6/30/1998 $ 14,861 $ 14,105 $ 16,239
7/31/1998 $ 14,990 $ 14,117 $ 16,376
8/31/1998 $ 14,435 $ 14,392 $ 15,315
9/30/1998 $ 14,757 $ 14,803 $ 15,299
10/31/1998 $ 14,782 $ 14,698 $ 14,970
11/30/1998 $ 15,207 $ 14,787 $ 15,795
12/31/1998 $ 15,198 $ 14,824 $ 15,730
1/31/1999 $ 15,321 $ 14,929 $ 15,919
2/28/1999 $ 15,143 $ 14,573 $ 15,838
3/31/1999 $ 15,349 $ 14,646 $ 16,033
4/30/1999 $ 15,555 $ 14,683 $ 16,440
5/31/1999 $ 15,239 $ 14,532 $ 13,547
6/30/1999 $ 15,253 $ 14,487 $ 16,206
7/31/1999 $ 15,239 $ 14,446 $ 16,211
8/31/1999 $ 15,184 $ 14,435 $ 16,049
9/30/1999 $ 15,266 $ 14,564 $ 15,933
10/31/1999 $ 15,266 $ 14,602 $ 15,845
11/30/1999 $ 15,362 $ 14,594 $ 16,104
12/31/1999 $ 15,468 $ 14,505 $ 16,262
1/31/2000 $ 15,320 $ 14,500 $ 16,200
2/29/2000 $ 15,513 $ 14,681 $ 16,265
3/31/2000 $ 15,454 $ 14,894 $ 15,988
4/30/2000 $ 15,321 $ 14,821 $ 15,985
5/31/2000 $ 15,188 $ 14,808 $ 15,758
6/30/2000 $ 15,468 $ 15,110 $ 16,068
7/31/2000 $ 15,588 $ 15,270 $ 16,210
8/31/2000 $ 15,751 $ 15,486 $ 16,335
9/30/2000 $ 15,565 $ 15,544 $ 16,121
10/31/2000 $ 15,284 $ 15,642 $ 15,648
11/30/2000 $ 15,016 $ 15,910 $ 15,050
12/31/2000 $ 15,494 $ 16,223 $ 15,315
1/31/2001 $ 16,135 $ 16,496 $ 16,243
2/28/2001 $ 16,185 $ 16,666 $ 16,432
3/31/2001 $ 15,840 $ 16,742 $ 16,110
4/30/2001 $ 15,709 $ 16,617 $ 15,941
5/31/2001 $ 15,775 $ 16,713 $ 16,253
6/30/2001 $ 15,594 $ 16,793 $ 15,972
7/31/2001 $ 15,659 $ 17,212 $ 16,133
8/31/2001 $ 15,938 $ 17,432 $ 16,343
9/30/2001 $ 15,477 $ 17,592 $ 15,264
10/31/2001 $ 15,921 $ 18,039 $ 15,644
11/30/2001 $ 16,135 $ 17,743 $ 16,176
12/31/2001 $ 16,064 $ 17,603 $ 16,155
1/31/2002 $ 16,136 $ 17,732 $ 16,273
2/28/2002 $ 16,171 $ 17,882 $ 16,151
3/31/2002 $ 16,225 $ 17,519 $ 16,516
4/30/2002 $ 16,531 $ 17,859 $ 16,767
5/31/2002 $ 16,604 $ 18,023 $ 16,710
6/30/2002 $ 16,388 $ 18,177 $ 16,109
7/31/2002 $ 16,208 $ 18,395 $ 15,661
8/31/2002 $ 16,497 $ 18,807 $ 15,805
9/30/2002 $ 16,587 $ 19,211 $ 15,620
10/31/2002 $ 16,642 $ 19,027 $ 15,508
11/30/2002 $ 17,002 $ 19,038 $ 16,311
12/31/2002 $ 17,416 $ 19,543 $ 16,500
1/31/2003 $ 17,632 $ 19,543 $ 16,929
2/28/2003 $ 18,004 $ 19,891 $ 17,176
3/31/2003 $ 18,161 $ 19,865 $ 17,590
4/30/2003 $ 18,826 $ 20,077 $ 18,463
5/31/2003 $ 19,334 $ 20,647 $ 18,719
6/30/2003 $ 19,471 $ 20,565 $ 19,266
7/31/2003 $ 19,021 $ 19,703 $ 19,144
8/31/2003 $ 19,099 $ 19,833 $ 19,334
9/30/2003 $ 19,745 $ 20,462 $ 19,870
10/31/2003 $ 19,804 $ 20,202 $ 20,239
11/30/2003 $ 20,117 $ 20,257 $ 20,522
12/31/2003 $ 20,639 $ 20,465 $ 21,065
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
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. The JP Morgan Global High Yield Index is designed to
mirror the investable universe of the US dollar global high-yield corporate debt
market, including domestic and international issues. 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.
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.
(1) Index performance is from July 5, 1994.
(2) Index performance is from June 30, 1994.
19
<Page>
INVESTMENT PORTFOLIO
Colonial Strategic Income Fund, Variable Series / December 31, 2003
<Table>
<Caption>
PAR VALUE
---------------- -------------
BONDS & NOTES--95.6%
CORPORATE FIXED-INCOME BONDS & NOTES--39.0%
AGRICULTURE--0.2%
AGRICULTURE PRODUCTION--0.2%
Hines Nurseries, Inc.,
10.250% 10/01/11 (a) USD 95,000 $ 103,550
Seminis Vegetable Seeds,
10.250% 10/01/13 (a) 283,000 304,225
-------------
407,775
-------------
CONSTRUCTION--1.7%
BUILDING CONSTRUCTION--1.5%
Associated Materials, Inc.,
9.750% 04/15/12 190,000 208,050
Atrium Companies, Inc.:
10.500% 05/01/09 285,000 304,950
Series B,
10.500% 05/01/09 130,000 139,100
Congoleum Corp.,
8.625% 08/01/08 (b) 140,000 84,000
D.R. Horton, Inc.,
9.750% 09/15/10 575,000 681,375
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 45,000 49,275
10.500% 10/01/07 250,000 294,375
Nortek Holdings, Inc.,
(c) 05/15/11
(10.000% 11/15/07) (a) 325,000 235,625
Standard Pacific Corp.,
9.250% 04/15/12 275,000 308,000
William Lyon Homes, Inc.,
10.750% 04/01/13 140,000 158,900
-------------
2,463,650
-------------
SPECIAL TRADE CONTRACTORS--0.2%
Ship Finance International Ltd.,
8.500% 12/15/13 345,000 343,672
-------------
CONSUMER STAPLES--0.3%
HOUSEHOLD PRODUCTS--0.3%
Playtex Products, Inc.,
9.375% 06/01/11 380,000 381,900
Scotts Co.,
6.625% 11/15/13 (a) 30,000 30,750
-------------
412,650
-------------
FINANCE, INSURANCE & REAL ESTATE--1.0%
DEPOSITORY INSTITUTIONS--0.1%
Dollar Financial Group,
9.750% 11/15/11 (a) 225,000 232,875
Western Financial Bank,
9.625% 05/15/12 35,000 38,937
-------------
271,812
-------------
FINANCIAL SERVICES--0.7%
Finova Group, Inc.,
7.500% 11/15/09 USD 390,000 $ 234,000
LaBranche & Co.,
12.000% 03/02/07 195,000 195,000
MDP Acquisitions PLC,
9.625% 10/01/12 340,000 380,800
Orion Power Holdings, Inc.,
12.000% 05/01/10 100,000 123,000
Trump Holdings & Funding,
11.625% 03/15/10 175,000 168,875
-------------
1,101,675
-------------
REAL ESTATE--0.2%
Forest City Enterprises, Inc.,
7.625% 06/01/15 105,000 111,300
Thornburg Mortgage, Inc.,
8.000% 05/15/13 160,000 168,000
-------------
279,300
-------------
INDUSTRIALS--0.0%
CONSTRUCTION & FARM MACHINERY--0.0%
Case New Holland, Inc.,
9.250% 08/01/11 (a) 50,000 56,000
-------------
MANUFACTURING--10.3%
APPAREL--0.4%
Broder Brothers Co.,
11.250% 10/15/10 (a) 190,000 188,100
Levi Strauss & Co.,
12.250% 12/15/12 360,000 234,000
Perry Ellis International, Inc.,
8.875% 09/15/13 (a) 25,000 26,125
Phillips Van-Heusen,
8.125% 05/01/13 (a) 90,000 95,400
Warnaco, Inc.,
8.875% 06/15/13 (a) 65,000 66,950
William Carter Co.,
10.875% 08/15/11 65,000 74,587
-------------
685,162
-------------
AUTO PARTS & EQUIPMENT--0.5%
Asbury Automotive Group,
8.000% 03/15/14 (a) 165,000 165,825
Delco Remy International, Inc.,
10.625% 08/01/06 95,000 95,475
Goodyear Tire & Rubber Co.,
7.857% 08/15/11 350,000 305,375
Rexnord Corp.,
10.125% 12/15/12 85,000 93,500
TRW Automotive, Inc.:
9.375% 02/15/13 (a) 55,000 62,975
11.000% 02/15/13 (a) 40,000 47,400
-------------
770,550
-------------
</Table>
See Notes to Investment Portfolio.
20
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
CHEMICALS & ALLIED PRODUCTS--1.9%
Avecia Group PLC,
11.000% 07/01/09 USD 220,000 $ 198,000
Equistar Chemicals Funding LP:
10.125% 09/01/08 145,000 159,500
10.625% 05/01/11 (a) 130,000 143,000
FMC Corp.,
10.250% 11/01/09 145,000 169,650
Huntsman ICI Holdings LLC,
(d) 12/31/09 1,825,000 880,562
IMC Global, Inc.,
10.875% 08/01/13 (a) 155,000 169,725
Lyondell Chemical Co.,
9.625% 05/01/07 290,000 305,950
MacDermid, Inc.,
9.125% 07/15/11 260,000 291,200
Phibro Animal Health Corp.,
13.000% 12/01/07 (a) 200,000 208,000
Polyone Corp.,
10.625% 05/15/10 60,000 60,300
Terra Capital, Inc.,
12.875% 10/15/08 310,000 359,600
Westlake Chemical Corp.,
8.750% 07/15/11 (a) 130,000 142,350
-------------
3,087,837
-------------
ELECTRONIC & ELECTRICAL EQUIPMENT--0.3%
Amkor Technology, Inc.,
9.250% 02/15/08 185,000 209,050
General Cable Corp.,
9.500% 11/15/10 (a) 50,000 53,375
TransDigm, Inc.,
8.375% 07/15/11 (a) 130,000 138,450
Xerox Corp.,
7.125% 06/15/10 100,000 106,750
-------------
507,625
-------------
FABRICATED METAL--0.2%
Earle M. Jorgensen & Co.,
9.750% 06/01/12 250,000 278,750
-------------
FOOD & KINDRED PRODUCTS--2.0%
Bavaria SA,
8.875% 11/01/10 (a) 215,000 220,375
Constellation Brands, Inc.,
8.125% 01/15/12 175,000 193,813
Del Monte Corp.,
9.250% 05/15/11 420,000 464,100
Dole Food Co., Inc.,
8.625% 05/01/09 (e) 275,000 301,813
Merisant Co.,
9.500% 07/15/13 (a) 135,000 142,425
Pinnacle Foods Holdings,
8.250% 12/01/13 (a) 245,000 249,900
Premier International Foods PLC,
12.000% 09/01/09 750,000 821,250
Roundy's, Inc.,
8.875% 06/15/12 275,000 294,250
Smithfield Foods, Inc.,
8.000% 10/15/09 USD 295,000 $ 309,750
Tabletop Holdings, Inc.,
(c) 05/15/14
(12.250% 11/15/08) (a) 340,000 187,000
United Agri Products, Inc.,
8.250% 12/15/11 (a) 160,000 164,400
-------------
3,349,076
-------------
FOREST PRODUCTS--0.1%
Millar Western Forest,
7.750% 11/15/13 (a) 145,000 149,350
-------------
FURNITURE & FIXTURES--0.3%
Juno Lighting, Inc.,
11.875% 07/01/09 195,000 212,550
Norcraft Companies,
9.000% 11/01/11 (a) 90,000 96,300
Tempur-Pedic, Inc.,
10.250% 08/15/10 (a) 170,000 189,763
-------------
498,613
-------------
MACHINERY & COMPUTER EQUIPMENT--0.1%
Cummins, Inc.,
9.500% 12/01/10 (a) 195,000 224,738
-------------
MISCELLANEOUS MANUFACTURING--1.5%
Agco Corp.,
9.500% 05/01/08 220,000 240,350
Applied Extrusion
Technologies, Inc.,
10.750% 07/01/11 215,000 176,300
Crown European Holdings SA,
10.875% 03/01/13 190,000 222,300
Flowserve Corp.,
12.250% 08/15/10 205,000 237,800
Hexcel Corp.,
9.750% 01/15/09 145,000 151,887
Kinetic Concepts, Inc.,
7.375% 05/15/13 (a) 80,000 83,600
Koppers Industries, Inc.,
9.875% 10/15/13 (a) 240,000 265,200
Owens-Illinois, Inc.:
7.150% 05/15/05 45,000 46,350
7.350% 05/15/08 240,000 246,600
7.500% 05/15/10 45,000 45,900
SPX Corp.,
7.500% 01/01/13 165,000 179,437
Tekni-Plex, Inc.,
12.750% 06/15/10 320,000 350,400
Terex Corp., Series 2001 B,
10.375% 04/01/11 215,000 243,487
-------------
2,489,611
-------------
PAPER PRODUCTS--0.7%
Berry Plastics Corp.,
10.750% 07/15/12 (a) 160,000 184,200
Blue Ridge Paper Products,
9.500% 12/15/08 (a) 25,000 25,250
Buckeye Technologies, Inc.,
8.500% 10/01/13 (a) 40,000 42,800
</Table>
See Notes to Investment Portfolio.
21
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
Caraustar Industries, Inc.,
9.875% 04/01/11 USD 190,000 $ 205,200
Georgia-Pacific Corp.,
8.000% 01/15/24 240,000 244,800
Norske Skog Canada Ltd.,
8.625% 06/15/11 90,000 94,275
Smurfit-Stone Container Corp.,
8.250% 10/01/12 165,000 178,200
Sweetheart Cup Co., Inc.,
9.500% 01/15/07 (a) 105,000 106,575
Tembec Industries, Inc.,
8.500% 02/01/11 150,000 155,250
-------------
1,236,550
-------------
POLLUTION CONTROL--0.0%
EnviroSource, Inc.,
14.000% 12/15/08 (f) 68,416 66,101
-------------
PRIMARY METAL--0.5%
Bayou Steel Corp.,
9.500% 05/15/08 (g) 500,000 112,500
Kaiser Aluminum &
Chemical Corp.,
10.875% 10/15/06 (g) 420,000 369,600
Oregon Steel Mills, Inc.,
10.000% 07/15/09 180,000 160,200
Steel Dynamics, Inc.:
9.500% 03/15/09 (a) 55,000 61,325
9.500% 03/15/09 50,000 55,750
-------------
759,375
-------------
PRINTING & PUBLISHING--1.4%
Dex Media, Inc.,
8.000% 11/15/13 (a) 220,000 232,650
Dex Media East LLC,
12.125% 11/15/12 370,000 456,950
Dex Media West LLC,
9.875% 08/15/13 (a) 180,000 209,250
Hollinger, Inc.,
11.875% 03/01/11 (a) 195,000 213,525
Primedia, Inc.,
8.875% 05/15/11 395,000 415,737
Von Hoffman Corp.:
10.250% 03/15/09 (a) 75,000 79,500
10.250% 03/15/09 285,000 302,100
Yell Finance BV,
10.750% 08/01/11 305,000 358,375
-------------
2,268,087
-------------
STONE, CLAY, GLASS & CONCRETE--0.2%
Owens-Brockway Glass Container,
8.250% 05/15/13 (a) 370,000 396,825
-------------
TEXTILE MILL PRODUCTS--0.1%
Collins & Aikman Floor
Covering, Inc.,
9.750% 02/15/10 150,000 160,500
-------------
TRANSPORTATION EQUIPMENT--0.1%
Sequa Corp.,
8.875% 04/01/08 145,000 157,325
Teekay Shipping Corp.,
8.875% 07/15/11 USD 85,000 $ 96,475
-------------
253,800
-------------
MINING & ENERGY--3.9%
METAL MINING--0.2%
TriMas Corp.,
9.875% 06/15/12 405,000 423,225
-------------
OIL & GAS EXTRACTION--3.4%
Benton Oil & Gas Co.,
9.375% 11/01/07 215,000 215,000
Chesapeake Energy Corp.:
7.750% 01/15/15 185,000 200,725
8.125% 04/01/11 100,000 111,250
Coastal Corp.,
7.750% 06/15/10 380,000 359,100
Compton Petroleum Corp.,
9.900% 05/15/09 195,000 213,038
Denbury Resources, Inc.,
7.500% 04/01/13 (a) 110,000 113,850
Dynegy Holdings, Inc.:
8.750% 02/15/12 200,000 201,000
9.875% 07/15/10 (a) 110,000 124,300
10.125% 07/15/13 (a) 30,000 34,575
Encore Acquisition Co.,
8.375% 06/15/12 195,000 211,575
Energy Partners Ltd.,
8.750% 08/01/10 125,000 130,000
Forest Oil Corp.,
8.000% 06/15/08 250,000 271,875
Gazprom,
9.625% 03/01/13 210,000 232,050
Gulfterra Energy Partners,
8.500% 06/01/10 149,000 169,860
Houston Exploration Co.,
7.000% 06/15/13 (a) 50,000 51,500
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 100,000 113,500
Northwest Pipeline Corp.,
8.125% 03/01/10 85,000 94,987
PDVSA Finance Ltd.:
6.250% 02/15/06 EUR 325,450 409,231
6.650% 02/15/06 USD 240,000 243,000
Petroleos Mexicanos,
6.500% 02/01/05 400,000 418,500
Pogo Producing Co.,
8.250% 04/15/11 155,000 170,500
Premcor Refining Group,
7.500% 06/15/15 165,000 169,537
Sonat, Inc.,
7.625% 07/15/11 275,000 253,000
Southern Natural Gas Co.,
8.875% 03/15/10 130,000 146,087
Stone Energy Corp.,
8.250% 12/15/11 135,000 146,812
</Table>
See Notes to Investment Portfolio.
22
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
Tom Brown, Inc.,
7.250% 09/15/13 USD 120,000 $ 126,900
Williams Companies, Inc.,
8.125% 03/15/12 625,000 700,000
-------------
5,631,752
-------------
OIL & GAS FIELD SERVICES--0.3%
J. Ray McDermott SA,
11.000% 12/15/13 (a) 265,000 267,650
Newpark Resources, Inc.,
8.625% 12/15/07 195,000 200,850
-------------
468,500
-------------
RETAIL TRADE--1.1%
FOOD STORES--0.4%
Delhaize America, Inc.,
8.125% 04/15/11 300,000 342,651
Winn-Dixie Stores, Inc.,
8.875% 04/01/08 260,000 263,250
-------------
605,901
-------------
MISCELLANEOUS RETAIL--0.5%
General Nutrition Centers,
8.500% 12/01/10 (a) 80,000 82,000
JC Penney Co., Inc.,
8.000% 03/01/10 60,000 68,550
Rite Aid Corp.,
9.250% 06/01/13 (a) 375,000 411,562
Saks, Inc.,
7.000% 12/01/13 55,000 55,137
Steinway Musical Instruments, Inc.,
8.750% 04/15/11 270,000 286,200
Suburban Propane Partners,
6.875% 12/15/13 (a) 30,000 30,150
-------------
933,599
-------------
RESTAURANTS--0.2%
Domino's, Inc.,
8.250% 07/01/11 (a) 50,000 54,000
Yum! Brands, Inc.,
7.700% 07/01/12 200,000 230,250
-------------
284,250
-------------
SERVICES--7.2%
AMUSEMENT & RECREATION--3.0%
Ameristar Casinos, Inc.,
10.750% 02/15/09 215,000 247,250
Bombardier Recreational,
8.375% 12/15/13 (a) 260,000 270,400
Boyd Gaming Corp.,
8.750% 04/15/12 85,000 93,075
Circus & Eldorado/Silver Legacy
Capital Corp.,
10.125% 03/01/12 125,000 129,687
Corus Entertainment, Inc.,
8.750% 03/01/12 115,000 125,925
Equinox Holdings, Inc.,
9.000% 12/15/09 (a) 175,000 182,000
Hollywood Casino Shreveport,
13.000% 08/01/06 (h) USD 470,000 $ 282,000
Hollywood Entertainment Corp.,
9.625% 03/15/11 235,000 250,862
Inn of the Mountain Gods Resort,
12.000% 11/15/10 (a) 130,000 138,450
Mohegan Tribal Gaming Authority:
8.000% 04/01/12 350,000 378,000
8.375% 07/01/11 125,000 136,250
Park Place Entertainment Corp.,
9.375% 02/15/07 285,000 322,762
Pinnacle Entertainment, Inc.,
9.250% 02/15/07 (a) 750,000 774,375
Poster Financial Group, Inc.,
8.750% 12/01/11 (a) 40,000 42,300
Regal Cinemas, Inc.,
9.375% 02/01/12 210,000 237,300
River Rock Entertainment,
9.750% 11/01/11 (a) 210,000 225,488
Six Flags, Inc.,
9.500% 02/01/09 550,000 574,750
Town Sports International, Inc.,
9.625% 04/15/11 (a) 115,000 123,050
Venetian Casino Resort LLC,
11.000% 06/15/10 (a) 205,000 237,800
Wynn Las Vegas LLC,
12.000% 11/01/10 145,000 169,287
-------------
4,941,011
-------------
AUTO EQUIPMENT & RENTAL SERVICES--0.9%
Accuride Corp.,
9.250% 02/01/08 75,000 77,250
Dana Corp.:
9.000% 08/15/11 135,000 162,675
10.125% 03/15/10 125,000 145,938
Dura Operating Corp.:
8.625% 04/15/12 225,000 237,375
9.000% 05/01/09 190,000 190,000
NationsRent, Inc.,
9.500% 10/15/10 (a) 275,000 295,625
United Rentals, Inc.,
10.750% 04/15/08 190,000 213,750
Williams Scotsman, Inc.,
9.875% 06/01/07 125,000 126,250
-------------
1,448,863
-------------
BUSINESS SERVICES--0.6%
IMCO Recycling, Inc.,
10.375% 10/15/10 (a) 140,000 144,900
Iron Mountain, Inc.,
6.625% 01/01/16 340,000 330,650
Moore North America
Finance, Inc.,
7.875% 01/15/11 110,000 124,300
Stratus Technologies, Inc.,
10.375% 12/01/08 (a) 210,000 222,600
Wackenhut Corrections,
8.250% 07/15/13 (a) 100,000 106,500
-------------
928,950
-------------
</Table>
See Notes to Investment Portfolio.
23
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
FUNERAL SERVICES--0.4%
Service Corp. International,
7.700% 04/15/09 USD 400,000 $ 426,000
Stewart Enterprises, Inc.,
10.750% 07/01/08 235,000 265,550
-------------
691,550
-------------
HEALTH SERVICES--1.6%
Bio-Rad Laboratories, Inc.,
7.500% 08/15/13 220,000 242,000
Coventry Health Care, Inc.,
8.125% 02/15/12 265,000 294,150
HCA, Inc.,
8.750% 09/01/10 140,000 165,824
IASIS Healthcare Corp.,
13.000% 10/15/09 185,000 208,125
Insight Health Services Corp.,
9.875% 11/01/11 230,000 246,100
Magellan Health Services, Inc.,
9.375% 11/15/07 (a)(i) 210,000 220,500
MedQuest, Inc.,
11.875% 08/15/12 (a) 335,000 367,662
Pacificare Health Systems, Inc.,
10.750% 06/01/09 211,000 247,397
Tenet Healthcare Corp.,
6.375% 12/01/11 405,000 388,800
United Surgical Partners
International, Inc.,
10.000% 12/15/11 250,000 283,750
-------------
2,664,308
-------------
HOTELS, CAMPS & LODGING--0.6%
Hard Rock Hotel, Inc.,
8.875% 06/01/13 (a) 185,000 197,025
Host Marriott LP,
9.500% 01/15/07 225,000 251,437
Royal Caribbean Cruises Ltd.,
8.000% 05/15/10 145,000 158,050
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 (a) 375,000 420,000
-------------
1,026,512
-------------
OTHER SERVICES--0.1%
Corrections Corp. of America,
9.875% 05/01/09 180,000 201,600
-------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--13.3%
AEROSPACE--0.2%
BE Aerospace, Inc.,
8.875% 05/01/11 245,000 227,850
Vought Aircraft Industries, Inc.,
8.000% 07/15/11 (a) 105,000 107,100
-------------
334,950
-------------
AIR TRANSPORTATION--0.7%
Delta Airlines, Inc.,
7.900% 12/15/09 USD 340,000 $ 278,800
Northwest Airlines, Inc.,
9.875% 03/15/07 295,000 267,712
Petroleum Helicopters, Inc.,
9.375% 05/01/09 325,000 344,500
U.S. Airways, Inc.,
10.375% 03/01/13 (j) 803,301 277,139
-------------
1,168,151
-------------
BROADCASTING--2.0%
Advanstar Communications, Inc.,
12.000% 02/15/11 300,000 315,750
Canwest Media, Inc.,
10.625% 05/15/11 390,000 444,600
Emmis Communications Corp.,
(c) 03/15/11
(12.500% 03/15/06) 317,000 292,433
Nexstar Finance, Inc.,
7.000% 01/15/14 (a) 85,000 85,425
Quebecor Media, Inc.,
11.125% 07/15/11 400,000 463,000
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 250,000 277,500
Spanish Broadcasting System,
9.625% 11/01/09 310,000 330,925
TV Azteca SA de CV,
10.500% 02/15/07 470,000 474,700
Videotron Ltee,
6.875% 01/15/14 (a) 155,000 159,650
Vivendi Universal,
9.250% 04/15/10 (a) 175,000 206,500
XM Satellite Radio, Inc.,
(c) 12/31/09
(14.000% 12/31/05) 325,485 291,309
-------------
3,341,792
-------------
CABLE--2.2%
Charter Communications
Holding LLC:
(c) 04/01/11
(9.920% 04/01/04) 1,045,000 893,475
10.000% 04/01/09 115,000 102,350
10.250% 09/15/10 (a) 160,000 167,600
Comcast UK Cable Partners Ltd.,
11.200% 11/15/07 450,000 450,000
CSC Holdings, Inc.,
7.625% 04/01/11 195,000 204,750
DirecTV Holdings LLC,
8.375% 03/15/13 200,000 232,000
EchoStar DBS Corp.,
6.375% 10/01/11 (a) 390,000 400,725
Granite Broadcasting,
9.750% 12/01/10 (a) 260,000 258,050
Insight Communications, Inc.,
(c) 02/15/11
(12.250% 02/15/06) 275,000 235,125
</Table>
See Notes to Investment Portfolio.
24
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
Northland Cable Television, Inc.,
10.250% 11/15/07 USD 305,000 $ 302,331
Rogers Cable, Inc.,
6.250% 06/15/13 105,000 105,834
Shaw Communications, Inc.,
7.500% 11/20/13 CAD 260,000 202,991
Telenet Group Holding NV,
(c) 06/15/14
(11.500% 12/15/08) (a) USD 260,000 161,704
-------------
3,716,935
-------------
COMMUNICATION SERVICES--0.8%
Axtel SA,
11.000% 12/15/13 (a) 270,000 273,037
Crown Castle International Corp.,
10.750% 08/01/11 230,000 258,750
Fairpoint Communications,
11.875% 03/01/10 180,000 210,600
Lucent Technologies, Inc.,
6.450% 03/15/29 220,000 170,500
SBA Communications Corp.:
(c) 12/15/11
(9.750% 12/15/07) 160,000 112,800
10.250% 02/01/09 355,000 350,562
-------------
1,376,249
-------------
ELECTRIC, GAS & SANITARY SERVICES--0.5%
Allied Waste North America, Inc.:
6.500% 11/15/10 (a) 470,000 475,875
Series 2001 B,
8.500% 12/01/08 305,000 338,550
-------------
814,425
-------------
ELECTRIC SERVICES--2.4%
AES Corp.:
9.000% 05/15/15 (a) 330,000 372,900
9.500% 06/01/09 182,000 201,793
Beaver Valley Funding Corp.,
9.000% 06/01/17 235,000 269,169
Caithness Coso Funding Corp.,
9.050% 12/15/09 292,950 317,851
Calpine Corp.:
8.500% 07/15/10 (a) 210,000 203,700
8.500% 02/15/11 295,000 232,312
8.625% 08/15/10 140,000 109,200
CMS Energy Corp.,
8.900% 07/15/08 265,000 288,188
Edison Mission Energy,
9.875% 04/15/11 250,000 260,938
Illinova Power Co.,
11.500% 12/15/10 75,000 90,750
MSW Energy Holdings Finance:
7.375% 09/01/10 (a) 90,000 94,050
8.500% 09/01/10 (a) 270,000 294,300
Nevada Power Co.:
9.000% 08/15/13 (a) 125,000 138,281
10.875% 10/15/09 215,000 246,175
NRG Energy, Inc.,
8.000% 12/15/13 (a) 90,000 94,612
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 USD 275,000 $ 300,437
Tiers-Mir-2001-14,
Fixed Rate Certificates,
7.200% 06/15/04 (a)(g) 270,000 157,950
UCAR Finance, Inc.,
10.250% 02/15/12 250,000 281,250
-------------
3,953,856
-------------
MARINE SERVICES--0.2%
Stena AB:
7.500% 11/01/13 (a) 105,000 105,816
9.625% 12/01/12 (a) 170,000 191,250
-------------
297,066
-------------
MOTOR FREIGHT & WAREHOUSING--0.2%
Allied Holdings, Inc.,
8.625% 10/01/07 155,000 148,413
QDI Capital Corp.,
9.000% 11/15/10 (a) 240,000 250,800
-------------
399,213
-------------
RADIO & TELEPHONE COMMUNICATIONS--2.2%
ACC Escrow Corp.,
10.000% 08/01/11 (a) 180,000 199,800
AirGate PCS, Inc.,
(c) 10/01/09
(13.500% 10/01/04) 50,000 35,500
Avaya, Inc.,
11.125% 04/01/09 150,000 174,000
Cincinnati Bell, Inc.,
8.375% 01/15/14 (a) 210,000 226,800
Dobson Communications Corp.,
8.875% 10/01/13 (a) 290,000 293,625
Horizon PCS, Inc.,
13.750% 06/15/11 (g) 285,000 71,250
MCI Communications Corp.:
7.125% 06/15/27 (g) 80,000 64,800
7.500% 08/20/04 (g) 305,000 247,050
Nextel Communications, Inc.,
9.375% 11/15/09 785,000 853,687
Nextel Partners, Inc.,
11.000% 03/15/10 265,000 293,487
Rogers Cantel, Inc.,
9.750% 06/01/16 500,000 595,000
US Unwired, Inc.,
(c) 11/01/09
(13.375% 11/01/04) 500,000 362,500
Western Wireless Corp.,
9.250% 07/15/13 130,000 137,150
-------------
3,554,649
-------------
RAILROAD--0.3%
Kansas City Southern,
7.500% 06/15/09 140,000 144,200
TFM SA de CV,
12.500% 06/15/12 (a) 230,000 262,200
-------------
406,400
-------------
</Table>
See Notes to Investment Portfolio.
25
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
TELECOMMUNICATIONS--1.6%
American Towers, Inc.,
7.250% 12/01/11 (a) USD 130,000 $ 131,950
Carrier1 International SA,
13.250% 02/15/09 (g) 500,000 45,000
Innova S de R.L.,
9.375% 09/19/13 (a) 70,000 71,838
Insight Midwest,
9.750% 10/01/09 (a) 135,000 142,425
Level 3 Communications,
10.500% 12/01/08 260,000 245,700
Qwest Capital Funding:
7.250% 02/15/11 565,000 553,700
7.750% 02/15/31 265,000 245,125
Qwest Services Corp.,
13.500% 12/15/10 (a) 390,000 473,850
Spectrasite, Inc.,
8.250% 05/15/10 (a) 130,000 139,425
Time Warner Telecom LLC:
9.750% 07/15/08 200,000 206,500
10.125% 02/01/11 255,000 271,575
Triton PCS, Inc.,
8.750% 11/15/11 85,000 83,725
-------------
2,610,813
-------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $59,770,225) 64,743,604
-------------
FOREIGN GOVERNMENT OBLIGATIONS--33.0%
European Investment Bank,
7.625% 12/07/07 GBP 455,000 891,920
Government of Australia,
8.750% 08/15/08 AUD 3,030,000 2,573,888
Government of Canada:
5.500% 06/01/10 CAD 1,020,000 841,659
10.000% 06/01/08 2,846,000 2,747,650
Government of New Zealand:
6.000% 11/15/11 NZD 3,715,000 2,448,263
6.500% 04/15/13 2,545,000 1,732,625
Government of Sweden:
5.000% 01/28/09 SEK 18,785,000 2,712,188
5.500% 10/08/12 5,105,000 751,896
6.750% 05/05/14 4,960,000 798,670
Kingdom of Norway,
6.000% 05/16/11 NOK 13,260,000 2,176,176
Ministry Finance Russia,
12.750% 06/24/28 USD 555,000 883,837
Poland Government Bond,
8.500% 05/12/07 PLN 3,357,000 950,089
Republic of Brazil:
9.250% 10/22/10 USD 500,000 $ 537,500
9.500% 01/24/11 EUR 500,000 663,049
11.000% 08/17/40 USD 1,283,000 1,411,300
11.500% 04/02/09 EUR 480,000 688,235
12.750% 01/15/20 USD 490,000 622,300
14.500% 10/15/09 725,000 947,937
Republic of Bulgaria:
1.000% 07/28/24 (e) 310,000 306,125
7.500% 01/15/13 EUR 838,000 1,196,265
Republic of Colombia:
9.750% 04/09/11 USD 373,991 424,480
10.000% 01/23/12 782,000 856,290
10.750% 01/15/13 240,000 273,000
11.500% 05/31/11 EUR 335,000 483,075
Republic of France:
5.000% 10/25/16 1,100,000 1,451,922
5.500% 10/25/10 975,000 1,342,298
Republic of Germany:
5.375% 01/04/10 905,000 1,234,840
6.000% 07/04/07 1,210,000 1,661,518
Republic of Greece:
5.350% 05/18/11 1,115,000 1,509,926
8.600% 03/26/08 381,000 575,675
Republic of Italy,
5.250% 08/01/11 2,330,000 3,151,651
Republic of Peru,
9.875% 02/06/15 USD 660,000 765,600
Republic of Philippines,
8.250% 01/15/14 400,000 395,000
Republic of South Africa:
5.250% 05/16/13 EUR 855,000 1,028,781
13.000% 08/31/10 ZAR 8,805,000 1,571,128
Republic of Venezuela:
9.250% 09/15/27 USD 1,728,000 1,572,480
10.750% 09/19/13 (a) 300,000 319,050
Russian Federation:
5.000% 03/31/30 1,800,000 1,725,750
11.000% 07/24/18 445,000 600,750
Treasury of Corp. Victoria,
7.500% 08/15/08 AUD 2,200,000 1,778,450
United Kingdom Treasury:
5.000% 03/07/12 GBP 635,000 1,151,417
7.500% 12/07/06 350,000 676,124
9.000% 07/12/11 615,000 1,392,553
United Mexican States:
7.500% 03/08/10 EUR 605,000 846,882
11.375% 09/15/16 USD 887,000 1,257,332
11.500% 05/15/26 500,000 728,250
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(cost of $45,362,268) 54,655,794
-------------
</Table>
See Notes to Investment Portfolio.
26
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
U.S. GOVERNMENT AGENCIES &
OBLIGATIONS--23.6%
Federal Home Loan
Mortgage Corp:
5.000% 08/25/10 USD 500,000 $ 510,785
8.000% 10/01/26 236,978 257,418
-------------
768,203
-------------
Federal National Mortgage
Association,
To Be Announced,
6.500% 01/14/34 (k) 2,795,000 2,922,522
-------------
Government National
Mortgage Association,
8.000% 04/15/17 65,824 72,509
-------------
U.S. Treasury Notes/Bonds:
5.625% 05/15/08 2,500,000 2,769,335
6.500% 10/15/06 2,550,000 2,840,361
7.500% 11/15/24 1,310,000 1,708,578
8.750% 05/15/17 4,911,000 6,882,305
10.375% 11/15/12 3,800,000 4,848,116
11.625% 11/15/04 2,900,000 3,159,187
12.000% 08/15/13 9,548,000 13,191,908
-------------
35,399,790
-------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(cost of $39,300,121) 39,163,024
-------------
TOTAL BONDS & NOTES
(cost of $144,432,614) 158,562,422
-------------
CONVERTIBLE BONDS--0.5%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.5%
RADIO & TELEPHONE COMMUNICATIONS--0.3%
Nortel Networks Corp.,
4.250% 09/01/08 470,000 444,732
-------------
TELECOMMUNICATIONS--0.2%
COLT Telecom Group PLC:
2.000% 03/29/06 (a) EUR 175,000 238,131
2.000% 12/16/06 (a) 80,000 109,868
-------------
347,999
-------------
TOTAL CONVERTIBLE BONDS
(cost of $629,583) 792,731
-------------
<Caption>
UNITS VALUE
---------------- -------------
WARRANTS (f)(l)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
CABLE--0.0%
Cable Satisfaction
International, Inc.,
expires 03/01/05 515 $ --(m)
-------------
Ono Finance PLC,
expires 02/15/11 (a) 150 --(m)
-------------
COMMUNICATION SERVICES--0.0%
UbiquiTel, Inc.,
expires 04/15/10 (a) 225 --(m)
-------------
MOTOR FREIGHT & WAREHOUSING--0.0%
QDI LLC,
expires 01/15/07 (a) 1,020 14,892
-------------
TELECOMMUNICATIONS--0.0%
Carrier1 International SA,
expires 02/19/09 (a)(g) 235 --(m)
Horizon PCS, Inc.,
expires 10/01/10 (a) 315 --(m)
Jazztel PLC,
expires 07/15/10 (a) 95 --(m)
-------------
--
-------------
TOTAL WARRANTS
(cost of $17,080) 14,892
-------------
<Caption>
SHARES
----------------
COMMON STOCKS (f)(l)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
CABLE--0.0%
Ono Finance PLC (a) 500 --(m)
-------------
POLLUTION CONTROL--0.0%
Fairlane Management Corp. 2,000 --(m)
-------------
TOTAL COMMON STOCKS
(cost of $46,125) --
-------------
</Table>
See Notes to Investment Portfolio.
27
<Page>
<Table>
<Caption>
PAR VALUE
---------------- -------------
SHORT-TERM OBLIGATION--3.7%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04 at
0.780%, collateralized by a
U.S. Treasury Bond maturing
02/15/27, market value
$6,222,269 (repurchase
proceeds $6,095,264)
(cost of $6,095,000) USD 6,095,000 $ 6,095,000
-------------
TOTAL INVESTMENTS--99.8%
(cost of $151,220,402) (n) 165,465,045
-------------
OTHER ASSETS & LIABILITIES, NET--0.2% 254,673
-------------
NET ASSETS--100.0% $ 165,719,718
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 2003, the value
of these securities amounted to $17,957,092, which represents 10.8% of net
assets.
(b) As of December 31, 2003, the Fund held securities of certain issuers that
have filed for bankruptcy protection under Chapter 11, representing 0.1% of
net assets. Income is being accrued.
(c) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is
the next interest rate to be paid and the date the Fund will begin accruing
this rate.
(d) Zero coupon bond.
(e) Interest rates on variable rate securities change periodically. The rate
listed is as of December 31, 2003.
(f) Represents fair value as determined in good faith under the direction of
the Board of Trustees.
(g) As of December 31, 2003, the Fund held securities of certain issuers that
have filed for bankruptcy protection under Chapter 11, representing 0.6% of
net assets. This issuer is in default of certain debt convenants. Income is
not being accrued.
(h) This issuer is in default of certain debt covenants. Income is not being
accrued.
(i) As of December 31, 2003, this issuer had filed for bankruptcy protection
under Chapter 11, however, effective January 5, 2004, this issuer emerged
from bankruptcy protection and began to accrue income.
(j) Income is not being accrued on this security.
(k) This security, or a portion thereof, has been purchased on a delayed
delivery basis whereby the terms that are fixed are the purchase price,
interest rate and settlement date. The exact quantity purchased may be
slightly more or less than the amount shown.
(l) Non-income producing.
(m) Security has no value.
(n) Cost for federal income tax purposes is $153,440,652.
As of December 31, 2003, the Fund had entered into the following forward
currency exchange contracts:
<Table>
<Caption>
CONTRACTS IN EXCHANGE SETTLEMENT NET UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- ---------------- ------------- ---------- --------------
CAD 260,000 USD 198,314 01/15/04 $ (2,732)
EUR 186,400 USD 225,264 01/08/04 (9,538)
EUR 1,585,000 USD 1,940,000 01/15/04 (56,152)
EUR 880,000 USD 1,091,640 01/26/04 (16,319)
EUR 2,077,500 USD 2,581,107 01/26/04 (34,556)
EUR 119,000 USD 147,798 01/26/04 (2,028)
EUR 341,000 USD 423,454 01/26/04 (5,880)
EUR 480,000 USD 596,064 01/26/04 (8,277)
GBP 410,000 USD 713,790 01/15/04 (17,246)
GBP 142,500 USD 250,373 01/26/04 (3,495)
GBP 56,000 USD 98,448 01/26/04 (1,317)
GBP 149,000 USD 261,659 01/26/04 (3,788)
NOK 589,000 USD 87,591 01/26/04 (688)
NOK 4,219,000 USD 627,109 01/29/04 (5,166)
----------
$ (167,182)
==========
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro
GBP Great British Pound
NOK Norwegian Kroner
NZD New Zealand Dollar
PLN Polish Zloty
USD United States Dollar
SEK Swedish Krona
ZAR South African Rand
</Table>
See Notes to Financial Statements.
28
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Strategic Income Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 151,220,402
---------------
Investments, at value $ 165,465,045
Cash 87,438
Foreign currency (cost of $6,541) 6,603
Receivable for:
Investments sold 6,687
Fund shares sold 134,315
Interest 3,445,696
Expense reimbursement due from Distributor 3,612
Deferred Trustees' compensation plan 6,653
Other assets 7,970
---------------
TOTAL ASSETS 169,164,019
---------------
LIABILITIES:
Net unrealized depreciation on foreign forward currency contracts 167,182
Payable for:
Investments purchased 93,129
Investments purchased on a delayed delivery basis 2,923,886
Fund shares repurchased 102,495
Investment advisory fee 87,827
Transfer agent fee 625
Pricing and bookkeeping fees 6,008
Trustees' fees 266
Audit fee 34,050
Custody fee 1,251
Distribution fee--Class B 12,709
Deferred Trustees' fees 6,653
Other liabilities 8,220
---------------
TOTAL LIABILITIES 3,444,301
---------------
NET ASSETS $ 165,719,718
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 182,089,129
Overdistributed net investment income (2,487,200)
Accumulated net realized loss (28,042,636)
Net unrealized appreciation (depreciation) on:
Investments 14,244,643
Foreign currency translations (84,218)
---------------
NET ASSETS $ 165,719,718
===============
CLASS A:
Net assets $ 109,894,248
Shares outstanding 11,211,698
===============
Net asset value per share $ 9.80
===============
CLASS B:
Net assets $ 55,825,470
Shares outstanding 5,699,377
===============
Net asset value per share $ 9.80
===============
</Table>
See Notes to Financial Statements.
29
<Page>
STATEMENT OF OPERATIONS
Colonial Strategic Income Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 41,787
Interest 11,001,454
Dollar roll fee income 37,058
Other 45,775
---------------
Total Investment Income (net of foreign taxes withheld of $22,688) 11,126,074
---------------
EXPENSES:
Investment advisory fee 1,003,522
Distribution fee--Class B 115,511
Transfer agent fee 7,500
Pricing and bookkeeping fees 85,593
Trustees' fees 10,929
Custody fee 50,322
Other expenses 76,315
---------------
Total Expenses 1,349,692
Fees reimbursed by Distributor--Class B (22,294)
Custody earnings credit (733)
---------------
Net Expenses 1,326,665
---------------
Net Investment Income 9,799,409
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 3,379,859
Foreign currency transactions (1,461,701)
---------------
Net realized gain 1,918,158
---------------
Net change in unrealized appreciation/depreciation on:
Investments 14,219,344
Foreign currency translations 70,128
---------------
Net change in unrealized appreciation/depreciation 14,289,472
---------------
Net Gain 16,207,630
---------------
Net Increase in Net Assets from Operations $ 26,007,039
===============
</Table>
See Notes to Financial Statements.
30
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Strategic Income Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 9,799,409 $ 9,896,562
Net realized gain (loss) on investments and foreign currency transactions 1,918,158 (8,483,465)
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations 14,289,472 9,597,438
--------------- ---------------
Net Increase from Operations 26,007,039 11,010,535
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (7,812,669) (8,337,510)
Class B (3,845,123) (2,438,046)
Return of capital:
Class A -- (171,968)
Class B -- (50,287)
--------------- ---------------
Total Distributions Declared to Shareholders (11,657,792) (10,997,811)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 5,759,085 3,738,599
Distributions reinvested 7,812,669 8,509,478
Redemptions (20,673,030) (29,202,076)
--------------- ---------------
Net Decrease (7,101,276) (16,953,999)
--------------- ---------------
Class B:
Subscriptions 23,225,342 15,913,161
Distributions reinvested 3,845,123 2,488,333
Redemptions (7,420,489) (5,160,875)
--------------- ---------------
Net Increase 19,649,976 13,240,619
--------------- ---------------
Net Increase (Decrease) from Share Transactions 12,548,700 (3,713,380)
--------------- ---------------
Total Increase (Decrease) in Net Assets 26,897,947 (3,700,656)
NET ASSETS:
Beginning of period 138,821,771 142,522,427
--------------- ---------------
End of period (including overdistributed net investment income of
$(2,487,200) and $(1,605,285), respectively) $ 165,719,718 $ 138,821,771
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 594,081 407,376
Issued for distributions reinvested 798,025 956,121
Redemptions (2,137,164) (3,201,245)
--------------- ---------------
Net Decrease (745,058) (1,837,748)
--------------- ---------------
Class B:
Subscriptions 2,427,732 1,749,903
Issued for distributions reinvested 393,162 279,902
Redemptions (766,395) (572,003)
--------------- ---------------
Net Increase 2,054,499 1,457,802
--------------- ---------------
</Table>
See Notes to Financial Statements.
31
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Strategic Income Fund, Variable Series / December 31, 2003
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
and 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 a pricing service
approved by the Trust'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 at the close of the
principal exchange on which they trade. 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 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 closing 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.
Investments for which market quotations are not readily available, which tend to
be more thinly traded and of lesser quality 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. Foreign markets
close each day at various times prior to the close of the New York Stock
Exchange ("NYSE"). Foreign currency exchange rates are generally determined
prior to the close of the NYSE at 12:00 p.m. Eastern (U.S.) time. Occasionally,
events affecting the value of a foreign security may occur subsequent to the
close of the exchange or market which would not be reflected in the computation
of the Fund's net asset value. In such an event, the foreign security will be
valued at the fair value.
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 a 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
32
<Page>
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 credit-worthy. 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 securities that it holds with an agreement by the Fund to repurchase
substantially similar 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
roll transactions involve the risk that the market value of the securities sold
by the Fund may decline below the repurchase price of those securities. In the
event the buyer of the securities under a mortgage dollar roll transaction files
for bankruptcy or becomes insolvent, the Fund's use of proceeds of the
transaction may be restricted pending a determination by or with respect to the
other party. The Fund identifies U.S. Government securities or other liquid
high-grade debt obligations as segregated with the custodian 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
foreign securities which are recorded as soon after ex-date as the Fund becomes
aware of such, net of non-reclaimable tax withholdings. 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 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.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
33
<Page>
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency transactions, discount
accretion/premium amortization on debt securities, distributions in excess,
market discount reclassifications and paydowns were identified and reclassified
among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED
NET INVESTMENT ACCUMULATED PAID-IN
INCOME NET REALIZED LOSS CAPITAL
--------------- ----------------- -----------
$ 976,468 $ (770,718) $ (205,750)
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 11,657,792 $ 10,775,556
Long-Term Capital Gains -- --
Tax Return of Capital -- 222,255
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED NET
ORDINARY LONG-TERM UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- -------------
$ -- $ -- $ 12,107,356
</Table>
* 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, 2003, based on cost of
investments for federal income tax purposes and excluding any unrealized
appreciation and depreciation from changes in the value of assets and
liabilities resulting from changes in exchange rates, was:
<Table>
Unrealized appreciation $ 15,654,939
Unrealized depreciation (3,630,546)
-------------
Net unrealized appreciation $ 12,024,393
=============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 5,670,014
2009 11,079,118
2010 11,028,566
------------
$ 27,777,698
============
</Table>
Capital loss carryforwards of $1,113,591 were utilized and/or expired during the
year ended December 31, 2003 for the Fund. Expired capital loss carryforwards
are recorded as a reduction of paid-in capital.
POST-OCTOBER LOSSES--Under current tax rules, certain currency and 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, 2003, post-October
currency losses of $605,663 were deferred to January 1, 2004.
34
<Page>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.65%
Next $1 billion 0.60%
Over $2 billion 0.55%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.65% of the Fund's average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.65%.
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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.055%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003 Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
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. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $98,021,133 and $91,069,282, respectively of which $6,840,899
and $582,842, respectively, were U.S. Government securities.
35
<Page>
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.
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 due to the
extent that there is no established retail secondary market and because of a
decline in the value of such securities.
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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
36
<Page>
FINANCIAL HIGHLIGHTS
Colonial Strategic Income Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 8.92 $ 9.43 $ 10.44 $ 11.08
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.62 0.65 0.81(b) 0.97 0.95
Net realized and unrealized gain (loss) on
investments and foreign currency 1.03 0.10 (0.46)(b) (0.96) (0.75)
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 1.65 0.75 0.35 0.01 0.20
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.75) (0.75) (0.84) (0.99) (0.84)
Return of capital -- (0.02) (0.02) (0.03) --
----------- ----------- ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.75) (0.77) (0.86) (1.02) (0.84)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.80 $ 8.90 $ 8.92 $ 9.43 $ 10.44
=========== =========== =========== =========== ===========
Total return (c)(d) 18.54% 8.41% 3.68% 0.16% 1.78%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (e) 0.80% 0.76% 0.85% 0.76% 0.75%
Net investment income (e) 6.42% 7.16% 8.42%(b) 9.36% 8.57%
Portfolio turnover rate 61% 62% 62% 31% 35%
Net assets, end of period (000's) $ 109,894 $ 106,415 $ 123,041 $ 143,629 $ 170,702
</Table>
(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
and accreting premium and 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 figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
37
<Page>
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
38
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia High Yield Fund, Variable Series / December 31, 2003
Columbia High Yield Fund, Variable Series seeks a high level of current income,
with capital appreciation as a secondary goal, by investing primarily in
non-investment-grade corporate debt securities, commonly referred to as "junk"
or "high-yield" bonds.
Jeffrey L. Rippey and Kurt M. Havnaer are portfolio managers for the fund. Mr.
Rippey has managed or co-managed the fund and its predecessor since 1998. Mr.
Havnaer has co-managed the fund and its predecessor since 2000.
EMPHASIS ON HIGH QUALITY HURT FUND PERFORMANCE
For bond investors, 2003 will be remembered as a year in which the lowest
quality securities produced the best performance. The flight to quality that had
characterized the previous two years ended as investors abandoned Treasuries and
shifted into C-rated and other high-yielding issues. This trend had a markedly
negative impact on the relative performance of the fund, whose investments were
concentrated in the highest quality segment of the high-yield market. In
particular, the fund was underweight in previously beleaguered sectors such as
telecom and electric utilities, whose fundamental prospects were enhanced as the
economic recovery took shape. For the twelve-month period that ended December
31, 2003, the fund underperformed its benchmark, the Merrill Lynch US High
Yield, Cash Pay Only Index.
IMPROVEMENT WITHIN THE HIGH-YIELD SECTOR
One of the most important developments within the high-yield universe was the
dramatic drop in the corporate default rate. At the beginning of 2003, the
Moody's trailing 12-month default rate was 8.4%, a number that declined to just
5.2% by the end of 2003. Many companies that were on the verge of bankruptcy a
year ago were able to renegotiate their bank debt and lengthen the maturities of
their remaining obligations. The financial health of the sector was also helped
by the fact that over 500 new issues were brought to market, with a total par
value of almost $150 billion. That was far in excess of the mere $68 billion
raised by the high-yield markets in 2002.
Although many struggling companies improved their competitive position in
2003, the major credit rating agencies continued to downgrade many more issues
than they upgraded. This trend demonstrates that the high-yield rally was
dependent on more than fundamental improvement; it also required that investors
were willing to assume higher levels of risk.
A CONSERVATIVE STANCE FOR 2004
If economic growth remains strong, the yield premium on high-yield bonds could
come down further. We may also see lower-quality bonds continue to outperform
higher-quality issuers. However, we have some concern about the longer-term
sustainability of economic growth, based largely on record increases in debt
levels for both the government and household sectors.
Against that backdrop--and despite the fact that the fund's focus on quality
hurt relative performance in 2003--we continue to maintain a conservative
posture within the portfolio. Because the yield advantage of low-quality bonds
versus Treasury securities has contracted sharply, the relative risk of owning
lower-quality securities is also higher. In addition to maintaining the fund's
focus on quality issuers, we expect to keep the fund's average maturity shorter
than its benchmark, a stance that offers a potential cushion against higher
interest rates.
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
An investment in the Columbia High Yield Fund, Variable Series offers the
potential for high income and attractive total returns, but also involves
certain risks, including credit risks associated with lower-rated bonds, and
interest rate risks.
39
<Page>
PERFORMANCE INFORMATION
Columbia High Yield Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- -------------------------------------------------------------
Class A (3/3/98) 12.37 5.03 5.95
Merrill Lynch US High Yield,
Cash Pay Only Index(1) 27.23 5.47 5.00
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ------------------------------------------------------------------------
Class A 8.96 9.42
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98 - 12/31/03
Class A: $14,006
<Table>
<Caption>
CLASS A SHARES MERRILL LYNCH US HIGH YIELD, CASH PAY ONLY INDEX
3/1998 $ 10,000 $ 10,000
3/31/1998 $ 10,146 $ 10,086
4/30/1998 $ 10,173 $ 10,133
5/31/1998 $ 10,223 $ 10,204
6/30/1998 $ 10,307 $ 10,255
7/31/1998 $ 10,442 $ 10,314
8/31/1998 $ 10,319 $ 9,868
9/30/1998 $ 10,586 $ 9,888
10/31/1998 $ 10,543 $ 9,726
11/30/1998 $ 10,901 $ 10,168
12/31/1998 $ 10,959 $ 10,171
1/31/1999 $ 11,063 $ 10,272
2/28/1999 $ 11,011 $ 10,194
3/31/1999 $ 11,030 $ 10,282
4/30/1999 $ 11,152 $ 10,442
5/31/1999 $ 11,007 $ 10,370
6/30/1999 $ 10,974 $ 10,350
7/31/1999 $ 10,961 $ 10,366
8/31/1999 $ 10,845 $ 10,260
9/30/1999 $ 10,785 $ 10,221
10/31/1999 $ 10,806 $ 10,161
11/30/1999 $ 10,947 $ 10,277
12/31/1999 $ 11,022 $ 10,330
1/31/2000 $ 10,938 $ 10,278
2/29/2000 $ 10,930 $ 10,288
3/31/2000 $ 10,871 $ 10,144
4/30/2000 $ 10,891 $ 10,147
5/31/2000 $ 10,866 $ 10,035
6/30/2000 $ 11,119 $ 10,207
7/31/2000 $ 11,211 $ 10,280
8/31/2000 $ 11,386 $ 10,406
9/30/2000 $ 11,394 $ 10,345
10/31/2000 $ 11,223 $ 10,042
11/30/2000 $ 11,062 $ 9,728
12/31/2000 $ 11,426 $ 9,939
1/31/2001 $ 11,912 $ 10,531
2/28/2001 $ 12,027 $ 10,698
3/31/2001 $ 11,951 $ 10,556
4/30/2001 $ 11,942 $ 10,441
5/31/2001 $ 12,036 $ 10,642
6/30/2001 $ 11,838 $ 10,423
7/31/2001 $ 11,907 $ 10,584
8/31/2001 $ 12,049 $ 10,687
9/30/2001 $ 11,647 $ 10,002
10/31/2001 $ 11,992 $ 10,296
11/30/2001 $ 12,234 $ 10,631
12/31/2001 $ 12,132 $ 10,555
1/31/2002 $ 12,181 $ 10,614
2/28/2002 $ 12,122 $ 10,512
3/31/2002 $ 12,225 $ 10,762
4/30/2002 $ 12,354 $ 10,934
5/31/2002 $ 12,314 $ 10,875
6/30/2002 $ 12,067 $ 10,101
7/31/2002 $ 11,906 $ 9,699
8/31/2002 $ 12,078 $ 9,942
9/30/2002 $ 12,006 $ 9,783
10/31/2002 $ 12,031 $ 9,701
11/30/2002 $ 12,397 $ 10,279
12/31/2002 $ 12,464 $ 10,435
1/31/2003 $ 12,587 $ 10,735
2/28/2003 $ 12,704 $ 10,874
3/31/2003 $ 12,897 $ 11,156
4/30/2003 $ 13,234 $ 11,783
5/31/2003 $ 13,251 $ 11,910
6/30/2003 $ 13,443 $ 12,235
7/31/2003 $ 13,215 $ 12,060
8/31/2003 $ 13,244 $ 12,218
9/30/2003 $ 13,544 $ 12,544
10/31/2003 $ 13,708 $ 12,800
11/30/2003 $ 13,836 $ 12,977
12/31/2003 $ 14,006 $ 13,292
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The Merrill Lynch US High Yield, Cash Pay Only Index is an
unmanaged index 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.
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.
(1) Index performance is from March 3, 1998.
40
<Page>
INVESTMENT PORTFOLIO
Columbia High Yield Fund, Variable Series / December 31, 2003
<Table>
<Caption>
PAR VALUE
------------ ------------
CORPORATE FIXED-INCOME
BONDS & NOTES--91.5%
CONSTRUCTION--3.0%
BUILDING CONSTRUCTION--3.0%
KB Home:
8.625% 12/15/08 $ 400,000 $ 443,000
9.500% 02/15/11 150,000 167,625
Toll Corp.:
8.000% 05/01/09 50,000 52,375
8.250% 02/01/11 325,000 357,500
8.250% 12/01/11 175,000 192,500
------------
1,213,000
------------
FINANCE, INSURANCE & REAL ESTATE--1.9%
REAL ESTATE--1.9%
Health Care REIT, Inc.,
7.500% 08/15/07 325,000 361,124
iStar Financial, Inc.:
6.000% 12/15/10 30,000 30,600
7.000% 03/15/08 110,000 118,800
8.750% 08/15/08 220,000 253,000
------------
763,524
------------
MANUFACTURING--26.1%
AUTO PARTS & EQUIPMENT--2.7%
American Axle & Manufacturing, Inc.,
9.750% 03/01/09 495,000 523,462
Lear Corp.:
7.960% 05/15/05 50,000 53,500
8.110% 05/15/09 420,000 494,025
------------
1,070,987
------------
CHEMICALS & ALLIED PRODUCTS--4.5%
Acetex Corp.:
10.875% 08/01/09 35,000 38,850
10.875% 08/01/09 (a) 175,000 194,250
Airgas, Inc.,
9.125% 10/01/11 350,000 393,750
Equistar Chemical Funding LP:
10.125% 09/01/08 155,000 170,500
10.625% 05/01/11 165,000 181,500
Ethyl Corp.,
8.875% 05/01/10 255,000 272,850
MacDermid, Inc.,
9.125% 07/15/11 300,000 336,000
Nalco Co.,
7.750% 11/15/11 (a) 225,000 240,750
------------
1,828,450
------------
CONSUMER PRODUCTS--2.7%
Bombardier Recreational,
8.375% 12/15/13 (a) 35,000 36,400
Hasbro, Inc.,
6.150% 07/15/08 725,000 766,688
Scotts Co.,
6.625% 11/15/13 (a) 300,000 307,500
------------
1,110,588
------------
ELECTRONIC & ELECTRICAL EQUIPMENT--0.1%
General Cable Corp.,
9.500% 11/15/10 (a) $ 25,000 $ 26,687
------------
FABRICATED METAL PRODUCTS--0.7%
Kennametal, Inc.,
7.200% 06/15/12 265,000 282,967
------------
FOOD & KINDRED PRODUCTS--3.2%
Constellation Brands, Inc.:
8.125% 01/15/12 200,000 221,500
8.500% 03/01/09 225,000 237,094
8.625% 08/01/06 25,000 27,687
Cott Beverages, Inc.,
8.000% 12/15/11 750,000 811,875
------------
1,298,156
------------
FURNITURE & FIXTURES--0.1%
Congoleum Corp.,
8.625% 08/01/08 (b) 65,000 39,000
------------
PAPER & FOREST PRODUCTS--3.1%
Abitibi Consolidated, Inc.,
7.875% 08/01/09 300,000 323,703
Cascades, Inc.,
7.250% 02/15/13 320,000 334,400
Smurfit-Stone Container Corp.:
8.250% 10/01/12 70,000 75,600
8.375% 07/01/12 125,000 136,875
9.750% 02/01/11 350,000 386,750
------------
1,257,328
------------
PACKAGING--4.4%
Ball Corp.:
6.875% 12/15/12 645,000 674,025
7.750% 08/01/06 100,000 108,000
Owens-Illinois, Inc.:
7.150% 05/15/05 40,000 41,200
7.350% 05/15/08 50,000 51,375
7.500% 05/15/10 90,000 91,800
8.100% 05/15/07 50,000 52,625
8.875% 02/15/09 250,000 273,125
Silgan Corp.,
6.750% 11/15/13 (a) 485,000 485,000
------------
1,777,150
------------
PRINTING & PUBLISHING--4.0%
Dex Media East LLC,
12.125% 11/15/12 345,000 426,075
Houghton Mifflin Co.,
9.875% 02/01/13 390,000 429,000
R.H. Donnelley Finance Corp.:
10.875% 12/15/12 125,000 148,438
10.875% 12/15/12 (a) 510,000 605,625
------------
1,609,138
------------
TRANSPORTATION EQUIPMENT--0.6%
Wabtec Corp.,
6.875% 07/31/13 (a) 250,000 258,750
------------
</Table>
See Notes to Investment Portfolio.
41
<Page>
<Table>
<Caption>
PAR VALUE
------------ ------------
MINING & ENERGY--12.6%
OIL & GAS EXTRACTION--7.0%
Chesapeake Energy Corp.:
7.500% 09/15/13 $ 25,000 $ 27,031
8.125% 04/01/11 200,000 222,500
9.000% 08/15/12 550,000 633,875
Pogo Producing Co.,
8.250% 04/15/11 205,000 225,500
Pride International, Inc.,
10.000% 06/01/09 25,000 26,875
Tom Brown, Inc.,
7.250% 09/15/13 25,000 26,437
Westport Resources Corp.,
8.250% 11/01/11 650,000 715,000
Vintage Petroleum, Inc.:
7.875% 05/15/11 25,000 26,375
8.250% 05/01/12 290,000 314,650
XTO Energy, Inc.:
6.250% 04/15/13 100,000 105,500
7.500% 04/15/12 455,000 516,425
------------
2,840,168
------------
OIL & GAS FIELD SERVICES--3.4%
Grant Prideco, Inc.:
9.000% 12/15/09 25,000 27,500
9.625% 12/01/07 525,000 589,312
Key Energy Services, Inc.,
6.375% 05/01/13 365,000 370,475
Offshore Logistics, Inc.,
6.125% 06/15/13 215,000 210,700
Universal Compression, Inc.,
7.250% 05/15/10 175,000 182,000
------------
1,379,987
------------
METALS & MINING--2.2%
Arch Western Financial LLC,
6.750% 07/01/03 (a) 550,000 563,750
Peabody Energy Corp.,
6.875% 03/15/13 300,000 316,500
------------
880,250
------------
RETAIL TRADE--3.0%
AUTOMOBILES--0.5%
AutoNation, Inc.,
9.000% 08/01/08 170,000 195,075
------------
MISCELLANEOUS RETAIL--0.6%
Couche-Tard,
7.500% 12/15/13 (a) 120,000 126,300
Suburban Propane Partners,
6.875% 12/15/13 (a) 130,000 130,650
------------
256,950
------------
RESTAURANTS--1.9%
Tricon Global Restaurants, Inc.:
8.500% 04/15/06 50,000 55,750
8.875% 04/15/11 575,000 691,438
------------
747,188
------------
SERVICES--27.3%
AMUSEMENT & RECREATION--9.9%
Cinemark USA, Inc.,
9.000% 02/01/13 $ 485,000 $ 545,625
Harrah's Operating Co., Inc.,
7.875% 12/15/05 600,000 654,000
International Game Technology:
7.875% 05/15/04 25,000 25,625
8.375% 05/15/09 25,000 29,625
MGM Mirage:
6.000% 10/01/09 250,000 256,875
9.750% 06/01/07 475,000 543,875
Park Place Entertainment:
7.875% 03/15/10 100,000 110,750
9.375% 02/15/07 550,000 622,875
Six Flags, Inc.:
9.500% 02/01/09 50,000 52,250
9.625% 06/01/14 (a) 150,000 156,750
Speedway Motorsports, Inc.,
6.750% 06/01/13 325,000 334,750
Station Casinos, Inc.:
8.875% 12/01/08 50,000 51,625
9.875% 07/01/10 570,000 627,000
------------
4,011,625
------------
AUTO EQUIPMENT & RENTAL SERVICES--1.3%
United Rentals, Inc.:
7.750% 11/15/13 (a) 455,000 468,650
9.250% 01/15/09 50,000 52,500
------------
521,150
------------
BUSINESS SERVICES--3.9%
Iron Mountain, Inc.:
7.750% 01/15/15 50,000 52,625
8.625% 04/01/13 650,000 703,625
Lamar Media Corp.,
7.250% 01/01/13 775,000 833,125
------------
1,589,375
------------
HEALTH SERVICES--9.0%
AdvancePCS,
8.500% 04/01/08 375,000 407,812
AmerisourceBergen Corp.:
7.250% 11/15/12 330,000 354,750
8.125% 09/01/08 200,000 226,000
Apogent Technologies, Inc.,
6.500% 05/15/13 495,000 515,013
Omnicare, Inc.:
6.125% 06/01/13 400,000 402,000
8.125% 03/15/11 275,000 301,125
Province Healthcare Co.,
7.500% 06/01/13 300,000 299,250
Select Medical Corp.:
7.500% 08/01/13 200,000 212,000
9.500% 06/15/09 325,000 356,688
Triad Hospital, Inc.,
8.750% 05/01/09 525,000 567,000
------------
3,641,638
------------
</Table>
See Notes to Investment Portfolio.
42
<Page>
<Table>
<Caption>
PAR VALUE
------------ ------------
HOTELS, CAMPS & LODGING--2.0%
Extended Stay America, Inc.:
9.150% 03/15/08 $ 50,000 $ 52,062
9.875% 06/15/11 350,000 393,313
ITT Corp.,
6.750% 11/15/05 35,000 36,838
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 290,000 324,800
------------
807,013
------------
OTHER SERVICES--1.2%
Corrections Corp. of America:
7.500% 05/01/11 275,000 289,437
7.500% 05/01/11 (a) 100,000 105,250
9.875% 05/01/09 100,000 112,000
------------
506,687
------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--17.6%
AEROSPACE--3.8%
K&F Industries,
9.625% 12/15/10 320,000 358,400
L-3 Communications Corp.,
7.625% 06/15/12 710,000 773,900
Transdigm, Inc.,
8.375% 07/15/11 375,000 399,375
------------
1,531,675
------------
BROADCASTING--2.1%
LIN Television Corp.,
6.500% 05/15/13 (a) 350,000 350,000
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 450,000 499,500
------------
849,500
------------
CABLE--5.5%
British Sky Broadcasting PLC:
7.300% 10/15/06 20,000 22,288
8.200% 07/15/09 200,000 238,128
DirecTV Holdings Finance,
8.375% 03/15/13 515,000 597,400
EchoStar DBS Corp.,
5.750% 10/01/08 (a) 725,000 733,156
Rogers Cable, Inc.,
6.250% 06/15/13 650,000 655,161
------------
2,246,133
------------
ENVIRONMENTAL SERVICES--2.3%
Allied Waste North America, Inc.:
9.250% 09/01/12 50,000 56,500
10.000% 08/01/09 650,000 702,000
Synagro Technologies, Inc.,
9.500% 04/01/09 175,000 191,188
------------
949,688
------------
MARINE TRANSPORTATION--1.7%
Teekay Shipping Corp.,
8.875% 07/15/11 610,000 692,350
------------
TELECOMMUNICATIONS--2.2%
Cincinnati Bell, Inc.,
8.375% 01/15/14 (a) $ 115,000 $ 124,200
Nextel Communications, Inc.:
7.375% 08/01/15 125,000 134,375
9.375% 11/15/09 500,000 543,750
9.500% 02/01/11 60,000 67,950
------------
870,275
------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $36,093,769) 37,052,452
------------
CONVERTIBLE BOND--0.1%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.1%
TELECOMMUNICATIONS--0.1%
COLT Telecom Group PLC,
2.000% 03/29/06 (a)
(cost of $24,150) 40,000 54,430
------------
<Caption>
UNITS
------------
WARRANTS (c)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
CABLE--0.0%
Cable Satisfaction International, Inc.,
expires 03/01/05 (d) 220 --(e)
Ono Finance PLC,
expires 03/16/11 (a)(d) 85 --(e)
------------
--
------------
BROADCASTING--0.0%
XM Satellite Radio Holdings, Inc.,
expires 03/15/10 (a) 150 3,113
------------
COMMUNICATION SERVICES--0.0%
UbiquiTel, Inc.,
expires 04/15/10 (a)(d) 50 --(e)
------------
MOTOR FREIGHT & WAREHOUSING--0.0%
QDI LLC,
expires 01/15/07 (a)(d) 153 2,234
------------
TELECOMMUNICATIONS--0.0%
Carrier 1 International SA,
expires 02/19/09 (a)(d)(f) 113 --(e)
Horizon PCS, Inc.,
expires 10/01/10 (a)(d)(f) 145 --(e)
Jazztel PLC,
expires 07/15/10 (a)(d) 60 --(e)
------------
--
------------
TOTAL WARRANTS
(cost of $22,709) 5,347
------------
</Table>
See Notes to Investment Portfolio.
43
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCK (c)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
POLLUTION CONTROL--0.0%
Fairlane Management Corp. (d)
(cost of $0) 1,200 $ --(e)
------------
<Caption>
PAR
------------
SHORT-TERM OBLIGATION--6.5%
Repurchase agreement with
State Street Bank & Trust Co., dated
12/31/03, due 01/02/04 at 0.730%,
collateralized by a U.S. Treasury
Note maturing 08/15/07, market
value $2,671,746
(repurchase proceeds $2,618,106)
(cost of $2,618,000) $ 2,618,000 2,618,000
------------
TOTAL INVESTMENTS--98.1%
(cost of $38,758,628) (g) 39,730,229
------------
OTHER ASSETS & LIABILITIES, NET--1.9% 758,328
------------
NET ASSETS--100.0% $ 40,488,557
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 2003, the value
of these securities amounted to $4,973,445, which represents 12.3% of net
assets.
(b) As of December 31, 2003, the Fund held securities of certain issuers that
have filed for bankruptcy protection under Chapter 11, representing 0.1% of
net assets. Income is being accrued.
(c) Non-income producing.
(d) Represents fair value as determined in good faith under the direction of
the Board of Trustees.
(e) Security has no value.
(f) As of December 31, 2003, the Fund held a security of an issuer that has
filed for bankruptcy protection under Chapter 11. At December 31, 2003, the
security had no value. This issuer is in default of certain debt covenants.
Income is not being accrued.
(g) Cost for federal income tax purposes is $38,883,438.
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
44
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia High Yield Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 38,758,628
---------------
Investments, at value $ 39,730,229
Cash 3,724
Receivable for:
Fund shares sold 145,971
Interest 652,393
Expense reimbursement due from Investment Advisor 9,008
Deferred Trustees' compensation plan 1,138
Other assets 153
---------------
TOTAL ASSETS 40,542,616
---------------
LIABILITIES:
Payable for:
Fund shares repurchased 1,004
Distributions 1,561
Investment advisory fee 20,156
Transfer agent fee 417
Pricing and bookkeeping fees 2,051
Audit fee 18,949
Custody fee 1,041
Distribution fee--Class B 1,703
Deferred Trustees' fees 1,138
Other liabilities 6,039
---------------
TOTAL LIABILITIES 54,059
---------------
NET ASSETS $ 40,488,557
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 49,103,518
Overdistributed net investment income (113,376)
Accumulated net realized loss (9,473,252)
Net unrealized appreciation on:
Investments 971,601
Foreign currency translations 66
---------------
NET ASSETS $ 40,488,557
===============
CLASS A:
Net assets $ 12,132,064
Shares outstanding 1,288,029
===============
Net asset value per share $ 9.42
===============
CLASS B:
Net assets $ 28,356,493
Shares outstanding 3,010,584
===============
Net asset value per share $ 9.42
===============
</Table>
See Notes to Financial Statements.
45
<Page>
STATEMENT OF OPERATIONS
Columbia High Yield Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 4,281
Interest 1,840,484
Other 19,220
---------------
Total Investment Income 1,863,985
---------------
EXPENSES:
Investment advisory fee 161,189
Administration fee 17,244
Distribution fee--Class B 42,008
Transfer agent fee 5,000
Pricing and bookkeeping fees 29,652
Trustees' fees 202
Custody fee 9,691
Audit fee 40,802
Amortization of organization expense 375
Other expenses 14,577
---------------
Total Expenses 320,740
Fees and expenses waived or reimbursed by Investment Advisor (82,476)
Fees waived by Distributor--Class B (31,926)
Custody earnings credit (413)
---------------
Net Expenses 205,925
---------------
Net Investment Income 1,658,060
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on:
Investments (854,136)
Foreign currency transactions (1,976)
---------------
Net realized loss (856,112)
---------------
Net change in unrealized appreciation/depreciation on:
Investments 2,257,438
Foreign currency translations 66
---------------
Net change in unrealized appreciation/depreciation 2,257,504
---------------
Net Gain 1,401,392
---------------
Net Increase in Net Assets from Operations $ 3,059,452
===============
</Table>
See Notes to Financial Statements.
46
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia High Yield Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 1,658,060 $ 153,065
Net realized loss on investments and foreign currency transactions (856,112) (126,213)
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations 2,257,504 30,091
--------------- ---------------
Net Increase from Operations 3,059,452 56,943
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (666,816) (149,903)
Class B (1,094,776) --
From net realized gains:
Class A (20,678) --
Class B (48,075) --
--------------- ---------------
Total Distributions Declared to Shareholders (1,830,345) (149,903)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 8,243,839 626,496
Proceeds received in connection with merger 12,120,783 --
Distributions reinvested 687,494 149,903
Redemptions (11,587,253) (907,995)
--------------- ---------------
Net Increase (Decrease) 9,464,863 (131,596)
--------------- ---------------
Class B:
Subscriptions 13,066,846 --
Proceeds received in connection with merger 17,750,911 --
Distributions reinvested 1,142,851 --
Redemptions (4,362,756) --
--------------- ---------------
Net Increase 27,597,852 --
--------------- ---------------
Net Increase (Decrease) from Share Transactions 37,062,715 (131,596)
--------------- ---------------
Total Increase (Decrease) in Net Assets 38,291,822 (224,556)
NET ASSETS:
Beginning of period 2,196,735 2,421,291
--------------- ---------------
End of period (including overdistributed net investment income of $(113,376)
and undistributed net investment income of $13,747, respectively) $ 40,488,557 $ 2,196,735
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 896,663 69,617
Issued in connection with merger 1,328,306 --
Issued for distributions reinvested 73,952 16,631
Redemptions (1,256,145) (101,745)
--------------- ---------------
Net Increase (Decrease) 1,042,776 (15,497)
--------------- ---------------
Class B:
Subscriptions 1,411,911 --
Issued in connection with merger 1,946,759 --
Issued for distributions reinvested 122,973 --
Redemptions (471,059) --
--------------- ---------------
Net Increase 3,010,584 --
--------------- ---------------
</Table>
See Notes to Financial Statements.
47
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia High Yield Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Columbia High Yield Fund, Variable Series (formerly Galaxy VIP Columbia High
Yield Fund II) (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 income by investing primarily
in non-investment grade corporate debt securities, commonly referred to as
"junk" or "high yield" bonds. The Fund's secondary goal is capital appreciation.
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 a pricing service
approved by the Trust'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 at the close of the
principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments in other investment companies are valued at net asset value.
Foreign securities are generally valued at the closing 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.
Investments for which market quotations are not readily available, which tend to
be more thinly traded and of lesser quality 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. Foreign markets
close each day at various times prior to the close of the New York Stock
Exchange ("NYSE"). Foreign currency exchange rates are generally determined
prior to the close of the NYSE at 12:00 p.m. Eastern (U.S.) time. Occasionally,
events affecting the value of a foreign security may occur subsequent to the
close of the exchange or market which would not be reflected in the computation
of the Fund's net asset value. In such an event, the foreign security will be
valued at the fair value.
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 credit-worthy. 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.
48
<Page>
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. 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 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.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Dividends from net investment income are
declared daily and paid monthly. Net realized capital gains, if any, are
distributed at least annually. Income and capital gains dividends are determined
in accordance with income tax regulations and may differ from GAAP. All
dividends and distributions are reinvested in additional shares of the Fund at
net asset value as of the record date of the distribution.
ORGANIZATION COSTS--The Fund has borne all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years, beginning with the commencement of the Fund's operation. As of December
31, 2003, all organization costs have been fully amortized.
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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency transactions, discount
accretion/premium amortization on debt securities, market discount
reclassifications and distribution reclassifications were identified and
reclassified among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED
NET INVESTMENT ACCUMULATED PAID-IN
INCOME NET REALIZED LOSS CAPITAL
--------------- ----------------- -----------
$ (23,591) $ (8,184,224) $ 8,207,815
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 1,830,345 $ 149,903
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ 11,859 $ -- $ 846,857
</Table>
* 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.
49
<Page>
Unrealized appreciation and depreciation at December 31, 2003, based on cost of
investments for federal income tax purposes and excluding any unrealized
appreciation and depreciation from changes in the value of assets and
liabilities resulting from changes in exchange rates was:
<Table>
Unrealized appreciation $ 951,274
Unrealized depreciation (104,483)
-----------
Net unrealized appreciation $ 846,791
===========
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2005 $ 48,985
2006 52,900
2007 1,170,066
2008 2,794,418
2009 4,226,387
2010 260,165
2011 908,941
------------
$ 9,461,862
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $8,182,430 was
obtained upon the Fund's merger with Colonial High Yield Securities Fund,
Variable Series (See Note 7).
No capital loss carryforwards were utilized and/or expired during the year ended
December 31, 2003 for the Fund. Any capital loss carryforwards acquired as part
of a merger that are permanently lost due to provisions under Internal Revenue
Code are included as being expired. Expired capital loss carryforwards are
recorded as a reduction of paid-in capital.
POST-OCTOBER LOSSES--Under current tax rules, certain currency and 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, 2003, post-October
capital losses of $6,713 attributed to security transactions were deferred to
January 1, 2004.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Fleet Investment Advisors Inc.,
the previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an
indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As a
result of the merger, Columbia now serves as the Fund's investment advisor. The
merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
receives a monthly fee based on the Fund's average daily net assets at the
following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.60%
Next $500 million 0.55%
Over $1.5 billion 0.50%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.60% of the Fund's average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.60%.
ADMINISTRATION FEE--Columbia provides administrative and other services to
the Fund. Effective November 1, 2003, the Board of Trustees approved an
administration fee reduction for the Fund. As a result of the fee reduction,
Columbia no longer receives fees from the Fund for its administration services.
For the period April 14, 2003 through October 31, 2003, Columbia was entitled to
receive fees, computed daily and payable monthly, at the annual rate of 0.085%
of the Fund's average daily net assets. Prior to April 14, 2003, Columbia was
entitled to receive fees, computed daily and payable monthly, based on the
combined average daily net assets of the funds in the Galaxy VIP Fund (the
"predecessor trust") at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.085%
Next $1.5 billion 0.078%
Over $2.5 billion 0.073%
</Table>
For the year ended December 31, 2003, the Fund's effective administration fee
rate was 0.064%.
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"). Columbia pays fees
to State Street under the Outsourcing Agreement. Columbia pays the total fees
collected to State Street under the Outsourcing Agreement.
50
<Page>
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee based on the average daily net assets of the Fund at the following
annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ ----------
Under $50 million $ 25,000
Of $50 million but less than $200 million $ 35,000
Of $200 million but less than $500 million $ 50,000
Of $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services. For the year ended
December 31, 2003, the effective pricing and bookkeeping fee rate was 0.110%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $5,000.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets. The Distributor has voluntarily agreed to
waive a portion of the Class B share distribution fee so that it would not
exceed 0.06% annually.
FEE WAIVERS--Effective April 14, 2003, Columbia has agreed to reimburse fees
at the annual rate of 0.27% of the Fund's average daily net assets. This
agreement will continue until April 13, 2004, after which it may be revised or
discontinued any time.
Prior to April 14, 2003, Fleet Investment Advisors, Inc. and/or its affiliates
and/or PFPC Inc., the former administrator, could waive all or a portion of the
fees payable to them by the predecessor fund.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $37,400,135 and $26,673,477, 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.
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 due to the
extent that there is no established retail secondary market and because of a
decline in the value of such securities.
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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
51
<Page>
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
NOTE 7. BUSINESS COMBINATIONS AND MERGERS
FUND MERGERS--On April 14, 2003, the Colonial High Yield Securities Fund,
Variable Series merged into the Galaxy VIP Columbia High Yield Fund II,
previously a fund of the Galaxy VIP Fund, a separate Massachusetts business
trust. Also on April 14, 2003, Galaxy VIP Columbia High Yield Fund II, created a
Class B into which Colonial High Yield Securities Fund, Variable Series Class B
shares were reorganized. Galaxy VIP Columbia High Yield Fund II received a
tax-free transfer of assets from Colonial High Yield Securities Fund, Variable
Series as follows:
<Table>
<Caption>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED DEPRECIATION(1)
--------- ------------ ---------------
3,275,065 $ 29,871,694 $ 1,355,526
<Caption>
NET ASSETS
OF GALAXY VIP NET ASSETS NET ASSETS OF
COLUMBIA OF COLONIAL HIGH GALAXY VIP COLUMBIA
HIGH YIELD YIELD SECURITIES HIGH YIELD FUND II
FUND II FUND, VARIABLE SERIES IMMEDIATELY
PRIOR TO IMMEDIATELY PRIOR TO AFTER
COMBINATION COMBINATION COMBINATION
------------- --------------------- -------------------
$ 2,264,927 $ 29,871,694 $ 32,136,621
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount shown
above.
Also on April 14, 2003, subsequent to the merger described above, the Galaxy VIP
Columbia High Yield Fund II was reorganized as the Columbia High Yield Fund,
Variable Series.
The accompanying statement of operations, statement of changes in net assets and
financial highlights for the Fund represents the historical operations of the
Galaxy VIP Columbia High Yield Fund II for periods prior to April 14, 2003.
52
<Page>
FINANCIAL HIGHLIGHTS
Columbia High Yield Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 9.29 $ 9.35 $ 9.70 $ 10.36
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.56(b) 0.59 0.64(c) 0.69 0.70
Net realized and unrealized gain (loss) on investments
and foreign currency 0.52 (0.35) (0.07)(c) (0.35) (0.65)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.08 0.24 0.57 0.34 0.05
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.60) (0.57) (0.63) (0.69) (0.70)
From net realized gains (0.02) -- -- -- (0.01)
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.62) (0.57) (0.63) (0.69) (0.71)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 8.96 $ 9.29 $ 9.35 $ 9.70
========== ========== ========== ========== ==========
Total return (d)(e)(f) 12.37% 2.74% 6.18% 3.66% 0.56%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 0.77% 1.68% 1.60% 1.60% 1.60%
Net investment income (g) 6.06% 6.46% 6.89%(c) 7.29% 7.00%
Waiver/reimbursement 0.36% 1.68% 1.63% 1.58% 1.29%
Portfolio turnover rate 112% 49% 54% 46% 35%
Net assets, end of period (000's) $ 12,132 $ 2,197 $ 2,421 $ 2,188 $ 2,403
</Table>
(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 figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
53
<Page>
REPORT OF INDEPENDENT AUDITORS
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") (formerly Galaxy VIP Columbia High Yield Fund II)
(a series of Liberty Variable Investment Trust) (formerly a series of Galaxy VIP
Fund) at December 31, 2003, 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 audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which 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
audit, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The financial statements and financial highlights of the Fund for
periods prior to January 1, 2003 were audited by other independent accountants
whose report dated February 7, 2003 expressed an unqualified opinion on those
statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
54
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Columbia International Fund, Variable Series / December 31, 2003
Columbia International Fund, Variable Series seeks long-term capital growth by
investing primarily in equity securities of growth companies located outside the
United States.
James M. McAlear has managed the fund since February 2003. He has managed
international portfolios since joining Columbia Management Advisors, Inc. and
its predecessors in 1992.
The portfolio slightly underperformed its benchmark because of its relatively
small commitment to Germany. The German market rebounded strongly in response to
government changes in financial policy, and the fund did not fully participate
in those gains. The portfolio benefited from investments in the materials,
energy and industrials sectors which responded positively to the global economic
recovery. A weak US dollar also had a positive impact on returns. During the
period, the Japanese yen rose more than 10% and the Euro went up more than 20%
against the US dollar. Because portfolio securities were purchased in local
currencies, their values rose when converted to US dollars.
A YEAR OF STRONG RETURNS FROM MANY FOREIGN STOCK MARKETS
Despite cautious initial forecasts, international markets enjoyed a year of
strong returns in 2003. At the beginning of the year, global markets faced
several uncertainties, including possible war in Iraq, prospects for mediocre
economic growth, the SARS (severe acute respiratory syndrome) epidemic in Asia
and depressed business and consumer confidence. After a weak first quarter,
investor sentiment improved quickly, as major military action in Iraq ended,
SARS was controlled and global economic growth picked up.
AN EMPHASIS ON JAPAN
Japan was the portfolio's largest country weight. Around mid-year, severely
depressed banks and insurance companies in Japan reacted positively to changes
in government policies regarding financial institutions. Following this
development, we added Japanese banks and insurance companies to the portfolio
and benefited from substantial gains. New Japanese investments included UFJ
Holdings, a large bank, and insurance company Millea Holdings (0.9% and 1.8% of
net assets, respectively). The performance of the Japanese stock market lagged
other world markets in the fourth quarter of 2003. However, we continue to
believe that Japanese stocks have the potential for gains in a strengthening
economy.
We maintained a relatively large weight in Thailand, the strongest performing
market of 2003. In Thailand we favored stocks with the potential to benefit from
the country's infrastructure development. Examples are Siam Cement and Land &
House Public, both of which added to the fund's total return (1.2% and 0.5% of
net assets, respectively.) However, we reduced our exposure to other emerging
markets, including China, near the end of the period because valuations were
high. While we continue to believe in China's prospects, we became concerned
about the country's ability to sustain its recent strong economic growth. The
emergence of a property construction bubble, structural weakness in the banking
system and rapidly developing shortages in electric power capacity could cause
Chinese authorities to slow the country's extraordinary growth.
ADDED TO EUROPEAN HOLDINGS
We added to our German holdings after research visits to Europe provided a more
positive view of the country's investment and economic environment. We invested
in Allianz (2.3% of net assets), an insurance company that performed well. We
made modest new investments in the emerging markets of Eastern Europe that we
believe could perform well as they become more integrated with Western Europe.
PORTFOLIO POSITIONED TO CAPITALIZE ON VALUATIONS AND RESTRUCTURING
We believe prospects for international markets are attractive for 2004. We
expect the dollar to continue to weaken but at a slower rate than in 2003. The
portfolio is positioned to take advantage of the restructuring of European
companies and attractive valuations and earnings forecasts of Japanese
companies. While we reduced exposure to emerging markets, we will continue to
monitor these markets and take advantage of investment opportunities as they
arise.
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
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. The fund invests in foreign securities,
which have special risks, including political or economic instability and higher
transactions costs; different regulations, accounting standards, trading
practices and levels of information; and currency exchange rate fluctuations.
As a non-diversified portfolio, the fund may invest a significant percentage of
its assets in a single issuer. As a result it may have increased risk compared
to a more diversified fund.
Holdings are disclosed as of December 31, 2003, and are subject to change.
55
<Page>
PERFORMANCE INFORMATION
Columbia International Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- ----------------------------------------------------------------
Class A (5/2/94) 35.54 0.36 1.63
MSCI All Country World Free
ex-US Index(1) 41.38 1.54 4.20
MSCI EAFE Index(1) 38.59 -0.05 3.80
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ------------------------------------------------------------
Class A 1.26 1.69
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/2/94 - 12/31/03
Class A: $11,692
<Table>
<Caption>
CLASS A SHARES MSCI AC WORLD FREE EX-US INDEX MSCI EAFE INDEX
05/1994 $ 10,000 $ 10,000 $ 10,000
5/31/1994 $ 9,900 $ 10,003 $ 9,943
6/30/1994 $ 9,700 $ 10,074 $ 10,083
7/31/1994 $ 9,950 $ 10,238 $ 10,180
8/31/1994 $ 10,251 $ 10,582 $ 10,421
9/30/1994 $ 9,950 $ 10,320 $ 10,093
10/31/1994 $ 10,000 $ 10,597 $ 10,429
11/30/1994 $ 9,550 $ 10,087 $ 9,927
12/31/1994 $ 9,400 $ 10,063 $ 9,990
1/31/1995 $ 8,850 $ 9,607 $ 9,606
2/28/1995 $ 8,701 $ 9,555 $ 9,579
3/31/1995 $ 8,850 $ 10,094 $ 10,176
4/30/1995 $ 9,100 $ 10,488 $ 10,559
5/31/1995 $ 9,100 $ 10,441 $ 10,433
6/30/1995 $ 9,050 $ 10,297 $ 10,251
7/31/1995 $ 9,549 $ 10,881 $ 10,889
8/31/1995 $ 9,549 $ 10,503 $ 10,474
9/30/1995 $ 9,699 $ 10,683 $ 10,679
10/31/1995 $ 9,549 $ 10,398 $ 10,391
11/30/1995 $ 9,699 $ 10,642 $ 10,680
12/31/1995 $ 9,949 $ 11,063 $ 11,111
1/31/1996 $ 9,898 $ 11,215 $ 11,156
2/29/1996 $ 9,898 $ 11,215 $ 11,194
3/31/1996 $ 10,100 $ 11,425 $ 11,431
4/30/1996 $ 10,656 $ 11,771 $ 11,764
5/31/1996 $ 10,555 $ 11,594 $ 11,548
6/30/1996 $ 10,605 $ 11,653 $ 11,612
7/31/1996 $ 10,201 $ 11,266 $ 11,273
8/31/1996 $ 10,353 $ 11,333 $ 11,298
9/30/1996 $ 10,455 $ 11,614 $ 11,599
10/31/1996 $ 10,202 $ 11,498 $ 11,480
11/30/1996 $ 10,606 $ 11,942 $ 11,937
12/31/1996 $ 10,508 $ 11,803 $ 11,783
1/31/1997 $ 10,562 $ 11,586 $ 11,371
2/28/1997 $ 10,670 $ 11,798 $ 11,557
3/31/1997 $ 10,670 $ 11,773 $ 11,599
4/30/1997 $ 10,616 $ 11,873 $ 11,660
5/31/1997 $ 11,421 $ 12,606 $ 12,419
6/30/1997 $ 12,010 $ 13,302 $ 13,104
7/31/1997 $ 12,064 $ 13,570 $ 13,316
8/31/1997 $ 11,226 $ 12,502 $ 12,321
9/30/1997 $ 11,656 $ 13,179 $ 13,011
10/31/1997 $ 10,635 $ 12,056 $ 12,011
11/30/1997 $ 10,312 $ 11,905 $ 11,888
12/31/1997 $ 10,165 $ 12,042 $ 11,992
1/31/1998 $ 10,508 $ 12,402 $ 12,540
2/28/1998 $ 11,021 $ 13,229 $ 13,345
3/31/1998 $ 11,707 $ 13,687 $ 13,756
4/30/1998 $ 11,935 $ 13,786 $ 13,864
5/31/1998 $ 11,935 $ 13,535 $ 13,796
6/30/1998 $ 11,650 $ 13,485 $ 13,901
7/31/1998 $ 11,992 $ 13,613 $ 14,042
8/31/98 $ 10,238 $ 11,693 $ 12,302
9/30/98 $ 9,780 $ 11,447 $ 11,924
10/31/98 $ 10,524 $ 12,646 $ 13,167
11/30/98 $ 11,095 $ 13,325 $ 13,841
12/31/98 $ 11,481 $ 13,784 $ 14,386
1/31/1999 $ 11,481 $ 13,769 $ 14,343
2/28/1999 $ 11,252 $ 13,460 $ 14,002
3/31/1999 $ 11,653 $ 14,110 $ 14,586
4/30/1999 $ 12,342 $ 14,816 $ 15,176
5/31/1999 $ 11,768 $ 14,120 $ 14,395
6/30/1999 $ 12,456 $ 14,769 $ 14,956
7/31/1999 $ 12,916 $ 15,115 $ 15,400
8/31/1999 $ 13,031 $ 15,168 $ 15,457
9/30/1999 $ 13,088 $ 15,269 $ 15,613
10/31/1999 $ 13,433 $ 15,837 $ 16,199
11/30/1999 $ 14,294 $ 16,471 $ 16,761
12/31/1999 $ 16,139 $ 18,042 $ 18,266
1/31/2000 $ 15,156 $ 17,062 $ 17,106
2/29/2000 $ 15,735 $ 17,523 $ 17,566
3/31/2000 $ 15,966 $ 18,182 $ 18,248
4/30/2000 $ 14,751 $ 17,167 $ 17,288
5/31/2000 $ 14,462 $ 16,728 $ 16,866
6/30/2000 $ 14,520 $ 17,440 $ 17,526
7/31/2000 $ 14,057 $ 16,751 $ 16,791
8/31/2000 $ 14,230 $ 16,959 $ 16,938
9/30/2000 $ 13,777 $ 16,018 $ 16,113
10/31/2000 $ 13,309 $ 15,509 $ 15,732
11/30/2000 $ 12,899 $ 14,814 $ 15,142
12/31/2000 $ 13,159 $ 15,319 $ 15,680
1/31/2001 $ 12,750 $ 15,549 $ 15,672
2/28/2001 $ 11,795 $ 14,317 $ 14,497
3/31/2001 $ 10,841 $ 13,305 $ 13,530
4/30/2001 $ 11,386 $ 14,210 $ 14,470
5/31/2001 $ 11,046 $ 13,818 $ 13,959
6/30/2001 $ 10,910 $ 13,288 $ 13,388
7/31/2001 $ 10,568 $ 12,992 $ 13,145
8/31/2001 $ 10,432 $ 12,670 $ 12,812
9/30/2001 $ 9,750 $ 11,326 $ 11,514
10/31/2001 $ 9,818 $ 11,643 $ 11,809
11/30/2001 $ 9,955 $ 12,175 $ 12,245
12/31/2001 $ 9,955 $ 12,332 $ 12,317
1/31/2002 $ 9,478 $ 11,804 $ 14,505
2/28/2002 $ 9,614 $ 11,889 $ 11,744
3/31/2002 $ 9,819 $ 12,520 $ 12,436
4/30/2002 $ 9,956 $ 12,617 $ 12,461
5/31/2002 $ 9,956 $ 12,754 $ 12,619
6/30/2002 $ 9,819 $ 12,203 $ 12,117
7/31/2002 $ 8,932 $ 11,013 $ 10,921
8/31/2002 $ 8,932 $ 11,015 $ 10,896
9/30/2002 $ 8,387 $ 9,847 $ 9,726
10/31/2002 $ 8,591 $ 10,375 $ 10,248
11/30/2002 $ 8,659 $ 10,874 $ 10,713
12/31/2002 $ 8,625 $ 10,524 $ 10,353
1/31/2003 $ 8,283 $ 10,154 $ 9,922
2/28/2003 $ 8,283 $ 9,948 $ 9,694
3/31/2003 $ 8,352 $ 9,755 $ 9,504
4/30/2003 $ 8,900 $ 10,696 $ 10,436
5/31/2003 $ 9,447 $ 11,377 $ 11,068
6/30/2003 $ 9,584 $ 11,692 $ 11,336
7/31/2003 $ 9,652 $ 12,003 $ 11,610
8/31/2003 $ 9,858 $ 12,361 $ 11,890
9/30/2003 $ 10,202 $ 12,707 $ 12,256
10/31/2003 $ 10,749 $ 13,530 $ 13,020
11/30/2003 $ 10,955 $ 13,825 $ 13,309
12/31/2003 $ 11,692 $ 14,881 $ 14,350
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The MSCI (Morgan Stanley Capital International) All Country World
Free ex-US Index is an unmanaged index of global stock market performance
excluding the US. The MSCI EAFE Index is an unmanaged index that tracks the
performance of equity securities of developed countries outside North America.
As reported in the semiannual report dated June 30, 2003, the MSCI EAFE Index
used to be the fund's primary benchmark. 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.
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.
(1) Index performance is from April 30, 1994.
56
<Page>
INVESTMENT PORTFOLIO
Columbia International Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--98.8%
CONSUMER DISCRETIONARY--12.5%
AUTO COMPONENTS--0.7%
Continental AG 10,837 $ 410,578
FCC Co., Ltd. 6,700 207,626
------------
618,204
------------
AUTOMOBILES--1.1%
Honda Motor Co., Ltd. 9,100 404,312
Toyota Motor Corp. 14,400 486,564
------------
890,876
------------
HOTELS, RESTAURANTS & LEISURE--1.5%
Accor SA 18,480 835,891
Compass Group PLC 63,690 432,022
------------
1,267,913
------------
HOUSEHOLD DURABLES--4.0%
Koninklijke Philips Electronics NV 33,700 982,957
Matsushita Electric Industrial Co., Ltd. 113,000 1,563,131
Sanyo Electric Co., Ltd. 144,000 752,695
------------
3,298,783
------------
MEDIA--1.7%
JC Decaux SA (a) 30,100 491,502
Pearson PLC 79,000 877,138
------------
1,368,640
------------
MULTI-LINE RETAIL--0.4%
Seiyu Ltd. (a) 85,000 288,001
------------
SPECIALTY RETAIL--2.1%
Aoyama Trading Co., Ltd. 20,300 401,699
Next PLC 30,042 602,226
Shimamura Co., Ltd. 6,200 421,300
USS Co., Ltd. 4,580 324,044
------------
1,749,269
------------
TEXTILES, APPAREL & LUXURY GOODS--1.0%
LVMH Moet Hennessy Louis
Vuitton SA 8,000 581,593
Sanyo Shokai Ltd. 32,000 207,290
------------
788,883
------------
CONSUMER STAPLES--3.2%
BEVERAGES--0.3%
Pernod-Ricard 2,300 255,449
------------
FOOD & DRUG RETAILING--0.4%
Seven-Eleven Japan Co., Ltd. 10,000 303,356
------------
FOOD PRODUCTS--0.8%
Nestle SA 2,710 676,788
------------
HOUSEHOLD PRODUCTS--1.1%
Reckitt Benckiser PLC 40,534 914,571
------------
TOBACCO--0.6%
Imperial Tobacco Group PLC 22,876 449,183
------------
ENERGY--6.0%
OIL & GAS--6.0%
BP PLC 108,060 873,804
EnCana Corp. 25,200 994,467
ENI-Ente Nazionale Idrocarburi SpA 58,500 $ 1,102,658
Fortum Oyj 100,000 1,030,639
PTT Public Co., Ltd., NVDR 147,000 686,352
Total SA 1,300 241,432
------------
4,929,352
------------
FINANCIALS--20.1%
BANKS--9.1%
Anglo Irish Bank Corp., PLC 33,600 529,603
Banco Popular Espanol SA 7,257 432,486
Banco Santander Central Hispano SA 81,100 959,489
Credit Agricole SA 52,315 1,247,758
Credit Suisse Group 52,390 1,915,984
Fortis Bank Nederland NV (a)(b)(c) 525 --
Royal Bank of Scotland Group PLC 20,220 594,103
Siam Commercial Bank Public Co., Ltd.,
Registered Shares (a) 320,500 448,931
Standard Chartered PLC 37,335 614,799
UFJ Holdings, Inc. 151 725,860
------------
7,469,013
------------
DIVERSIFIED FINANCIALS--2.9%
ING Groep NV 72,917 1,698,710
Nomura Holdings, Inc. 42,000 715,452
------------
2,414,162
------------
INSURANCE--5.6%
Allianz AG, Registered Shares 15,200 1,916,657
Daido Life Insurance Co., Ltd. 108 321,576
Irish Life & Permanent PLC 31,800 512,850
Millea Holdings, Inc. 112 1,463,574
Mitsui Sumitomo Insurance Co., Ltd. 42,000 344,985
------------
4,559,642
------------
REAL ESTATE--2.5%
Mitsubishi Estate Co., Ltd. 163,000 1,545,788
Sun Hung Kai Properties Ltd. 59,000 486,363
------------
2,032,151
------------
HEALTH CARE--6.6%
HEALTH CARE EQUIPMENT & SUPPLIES--2.3%
Olympus Optical Co., Ltd. 43,000 933,168
Smith & Nephew PLC 115,697 969,119
------------
1,902,287
------------
PHARMACEUTICALS--4.3%
Chugai Pharmaceutical Co., Ltd. 32,400 466,033
Dr. Reddy's Laboratories Ltd., ADR 11,700 370,305
GlaxoSmithKline PLC 41,876 956,810
Novartis AG, Registered Shares 18,450 837,281
Ranbaxy Laboratories Ltd., GDR 14,600 372,300
Teva Pharmaceutical Industries Ltd., ADR 9,400 533,074
------------
3,535,803
------------
</Table>
See Notes to Investment Portfolio.
57
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
INDUSTRIALS--12.5%
COMMERCIAL SERVICES & SUPPLIES--2.1%
Adecco SA, Registered Shares 16,480 $ 1,058,886
Capita Group PLC 152,270 660,498
------------
1,719,384
------------
CONSTRUCTION & ENGINEERING--0.5%
Land & House Public Co., Ltd., NVDR 1,211,100 375,961
------------
ELECTRICAL EQUIPMENT--2.1%
Siemens AG, Registered Shares 21,569 1,725,668
------------
INDUSTRIAL CONGLOMERATES--1.2%
Burberry Group PLC 88,400 576,754
Smiths Group PLC 32,900 388,193
------------
964,947
------------
MACHINERY--1.1%
Atlas Copco AB, Class B 14,800 482,510
Linde AG 8,400 451,919
------------
934,429
------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
Mitsubishi Corp. 42,000 445,345
------------
TRANSPORTATION INFRASTRUCTURE--5.0%
Abertis Infraestructuras SA 174,036 2,629,128
BAA PLC 69,384 614,625
Brisa-Auto Estradas de Portugal SA 129,200 862,764
------------
4,106,517
------------
INFORMATION TECHNOLOGY--10.9%
COMMUNICATIONS EQUIPMENT--0.8%
Nortel Networks Corp. (a) 142,700 606,200
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.6%
Ibiden Co., Ltd. 31,000 390,629
Keyence Corp. 1,700 358,454
Samsung Electronics Co., Ltd., GDR 4,073 765,724
TDK Corp. 8,700 626,910
------------
2,141,717
------------
INTERNET SOFTWARE & SERVICES--1.2%
T-Online International AG (a) 72,800 944,761
------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--0.6%
Indra Sistemas SA 39,200 502,297
------------
OFFICE ELECTRONICS--1.0%
Canon, Inc. 18,000 838,381
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--4.0%
ARM Holdings PLC (a) 182,000 417,470
Infineon Technologies AG 27,253 378,398
Nikon Corp. 30,000 452,513
STMicroelectronics NV, N.Y. Shares 14,300 386,243
Taiwan Semiconductor
Manufacturing Co., Ltd., ADR (a) 53,300 545,792
Tokyo Electron Ltd. 14,900 1,132,086
------------
3,312,502
------------
SOFTWARE--0.7%
Dassault Systemes SA 12,520 $ 570,409
------------
MATERIALS--3.9%
CHEMICALS--1.6%
BASF AG 7,652 429,802
MG Technologies AG 31,400 439,143
Nitto Denko Corp. 7,900 420,311
------------
1,289,256
------------
CONSTRUCTION MATERIALS--1.2%
Siam Cement Public Co., Ltd., NVDR 152,700 978,883
------------
METALS & MINING--1.1%
BHP Billiton Ltd. 97,180 891,963
------------
TELECOMMUNICATION SERVICES--6.5%
DIVERSIFIED TELECOMMUNICATION SERVICES--3.0%
France Telecom SA 15,049 429,656
Nippon Telegraph & Telephone Corp. 81 390,881
Telecom Italia SpA 134,675 398,757
Telefonica SA 82,872 1,215,386
------------
2,434,680
------------
WIRELESS TELECOMMUNICATION SERVICES--3.5%
NTT DoCoMo, Inc. 565 1,281,514
Vodafone Group PLC 657,646 1,625,896
------------
2,907,410
------------
UTILITIES--16.6%
ELECTRIC UTILITIES--8.8%
Edison International (a) 57,400 1,258,782
Exelon Corp. 13,100 869,316
FirstEnergy Corp. 12,300 432,960
National Grid Transco PLC 127,404 910,259
Pepco Holdings, Inc. 28,300 552,982
PG&E Corp. (a) 30,400 844,208
Pinnacle West Capital Corp. 19,500 780,390
Public Service Enterprise Group, Inc. 9,000 394,200
Scottish & Southern Energy PLC 100,000 1,201,339
------------
7,244,436
------------
GAS UTILITIES--7.8%
Enagas SA 366,311 3,969,190
Snam Rete Gas SpA 577,000 2,442,691
------------
6,411,881
------------
TOTAL COMMON STOCKS
(cost of $61,283,272) 81,059,353
------------
PREFERRED STOCK--0.5%
CONSUMER DISCRETIONARY--0.5%
MEDIA--0.5%
ProSiebenSat.1 Media AG
(cost of $401,229) 22,984 383,703
------------
</Table>
See Notes to Investment Portfolio.
58
<Page>
<Table>
<Caption>
PAR VALUE
------------ ------------
SHORT-TERM OBLIGATION--0.2%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized
by a U.S. Treasury Note
maturing 08/15/11,
market value $186,619
(repurchase proceeds $180,008)
(cost of $180,000) $ 180,000 $ 180,000
------------
TOTAL INVESTMENTS--99.5%
(cost of $61,864,501) (d) 81,623,056
------------
OTHER ASSETS & LIABILITIES, NET--0.5% 378,752
------------
NET ASSETS--100.0% $ 82,001,808
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Represents fair value as determined in good faith under the direction of
the Board of Trustees.
(c) Security has no value.
(d) Cost for federal income tax purposes is $63,597,997.
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY (UNAUDITED): VALUE INVESTMENTS
- ----------------------- ------------- -----------
Japan $ 18,213,476 22.3%
United Kingdom 13,678,809 16.8
Spain 9,707,976 11.9
Germany 7,080,630 8.7
United States 5,312,838 6.5
France 4,653,689 5.7
Switzerland 4,488,940 5.5
Italy 3,944,106 4.8
Netherlands 3,067,909 3.7
Thailand 2,490,128 3.0
Canada 1,600,668 2.0
Ireland 1,042,453 1.3
Finland 1,030,639 1.3
Australia 891,963 1.1
Portugal 862,764 1.1
South Korea 765,724 0.9
India 742,605 0.9
Taiwan 545,792 0.7
Israel 533,074 0.6
Hong Kong 486,363 0.6
Sweden 482,510 0.6
------------- -----
$ 81,623,056 100.0%
============= =====
</Table>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
GDR Global Depositary Receipt
NVDR Non-Voting Depositary Receipt
</Table>
See Notes to Financial Statements.
59
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia International Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 61,864,501
----------------
Investments, at value $ 81,623,056
Cash 853
Foreign currency (cost of $533,420) 569,737
Receivable for:
Investments sold 557,080
Interest 270
Dividends 109,802
Expense reimbursement due from Investment Advisor 25,816
Deferred Trustees' compensation plan 3,872
----------------
TOTAL ASSETS 82,890,486
----------------
LIABILITIES:
Payable for:
Fund shares repurchased 702,853
Investment advisory fee 46,926
Transfer agent fee 625
Pricing and bookkeeping fees 3,073
Audit fee 8,700
Custody fee 9,538
Distribution fees - Class B 1,845
Deferred Trustees' fees 3,872
Foreign capital gains tax accrued 103,767
Other liabilities 7,479
----------------
TOTAL LIABILITIES 888,678
----------------
NET ASSETS $ 82,001,808
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 87,143,501
Undistributed net investment income 101,611
Accumulated net realized loss (24,945,888)
Net unrealized appreciation (depreciation) on:
Investments 19,758,555
Foreign currency translations 47,796
Foreign capital gains tax (103,767)
----------------
NET ASSETS $ 82,001,808
================
CLASS A:
Net assets $ 75,184,498
Shares outstanding 44,392,198
================
Net asset value per share $ 1.69
================
CLASS B:
Net assets $ 6,817,310
Shares outstanding 4,036,722
================
Net asset value per share $ 1.69
================
</Table>
See Notes to Financial Statements.
60
<Page>
STATEMENT OF OPERATIONS
Columbia International Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 1,734,377
Interest 31,860
----------------
Total Investment Income (net of foreign taxes withheld of $135,256) 1,766,237
----------------
EXPENSES:
Investment advisory fee 564,108
Distribution fee--Class B 11,521
Pricing and bookkeeping fees 27,631
Transfer agent fee 7,500
Trustees' fees 3,755
Custody fee 62,433
Other expenses 59,886
----------------
Total Expenses 736,834
Fees and expenses waived or reimbursed by Investment Advisor (115,632)
Custody earnings credit (113)
----------------
Net Expenses 621,089
----------------
Net Investment Income 1,145,148
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FOREIGN CAPITAL GAINS TAX:
Net realized loss on:
Investments (2,389,735)
Foreign currency transactions (210,604)
Foreign capital gains tax (1,686)
----------------
Net realized loss (2,602,025)
----------------
Net change in unrealized appreciation/depreciation on:
Investments 24,821,359
Foreign currency translations 41,237
Foreign capital gains tax (103,767)
----------------
Net change in unrealized appreciation/depreciation 24,758,829
----------------
Net Gain 22,156,804
----------------
Net Increase in Net Assets from Operations $ 23,301,952
================
</Table>
See Notes to Financial Statements.
61
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia International Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- ---------------- ----------------
OPERATIONS:
Net investment income $ 1,145,148 $ 213,923
Net realized loss on investments, foreign currency transactions and foreign
capital gains tax (2,602,025) (8,171,078)
Net change in unrealized appreciation/depreciation on investments, foreign
currency translations and foreign capital gains tax 24,758,829 3,002,063
---------------- ----------------
Net Increase (Decrease) from Operations 23,301,952 (4,955,092)
---------------- ----------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (780,341) (113,012)
Class B (54,564) (1)
---------------- ----------------
Total Distributions Declared to Shareholders (834,905) (113,013)
---------------- ----------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 22,045,783 3,503,319
Proceeds received in connection with merger 35,910,049 --
Distributions reinvested 780,341 113,012
Redemptions (33,015,574) (10,964,351)
---------------- ----------------
Net Increase (Decrease) 25,720,599 (7,348,020)
---------------- ----------------
Class B:
Subscriptions 261,779 --
Proceeds received in connection with merger 5,503,084 --
Distributions reinvested 54,564 1
Redemptions (888,774) --
---------------- ----------------
Net Increase 4,930,653 1
---------------- ----------------
Net Increase (Decrease) from Share Transactions 30,651,252 (7,348,019)
---------------- ----------------
Total Increase (Decrease) in Net Assets 53,118,299 (12,416,124)
NET ASSETS:
Beginning of period 28,883,509 41,299,633
---------------- ----------------
End of period (including undistributed net investment income of $101,611 and
$7,075, respectively) $ 82,001,808 $ 28,883,509
================ ================
CHANGES IN SHARES:
Class A:
Subscriptions 15,774,129 2,647,684
Issued in connection with merger 28,728,067 --
Issued for distributions reinvested 468,404 90,410
Redemptions (23,430,429) (8,091,137)
---------------- ----------------
Net Increase (Decrease) 21,540,171 (5,353,043)
---------------- ----------------
Class B:
Subscriptions 180,431 --
Issued in connection with merger 4,437,971 --
Issued for distributions reinvested 32,782 1
Redemptions (614,950) --
---------------- ----------------
Net Increase 4,036,234 1
---------------- ----------------
</Table>
See Notes to Financial Statements.
62
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia International Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Columbia International Fund, Variable Series (formerly Colonial International
Fund for Growth, 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 are valued at the last sale price at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Foreign securities are generally valued at the closing 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.
Investments for which market quotations are not readily available, which tend to
be more thinly traded and of lesser quality 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. Foreign markets
close each day at various times prior to the close of the New York Stock
Exchange ("NYSE"). Foreign currency exchange rates are generally determined
prior to the close of the NYSE at 12:00 p.m. Eastern (U.S.) time. Occasionally,
events affecting the value of a foreign security may occur subsequent to the
close of the exchange or market which would not be reflected in the computation
of the Fund's net asset value. In such an event, the foreign security will be
valued at the fair value.
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 a 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
63
<Page>
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 on 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.
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.
FOREIGN CAPITAL GAINS TAX--Realized gains in certain countries may be subject
to foreign taxes at the Fund level, at rates ranging from approximately 10% to
30%. The Fund accrues for such foreign taxes on net realized and unrealized
gains at the rate appropriate for each jurisdiction.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency transactions, capital loss
carryforwards permanently lost and capital loss carryforwards from the merger
were identified and reclassified among the components of the Fund's net assets
as follows:
<Table>
<Caption>
UNDISTRIBUTED NET ACCUMULATED PAID-IN
INVESTMENT INCOME NET REALIZED LOSS CAPITAL
----------------- ----------------- -------
$ (215,707) $ (6,528,304) $ 6,744,011
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 834,905 $ 113,013
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
64
<Page>
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ 102,117 $ - $ 17,969,509
</Table>
* 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, 2003, based on cost of
investments for federal income tax purposes and excluding any unrealized
appreciation and depreciation from changes in the value of assets and
liabilities resulting from changes in exchange rates was:
<Table>
Unrealized appreciation $ 18,639,220
Unrealized depreciation (614,161)
--------------
Net unrealized appreciation $ 18,025,059
==============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2006 $ 5,245
2007 771,402
2008 668,968
2009 17,959,809
2010 3,027,462
2011 779,506
------------
$ 23,212,392
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $12,752,633 was
obtained upon the Fund's merger with Colonial International Horizons Fund,
Variable Series, Colonial Global Equity Fund, Variable Series and Stein Roe
Global Utilities Fund, Variable Series (See Note 7).
Capital loss carryforwards of $11,903,481 were utilized and/or expired during
the year ended December 31, 2003 for the Fund. Any capital loss carryforwards
acquired as part of a merger that are permanently lost due to provisions under
Internal Revenue Code are included as being expired. Expired capital loss
carryforwards are recorded as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.90%
Next $500 million 0.85%
Over $1.5 billion 0.80%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.90%
Over $1 billion 0.85%
</Table>
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.90%.
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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.044%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
65
<Page>
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
FEE WAIVERS--Effective April 7, 2003, Columbia has agreed to reimburse fees
at the annual rate of 0.21% of the Fund's average daily net assets. This
agreement will continue until April 6, 2004, after which it may be revised or
discontinued any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $61,711,477 and $75,201,057, 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.
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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
66
<Page>
NOTE 7. BUSINESS COMBINATIONS AND MERGERS
FUND MERGERS--On April 7, 2003, the Colonial International Horizons Fund,
Variable Series, Colonial Global Equity Fund, Variable Series and Stein Roe
Global Utilities Fund, Variable Series (collectively, "the target funds"),
merged into the Colonial International Fund for Growth, Variable Series. The
Colonial International Fund for Growth, Variable Series, received a tax-free
transfer of assets from the target funds as follows:
<Table>
<Caption>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED DEPRECIATION(1)
------ ------------ ---------------
Colonial
International
Horizons Fund,
Variable Series 3,046,706 $ 3,777,920 $ 852,127
Colonial Global
Equity Fund,
Variable Series 1,391,632 1,725,629 1,018,882
Stein Roe
Global
Utilities Fund,
Variable Series 28,727,700 35,909,584 610,951
</Table>
<Table>
<Caption>
NET ASSETS
NET ASSETS NET ASSETS OF COLONIAL
OF COLONIAL OF THE INTERNATIONAL
INTERNATIONAL TARGET FUND FOR
FUND FOR FUNDS GROWTH, VS
GROWTH, VS IMMEDIATELY IMMEDIATELY
PRIOR TO PRIOR TO AFTER
COMBINATION COMBINATION COMBINATION
------------- ------------ -------------
$ 27,327,712 $ 41,413,133 $ 68,740,845
</Table>
(1) Unrealized depreciation is included in the respective Net Assets Received
amount shown above.
Also on April 7, 2003, subsequent to the merger described above, the Colonial
International Fund for Growth, Variable Series was renamed the Columbia
International Fund, Variable Series.
67
<Page>
FINANCIAL HIGHLIGHTS
Columbia International Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.26 $ 1.46 $ 1.93 $ 2.79 $ 2.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.03 0.01 0.01 0.03 0.03
Net realized and unrealized gain (loss) on investments,
foreign currency and foreign capital gains tax 0.42 (0.20) (0.48) (0.55) 0.78
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.45 (0.19) (0.47) (0.52) 0.81
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.02) (0.01) -- (0.04) (0.02)
In excess of net investment income -- -- -- --(b) --
From net realized gains -- -- -- (0.30) --
In excess of net realized gains -- -- -- --(b) --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.02) (0.01) -- (0.34) (0.02)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.69 $ 1.26 $ 1.46 $ 1.93 $ 2.79
========== ========== ========== ========== ==========
Total return (c)(d) 35.54%(e) (13.35)% (24.35)% (18.47)% 40.58%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (f) 0.97% 1.13% 1.23% 1.08% 1.10%
Net investment income (f) 1.84% 0.62% 0.41% 1.20% 1.14%
Waiver/reimbursement 0.18% -- -- -- --
Portfolio turnover rate 104% 39% 34% 76% 35%
Net assets, end of period (000's) $ 75,184 $ 28,883 $ 41,299 $ 61,372 $ 82,071
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
68
<Page>
REPORT OF INDEPENDENT AUDITORS
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 (formerly Colonial International Fund for Growth, Variable
Series) (the "Fund") (a series of Liberty Variable Investment Trust) at December
31, 2003, 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 auditing standards generally accepted in the United States of America,
which 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
69
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Columbia Real Estate Equity Fund, Variable Series / December 31, 2003
Columbia Real Estate Equity Fund, Variable Series seeks capital appreciation and
above-average current income.
David W. Jellison has managed the fund and its predecessor since its inception
in March 1998.
The market for real estate investment trusts (REITs) was resilient in 2003, as
the NAREIT Equity Index outperformed the S&P 500 Index for the fourth
consecutive year. Against this backdrop the fund generated a strong absolute
return and outperformed the S&P 500 Index but underperformed the NAREIT Equity
Index primarily because of its more defensive posture. An overweight allocation
to securities in the forest products sector detracted from performance relative
to the index. In addition, the fund was underexposed to health care REITs, one
of the better-performing sectors of the index.
SECTOR ALLOCATION DECISIONS AIDED RESULTS
Average vacancy rates in major office markets during the year were significantly
higher than their historical average. Similarly, apartment vacancy rates
increased as weaker job growth decreased demand while low mortgage rates
increased home ownership. We maintained an underweight position in both types of
companies, which benefited the fund's return. Cyclically oriented sectors of the
real estate markets, including higher-quality regional malls and shopping
centers, industrial and lodging companies, were also solid performers.
Nevertheless, we did not participate in the rally in health care REITs. These
companies rarely meet our selection criteria because their cash flow streams are
dependent on government policy.
CAPITAL INFLOWS BOOSTED VALUATIONS
REITs continued to attract inflows of investor capital over the course of the
year, in many cases driving prices up to premium levels. As a result, we
maintained the fund's defensive positioning. We added to our investment in
non-real-estate related companies--primarily in paper and forest products
companies, which accounted for approximately 8.5% of the fund's assets by the
end of the period. (The fund's investment policy permits us to hold up to 20% of
assets in non-real-estate related companies.) We like the paper and
forest-products sectors because we believe they are early in their product
pricing cycles and that cash flows are set to grow strongly. These stocks, many
of which were disappointments when we first purchased them in the fourth quarter
of 2002 and in early 2003, recovered nicely as manufacturing activity rebounded.
We also added a relatively new investment vehicle called an income deposit
security (IDS) by initiating a small position in Volume Services of America, a
nationally franchised operator of concessions at stadiums and convention
centers. (1.3% of net assets). Popular in Canada, an IDS combines a share of
dividend-paying common stock along with an interest in corporate subordinated
debt. The security pays both a dividend, which is now taxed at the lower
corporate dividend, and interest, which is taxed at ordinary tax rates. We
purchased the security for its income potential--the yield was 9.4% on December
31, 2003.
RISKS RISE FOR REITs
Strong performance by REITs during the year was driven, in part, by investors
seeking higher yields than they can get from alternative investments. However,
the sector faces a number of challenges. Recent tax legislation may cause REITs
to look relatively less attractive because, generally speaking, the dividends
they pay are taxed at a higher rate than other dividends. Although the business
conditions underlying the REIT markets appear to be improving, the timing of
increased cash flows from property investments may be slower to materialize than
in other sectors of the investment markets. At the same time, real estate stocks
have become pricier and risk is rising. We believe the portfolio's defensive
positioning is appropriate for this environment. Over the long term, we believe
our investments have the potential to benefit from the economic recovery that is
now underway.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the fund may present certain risks, including stock market
fluctuations that occur in response to economic and business developments. The
fund may be subject to the same types of risks associated with direct ownership
of real estate including the decline of property value due to general, local and
regional economic conditions. In addition, the fund's share price will likely be
subject to more volatility than the overall stock market because it concentrates
in real estate stocks.
Holdings are disclosed as of December 31, 2003, and are subject to change.
70
<Page>
PERFORMANCE INFORMATION
Columbia Real Estate Equity Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- ---------------------------------------------------------
Class A (3/3/98) 33.69 12.09 8.39
NAREIT Index(1) 37.13 14.35 8.95
S&P 500 Index(2) 28.68 -0.57 2.42
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ---------------------------------------------------------
Class A 9.64 10.96
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98 - 12/31/03
Class A: $15,998
<Table>
<Caption>
CLASS A SHARES NAREIT INDEX S&P 500 INDEX
3/1998 $ 10,000 $ 10,000 $ 10,000
3/31/1998 $ 10,350 $ 10,179 $ 10,485
4/30/1998 $ 9,981 $ 9,847 $ 10,591
5/31/1998 $ 9,931 $ 9,778 $ 10,409
6/30/1998 $ 9,908 $ 9,712 $ 10,831
7/31/1998 $ 9,356 $ 9,081 $ 10,717
8/31/1998 $ 8,664 $ 8,224 $ 9,167
9/30/1998 $ 9,079 $ 8,690 $ 9,755
10/31/1998 $ 8,917 $ 8,529 $ 10,548
11/30/1998 $ 9,079 $ 8,654 $ 11,187
12/31/1998 $ 9,044 $ 8,436 $ 11,831
1/31/1999 $ 8,889 $ 8,260 $ 12,326
2/28/1999 $ 8,827 $ 8,066 $ 11,942
3/31/1999 $ 8,753 $ 8,029 $ 12,420
4/30/1999 $ 9,406 $ 8,791 $ 12,901
5/31/1999 $ 9,675 $ 8,985 $ 12,596
6/30/1999 $ 9,443 $ 8,839 $ 13,295
7/31/1999 $ 9,077 $ 8,558 $ 12,880
8/31/1999 $ 9,066 $ 8,450 $ 12,817
9/30/1999 $ 8,645 $ 8,128 $ 12,466
10/31/1999 $ 8,454 $ 7,928 $ 13,255
11/30/1999 $ 8,370 $ 7,799 $ 13,524
12/31/1999 $ 8,670 $ 8,046 $ 14,321
1/31/2000 $ 8,702 $ 8,073 $ 13,602
2/29/2000 $ 8,487 $ 7,977 $ 13,345
3/31/2000 $ 8,925 $ 8,239 $ 14,650
4/30/2000 $ 9,466 $ 8,793 $ 14,209
5/31/2000 $ 9,552 $ 8,879 $ 13,918
6/30/2000 $ 9,874 $ 9,107 $ 14,262
7/31/2000 $ 10,772 $ 9,903 $ 14,039
8/31/2000 $ 10,323 $ 9,501 $ 14,911
9/30/2000 $ 10,731 $ 9,804 $ 14,124
10/31/2000 $ 10,234 $ 9,379 $ 14,064
11/30/2000 $ 10,521 $ 9,499 $ 12,956
12/31/2000 $ 11,145 $ 10,168 $ 13,020
1/31/2001 $ 11,023 $ 10,274 $ 13,482
2/28/2001 $ 10,866 $ 10,109 $ 12,252
3/31/2001 $ 10,659 $ 10,207 $ 11,475
4/30/2001 $ 11,041 $ 10,451 $ 12,367
5/31/2001 $ 11,254 $ 10,704 $ 12,450
6/30/2001 $ 11,776 $ 11,331 $ 12,147
7/31/2001 $ 11,527 $ 11,106 $ 12,028
8/31/2001 $ 11,900 $ 11,512 $ 11,275
9/30/2001 $ 11,101 $ 11,035 $ 10,364
10/31/2001 $ 10,688 $ 10,719 $ 10,562
11/30/2001 $ 11,352 $ 11,309 $ 11,372
12/31/2001 $ 11,668 $ 11,584 $ 11,472
1/31/2002 $ 11,737 $ 11,608 $ 11,305
2/28/2002 $ 11,979 $ 11,832 $ 11,087
3/31/2002 $ 12,477 $ 12,542 $ 11,504
4/30/2002 $ 12,569 $ 12,648 $ 10,807
5/31/2002 $ 12,812 $ 12,819 $ 10,727
6/30/2002 $ 13,010 $ 13,169 $ 9,963
7/31/2002 $ 12,277 $ 12,480 $ 9,187
8/31/2002 $ 12,149 $ 12,455 $ 9,246
9/30/2002 $ 11,642 $ 11,977 $ 8,241
10/31/2002 $ 11,256 $ 11,401 $ 8,967
11/30/2002 $ 11,852 $ 11,938 $ 9,495
12/31/2002 $ 11,966 $ 12,026 $ 8,937
1/31/2003 $ 11,643 $ 11,676 $ 8,703
2/28/2003 $ 11,768 $ 11,869 $ 8,573
3/31/2003 $ 11,988 $ 12,106 $ 8,656
4/30/2003 $ 12,510 $ 12,639 $ 9,369
5/31/2003 $ 13,121 $ 13,402 $ 9,863
6/30/2003 $ 13,382 $ 13,694 $ 9,989
7/31/2003 $ 14,056 $ 14,427 $ 10,165
8/31/2003 $ 14,294 $ 14,505 $ 10,363
9/30/2003 $ 14,644 $ 14,998 $ 10,253
10/31/2003 $ 14,833 $ 15,270 $ 10,834
11/30/2003 $ 15,410 $ 15,935 $ 10,929
12/31/2003 $ 15,998 $ 16,495 $ 11,498
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The NAREIT (National Association of Real Estate Investment
Trusts) Index is an unmanaged index that reflects performance of all publicly
traded equity REITs. The S&P (Standard & Poor's) 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.
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.
(1) Index performance is from February 28, 1998.
(2) Index performance is from March 3, 1998.
71
<Page>
INVESTMENT PORTFOLIO
Columbia Real Estate Equity Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--97.2%
CONSUMER DISCRETIONARY--5.4%
HOTELS, RESTAURANTS & LEISURE--5.4%
Hilton Hotels Corp. 4,025 $ 68,948
La Quinta Corp. (a) 6,300 40,383
Marriott International, Inc. 940 43,428
Starwood Hotels & Resorts
Worldwide, Inc. 835 30,035
------------
182,794
------------
FINANCIALS--80.8%
REAL ESTATE--80.8%
Alexandria Real Estate
Equities, Inc., REIT 2,160 125,064
AMB Property Corp., REIT 1,530 50,306
American Financial Realty Trust, REIT 1,800 30,690
Apartment Investment &
Management Co., Class A, REIT 1,170 40,365
Archstone-Smith Trust, REIT 2,160 60,437
AvalonBay Communities, Inc., REIT 1,220 58,316
Boston Properties, Inc., REIT 1,145 55,178
Brookfield Properties Corp. 1,340 38,458
CarAmerica Realty Corp., REIT 875 26,057
Catellus Development Corp., REIT (a) 1,365 32,924
CenterPoint Properties Corp., REIT 875 65,538
Chelsea Property Group, Inc., REIT 720 39,463
Cousins Properties, Inc., REIT 4,450 136,170
Duke Realty Corp., REIT 3,920 121,520
Equity Office Properties Trust, REIT 3,036 86,981
Equity Residential, REIT 2,070 61,086
First Industrial Realty Trust,
Inc., REIT 1,015 34,256
General Growth Properties, Inc., REIT 6,005 166,639
iStar Financial, Inc., REIT 3,735 145,291
Kimco Realty Corp., REIT 1,917 85,786
Liberty Property Trust, REIT 2,260 87,914
Manufactured Home
Communities, Inc., REIT 605 22,778
Newcastle Investment Corp., REIT 2,005 54,336
Pan Pacific Retail Properties,
Inc., REIT 940 44,791
Parkway Properties, Inc., REIT 285 11,856
Prentiss Properties Trust, REIT 655 21,608
ProLogis Trust, REIT 4,680 150,181
Public Storage, Inc., REIT 2,050 88,950
Reckson Associates Realty
Corp., REIT 720 17,496
Regency Centers Corp., REIT 3,060 121,941
Rouse Co., REIT 2,660 125,020
Simon Property Group, Inc., REIT 4,100 189,994
SL Green Realty Corp., REIT 1,260 51,723
St. Joe Co. 2,460 91,733
Taubman Centers, Inc., REIT 3,035 62,521
United Dominion Realty Trust,
Inc., REIT 2,125 40,800
Vornado Realty Trust, REIT 1,195 65,426
------------
2,709,593
------------
MATERIALS--11.0%
CONTAINERS & PACKAGING--2.5%
Smurfit-Stone Container Corp. (a) 3,050 $ 56,638
Temple-Inland, Inc. 450 28,202
------------
84,840
------------
PAPER & FOREST PRODUCTS--8.5%
Bowater, Inc. 2,935 135,920
International Paper Co. 2,290 98,722
MeadWestvaco Corp. 1,685 50,129
------------
284,771
------------
TOTAL COMMON STOCKS
(cost of $2,611,825) 3,261,998
------------
INCOME DEPOSIT SECURITY--1.3%
CONSUMER DISCRETIONARY--1.3%
HOTELS, RESTAURANTS & LEISURE--1.3%
Volume Services of America Holdings, Inc.
(cost of $37,515) 2,500 41,625
------------
TOTAL INVESTMENTS--98.5%
(cost of $2,649,340) (b) 3,303,623
------------
OTHER ASSETS & LIABILITIES, NET--1.5% 51,214
------------
NET ASSETS--100.0% $ 3,354,837
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $2,664,615.
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
72
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia Real Estate Equity Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 2,649,340
----------------
Investments, at value $ 3,303,623
Cash 66,721
Receivable for:
Fund shares sold 6,539
Dividends 12,904
Expense reimbursement due from Investment Advisor 2,762
Deferred Trustees' compensation plan 667
----------------
TOTAL ASSETS 3,393,216
----------------
LIABILITIES:
Payable for:
Fund shares repurchased 7,597
Investment advisory fee 2,285
Administration fee 257
Transfer agent fee 417
Pricing and bookkeeping fees 2,040
Trustees' fees 49
Audit fee 23,410
Custody fee 361
Distribution fee--Class B 535
Deferred Trustees' fees 667
Other liabilities 761
----------------
TOTAL LIABILITIES 38,379
----------------
NET ASSETS $ 3,354,837
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 2,652,539
Overdistributed net investment income (785)
Accumulated net realized gain 48,800
Net unrealized appreciation on investments 654,283
----------------
NET ASSETS $ 3,354,837
================
CLASS A:
Net assets $ 914,189
Shares outstanding 83,424
================
Net asset value per share $ 10.96
================
CLASS B:
Net assets $ 2,440,648
Shares outstanding 222,089
================
Net asset value per share $ 10.99
================
</Table>
See Notes to Financial Statements.
73
<Page>
STATEMENT OF OPERATIONS
Columbia Real Estate Equity Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
<Caption>
INVESTMENT INCOME:
Dividends $ 95,682
Interest 1,570
----------------
Total Investment Income (net of foreign taxes withheld of $65) 97,252
----------------
EXPENSES:
Investment advisory fee 19,560
Administration fee 2,217
Distribution fee--Class B 3,961
Transfer agent fee 5,000
Pricing and bookkeeping fees 25,993
Trustees' fees 584
Custody fee 4,845
Audit fee 32,230
Amortization of organization expense 375
Other expenses 2,629
----------------
Total Expenses 97,394
Fees and expenses waived or reimbursed by Investment Advisor (21,088)
Custody earnings credit (28)
----------------
Net Expenses 76,278
----------------
Net Investment Income 20,974
----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 540,776
Net change in unrealized appreciation/depreciation on investments 323,613
----------------
Net Gain 864,389
----------------
Net Increase in Net Assets from Operations $ 885,363
================
</Table>
See Notes to Financial Statements.
74
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia Real Estate Equity Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- ------------ ------------
OPERATIONS:
Net investment income $ 20,974 $ 41,411
Net realized gain on investments 540,776 40,621
Net change in unrealized appreciation/depreciation on investments 323,613 (66,916)
------------ ------------
Net Increase from Operations 885,363 15,116
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (6,669) (33,393)
Class B (12,646) --
From net realized gains:
Class A (127,579) (39,385)
Class B (344,419) --
------------ ------------
Total Distributions Declared to Shareholders (491,313) (72,778)
------------ ------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 689,817 224,088
Proceeds received in connection with merger 1,269 --
Distributions reinvested 137,660 72,778
Redemptions (1,058,627) (372,423)
------------ ------------
Net Decrease (229,881) (75,557)
------------ ------------
Class B:
Subscriptions 429,718 --
Proceeds received in connection with merger 1,868,312 --
Distributions reinvested 353,653 --
Redemptions (440,174) --
------------ ------------
Net Increase 2,211,509 --
------------ ------------
Net Increase (Decrease) from Share Transactions 1,981,628 (75,557)
------------ ------------
Total Increase (Decrease) in Net Assets 2,375,678 (133,219)
NET ASSETS:
Beginning of period 979,159 1,112,378
------------ ------------
End of period (including overdistributed net investment income of
$(785) and $(14), respectively) $ 3,354,837 $ 979,159
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 50,234 20,934
Issued in connection with merger 129 --
Issued for distributions reinvested 12,550 7,407
Redemptions (81,080) (36,726)
------------ ------------
Net Decrease (18,167) (8,385)
------------ ------------
Class B:
Subscriptions 38,575 --
Issued in connection with merger 190,256 --
Issued for distributions reinvested 32,073 --
Redemptions (38,815) --
------------ ------------
Net Increase 222,089 --
------------ ------------
</Table>
See Notes to Financial Statements.
75
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia Real Estate Equity Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Columbia Real Estate Equity Fund, Variable Series (formerly Galaxy VIP Real
Estate Equity Fund II) (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 to provide capital appreciation and
above-average 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--Equity securities are valued at the last sale price at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments in other investment companies are valued at net asset value.
Investments for which market quotations are not readily available 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.
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. The Fund
estimates components of distributions from Real Estate Investment Trusts
("REITs"). Distributions received in excess of income are recorded as a
reduction of the cost of the related investments.
Effective January 1, 2003, the Fund adopted the policy to reduce cost of
investments for financial statement purposes by the distributions received in
excess of income from REITs. The cumulative effect of this accounting change did
not impact total net assets of the Fund, but resulted in reclassifications as
follows:
<Table>
<Caption>
DECREASE IN UNDISTRIBUTED
DECREASE IN COST NET INVESTMENT LOSS
- ---------------- -------------------------
$ 45,011 $ 45,011
</Table>
The effect of this change for the year ended December 31, 2003 is as follows:
<Table>
<Caption>
DECREASE IN DECREASE IN
UNREALIZED NET INVESTMENT INCREASE IN
APPRECIATION INCOME NET REALIZED GAIN
- -------------- -------------- -----------------
$ 32,503 $ 43,149 $ 75,652
</Table>
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 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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
76
<Page>
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. All dividends and distributions are
reinvested in additional shares of the Fund at net asset value as of the record
date of the distribution.
ORGANIZATION COSTS--The Fund has borne all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years, beginning with the commencement of the Fund's operation. As of December
31, 2003, all organization costs have been fully amortized.
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, 2003, permanent differences resulting primarily
from differing treatments for non-deductible expenses from the merger, capital
loss carryforwards from the merger, Real Estate Investment Trust ("REIT")
adjustments from the merger and distribution reclassifications were identified
and reclassified among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED GAIN CAPITAL
--------------------- ----------------- ---------
$ 42,581 $ (20,488) $ (22,093)
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 165,123 $ 32,622
Long-Term Capital Gains 326,190 40,156
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- -------------- --------------
$ 7,629 $ 56,446 $ 639,008
</Table>
* 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, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 642,576
Unrealized depreciation (3,568)
-----------
Net unrealized appreciation $ 639,008
===========
</Table>
Capital loss carryforwards are available to reduce taxable income arising from
future net realized gains on investments, if any, to the extent permitted by the
Internal Revenue Code. As of December 31, 2003, the Fund had no capital loss
carryforwards.
Capital loss carryforwards of $14,380 were utilized and/or expired during the
year ended December 31, 2003 for the Fund. Any capital loss carryforwards
acquired as part of a merger that are permanently lost due to provisions under
Internal Revenue Code are included as being expired. Expired capital loss
carryforwards are recorded as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Fleet Investment Advisors, Inc.,
the previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an
indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As a
result of the merger, Columbia now serves as the Fund's investment advisor. The
merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
receives a monthly fee based on the Fund's average daily net assets at the
following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.75%
Next $500 million 0.70%
Over $1 billion 0.65%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.75% of the Fund's average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.75%.
77
<Page>
ADMINISTRATION FEE--Columbia provides administrative and other services for a
monthly fee based on the Fund's average daily net assets at the following annual
rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.085%
Next $1.5 billion 0.078%
Over $2.5 billion 0.073%
</Table>
For the period April 14, 2003 through October 31, 2003, Columbia was entitled to
receive fees, computed daily and payable monthly, at the annual rate of 0.085%
of the Fund's average daily net assets. Prior to April 14, 2003, Columbia was
entitled to receive fees at current rates based on the combined average daily
net assets of the funds in the Galaxy VIP Fund (the "predecessor trust").
For the year ended December 31, 2003, the Fund's effective administration fee
rate was 0.085%.
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"). Columbia pays fees
to State Street under the Outsourcing Agreement. Columbia pays the total fees
collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee based on the average daily net assets of the Fund at the following
annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ ----------
Under $50 million $ 25,000
Of $50 million but less than $200 million $ 35,000
Of $200 million but less than $500 million $ 50,000
Of $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services. For the year ended
December 31, 2003, the effective pricing and bookkeeping fee rate was 0.995%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $5,000.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
FEE WAIVERS--Effective April 14, 2003, Columbia has agreed to reimburse fees
at the annual rate of 0.90% of the Fund's average daily net assets. This
agreement will continue until April 13, 2004, after which it may be revised or
discontinued any time.
Prior to April 14, 2003, Fleet Investment Advisors, Inc. and/or its affiliates
and/or PFPC Inc., the former administrator, could waive all or a portion of the
fees payable to them by the predecessor fund.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $3,666,022 and $6,045,516, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund,
78
<Page>
whose shares were involved in those trading activities, was harmed by them, the
Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
NOTE 7. BUSINESS COMBINATIONS AND MERGERS
FUND MERGERS--On April 14, 2003, the Crabbe Huson Real Estate Investment
Fund, Variable Series merged into the Galaxy VIP Columbia Real Estate Equity
Fund II, previously a fund of the Galaxy VIP Fund, a separate Massachusetts
business trust. Also on April 14, 2003, the Galaxy VIP Columbia Real Estate
Equity Fund II, created a Class B into which Crabbe Huson Real Estate Investment
Fund, Variable Series Class B shares were reorganized. The Galaxy VIP Columbia
Real Estate Equity Fund II received a tax-free transfer of assets from the
Crabbe Huson Real Estate Investment Fund, Variable Series as follows:
<Table>
<Caption>
NET ASSETS UNREALIZED
SHARES ISSUED RECEIVED APPRECIATION(1)
------------- ---------- ---------------
190,385 $ 1,869,581 $ 243,393
</Table>
<Table>
<Caption>
NET ASSETS OF
NET ASSETS CRABBE HUSON
OF GALAXY VIP REAL ESTATE NET ASSETS OF GALAXY
COLUMBIA REAL INVESTMENT FUND, VIP COLUMBIA
ESTATE EQUITY VARIABLE SERIES REAL ESTATE EQUITY
FUND II PRIOR TO IMMEDIATELY FUND II IMMEDIATELY
COMBINATION PRIOR TO COMBINATION AFTER COMBINATION
---------------- -------------------- --------------------
$ 998,543 $ 1,869,581 $ 2,868,124
</Table>
(1) Unrealized appreciation is included in the Net Assets Received amount shown
above.
Also on April 14, 2003, subsequent to the merger described above, the Galaxy VIP
Columbia Real Estate Equity Fund II was reorganized as the Columbia Real Estate
Equity Fund, Variable Series.
The accompanying statement of operations, statement of changes in net assets and
financial highlights for the Fund represents the historical operations of the
Galaxy VIP Columbia Real Estate Equity Fund II for periods prior to April 14,
2003.
79
<Page>
FINANCIAL HIGHLIGHTS
Columbia Real Estate Equity Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 10.11 $ 9.96 $ 8.08 $ 8.78
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11(b) 0.40 0.38 0.41 0.38
Net realized and unrealized gain (loss) on investments 3.12 (0.14) 0.07 1.86 (0.74)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 3.23 0.26 0.45 2.27 (0.36)
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.11) (0.32) (0.30) (0.38) (0.34)
In excess of net investment income -- -- -- (0.01) --
From net realized gains (1.80) (0.41) -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (1.91) (0.73) (0.30) (0.39) (0.34)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.96 $ 9.64 $ 10.11 $ 9.96 $ 8.08
========== ========== ========== ========== ==========
Total return (c)(d)(e) 33.69% 2.57% 4.68% 28.57% (4.13)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (f) 2.59% 1.78% 1.70% 1.70% 1.70%
Net investment income (f) 1.05% 3.68% 3.81% 4.39% 4.84%
Waiver/reimbursement 0.67% 5.85% 4.29% 4.06% 4.21%
Portfolio turnover rate 152% 98% 54% 41% 33%
Net assets, end of period (000's) $ 914 $ 979 $ 1,112 $ 1,092 $ 983
</Table>
(a) The information shown in this table, for the periods prior to April 14,
2003, relates to shares of the Galaxy VIP Real Estate Equity Fund II, the
predecessor to the Columbia Real Estate Equity Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
80
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia Real Estate Equity 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 Real Estate Equity
Fund, Variable Series (the "Fund") (formerly Galaxy VIP Columbia Real Estate
Equity Fund II) (a series of Liberty Variable Investment Trust) (formerly a
series of Galaxy VIP Fund) at December 31, 2003, 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 audit. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which 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 audit, which included confirmation
of securities at December 31, 2003 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion. The financial statements
and financial highlights of the Fund for periods prior to January 1, 2003 were
audited by other independent accountants whose report dated February 7, 2003
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
81
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
For the fiscal year ended December 31, 2003, the Fund designates long-term
capital gains of $382,636.
82
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty All-Star Equity Fund, Variable Series / December 31, 2003
Liberty All-Star Equity Fund, Variable Series seeks total investment return,
which is composed of long-term capital appreciation and current income, through
investment primarily in a diversified portfolio of equity securities.
The fund's investment program is based upon Liberty Asset Management Company's
(LAMCO) multi-manager concept. LAMCO allocates the fund's portfolio assets on
an approximately equal basis among a number of independent investment management
organizations ("Portfolio Managers")--currently five in number. Each Portfolio
Manager employs a different investment style. LAMCO, from time to time,
rebalances the portfolio among the Portfolio Managers to maintain an
approximately equal allocation of the portfolio among them throughout all market
cycles.
The fund's current Portfolio Managers are:
- - Boston Partners Asset Management, L.P.; INVESTMENT STYLE-VALUE
- - Pzena Investment Management, LLC; INVESTMENT STYLE-VALUE (replacing
Oppenheimer Capital effective October 15, 2003)
- - Schneider Capital Management Corporation; INVESTMENT STYLE-VALUE
- - Mastrapasqua Asset Management, Inc.; INVESTMENT STYLE-GROWTH
- - TCW Investment Management Company; INVESTMENT STYLE-GROWTH
INVESTMENT APPROACH
Instead of relying on a single investment manager, LAMCO employs a
multi-management approach to the portfolio.
Because investment styles go in and out of favor, a style that produces
strong returns one year may produce disappointing results the next. By contrast,
a multi-management approach combines managers who practice different investment
styles in an attempt to reduce volatility while providing attractive returns.
Liberty All-Star Equity Fund, Variable Series is structured as a core
investment, combining both growth and value style managers within the fund.
Using our expertise, experience and state-of-the-art tools, we select managers
for the fund and evaluate them on an ongoing basis. The investment managers
LAMCO selects for the fund are distinguished by the following characteristics:
- - a consistent focus on a particular style of investing
- - a disciplined investment decision-making process
- - a record of success relative to their peers who practice the same strategy
- - continuity among the investment professionals, so that those who have built
the record remain the managers
- - a well-managed, highly responsive organization
LAMCO performs all the due diligence, research, selection and monitoring that
would be expected of a professional investment management firm. LAMCO adds value
by selecting best of breed managers and replacing them when necessary.
2003--A REWARDING YEAR FOR EQUITY INVESTORS
In 2003, the equity markets experienced their first gain since the start of the
new millennium. Extreme pessimism on the part of investors, which peaked during
the fourth quarter of 2002, gave way to an increasingly optimistic outlook as
the economy began to show signs of improvement. In addition, an acceleration in
business spending during the second half of 2003 led investors to believe that
the recovery might be sustainable. As a result, stocks that are most closely
linked to the economic cycle were generally the best performers.
The fund was positioned to take advantage of the improving economic and
market conditions. Several of the fund's managers began to move into
economically-sensitive stocks near the end of 2002, particularly in the
technology sector. The timing of that decision was one of the factors that
contributed to the fund's strong relative performance compared to both the S&P
500 Index and the Russell 3000 Index in 2003. Based on average annual returns,
the fund also outperformed the S&P 500 Index for the 3- and 5-year periods ended
December 31, 2003. The fund slightly underperformed the Russell 3000 Index for
the 3-year period, but outperformed the index for the 5-year period ended
December 31, 2003.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
The fund is intended to be a long-term investment vehicle and is not designed to
provide a means of speculating on short-term stock market movements. The fund
has adopted certain investment policies in managing its portfolio that are
designed to maintain the diversity of the fund's investment portfolio and reduce
risk. The fund may not always achieve its investment objective. The fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval.
83
<Page>
PERFORMANCE INFORMATION
Liberty All-Star Equity Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- ------------------------------------------------------------
Class A (11/17/97) 40.91 0.92 3.75
Russell 3000 Index (1) 31.06 0.37 4.39
S&P 500 Index (1) 28.68 -0.57 4.17
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ----------------------------------------------------------------
Class A 7.77 10.93
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 11/17/97 - 12/31/03
Class A: $12,524
<Table>
<Caption>
CLASS A SHARES RUSSELL 3000 INDEX S&P 500 INDEX
11/17/1997 $ 10,000 $ 10,000 $ 10,000
11/30/1997 $ 10,000 $ 10,085 $ 10,104
12/31/1997 $ 10,080 $ 10,287 $ 10,278
1/31/1998 $ 10,030 $ 10,340 $ 10,392
2/28/1998 $ 10,900 $ 11,080 $ 11,141
3/31/1998 $ 11,421 $ 11,629 $ 11,712
4/30/1998 $ 11,522 $ 11,743 $ 11,830
5/31/1998 $ 11,212 $ 11,453 $ 11,626
6/30/1998 $ 11,462 $ 11,840 $ 12,098
7/31/1998 $ 11,221 $ 11,625 $ 11,970
8/31/1998 $ 9,469 $ 9,844 $ 10,239
9/30/1998 $ 10,080 $ 10,515 $ 10,896
10/31/1998 $ 10,821 $ 11,313 $ 11,781
11/30/1998 $ 11,351 $ 12,006 $ 12,495
12/31/1998 $ 11,962 $ 12,769 $ 13,215
1/31/1999 $ 11,982 $ 13,203 $ 13,767
2/28/1999 $ 11,561 $ 12,736 $ 13,339
3/31/1999 $ 11,963 $ 13,203 $ 13,873
4/30/1999 $ 12,677 $ 13,799 $ 14,410
5/31/1999 $ 12,496 $ 13,536 $ 14,070
6/30/1999 $ 12,988 $ 14,220 $ 14,851
7/31/1999 $ 12,456 $ 13,789 $ 14,387
8/31/1999 $ 12,073 $ 13,632 $ 14,317
9/30/1999 $ 11,782 $ 13,283 $ 13,924
10/31/1999 $ 12,275 $ 14,116 $ 14,806
11/30/1999 $ 12,395 $ 14,511 $ 15,106
12/31/1999 $ 12,976 $ 15,437 $ 15,996
1/31/2000 $ 12,550 $ 14,832 $ 15,193
2/29/2000 $ 12,404 $ 14,970 $ 14,906
3/31/2000 $ 13,653 $ 16,142 $ 16,364
4/30/2000 $ 13,466 $ 15,574 $ 15,871
5/31/2000 $ 13,497 $ 15,136 $ 15,546
6/30/2000 $ 13,570 $ 15,584 $ 15,930
7/31/2000 $ 13,445 $ 15,308 $ 15,681
8/31/2000 $ 14,371 $ 16,444 $ 16,655
9/30/2000 $ 14,064 $ 15,699 $ 15,776
10/31/2000 $ 14,285 $ 15,476 $ 15,710
11/30/2000 $ 13,170 $ 14,049 $ 14,472
12/31/2000 $ 13,800 $ 14,285 $ 14,543
1/31/2001 $ 14,000 $ 14,774 $ 15,059
2/28/2001 $ 12,879 $ 13,424 $ 13,685
3/31/2001 $ 12,024 $ 12,548 $ 12,818
4/30/2001 $ 12,989 $ 13,555 $ 13,814
5/31/2001 $ 13,067 $ 13,663 $ 13,906
6/30/2001 $ 12,834 $ 13,412 $ 13,568
7/31/2001 $ 12,534 $ 13,191 $ 13,435
8/31/2001 $ 11,746 $ 12,412 $ 12,594
9/30/2001 $ 10,427 $ 11,318 $ 11,577
10/31/2001 $ 10,871 $ 11,581 $ 11,798
11/30/2001 $ 11,884 $ 12,473 $ 12,703
12/31/2001 $ 12,031 $ 12,649 $ 12,815
1/31/2002 $ 11,792 $ 12,491 $ 12,627
2/28/2002 $ 11,358 $ 12,236 $ 12,384
3/31/2002 $ 11,997 $ 12,772 $ 12,849
4/30/2002 $ 11,358 $ 12,101 $ 12,071
5/31/2002 $ 11,084 $ 11,961 $ 11,981
6/30/2002 $ 10,011 $ 11,100 $ 11,128
7/31/2002 $ 9,075 $ 10,217 $ 10,261
8/31/2002 $ 9,087 $ 10,265 $ 10,328
9/30/2002 $ 8,048 $ 9,186 $ 9,205
10/31/2002 $ 8,779 $ 9,918 $ 10,016
11/30/2002 $ 9,612 $ 10,518 $ 10,605
12/31/2002 $ 8,888 $ 9,923 $ 9,983
1/31/2003 $ 8,682 $ 9,680 $ 9,721
2/28/2003 $ 8,602 $ 9,521 $ 9,576
3/31/2003 $ 8,740 $ 9,621 $ 9,668
4/30/2003 $ 9,484 $ 10,407 $ 10,465
5/31/2003 $ 10,331 $ 11,035 $ 11,017
6/30/2003 $ 10,376 $ 11,184 $ 11,158
7/31/2003 $ 10,708 $ 11,440 $ 11,354
8/31/2003 $ 11,109 $ 11,694 $ 11,575
9/30/2003 $ 10,880 $ 11,567 $ 11,453
10/31/2003 $ 11,681 $ 12,267 $ 12,101
11/30/2003 $ 11,932 $ 12,436 $ 12,207
12/31/2003 $ 12,524 $ 13,009 $ 12,842
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The Russell 3000 Index is an unmanaged index that tracks the
performance of the 3,000 largest US companies based on total market
capitalization. The S&P (Standard & Poor's) 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.
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.
(1) Index performance is from November 17, 1997.
84
<Page>
INVESTMENT PORTFOLIO
Liberty All-Star Equity Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--96.4%
CONSUMER DISCRETIONARY--14.4%
AUTO COMPONENTS--0.8%
Johnson Controls, Inc. 1,925 $ 223,531
Visteon Corp. 14,550 151,466
------------
374,997
------------
AUTOMOBILES--0.4%
Harley-Davidson, Inc. 3,350 159,226
------------
HOTELS, RESTAURANTS & LEISURE--2.4%
Carnival Corp. 4,600 182,758
Cendant Corp. (a) 8,375 186,511
Harrah's Entertainment, Inc. 4,100 204,057
Starbucks Corp. (a) 6,035 199,517
Starwood Hotels &
Resorts Worldwide, Inc. 9,450 339,917
------------
1,112,760
------------
HOUSEHOLD DURABLES--0.8%
Newell Rubbermaid, Inc. 3,500 79,695
Whirlpool Corp. 3,850 279,703
------------
359,398
------------
INTERNET & CATALOG RETAIL--2.6%
Amazon.com, Inc. (a) 13,600 715,904
eBay, Inc. (a) 7,200 465,048
------------
1,180,952
------------
LEISURE EQUIPMENT & PRODUCTS--0.4%
Brunswick Corp. 3,050 97,081
Mattel, Inc. 4,300 82,861
------------
179,942
------------
MEDIA--2.9%
Comcast Corp. (a) 2,500 78,200
Fox Entertainment Group, Inc. (a) 5,000 145,750
Liberty Media Corp. (a) 47,761 567,878
Pixar, Inc. (a) 4,100 284,089
Viacom, Inc., Class B 3,250 144,235
Walt Disney Co. 3,200 74,656
------------
1,294,808
------------
MULTI-LINE RETAIL--1.7%
JC Penney Co., Inc. 15,450 406,026
Target Corp. 4,800 184,320
Wal-Mart Stores, Inc. 3,750 198,938
------------
789,284
------------
SPECIALTY RETAIL--1.9%
Gap, Inc. 8,500 197,285
Home Depot, Inc. 5,000 177,450
RadioShack Corp. 11,900 365,092
TJX Companies, Inc. 4,300 94,815
Toys "R" US, Inc. (a) 1,350 17,064
------------
851,706
------------
TEXTILES, APPAREL & LUXURY GOODS--0.5%
Liz Claiborne, Inc. 6,100 216,306
------------
CONSUMER STAPLES--5.1%
BEVERAGES--0.5%
PepsiCo, Inc. 4,500 209,790
------------
FOOD & DRUG RETAILING--0.8%
CVS Corp. 6,100 $ 220,332
Walgreen Co. 4,500 163,710
------------
384,042
------------
FOOD PRODUCTS--2.3%
Archer-Daniels-Midland Co. 7,600 115,672
H.J. Heinz Co. 3,700 134,791
Sara Lee Corp. 15,250 331,078
Smithfield Foods, Inc. (a) 5,700 117,990
Tate & Lyle PLC 13,450 300,008
Tyson Foods, Inc. 3,400 45,016
------------
1,044,555
------------
HOUSEHOLD PRODUCTS--0.9%
Procter & Gamble Co. 4,000 399,520
------------
TOBACCO--0.6%
Altria Group, Inc. 2,750 149,655
UST, Inc. 3,700 132,053
------------
281,708
------------
ENERGY--4.8%
ENERGY EQUIPMENT & SERVICES--1.1%
Schlumberger Ltd. 1,500 82,080
Transocean, Inc. (a) 17,000 408,170
------------
490,250
------------
OIL & GAS--3.7%
Ashland, Inc. 2,500 110,150
Canadian Natural Resources Ltd. 4,100 206,804
ChevronTexaco Corp. 3,400 293,726
ConocoPhillips 4,475 293,426
Kerr-McGee Corp. 9,875 459,089
Premcor, Inc. (a) 6,350 165,100
Shell Transport &
Trading Co. PLC, ADR 3,100 139,593
Valero Energy Corp. 450 20,853
------------
1,688,741
------------
FINANCIALS--19.0%
BANKS--2.0%
Comerica, Inc. 3,450 193,407
FleetBoston Financial Corp. (b) 8,000 349,200
National City Corp. 3,900 132,366
Washington Mutual, Inc. 5,950 238,714
------------
913,687
------------
DIVERSIFIED FINANCIALS--7.2%
Charles Schwab Corp. 28,185 333,710
CIT Group, Inc. 20,400 733,380
Citigroup, Inc. 3,999 194,111
Countrywide Financial Corp. 3,500 265,475
Fannie Mae 2,850 213,921
Freddie Mac 15,550 906,876
Goldman Sachs Group, Inc. 1,700 167,841
Merrill Lynch & Co., Inc. 4,700 275,655
Morgan Stanley 3,000 173,610
------------
3,264,579
------------
</Table>
See Notes to Investment Portfolio.
85
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
INSURANCE--9.4%
ACE Ltd. 10,200 $ 422,484
AFLAC, Inc. 6,250 226,125
Allstate Corp. 5,225 224,779
American International Group, Inc. 2,400 159,072
AON Corp. 13,725 328,577
Berkshire Hathaway, Inc., Class B (a) 115 323,725
Loews Corp. 8,000 395,600
MBIA, Inc. 3,500 207,305
Metlife, Inc. 5,375 180,976
Nationwide Financial Services, Inc. 300 9,918
Progressive Corp. 10,560 882,711
Radian Group, Inc. 3,250 158,438
Torchmark Corp. 4,875 222,007
Travelers Property Casualty Corp. 14,200 238,276
XL Capital Ltd. 3,650 283,057
------------
4,263,050
------------
REAL ESTATE-- 0.4%
St. Joe Co. 4,350 162,212
------------
HEALTH CARE--13.0%
BIOTECHNOLOGY--5.9%
Amgen, Inc. (a) 10,100 624,180
Biogen Idec, Inc. (a) 3,900 143,442
Cephalon, Inc. (a) 2,800 135,548
Genentech, Inc. (a) 9,170 858,037
Genzyme Corp. (a) 6,000 296,040
Invitrogen Corp. (a) 4,100 287,000
MedImmune, Inc. (a) 12,800 325,120
------------
2,669,367
------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Alcon, Inc. 2,450 148,323
Baxter International, Inc. 1,050 32,046
Fisher Scientific International, Inc. 4,000 165,480
------------
345,849
------------
HEALTH CARE PROVIDERS & SERVICES--3.4%
Aetna, Inc. 8,550 577,809
AmerisourceBergen Corp. 4,000 224,600
Cigna Corp. 7,900 454,250
Tenet Healthcare Corp. (a) 18,625 298,931
------------
1,555,590
------------
PHARMACEUTICALS--2.9%
Bristol-Myers Squibb Co. 7,000 200,200
Eli Lilly & Co. 4,400 309,452
Pfizer, Inc. 13,020 459,997
Schering-Plough Corp. 10,150 176,509
Shire Pharmaceuticals Group PLC (a) 5,300 153,965
------------
1,300,123
------------
INDUSTRIALS--8.7%
AEROSPACE & DEFENSE--2.8%
Boeing Co. 23,925 1,008,199
Lockheed Martin Corp. 5,100 $ 262,140
------------
1,270,339
------------
AIR FREIGHT & LOGISTICS--0.9%
Expeditors International of
Washington, Inc. 4,500 169,470
FedEx Corp. 1,200 81,000
Ryder System, Inc. 4,400 150,260
------------
400,730
------------
AIRLINES--0.6%
Delta Air Lines, Inc. 2,700 31,887
Southwest Airlines Co. 13,850 223,539
------------
255,426
------------
INDUSTRIAL CONGLOMERATES--2.1%
General Electric Co. 4,700 145,606
Tyco International Ltd. 29,750 788,375
------------
933,981
------------
MACHINERY--0.6%
Navistar International Corp. (a) 5,250 251,422
PACCAR, Inc. 500 42,560
------------
293,982
------------
ROAD & RAIL--1.7%
CSX Corp. 7,250 260,565
Swift Transportation Co., Inc. (a) 6,050 127,171
Union Pacific Corp. 3,525 244,917
Werner Enterprises, Inc. 6,787 132,279
------------
764,932
------------
INFORMATION TECHNOLOGY--22.9%
COMMUNICATIONS EQUIPMENT--1.7%
Cisco Systems, Inc. (a) 25,200 612,108
QUALCOMM, Inc. 3,200 172,576
------------
784,684
------------
COMPUTERS & PERIPHERALS--3.6%
Dell, Inc. (a) 9,300 315,828
EMC Corp. (a) 16,100 208,012
Hewlett-Packard Co. 15,800 362,926
Network Appliance, Inc. (a) 23,970 492,104
Seagate Technology (a) 6,500 122,850
Sun Microsystems, Inc. (a) 29,200 131,108
------------
1,632,828
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.8%
Agilent Technologies, Inc. (a) 17,100 500,004
Arrow Electronics, Inc. (a) 800 18,512
Avnet, Inc. (a) 14,700 318,402
Jabil Circuit, Inc. (a) 6,700 189,610
Sanmina-SCI Corp. (a) 36,750 463,418
Waters Corp. (a) 6,000 198,960
------------
1,688,906
------------
INTERNET SOFTWARE & SERVICES--1.1%
Yahoo! Inc. (a) 10,800 487,836
------------
</Table>
See Notes to Investment Portfolio.
86
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
INFORMATION TECHNOLOGY
CONSULTING & SERVICES--0.9%
Accenture Ltd., Class A (a) 6,500 $ 171,080
Electronic Data Systems Corp. 9,400 230,676
------------
401,756
------------
OFFICE ELECTRONICS--1.1%
Xerox Corp. (a) 36,700 506,460
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--7.3%
Analog Devices, Inc. 5,000 228,250
Applied Materials, Inc. (a) 33,100 743,095
Intel Corp. 17,800 573,160
Maxim Integrated Products, Inc. 9,800 488,040
Micron Technology, Inc. (a) 14,900 200,703
Novellus Systems, Inc. (a) 5,000 210,250
Teradyne, Inc. (a) 10,100 257,045
Texas Instruments, Inc. 8,700 255,606
Xilinx, Inc. (a) 8,500 329,290
------------
3,285,439
------------
SOFTWARE--3.4%
BMC Software, Inc. (a) 9,900 184,635
Computer Associates International, Inc. 11,875 324,662
Microsoft Corp. 16,015 441,053
Oracle Corp. (a) 23,300 307,560
Symantec Corp. (a) 2,000 69,300
VERITAS Software Corp. (a) 5,600 208,096
------------
1,535,306
------------
MATERIALS--3.8%
CHEMICALS--1.3%
Dow Chemical Co. 4,000 166,280
IMC Global, Inc. 24,050 238,816
Monsanto Co. 6,382 183,674
------------
588,770
------------
CONTAINERS & PACKAGING--0.5%
Smurfit-Stone Container Corp. (a) 12,300 228,411
------------
METALS & MINING--1.5%
Alcan, Inc. 5,450 255,877
CONSOL Energy, Inc. 6,700 173,530
Freeport-McMoRan Copper &
Gold, Inc. 350 14,745
Nucor Corp. 450 25,200
United States Steel Corp. 6,250 218,875
------------
688,227
------------
PAPER & FOREST PRODUCTS--0.5%
Abitibi-Consolidated, Inc. 20,400 165,444
International Paper Co. 900 38,799
Weyerhaeuser Co. 50 3,200
------------
207,443
------------
TELECOMMUNICATION SERVICES--2.7%
DIVERSIFIED TELECOMMUNICATION SERVICES--1.8%
BellSouth Corp. 11,325 $ 320,497
CenturyTel, Inc. 6,000 195,720
SBC Communications, Inc. 11,600 302,412
------------
818,629
------------
WIRELESS TELECOMMUNICATION SERVICES--0.9%
AT&T Wireless Services, Inc. (a) 52,500 419,475
------------
UTILITIES--2.0%
ELECTRIC UTILITIES--1.8%
PG&E Corp. (a) 14,300 397,111
Reliant Resources, Inc. (a) 31,650 232,944
Wisconsin Energy Corp. 5,300 177,285
------------
807,340
------------
MULTI-UTILITIES & UNREGULATED POWER--0.2%
Scana Corp. 2,375 81,344
------------
TOTAL COMMON STOCKS
(cost of $41,261,784) 43,574,686
------------
<Caption>
PAR
------------
CONVERTIBLE BONDS--0.6%
INFORMATION TECHNOLOGY--0.1%
TELECOMMUNICATIONS EQUIPMENT--0.1%
Corning, Inc.
3.500%, 01/31/06 $ 38,000 47,073
------------
MATERIALS--0.5%
METALS & MINING--0.5%
Freeport McMoRan Copper &
Gold, Inc.
8.250%, 01/31/06 77,000 228,786
------------
TOTAL CONVERTIBLE BONDS
(cost of $159,116) 275,859
------------
<Caption>
SHARES
------------
INVESTMENT MANAGEMENT
COMPANY--0.9%
iShares Russell 1000 Value Index Fund
(cost of $344,483) 6,550 382,323
------------
</Table>
See Notes to Investment Portfolio.
87
<Page>
<Table>
<Caption>
PAR VALUE
------------ ------------
SHORT-TERM OBLIGATION--3.3%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized by
U.S. Treasury Bonds with
various maturities to 02/15/27,
market value $1,548,756
(repurchase proceeds $1,506,065)
(cost of $1,506,000) $ 1,506,000 $ 1,506,000
------------
TOTAL INVESTMENTS--101.2%
(cost of $43,271,383) (c) 45,738,868
------------
OTHER ASSETS & LIABILITIES, NET--(1.2)% (551,071)
------------
NET ASSETS--100.0% $ 45,187,797
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Investments in Affiliates during the year ended December 31, 2003:
Security Name: FleetBoston Financial Corp., the parent company of the
Investment Advisor.
<Table>
Shares as of 12/31/02: 12,000
Shares sold: 4,000
Shares as of 12/31/03: 8,000
Net realized loss: $ (7,913)
Dividend income earned: $ 15,400
Value at end of period: $ 349,200
</Table>
(c) Cost for federal income tax purposes is $43,807,913.
<Table>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Notes to Financial Statements.
88
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty All-Star Equity Fund, Variable Series / December 31, 2003
<Table>
<Caption>
ASSETS:
Investments, at cost $ 43,271,383
----------------
Investments, at value $ 45,738,868
Cash 2,634
Receivable for:
Investments sold 189,257
Fund shares sold 37,523
Interest 3,100
Dividends 47,615
Expense reimbursement due from Investment Advisor/Distributor 7,910
Deferred Trustees' compensation plan 4,562
----------------
TOTAL ASSETS 46,031,469
----------------
LIABILITIES:
Payable for:
Investments purchased 188,000
Fund shares repurchased 580,828
Investment advisory fee 31,191
Transfer agent fee 626
Pricing and bookkeeping fees 833
Audit fee 29,630
Custody fee 3,561
Distribution fee--Class B 985
Deferred Trustees' fees 4,562
Other liabilities 3,456
----------------
TOTAL LIABILITIES 843,672
----------------
NET ASSETS $ 45,187,797
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 49,440,718
Overdistributed net investment income (4,430)
Accumulated net realized loss (6,715,989)
Net unrealized appreciation on:
Investments 2,467,485
Foreign currency translations 13
----------------
NET ASSETS $ 45,187,797
================
CLASS A:
Net assets $ 40,278,207
Shares outstanding 3,686,275
================
Net asset value per share $ 10.93
================
CLASS B:
Net assets $ 4,909,590
Shares outstanding 449,181
================
Net asset value per share $ 10.93
================
</Table>
See Notes to Financial Statements.
89
<Page>
STATEMENT OF OPERATIONS
Liberty All-Star Equity Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 432,446
Interest 17,467
----------------
Total Investment Income (net of foreign taxes withheld of $3,591) 449,913
----------------
EXPENSES:
Investment advisory fee 299,665
Distribution fee--Class B 8,500
Pricing and bookkeeping fees 13,728
Transfer agent fee 7,500
Trustees' fees 6,433
Custody fee 39,498
Audit fee 34,655
Other expenses 15,693
----------------
Total Expenses 425,672
Fees and expenses waived or reimbursed by Investment Advisor (41,706)
Fees reimbursed by Distributor--Class B (8,500)
Custody earnings credit (601)
----------------
Net Expenses 374,865
----------------
Net Investment Income 75,048
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments (697,388)
Foreign currency transactions 5
----------------
Net realized loss (697,383)
----------------
Net change in unrealized appreciation/depreciation on:
Investments 13,634,002
Foreign currency translations 18
----------------
Net change in unrealized appreciation/depreciation 13,634,020
----------------
Net Gain 12,936,637
----------------
Net Increase in Net Assets from Operations $ 13,011,685
================
</Table>
See Notes to Financial Statements.
90
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty All-Star Equity Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- --------------------------------- ------------ ------------
OPERATIONS:
Net investment income $ 75,048 $ 63,580
Net realized loss on investments (697,383) (4,338,083)
Net change in unrealized appreciation/depreciation
on investments and foreign currency 13,634,020 (9,538,018)
------------ ------------
Net Increase (Decrease) from Operations 13,011,685 (13,812,521)
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (69,041) (65,711)
Class B (8,010) (6,028)
------------ ------------
Total Distributions Declared to Shareholders (77,051) (71,739)
------------ ------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,507,877 1,891,429
Distributions reinvested 69,041 65,711
Redemptions (5,387,913) (10,155,230)
------------ ------------
Net Decrease (2,810,995) (8,198,090)
------------ ------------
Class B:
Subscriptions 1,451,464 665,510
Distributions reinvested 8,010 6,028
Redemptions (645,149) (965,793)
------------ ------------
Net Increase (Decrease) 814,325 (294,255)
------------ ------------
Net Decrease from Share Transactions (1,996,670) (8,492,345)
------------ ------------
Total Increase (Decrease) in Net Assets 10,937,964 (22,376,605)
NET ASSETS:
Beginning of period 34,249,833 56,626,438
------------ ------------
End of period (including overdistributed net investment
income of $(4,430) and $(3,895), respectively) $ 45,187,797 $ 34,249,833
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 259,645 233,321
Issued for distributions reinvested 6,324 8,478
Redemptions (610,562) (1,168,100)
------------ ------------
Net Decrease (344,593) (926,301)
------------ ------------
Class B:
Subscriptions 147,692 70,849
Issued for distributions reinvested 733 777
Redemptions (73,508) (113,272)
------------ ------------
Net Increase (Decrease) 74,917 (41,646)
------------ ------------
</Table>
See Notes to Financial Statements.
91
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty All-Star Equity Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Liberty All-Star Equity 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 total investment return comprised of
long-term capital appreciation and current income, through investments primarily
in a diversified portfolio of equity securities.
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 at
the close of the principal exchange on which they trade. 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.
Debt securities generally are valued by a pricing service approved by the
Trust'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.
Short-term obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments in other investment companies are valued at net asset value.
Investments for which market quotations are not readily available 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.
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.
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.
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.
92
<Page>
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency and distributions in excess were
identified and reclassified among the components of the Fund's net assets as
follows:
<Table>
<Caption>
OVERDISTRIBUTED
NET INVESTMENT ACCUMULATED NET PAID-IN
INCOME REALIZED LOSS CAPITAL
--------------- --------------- ---------
$ 1,468 $ (5) $ (1,463)
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 77,051 $ 71,739
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
-------------- --------------- -------------
$ -- $ -- $ 1,930,955
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from wash
sales.
Unrealized appreciation and depreciation at December 31, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 6,372,753
Unrealized depreciation (4,441,798)
------------
Net unrealized appreciation $ 1,930,955
============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2009 $ 524,787
2010 3,157,493
2011 2,497,179
-----------
$ 6,179,459
===========
</Table>
No capital loss carryforwards were utilized and/or expired during the year ended
December 31, 2003 for the Fund. Expired capital loss carryforwards are recorded
as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.80%
Next $500 million 0.75%
Over $1 billion 0.70%
</Table>
93
<Page>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.80% of the Fund's average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.80%.
SUB-ADVISORY FEE--Liberty Asset Management Company ("LAMCO") has been
retained by Columbia as sub-advisor to the Fund. As the sub-advisor, LAMCO is
responsible for daily investment operations, including placing all orders for
the purchase and sale of portfolio securities for the fund. Columbia, out of the
management fee it receives, pays LAMCO a monthly sub-advisory fee at an annual
rate of 0.60% of the Fund's average daily net assets.
Under Portfolio Management Agreements, LAMCO pays each Portfolio Manager a
portfolio management fee based on the portion of the investment portfolio on
which they manage. The portfolio management fee is paid from the sub-advisory
fees collected by LAMCO and is equal to 0.30% annually of the portion of the
Fund's average daily net assets assigned to the given portfolio manager.
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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.037%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
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) would 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. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $23,403,029 and $25,834,856, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
94
<Page>
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory
developments or their resolution will have a material adverse effect on the
Columbia Funds, or on the ability of Columbia and the Distributor to provide
services to the Columbia Funds, there can be no assurance that these matters or
any adverse publicity or other developments resulting from them will not result
in increased redemptions or reduced sales of Columbia Fund shares, which could
increase transactions costs or operating expenses, or other consequences for the
Columbia Funds.
NOTE 7. SUBSEQUENT EVENT
On February 11, 2004, the Board of Trustees of the Fund voted to liquidate the
Fund. The effective date of the liquidation is expected to be no later than May
1, 2004
95
<Page>
FINANCIAL HIGHLIGHTS
Liberty All-Star Equity Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.77 $ 10.54 $ 12.43 $ 12.47 $ 11.90
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.02 0.01 0.03 0.05 0.06
Net realized and unrealized gain (loss) on investments
and foreign currency 3.16 (2.76) (1.66) 0.75 0.94
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 3.18 (2.75) (1.63) 0.80 1.00
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.02) (0.02) (0.03) (0.05) (0.05)
From net realized gains -- -- (0.23) (0.79) (0.38)
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.02) (0.02) (0.26) (0.84) (0.43)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.93 $ 7.77 $ 10.54 $ 12.43 $ 12.47
========== ========== ========== ========== ==========
Total return (b)(c) 40.91%(d) (26.13)%(d) (12.81)% 6.35%(d) 8.47%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Expenses (e) 1.00% 1.00% 1.00% 0.98% 0.95%
Net investment income (e) 0.20% 0.14% 0.26% 0.37% 0.47%
Waiver/reimbursement 0.11% 0.04% -- 0.02% --
Portfolio turnover rate 64% 84% 62% 97% 75%
Net assets, end of period (000's) $ 40,278 $ 31,339 $ 52,245 $ 69,249 $ 80,095
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(d) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
96
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty All-Star Equity 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 All-Star Equity Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
97
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
98.10% of the ordinary income distributed by the Fund, for the year ended
December 31, 2003, qualifies for the corporate dividends received deduction.
98
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Equity Fund, Variable Series / December 31, 2003
Liberty Equity Fund, Variable Series seeks long-term growth by investing in
companies that the fund's investment advisor believes have above-average
earnings potential.
Paul Berlinguet and Ed Hickey have co-managed the fund since October 2003.
Mr. Berlinguet is co head of the large cap growth team for Columbia
Management Advisors, Inc. Ed Hickey has been with Columbia Management
Advisors, Inc. or its predecessor since 1998. Prior to October 2003, Robert
G. Armknecht, CFA, was the fund's portfolio manager.
In a year that was generally strong for the US stock market, the portfolio
delivered solid double-digit returns. Consumer cyclical, health care and
industrial stocks all made positive contributions to performance. However, the
portfolio lagged its benchmark for the year, in part because some of its
investments in biotechnology and technology were disappointments.
STOCKS BOOSTED BY PROFIT GROWTH, GLOBAL RECOVERY
US stocks fell in the first quarter of 2003 but more than made up for those
losses by the end of the year. As the year progressed, and as concerns about the
war in Iraq eased, it became clear that the economy and corporate profits were
getting stronger. Stocks also benefited from a mid-year cut in short-term
interest rates and an accelerated reduction in federal income tax rates. A
synchronized global recovery, which included Japan, China, India and Europe,
provided additional fuel for US markets and also helped overseas stock markets
advance. Consistent with historical patterns, the stocks of smaller, more
speculative companies outperformed those of larger, more-established companies
during the early stages of the current economic recovery.
POSITIVE CONTRIBUTIONS FROM CONSUMER, HEALTH CARE AND INDUSTRIAL STOCKS
In health care, Teva Pharmaceutical Industries Ltd., which makes generic drugs,
and Boston Scientific Corp., a medical device manufacturer, made positive
contributions to performance (1.6% and 1.3% of net assets, respectively). Among
industrial stocks, the fund's investments in United Technologies Corp., General
Electric Co. and Illinois Tool Works, Inc. also aided performance (2.6%, 3.1%
and 1.9% of net assets, respectively). During this period, consumer cyclical
companies benefited from a gradual increase in consumer confidence. Lowe's
Companies, Inc. and Bed Bath & Beyond, Inc. capitalized on this environment
(1.6% and 1.1% of net assets, respectively).
Although technology stocks led the market's advance, stock selection dampened
the fund's returns from its technology holdings. Microsoft Corp. (4.6% of net
assets) continued to suffer from concerns about its near-term business
prospects. In the biotechnology industry, Amgen, Inc. shares (0.9% of net
assets) declined in price because investors were concerned about government
reimbursement for some of its drugs, particularly those that treat anemia in
cancer patients. However, we have confidence in the growth prospects for each
company. Microsoft is expected to benefit from a corporate PC upgrade cycle in
2004. We are also confident that government reimbursement on Amgen's drugs will
be satisfactory and that the company's growth has the potential to result in a
positive surprise.
INCREASED EXPOSURE TO INDUSTRIAL AND CONSUMER CYCLICAL STOCKS
In the second half of the year, we raised the fund's exposure to industrial and
consumer cyclical stocks by increasing our positions in General Electric and
Illinois Tool Works, Inc. Earlier in the year, we added Lexmark International,
Inc., which makes computer printers (0.6% of net assets). We believe Lexmark has
the potential to benefit from a partnership with Dell, Inc., which we also added
to the portfolio (2.0% of net assets). All of these additions made positive
contributions to the fund's returns.
IMPROVING ECONOMIC ENVIRONMENT IS FAVORABLE FOR STOCKS
Following three difficult years, the stock market posted a remarkable turnaround
in 2003 as the S&P 500 gained 28.68%. While we do not expect that performance to
be repeated in the coming year, we think improved world economic growth will
continue to aid the US and world stock markets. We also believe that certain
areas of technology and health care have the potential to continue to exceed
expectations. As a result, we have increased the fund's exposure to technology
and to some of the higher-growth areas of health care, such as generic drugs and
medical devices. We have reduced our exposure to energy and banking, based on
our belief that these sectors have below-average growth potential.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the fund offers the potential for long-term growth, but also
involves certain risks, including stock market fluctuations due to economic and
business development.
The fund's approach offers the potential for long-term growth, but also involves
the possibility of losses due to the sensitivity of growth stock prices to
changes in current or expected earnings.
Holdings are disclosed as of December 31, 2003, and are subject to
change.
99
<Page>
PERFORMANCE INFORMATION
Liberty Equity Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------
Class A (1/11/93) 24.14 -1.70 8.72
S&P 500 Index 28.68 -0.57 11.07
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- -------------------------------------------------------
Class A 11.56 14.30
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 1/1/94 - 12/31/03
Class A: $23,075
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
1/1/1994 $ 10,000 $ 10,000
1/31/1994 $ 10,293 $ 10,340
2/28/1994 $ 10,137 $ 10,059
3/31/1994 $ 9,844 $ 9,620
4/30/1994 $ 9,922 $ 9,743
5/31/1994 $ 10,128 $ 9,903
6/30/1994 $ 9,932 $ 9,660
7/31/1994 $ 10,139 $ 9,977
8/31/1994 $ 10,494 $ 10,386
9/30/1994 $ 10,290 $ 10,132
10/31/1994 $ 10,528 $ 10,360
11/30/1994 $ 10,271 $ 9,983
12/31/1994 $ 10,348 $ 10,131
1/31/1995 $ 10,587 $ 10,393
2/28/1995 $ 10,906 $ 10,798
3/31/1995 $ 11,211 $ 11,117
4/30/1995 $ 11,461 $ 11,444
5/31/1995 $ 11,800 $ 11,901
6/30/1995 $ 12,020 $ 12,178
7/31/1995 $ 12,360 $ 12,582
8/31/1995 $ 12,220 $ 12,613
9/30/1995 $ 12,460 $ 13,146
10/31/1995 $ 12,541 $ 13,098
11/30/1995 $ 13,034 $ 13,673
12/31/1995 $ 13,118 $ 13,937
1/31/1996 $ 13,471 $ 14,411
2/29/1996 $ 13,501 $ 14,545
3/31/1996 $ 13,751 $ 14,685
4/30/1996 $ 13,913 $ 14,901
5/31/1996 $ 14,268 $ 15,285
6/30/1996 $ 14,242 $ 15,343
7/31/1996 $ 13,826 $ 14,665
8/31/1996 $ 14,141 $ 14,974
9/30/1996 $ 14,781 $ 15,817
10/31/1996 $ 15,045 $ 16,254
11/30/1996 $ 16,095 $ 17,483
12/31/1996 $ 15,936 $ 17,137
1/31/1997 $ 16,753 $ 18,208
2/28/1997 $ 16,661 $ 18,350
3/31/1997 $ 16,343 $ 17,595
4/30/1997 $ 17,481 $ 18,646
5/31/1997 $ 18,189 $ 19,781
6/30/1997 $ 18,772 $ 20,668
7/31/1997 $ 20,180 $ 22,313
8/31/1997 $ 19,357 $ 21,063
9/30/1997 $ 20,085 $ 22,218
10/31/1997 $ 19,528 $ 21,475
11/30/1997 $ 20,085 $ 22,470
12/31/1997 $ 20,356 $ 22,856
1/31/1998 $ 20,491 $ 23,110
2/28/1998 $ 21,669 $ 24,776
3/31/1998 $ 22,431 $ 26,045
4/30/1998 $ 22,649 $ 26,308
5/31/1998 $ 22,119 $ 25,855
6/30/1998 $ 22,632 $ 26,905
7/31/1998 $ 22,288 $ 26,620
8/31/1998 $ 18,564 $ 22,771
9/30/1998 $ 20,003 $ 24,230
10/31/1998 $ 22,013 $ 26,200
11/30/1998 $ 23,210 $ 27,788
12/31/1998 $ 25,139 $ 29,388
1/31/1999 $ 26,306 $ 30,617
2/28/1999 $ 25,140 $ 29,665
3/31/1999 $ 26,493 $ 30,851
4/30/1999 $ 27,057 $ 32,045
5/31/1999 $ 26,324 $ 31,289
6/30/1999 $ 28,451 $ 33,025
7/31/1999 $ 27,523 $ 31,995
8/31/1999 $ 27,245 $ 31,838
9/30/1999 $ 26,981 $ 30,966
10/31/1999 $ 28,414 $ 32,926
11/30/1999 $ 29,647 $ 33,594
12/31/1999 $ 31,977 $ 35,573
1/31/2000 $ 30,711 $ 33,787
2/29/2000 $ 31,604 $ 33,149
3/31/2000 $ 34,800 $ 36,391
4/30/2000 $ 34,152 $ 35,295
5/31/2000 $ 32,769 $ 34,572
6/30/2000 $ 33,821 $ 35,426
7/31/2000 $ 33,334 $ 34,873
8/31/2000 $ 35,877 $ 37,039
9/30/2000 $ 34,202 $ 35,083
10/31/2000 $ 33,645 $ 34,936
11/30/2000 $ 30,334 $ 32,183
12/31/2000 $ 31,396 $ 32,341
1/31/2001 $ 32,171 $ 33,489
2/28/2001 $ 28,828 $ 30,434
3/31/2001 $ 26,372 $ 28,505
4/30/2001 $ 28,369 $ 30,720
5/31/2001 $ 28,655 $ 30,926
6/30/2001 $ 27,297 $ 30,174
7/31/2001 $ 26,912 $ 29,878
8/31/2001 $ 25,179 $ 28,008
9/30/2001 $ 22,742 $ 25,745
10/31/2001 $ 23,528 $ 26,237
11/30/2001 $ 25,310 $ 28,249
12/31/2001 $ 25,694 $ 28,498
1/31/2002 $ 24,700 $ 28,082
2/28/2002 $ 23,929 $ 27,540
3/31/2002 $ 25,583 $ 28,575
4/30/2002 $ 23,979 $ 26,843
5/31/2002 $ 23,401 $ 26,645
6/30/2002 $ 21,253 $ 24,748
7/31/2002 $ 19,552 $ 22,820
8/31/2002 $ 19,681 $ 22,968
9/30/2002 $ 17,389 $ 20,471
10/31/2002 $ 18,929 $ 22,273
11/30/2002 $ 20,069 $ 23,585
12/31/2002 $ 18,596 $ 22,200
1/31/2003 $ 18,081 $ 21,619
2/28/2003 $ 17,920 $ 21,295
3/31/2003 $ 18,137 $ 21,501
4/30/2003 $ 19,569 $ 23,273
5/31/2003 $ 20,665 $ 24,499
6/30/2003 $ 20,810 $ 24,813
7/31/2003 $ 21,068 $ 25,250
8/31/2003 $ 21,487 $ 25,742
9/30/2003 $ 21,036 $ 25,469
10/31/2003 $ 22,035 $ 26,911
11/30/2003 $ 22,326 $ 27,147
12/31/2003 $ 23,075 $ 28,563
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The S&P (Standard & Poor's) 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.
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.
100
<Page>
INVESTMENT PORTFOLIO
Liberty Equity Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--98.0%
CONSUMER DISCRETIONARY--16.8%
HOTELS, RESTAURANTS & LEISURE--0.9%
Wendy's International, Inc. 9,700 $ 380,628
------------
INTERNET & CATALOG RETAIL--0.8%
eBay, Inc. (a) 3,000 193,770
InterActiveCorp (a) 4,540 154,042
------------
347,812
------------
MEDIA--4.3%
Liberty Media Corp., Class A (a) 42,750 508,297
News Corp., Ltd., ADR 13,500 487,350
Viacom, Inc., Class B 20,730 919,997
------------
1,915,644
------------
MULTI-LINE RETAIL--5.7%
Costco Wholesale Corp. (a) 12,250 455,455
Target Corp. 22,870 878,208
Wal-Mart Stores, Inc. 22,150 1,175,058
------------
2,508,721
------------
SPECIALTY RETAIL--5.1%
AutoZone, Inc. (a) 5,000 426,050
Bed Bath & Beyond, Inc. (a) 11,000 476,850
Home Depot, Inc. 18,410 653,371
Lowe's Companies, Inc. 12,900 714,531
------------
2,270,802
------------
CONSUMER STAPLES--7.4%
BEVERAGES--2.1%
PepsiCo, Inc. 19,510 909,556
------------
FOOD & DRUG RETAILING--1.2%
Walgreen Co. 14,700 534,786
------------
FOOD PRODUCTS--1.5%
Bunge Ltd. 6,620 217,930
Dean Foods Co. (a) 13,880 456,236
------------
674,166
------------
HOUSEHOLD PRODUCTS--2.0%
Procter & Gamble Co. 9,000 898,920
------------
PERSONAL PRODUCTS--0.6%
Gillette Co. 6,530 239,847
------------
ENERGY--7.4%
ENERGY EQUIPMENT & SERVICES--3.8%
Baker Hughes, Inc. 15,900 511,344
Noble Corp. (a) 17,800 636,884
Smith International, Inc. (a) 12,530 520,246
------------
1,668,474
------------
OIL & GAS--3.6%
Apache Corp. 6,730 545,803
BP PLC, ADR 20,800 1,026,480
------------
1,572,283
------------
FINANCIALS--18.8%
BANKS--5.2%
Bank of America Corp. 7,500 $ 603,225
Bank of New York Co., Inc. 20,000 662,400
Wells Fargo & Co. 17,500 1,030,575
------------
2,296,200
------------
DIVERSIFIED FINANCIALS--10.4%
Citigroup, Inc. 29,700 1,441,638
Fannie Mae 11,300 848,178
Goldman Sachs Group, Inc. 10,000 987,300
J.P. Morgan Chase & Co. 23,500 863,155
Merrill Lynch & Co., Inc. 7,360 431,664
------------
4,571,935
------------
INSURANCE--3.2%
American International Group, Inc. 12,500 828,500
Marsh & McLennan Companies, Inc. 12,500 598,625
------------
1,427,125
------------
HEALTH CARE--16.2%
BIOTECHNOLOGY--0.9%
Amgen, Inc. (a) 6,000 370,800
------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.1%
Alcon, Inc. 10,000 605,400
Boston Scientific Corp. (a) 15,730 578,235
Medtronic, Inc. 12,670 615,889
------------
1,799,524
------------
HEALTH CARE PROVIDERS & SERVICES--2.2%
Caremark Rx, Inc. (a) 19,500 493,935
WellPoint Health Networks, Inc. (a) 5,000 484,950
------------
978,885
------------
PHARMACEUTICALS--9.0%
Abbott Laboratories 10,270 478,582
Johnson & Johnson 13,000 671,580
Pfizer, Inc. 46,460 1,641,432
Teva Pharmaceutical
Industries Ltd., ADR 12,390 702,637
Watson Pharmaceuticals, Inc. (a) 10,300 473,800
------------
3,968,031
------------
INDUSTRIALS--9.8%
AEROSPACE & DEFENSE--2.6%
United Technologies Corp. 12,100 1,146,717
------------
COMMERCIAL SERVICES & SUPPLIES--1.4%
Cendant Corp. (a) 27,500 612,425
------------
INDUSTRIAL CONGLOMERATES--3.9%
3M Co. 3,880 329,916
General Electric Co. 44,410 1,375,822
------------
1,705,738
------------
MACHINERY--1.9%
Illinois Tool Works, Inc. 10,140 850,847
------------
</Table>
See Notes to Investment Portfolio.
101
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
INFORMATION TECHNOLOGY--20.4%
COMMUNICATIONS EQUIPMENT--4.1%
Cisco Systems, Inc. (a) 73,900 $ 1,795,031
------------
COMPUTERS & PERIPHERALS--3.6%
Dell, Inc. (a) 25,800 876,168
International Business Machines Corp. 4,800 444,864
Lexmark International, Inc. (a) 3,200 251,648
------------
1,572,680
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.5%
Flextronics International Ltd. (a) 45,000 667,800
------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--0.6%
Accenture Ltd., Class A (a) 10,000 263,200
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--4.8%
Analog Devices, Inc. 6,600 301,290
Intel Corp. 34,230 1,102,206
Marvell Technology Group Ltd. (a) 5,830 221,132
Maxim Integrated Products, Inc. 10,000 498,000
------------
2,122,628
------------
SOFTWARE--5.8%
Microsoft Corp. 74,100 2,040,714
Oracle Corp. (a) 16,350 215,820
VERITAS Software Corp. (a) 8,000 297,280
------------
2,553,814
------------
TELECOMMUNICATION SERVICES--1.2%
DIVERSIFIED TELECOMMUNICATION SERVICES--1.2%
American Tower Corp., Class A (a) 50,000 541,000
------------
TOTAL COMMON STOCKS
(cost of $38,229,466) 43,166,019
------------
PREFERRED STOCK--1.0%
CONSUMER DISCRETIONARY--1.0%
MEDIA--1.0%
News Corp., Ltd., ADR
(cost of $423,789) 14,650 $ 443,162
------------
<Caption>
PAR
------------
SHORT-TERM OBLIGATION--1.4%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized by a
U.S. Treasury Bond maturing
02/15/21, market value $619,369
(repurchase proceeds $603,026)
(cost of $603,000) $ 603,000 603,000
------------
TOTAL INVESTMENTS--100.4%
(cost of $39,256,255) (b) 44,212,181
------------
OTHER ASSETS & LIABILITIES, NET--(0.4)% (162,208)
------------
NET ASSETS--100.0% $ 44,049,973
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $39,387,172.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Notes to Financial Statements.
102
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Equity Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 39,256,255
----------------
Investments, at value $ 44,212,181
Cash 553
Receivable for:
Fund shares sold 297
Interest 13
Dividends 22,275
Expense reimbursement due from Investment Advisor 739
Deferred Trustees' compensation plan 3,130
----------------
TOTAL ASSETS 44,239,188
----------------
LIABILITIES:
Payable for:
Fund shares repurchased 100,734
Investment advisory fee 27,677
Administration fee 2,455
Transfer agent fee 416
Pricing and bookkeeping fees 2,039
Trustees' fees 2,087
Audit fee 25,774
Custody fee 481
Reports to shareholders 16,477
Deferred Trustees' fees 3,130
Other liabilities 7,945
----------------
TOTAL LIABILITIES 189,215
----------------
NET ASSETS $ 44,049,973
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 51,947,624
Overdistributed net investment income (1,896)
Accumulated net realized loss (12,851,681)
Net unrealized appreciation on investments 4,955,926
----------------
NET ASSETS $ 44,049,973
================
CLASS A:
Net assets $ 44,048,741
Shares outstanding 3,079,918
================
Net asset value per share $ 14.30
================
CLASS B:
Net assets $ 1,232
Shares outstanding 86
================
Net asset value per share $ 14.33
================
</Table>
See Notes to Financial Statements.
103
<Page>
STATEMENT OF OPERATIONS
Liberty Equity Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 584,714
Interest 5,535
----------------
Total Investment Income (net of foreign taxes withheld of $5,525) 590,249
----------------
EXPENSES:
Investment advisory fee 330,439
Administration fee 36,137
Distribution fee--Class B 2
Transfer agent fee 5,000
Pricing and bookkeeping fees 25,823
Trustees' fees 2,653
Custody fee 9,276
Audit fee 29,642
Other expenses 17,122
----------------
Total Expenses 456,094
Fees and expenses waived or reimbursed by Investment Advisor (12,583)
Custody earnings credit (4)
----------------
Net Expenses 443,507
----------------
Net Investment Income 146,742
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,782,702)
Net change in unrealized appreciation/depreciation on investments 14,341,706
----------------
Net Gain 9,559,004
----------------
Net Increase in Net Assets from Operations $ 9,705,746
================
</Table>
See Notes to Financial Statements.
104
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Equity Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- --------------------------------- ------------ ------------
OPERATIONS:
Net investment income $ 146,742 $ 108,103
Net realized loss on investments (4,782,702) (3,306,702)
Net change in unrealized appreciation/depreciation
on investments 14,341,706 (17,120,856)
------------ ------------
Net Increase (Decrease) from Operations 9,705,746 (20,319,455)
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (147,146) (125,623)
------------ ------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,333,191 851,624
Proceeds received in connection with merger 4,822,551 --
Distributions reinvested 147,146 125,623
Redemptions (16,415,799) (16,742,361)
------------ ------------
Net Decrease (9,112,911) (15,765,114)
------------ ------------
Class B:
Subscriptions 1,000 --
------------ ------------
Net Decrease from Share Transactions (9,111,911) (15,765,114)
------------ ------------
Total Increase (Decrease) in Net Assets 446,689 (36,210,192)
NET ASSETS:
Beginning of period 43,603,284 79,813,476
------------ ------------
End of period (including overdistributed net investment
income of $(1,896) and $(1,604), respectively) $ 44,049,973 $ 43,603,284
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 177,747 58,751
Issued in connection with merger 416,815 --
Issued for distributions reinvested 11,315 10,720
Redemptions (1,296,537) (1,280,602)
------------ ------------
Net Decrease (690,660) (1,211,131)
------------ ------------
Class B:
Subscriptions 86 --
------------ ------------
</Table>
See Notes to Financial Statements.
105
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Equity Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Liberty Equity Fund, Variable Series (formerly Galaxy VIP Equity Fund) (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 in companies
which are believed to have above average earnings potential.
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 at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments for which market quotations are not readily available 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.
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.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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.
106
<Page>
For the year ended December 31, 2003, permanent differences resulting primarily
from differing treatments for capital loss carryforwards from the merger and
capital loss carryforwards permanently lost from the merger were identified and
reclassified among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED NET PAID-IN
NET INVESTMENT INCOME REALIZED LOSS CAPITAL
- --------------------- --------------- -------
$ 112 $ (593,954) $ 593,842
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 147,146 $ 125,623
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
- -------------- ------------- --------------
$ -- $ -- $ 4,825,009
</Table>
* 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, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 7,477,970
Unrealized depreciation (2,652,961)
------------
Net unrealized appreciation $ 4,825,009
============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 25,237
2009 3,277,087
2010 4,000,679
2011 5,417,761
------------
$ 12,720,764
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $695,798 was
obtained upon the Fund's merger with Galaxy VIP Growth & Income Fund (See Note
7).
Capital loss carryforwards of $101,845 were utilized and/or expired during the
year ended December 31, 2003 for the Fund. Any capital loss carryforwards
acquired as part of a merger that are permanently lost due to provisions under
Internal Revenue Code are included as being expired. Expired capital loss
carryforwards are recorded as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Fleet Investment Advisors Inc.,
the previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an
indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As a
result of the merger, Columbia now serves as the Fund's investment advisor. The
merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
receives a monthly fee based on the Fund's average daily net assets at the
following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.75%
Next $500 million 0.70%
Next $500 million 0.65%
Next $500 million 0.60%
Over $2 billion 0.55%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.75% of the Fund's average net assets. In addition, for
the period July 1, 2003 through October 31, 2003, Columbia voluntarily waived a
portion of its investment advisory fee so that it did not exceed 0.71% annually.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.74%.
ADMINISTRATION FEE--Columbia provides administrative and other services for a
monthly fee based on the Fund's average daily net assets at the following annual
rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.067%
Next $1.5 billion 0.060%
Over $2.5 billion 0.055%
</Table>
For the period April 14, 2003 through October 31, 2003, Columbia was entitled to
receive fees, computed daily and payable monthly, at the annual rate of 0.085%
of the
107
<Page>
Fund's average daily net assets. Prior to April 14, 2003, Columbia was entitled
to receive fees, computed daily and payable monthly, based on the combined
average daily net assets of the funds in the Galaxy VIP Fund (the "predecessor
trust") at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.085%
Next $1.5 billion 0.078%
Over $2.5 billion 0.073%
</Table>
For the year ended December 31, 2003, the Fund's effective administration fee
rate was 0.082%.
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"). Columbia pays fees
to State Street under the Outsourcing Agreement. Columbia pays the total fees
collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee based on the average daily net assets of the Fund at the following
annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
Under $50 million $ 25,000
Of $50 million but less than $200 million $ 35,000
Of $200 million but less than $500 million $ 50,000
Of $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services. For the year ended
December 31, 2003, the effective pricing and bookkeeping fee rate was 0.058%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $5,000.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
FEE WAIVERS--Effective April 14, 2003, Columbia has agreed to reimburse fees
at the annual rate of 0.02% of the Fund's average daily net assets. This
agreement will continue until April 13, 2004, after which it may be revised or
discontinued any time.
Prior to April 14, 2003, Fleet Investment Advisors, Inc. and/or its affiliates
and/or PFPC Inc., the former administrator, could waive all or a portion of the
fees payable to them by the predecessor fund.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--The year ended December 31, 2003, the cost
of purchases and proceeds from sales of securities, excluding short-term
obligations, were $20,146,674 and $34,714,275, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
108
<Page>
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
NOTE 7. BUSINESS COMBINATIONS AND MERGERS
FUND MERGERS--On April 14, 2003, the Galaxy VIP Growth & Income Fund,
previously a fund of the Galaxy VIP Fund, a separate Massachusetts business
trust, merged into the Galaxy VIP Equity Fund, also previously a fund of the
predecessor trust. The Galaxy VIP Equity Fund received a tax-free transfer of
assets from the Galaxy VIP Growth & Income Fund, as follows:
<Table>
<Caption>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED DEPRECIATION(1)
-------- ---------- -------------
416,815 $ 4,822,551 $ 1,331,049
</Table>
<Table>
<Caption>
NET ASSETS
NET ASSETS NET ASSETS OF GALAXY
OF GALAXY OF GALAXY VIP EQUITY FUND
VIP EQUITY VIP GROWTH & INCOME IMMEDIATELY
FUND PRIOR TO FUND IMMEDIATELY AFTER
COMBINATION PRIOR TO COMBINATION COMBINATION
------------- -------------------- ---------------
$ 39,395,832 $ 4,822,551 $ 44,218,383
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount
shown above.
Also on April 14, 2003, subsequent to the merger described above, the Galaxy VIP
Equity Fund was renamed the Liberty Equity Fund, Variable Series.
The accompanying statement of operations, statement of changes in net assets and
financial highlights for the Fund represent the historical operations of the
Galaxy VIP Equity Fund for periods prior to April 14, 2003.
109
<Page>
FINANCIAL HIGHLIGHTS
Liberty Equity Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.56 $ 16.02 $ 19.81 $ 22.21 $ 19.20
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.03(b) 0.03 --(c) (0.02) (0.02)
Net realized and unrealized gain (loss) on investments 2.76 (4.46) (3.58) (0.37) 5.05
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 2.79 (4.43) (3.58) (0.39) 5.03
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.05) (0.03) -- -- --
From net realized gains -- -- (0.21) (2.01) (2.02)
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.05) (0.03) (0.21) (2.01) (2.02)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.30 $ 11.56 $ 16.02 $ 19.81 $ 22.21
========== ========== ========== ========== ==========
Total return (d)(e) 24.14%(f) (27.64)% (18.17)% (1.82)% 27.18%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 1.01% 1.09% 1.02% 0.98% 0.96%
Net investment income (loss) (g) 0.33% 0.18% 0.00% (0.11)% (0.11)%
Waiver/reimbursement 0.03% -- -- -- --
Portfolio turnover rate 46% 35% 51% 54% 60%
Net assets, end of period (000's) $ 44,049 $ 43,603 $ 79,813 $ 120,712 $ 119,799
</Table>
(a) The information shown in this table, for the periods prior to April 14,
2003, relates to shares of the Galaxy VIP Equity Fund, the predecessor to
the Liberty Equity Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
110
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Equity 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 Equity Fund, Variable
Series (formerly Galaxy VIP Equity Fund) (the "Fund") (a series of Liberty
Variable Investment Trust) (formerly a series of Galaxy VIP Fund) at December
31, 2003, 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 audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which 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 audit, which included
confirmation of securities at December 31, 2003 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion. The
financial statements and financial highlights of the Fund for the periods prior
to January 1, 2003 were audited by other independent accountants whose report
dated February 7, 2003 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
111
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
100% of the ordinary income distributed by the Fund, for the year ended December
31, 2003, qualifies for the corporate dividends received deduction.
112
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Growth & Income Fund, Variable Series / December 31, 2003
Liberty Growth & Income Fund, Variable Series seeks long-term growth and income.
Brian Cunningham, Gregory M. Miller and Richard Dahlberg are co-managers of the
fund. Mr. Cunningham has co-managed the fund since November 2003 and has been
with Columbia Management Advisors, Inc. and its predecessors ("Columbia") since
1987. Mr. Miller has co-managed the fund since April 2003 and joined Columbia in
1985. Mr. Dahlberg, head of Columbia large-cap value team, has co-managed the
fund since October 2003. He joined Columbia in September 2003.
The fund provided a strong return for the year, but it did not perform as well
as its benchmark index. Disappointing results in the consumer staples area and
low exposure to financial services companies hurt relative performance early in
the year. When we initially took over management of the fund in April 2003, we
sought to upgrade the quality of the portfolio. We reduced the fund's exposure
to more speculative companies with less certain prospects and focused on
companies that represented good value relative to our estimate of their future
earnings potential. However, the initiation of this strategy was poorly timed.
When the stock market began to bounce back, it favored riskier stocks over more
stable issues, and the fund did not keep up with its benchmark. Nevertheless, we
are comfortable with the long-term potential of the portfolio that we put in
place during the year and we believe that our positioning will serve the fund
well over time.
CHALLENGING YEAR IN CONSUMER STAPLES
Three of the fund's largest holdings --Safeway, Sara Lee and ConAgra--generated
disappointing returns early in the year. We sold Safeway and Sara Lee at a loss.
ConAgra generated a small loss for the year, but it gained ground later in the
period when it restructured to emphasize its key food processing business. We
continue to own the stock, which represents 1.0% of net assets. Within the
consumer staples sector, we initiated a position in Procter & Gamble Co. (1.2%
of net assets), which has performed well. We believe P & G's strong product
introductions, good sales momentum, renewed financial discipline and focus on
profitability made it a solid addition to the portfolio.
STRONG RETURNS FROM FINANCIALS, INDUSTRIALS
Starting in April, we began to increase the fund's exposure to the financial
sector, which represents roughly one-fifth of the S&P 500 Index. The fund's
relatively low allocation to financial stocks hindered relative performance in
the first part of the year, but we caught up somewhat as the year progressed.
New positions in U.S. Bancorp and Wells Fargo (2.2% and 2.0% of net assets,
respectively) contributed to positive returns, as did our sizeable investment in
Citigroup Inc. (5.5% of net assets). Industrial companies Textron Inc. and
Honeywell International (1.9% and 1.1% of net assets, respectively) were also
strong performers as the economy's comeback strengthened the outlook for the
sector.
NEW POSITION IN TECHNOLOGY
One of the year's best performing sectors--technology--was underrepresented in
the fund because, in our opinion, technology stocks that met our definition of
"good value" were difficult to find. However, we were attracted to Finnish
company Nokia (1.1% of net assets), a leading cell phone manufacturer, when it
lost market share and its price declined to within our target range early in the
period. We initiated a position in Nokia's because we believe its strong
management and low production costs will help it regain its position in the
highly competitive wireless telephone industry.
FOCUSED ON QUALITY AND VALUE
On the surface, we believe that the economy is healthy and continuing to expand,
with low interest rates and rising stock values. However, digging deeper, we
have concerns about high unemployment levels and corporate spending--both
essential ingredients for maintaining economic growth. As quality-oriented value
investors, we continue to take a long-term view and select stocks for the fund
that we believe have the potential to prosper under a variety of economic
conditions.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Liberty Growth & Income Fund, Variable Series offers
significant long-term growth potential, but also involves certain risks. The
fund may be affected by stock market fluctuations due to economic and business
developments.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the advisor's assessment of a company's
prospects is wrong, the price of its stock may not approach the value the
advisor has placed on it.
Holdings are disclosed as of December 31, 2003, and are subject to change.
113
<Page>
PERFORMANCE INFORMATION
Liberty Growth & Income Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- --------------------------------------------------------------
Class A (7/5/94) 19.79 1.52 11.57
S&P 500 Index(1) 28.68 -0.57 12.04
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ------------------------------------------------------
Class A 11.97 14.15
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/5/94 - 12/31/03
Class A: $28,262
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
07/1994 $ 10,000 $ 10,000
7/31/1994 $ 10,260 $ 10,275
8/31/1994 $ 10,670 $ 10,696
9/30/1994 $ 10,460 $ 10,434
10/31/1994 $ 10,631 $ 10,669
11/30/1994 $ 10,251 $ 10,281
12/31/1994 $ 10,441 $ 10,433
1/31/1995 $ 10,705 $ 10,703
2/28/1995 $ 11,132 $ 11,120
3/31/1995 $ 11,427 $ 11,448
4/30/1995 $ 11,661 $ 11,785
5/31/1995 $ 12,078 $ 12,256
6/30/1995 $ 12,342 $ 12,541
7/31/1995 $ 12,769 $ 12,957
8/31/1995 $ 12,718 $ 12,990
9/30/1995 $ 13,145 $ 13,538
10/31/1995 $ 13,094 $ 13,489
11/30/1995 $ 13,592 $ 14,081
12/31/1995 $ 13,541 $ 14,353
1/31/1996 $ 13,903 $ 14,841
2/29/1996 $ 14,177 $ 14,979
3/31/1996 $ 14,253 $ 15,123
4/30/1996 $ 14,779 $ 15,345
5/31/1996 $ 15,130 $ 15,741
6/30/1996 $ 14,801 $ 15,801
7/31/1996 $ 14,089 $ 15,102
8/31/1996 $ 14,560 $ 15,421
9/30/1996 $ 15,272 $ 16,289
10/31/1996 $ 15,655 $ 16,739
11/30/1996 $ 16,773 $ 18,004
12/31/1996 $ 16,498 $ 17,648
1/31/1997 $ 17,704 $ 18,751
2/28/1997 $ 17,692 $ 18,897
3/31/1997 $ 16,984 $ 18,120
4/30/1997 $ 17,889 $ 19,202
5/31/1997 $ 18,911 $ 20,372
6/30/1997 $ 19,629 $ 21,284
7/31/1997 $ 21,196 $ 22,978
8/31/1997 $ 20,465 $ 21,692
9/30/1997 $ 21,520 $ 22,880
10/31/1997 $ 20,535 $ 22,116
11/30/1997 $ 21,371 $ 23,140
12/31/1997 $ 21,815 $ 23,538
1/31/1998 $ 22,055 $ 23,799
2/28/1998 $ 23,581 $ 25,515
3/31/1998 $ 24,772 $ 26,822
4/30/1998 $ 24,760 $ 27,093
5/31/1998 $ 24,143 $ 26,627
6/30/1998 $ 25,068 $ 27,708
7/31/1998 $ 24,572 $ 27,414
8/31/1998 $ 20,569 $ 23,450
9/30/1998 $ 21,519 $ 24,953
10/31/1998 $ 23,355 $ 26,982
11/30/1998 $ 24,775 $ 28,617
12/31/1998 $ 26,209 $ 30,265
1/31/1999 $ 26,893 $ 31,530
2/28/1999 $ 25,820 $ 30,550
3/31/1999 $ 26,657 $ 31,772
4/30/1999 $ 27,395 $ 33,001
5/31/1999 $ 27,034 $ 32,222
6/30/1999 $ 28,610 $ 34,011
7/31/1999 $ 27,897 $ 32,950
8/31/1999 $ 27,590 $ 32,788
9/30/1999 $ 26,641 $ 31,890
10/31/1999 $ 27,702 $ 33,908
11/30/1999 $ 28,064 $ 34,597
12/31/1999 $ 29,355 $ 36,634
1/31/2000 $ 27,773 $ 34,795
2/29/2000 $ 26,826 $ 34,138
3/31/2000 $ 29,474 $ 37,476
4/30/2000 $ 29,444 $ 36,348
5/31/2000 $ 29,297 $ 35,603
6/30/2000 $ 28,899 $ 36,483
7/31/2000 $ 29,107 $ 35,913
8/31/2000 $ 30,970 $ 38,144
9/30/2000 $ 30,248 $ 36,130
10/31/2000 $ 30,463 $ 35,978
11/30/2000 $ 28,991 $ 33,143
12/31/2000 $ 30,418 $ 33,305
1/31/2001 $ 30,217 $ 34,488
2/28/2001 $ 30,018 $ 31,342
3/31/2001 $ 28,853 $ 29,355
4/30/2001 $ 29,369 $ 31,636
5/31/2001 $ 29,919 $ 31,848
6/30/2001 $ 29,219 $ 31,074
7/31/2001 $ 30,069 $ 30,770
8/31/2001 $ 29,885 $ 28,843
9/30/2001 $ 28,702 $ 26,513
10/31/2001 $ 28,848 $ 27,019
11/30/2001 $ 30,008 $ 29,092
12/31/2001 $ 30,236 $ 29,348
1/31/2002 $ 29,731 $ 28,919
2/28/2002 $ 29,419 $ 28,361
3/31/2002 $ 30,781 $ 29,427
4/30/2002 $ 29,673 $ 27,644
5/31/2002 $ 29,634 $ 27,440
6/30/2002 $ 26,484 $ 25,486
7/31/2002 $ 24,307 $ 23,501
8/31/2002 $ 24,618 $ 23,653
9/30/2002 $ 21,078 $ 21,082
10/31/2002 $ 22,887 $ 22,937
11/30/2002 $ 24,638 $ 24,288
12/31/2002 $ 23,600 $ 22,863
1/31/2003 $ 22,753 $ 22,264
2/28/2003 $ 21,490 $ 21,930
3/31/2003 $ 21,411 $ 22,142
4/30/2003 $ 22,967 $ 23,967
5/31/2003 $ 24,860 $ 25,230
6/30/2003 $ 25,432 $ 25,553
7/31/2003 $ 25,332 $ 26,003
8/31/2003 $ 25,766 $ 26,510
9/30/2003 $ 25,273 $ 26,229
10/31/2003 $ 26,181 $ 27,713
11/30/2003 $ 26,456 $ 27,957
12/31/2003 $ 28,262 $ 29,410
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The S&P (Standard & Poor's) 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.
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.
(1) Index performance is from July 5, 1994.
114
<Page>
INVESTMENT PORTFOLIO
Liberty Growth & Income Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
-------------- --------------
COMMON STOCKS--96.0%
CONSUMER DISCRETIONARY--7.8%
AUTO COMPONENTS--1.0%
Delphi Corp. 246,178 $ 2,513,477
--------------
HOTELS, RESTAURANTS & LEISURE--1.7%
Harrah's Entertainment, Inc. 12,743 634,219
Wendy's International, Inc. 99,400 3,900,456
--------------
4,534,675
--------------
LEISURE EQUIPMENT & PRODUCTS--0.4%
Mattel, Inc. 60,700 1,169,689
--------------
MEDIA--3.7%
Clear Channel Communications, Inc. 28,626 1,340,556
Gannett Co., Inc. 14,600 1,301,736
McGraw-Hill Companies, Inc. 38,600 2,698,912
Time Warner, Inc. (a) 163,700 2,944,963
Viacom, Inc., Class A 28,600 1,266,122
--------------
9,552,289
--------------
SPECIALTY RETAIL--1.0%
Office Depot, Inc. (a) 155,800 2,603,418
--------------
CONSUMER STAPLES--7.8%
BEVERAGES--1.5%
PepsiCo, Inc. 82,900 3,864,798
--------------
FOOD PRODUCTS--2.0%
ConAgra Foods, Inc. 103,700 2,736,643
Kraft Foods, Inc., Class A 79,600 2,564,712
--------------
5,301,355
--------------
HOUSEHOLD PRODUCTS--3.3%
Clorox Co. 53,600 2,602,816
Kimberly-Clark Corp. 48,500 2,865,865
Procter & Gamble Co. 31,100 3,106,268
--------------
8,574,949
--------------
TOBACCO--1.0%
Altria Group, Inc. 47,677 2,594,582
--------------
ENERGY--12.3%
ENERGY EQUIPMENT & SERVICES--2.9%
Baker Hughes, Inc. 85,500 2,749,680
Halliburton Co. 188,300 4,895,800
--------------
7,645,480
--------------
OIL & GAS--9.4%
BP PLC, ADR 108,400 5,349,540
ConocoPhillips 82,170 5,387,887
Exxon Mobil Corp. 176,070 7,218,870
Marathon Oil Corp. 121,200 4,010,508
Royal Dutch Petroleum Co.,
NY Shares 51,700 2,708,563
--------------
24,675,368
--------------
FINANCIALS--33.0%
BANKS--10.4%
Bank of America Corp. 77,857 $ 6,262,039
Bank of New York Co., Inc. 111,500 3,692,880
Bank One Corp. 81,502 3,715,676
Fifth Third Bancorp 24,300 1,436,130
National City Corp. 35,268 1,196,996
U.S. Bancorp 188,900 5,625,442
Wells Fargo & Co. 88,100 5,188,209
--------------
27,117,372
--------------
DIVERSIFIED FINANCIALS--12.3%
American Express Co. 50,700 2,445,261
Citigroup, Inc. 298,800 14,503,752
Countrywide Financial Corp. 22,933 1,739,493
Freddie Mac 69,400 4,047,408
J.P. Morgan Chase & Co. 99,617 3,658,933
Merrill Lynch & Co., Inc. 34,162 2,003,601
Morgan Stanley 33,997 1,967,406
State Street Corp. 34,400 1,791,552
--------------
32,157,406
--------------
INSURANCE--9.0%
AFLAC, Inc. 34,700 1,255,446
Ambac Financial Group, Inc. 34,400 2,387,016
American International Group, Inc. 78,000 5,169,840
Berkshire Hathaway, Inc.,
Class A (a) 63 5,307,750
Lincoln National Corp. 109,914 4,437,228
Travelers Property Casualty Corp.,
Class B 150,800 2,559,076
Willis Group Holdings Ltd. 70,792 2,411,884
--------------
23,528,240
--------------
REAL ESTATE--1.3%
Archstone-Smith Trust 42,200 1,180,756
Kimco Realty Corp. 23,212 1,038,737
Vornado Realty Trust 23,307 1,276,058
--------------
3,495,551
--------------
HEALTH CARE--5.5%
HEALTH CARE PROVIDERS & SERVICES--3.0%
Aetna, Inc. 76,200 5,149,596
McKesson Corp. 80,800 2,598,528
--------------
7,748,124
--------------
PHARMACEUTICALS--2.5%
Bristol-Myers Squibb Co. 43,682 1,249,305
Johnson & Johnson 22,800 1,177,848
Merck & Co., Inc. 27,710 1,280,202
Pfizer, Inc. 82,900 2,928,857
--------------
6,636,212
--------------
INDUSTRIALS--10.2%
AEROSPACE & DEFENSE--3.7%
General Dynamics Corp. 29,400 2,657,466
Honeywell International, Inc. 85,800 2,868,294
Raytheon Co. 91,200 2,739,648
United Technologies Corp. 14,400 1,364,688
--------------
9,630,096
--------------
</Table>
See Notes to Investment Portfolio.
115
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
COMMERCIAL SERVICES & SUPPLIES--2.6%
Avery Dennison Corp. 22,600 $ 1,266,052
Waste Management, Inc. 190,100 5,626,960
--------------
6,893,012
--------------
INDUSTRIAL CONGLOMERATES--1.9%
Textron, Inc. 85,300 4,867,218
--------------
MACHINERY--2.0%
Deere & Co. 40,486 2,633,614
Dover Corp. 68,050 2,704,988
--------------
5,338,602
--------------
INFORMATION TECHNOLOGY--6.0%
COMMUNICATIONS EQUIPMENT--1.1%
Nokia Oyj, ADR 166,700 2,833,900
--------------
COMPUTERS & PERIPHERALS--0.9%
International Business Machines Corp. 26,700 2,474,556
Silicon Graphics, Inc. (a) 2,204 3,020
--------------
2,477,576
--------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--1.8%
Accenture Ltd., Class A (a) 178,400 4,695,488
--------------
OFFICE ELECTRONICS--1.8%
Xerox Corp. (a) 342,100 4,720,980
--------------
SOFTWARE--0.4%
Microsoft Corp. 39,400 1,085,076
--------------
MATERIALS--3.3%
CHEMICALS--1.5%
Air Products & Chemicals, Inc. 71,568 3,780,938
--------------
PAPER & FOREST PRODUCTS--1.8%
MeadWestvaco Corp. 94,500 2,811,375
Weyerhaeuser Co. 30,991 1,983,424
--------------
4,794,799
--------------
TELECOMMUNICATION SERVICES--4.8%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.8%
BellSouth Corp. 144,600 4,092,180
CenturyTel, Inc. 16,600 541,492
SBC Communications, Inc. 155,400 4,051,278
Verizon Communications, Inc. 108,300 3,799,164
--------------
12,484,114
--------------
UTILITIES--5.3%
ELECTRIC UTILITIES--4.3%
American Electric Power Co., Inc. 79,100 $ 2,413,341
Consolidated Edison, Inc. 89,400 3,845,094
PG&E Corp. (a) 80,800 2,243,816
TXU Corp. 115,300 2,734,916
--------------
11,237,167
--------------
MULTI-UTILITIES & UNREGULATED POWER--1.0%
Duke Energy Corp. 126,600 2,588,970
--------------
TOTAL COMMON STOCKS
(cost of $214,181,192) 251,140,921
--------------
INVESTMENT MANAGEMENT
COMPANY--3.8%
iShares Russell 1000 Value Index Fund
(cost of $9,072,882) 168,866 9,856,708
--------------
<Caption>
PAR
--------------
SHORT-TERM OBLIGATION--0.6%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized by a
U.S. Treasury Bond maturing
08/15/28, market value $1,470,697
(repurchase proceeds $1,437,062)
(cost of $1,437,000) $ 1,437,000 1,437,000
--------------
TOTAL INVESTMENTS--100.4%
(cost of $224,691,074) (b) 262,434,629
--------------
OTHER ASSETS & LIABILITIES, NET--(0.4)% (917,680)
--------------
NET ASSETS--100.0% $ 261,516,949
==============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $225,102,907.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Notes to Financial Statements.
116
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Growth & Income Fund, Variable Series/December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 224,691,074
--------------
Investments, at value $ 262,434,629
Cash 870
Receivable for:
Fund shares sold 58,335
Interest 31
Dividends 322,761
Expense reimbursement due from Investment Advisor/Distributor 21,183
Deferred Trustees' compensation plan 14,275
--------------
TOTAL ASSETS 262,852,084
--------------
LIABILITIES:
Payable for:
Fund shares repurchased 1,069,259
Investment advisory fee 174,578
Transfer agent fee 625
Pricing and bookkeeping fees 8,237
Trustees' fees 1,102
Custody fee 617
Distribution fee--Class B 10,052
Deferred Trustees' fees 14,275
Other liabilities 56,390
--------------
TOTAL LIABILITIES 1,335,135
--------------
NET ASSETS $ 261,516,949
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 298,452,984
Undistributed net investment income 103,584
Accumulated net realized loss (74,783,174)
Net unrealized appreciation on investments 37,743,555
--------------
NET ASSETS $ 261,516,949
==============
CLASS A:
Net assets $ 216,923,181
Shares outstanding 15,331,886
==============
Net asset value per share $ 14.15
==============
CLASS B:
Net assets $ 44,593,768
Shares outstanding 3,154,564
==============
Net asset value per share $ 14.14
==============
</Table>
See Notes to Financial Statements.
117
<Page>
STATEMENT OF OPERATIONS
Liberty Growth & Income Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 5,176,678
Interest 81,550
--------------
Total Investment Income (net of foreign taxes withheld of $72,738) 5,258,228
--------------
EXPENSES:
Investment advisory fee 1,716,268
Distribution fee--Class B 90,508
Transfer agent fee 7,500
Pricing and bookkeeping fees 70,470
Trustees' fees 8,708
Custody fee 10,665
Other expenses 93,882
--------------
Total Expenses 1,998,001
Fees and expenses waived or reimbursed by Investment Advisor (209,396)
Fees waived by Distributor--Class B (5,806)
Custody earnings credit (40)
--------------
Net Expenses 1,782,759
--------------
Net Investment Income 3,475,469
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (27,529,590)
Net change in unrealized appreciation/depreciation on investments 74,661,609
--------------
Net Gain 47,132,019
--------------
Net Increase in Net Assets from Operations $ 50,607,488
==============
</Table>
See Notes to Financial Statements.
118
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Growth & Income Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 3,475,469 $ 1,860,948
Net realized loss on investments (27,529,590) (28,158,847)
Net change in unrealized appreciation/depreciation on investments 74,661,609 (19,133,885)
-------------- --------------
Net Increase (Decrease) from Operations 50,607,488 (45,431,784)
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (2,859,733) (1,556,810)
Class B (497,712) (354,201)
-------------- --------------
Total Distributions Declared to Shareholders (3,357,445) (1,911,011)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 7,840,182 6,842,505
Proceeds received in connection with merger 88,842,502 --
Distributions reinvested 2,859,733 1,556,810
Redemptions (35,938,840) (35,673,636)
-------------- --------------
Net Increase (Decrease) 63,603,577 (27,274,321)
-------------- --------------
Class B:
Subscriptions 14,226,069 13,543,954
Proceeds received in connection with merger 7,935,880 --
Distributions reinvested 497,712 354,201
Redemptions (13,087,318) (3,985,341)
-------------- --------------
Net Increase 9,572,343 9,912,814
-------------- --------------
Net Increase (Decrease) from Share Transactions 73,175,920 (17,361,507)
-------------- --------------
Total Increase (Decrease) in Net Assets 120,425,963 (64,704,302)
NET ASSETS:
Beginning of period 141,090,986 205,795,288
-------------- --------------
End of period (including undistributed net investment income of
$103,584 and overdistributed net investment income of $(6,499), respectively) $ 261,516,949 $ 141,090,986
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 613,478 498,777
Issued in connection with merger 7,939,987 --
Issued for distributions reinvested 202,962 131,377
Redemptions (2,893,899) (2,737,362)
-------------- --------------
Net Increase (Decrease) 5,862,528 (2,107,208)
-------------- --------------
Class B:
Subscriptions 1,213,974 950,359
Issued in connection with merger 710,257 --
Issued for distributions reinvested 35,349 29,941
Redemptions (1,128,428) (314,657)
-------------- --------------
Net Increase 831,152 665,643
-------------- --------------
</Table>
See Notes to Financial Statements.
119
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Growth & Income Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Liberty Growth & Income Fund, Variable Series (formerly Colonial U.S. 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 at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments in other investment companies are valued at net asset value.
Investments for which market quotations are not readily available 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.
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. Awards from
class action litigation are recorded as a reduction of cost if the Fund still
owns the applicable securities on the payment date. If the Fund no longer owns
the applicable securities, the proceeds 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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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
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<Page>
for permanent tax DIF ferences to reflect income and gains available for
distribution (or available capital loss carryforwards) under income tax
regulations.
For the year ended December 31, 2003, permanent differences resulting primarily
from differing treatments for deferral of losses from wash sales, capital loss
carryforwards from the merger, non-deductible expenses from the merger and Real
Estate Investment Trust ("REIT") adjustments were identified and reclassified
among the components of the Fund's net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED
NET INVESTMENT ACCUMULATED NET PAID-IN
INCOME REALIZED LOSS CAPITAL
-------------- --------------- -------
$ (7,941) $ (18,218,000) $ 18,225,941
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 3,357,445 $ 1,911,011
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
- ------------- -------------- --------------
$ 118,561 $ -- $ 37,331,722
</Table>
* 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, 2003, based on cost
of investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 40,639,247
Unrealized depreciation (3,307,525)
------------
Net unrealized appreciation $ 37,331,722
============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2009 $ 11,754,808
2010 34,444,008
2011 26,847,476
------------
$ 73,046,292
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $17,706,480 was
obtained upon the Fund's merger with Liberty Value Fund, Variable Series (See
Note 7).
No capital loss carryforwards were utilized and/or expired during the year ended
December 31, 2003 for the Fund. Any capital loss carryforwards acquired as part
of a merger that are permanently lost due to provisions under Internal Revenue
Code are included as being expired. Expired capital loss carryforwards are
recorded as a reduction of paid-in capital.
POST-OCTOBER LOSSES--Under current tax rules, certain currency and 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, 2003, post-October
capital losses of $1,325,049 attributed to security transactions were deferred
to January 1, 2004.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.80%
Next $500 million 0.75%
Over $1 billion 0.70%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.80%
Over $1 billion 0.70%
</Table>
For the year ended December 31, 2003, 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
121
<Page>
separate agreement (the "Outsourcing Agreement"), Columbia has delegated those
functions to State Street Corporation ("State Street"). Columbia pays the total
fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.033%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
FEE WAIVERS--Effective April 7, 2003, Columbia has agreed to reimburse fees
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. These agreements
will continue until April 6, 2004, after which they may be revised or
discontinued any time.
Prior to April 7, 2003, Liberty Advisory Services Corp. and the Distributor had
voluntarily agreed to reimburse the Fund for certain expenses so that total
expenses (exclusive of brokerage commissions, interest, taxes and extraordinary
expenses, if any) would not exceed 1.00% annually of the Fund's average daily
net assets. The Distributor would 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 was needed to meet the limit for each class, Liberty Advisory
Services Corp. would then reimburse other expenses to the extent necessary. If
additional reimbursement was still needed in order to reach the expense limit,
Liberty Advisory Services Corp. would then waive a portion of its investment
advisory fee to the extent necessary.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $146,430,202 and $169,510,507, respectively, of which $197,009
and $12,566, respectively, were U.S. Government securities.
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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the
122
<Page>
SEC bring civil enforcement actions, including injunctive proceedings, against
Columbia and the Distributor, alleging that they have violated certain
provisions of the federal securities laws. The Columbia Group believes that
those allegations are based principally on the trading arrangements referred to
above. Columbia and the Distributor are engaged in discussions with the SEC
staff in an effort to reach a satisfactory resolution of these matters. However,
there can be no assurance that such a resolution will be reached. Any potential
resolution of these matters may include, but not be limited to, sanctions,
financial penalties, damages or injunctions regarding Columbia or the
Distributor, and structural changes in the conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
NOTE 7. BUSINESS COMBINATIONS AND MERGERS
FUND MERGERS--On April 7, 2003, the Liberty Value Fund, Variable Series (the
"target fund") merged into the Colonial U.S. Growth & Income Fund, Variable
Series (the "surviving fund"). The Colonial U.S. Growth & Income Fund, Variable
Series received a tax-free transfer of assets from the Liberty Value Fund,
Variable Series as follows:
<Table>
<Caption>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED DEPRECIATION(1)
------ ---------- ---------------
8,650,244 $ 96,778,382 $ 17,342,259
<Caption>
NET ASSETS NET ASSETS
OF COLONIAL OF COLONIAL
U.S. GROWTH & NET ASSETS OF U.S. GROWTH &
INCOME FUND, LIBERTY VALUE FUND, INCOME FUND,
VARIABLE SERIES VARIABLE SERIES VARIABLE SERIES
PRIOR TO IMMEDIATELY PRIOR IMMEDIATELY AFTER
COMBINATION TO COMBINATION COMBINATION
--------------- ------------------- ------------------
$ 126,206,600 $ 96,778,382 $ 222,984,982
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount shown
above.
Also on April 7, 2003, subsequent to the merger described above, the Colonial
U.S. Growth & Income Fund, Variable Series was renamed the Liberty Growth &
Income Fund, Variable Series. Class A and Class B shares of the surviving fund
were issued in exchange for Class A and Class B shares, respectively, of the
target fund.
123
<Page>
FINANCIAL HIGHLIGHTS
Liberty Growth & Income Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.97 $ 15.55 $ 18.27 $ 19.85 $ 18.79
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.21 0.15 0.16 0.17 0.14
Net realized and unrealized gain (loss) on investments 2.16 (3.56) (0.35) 0.54 2.07
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 2.37 (3.41) (0.19) 0.71 2.21
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.19) (0.17) (0.15) (0.17) (0.11)
In excess of net investment income -- -- -- --(b) --
From net realized gains -- -- (2.34) (2.12) (1.04)
Return of capital -- -- (0.04) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.19) (0.17) (2.53) (2.29) (1.15)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.15 $ 11.97 $ 15.55 $ 18.27 $ 19.85
========== ========== ========== ========== ==========
Total return (c)(d) 19.79%(e) (21.95)% (0.60)% 3.60% 12.00%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (f) 0.80% 0.88% 0.96% 0.88% 0.88%
Net investment income (f) 1.66% 1.08% 0.92% 0.85% 0.69%
Waiver/reimbursement 0.09% -- -- -- --
Portfolio turnover rate 73% 69% 53% 120% 101%
Net assets, end of period (000's) $ 216,923 $ 113,335 $ 180,053 $ 203,366 $ 212,355
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
124
<Page>
REPORT OF INDEPENDENT AUDITORS
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 (formerly Colonial U.S. Growth and Income Fund, Variable Series)
(the "Fund") (a series of Liberty Variable Investment Trust) at December 31,
2003, 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 auditing standards generally accepted in the United States of America,
which 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
125
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
100% of the ordinary income distributed by the Fund, for the year ended December
31, 2003, qualifies for the corporate dividends received deduction.
126
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Liberty S&P 500 Index Fund, Variable Series / December 31, 2003
Liberty S&P 500 Index Fund, Variable Series seeks capital appreciation by
matching the performance of a benchmark index that measures the investment
returns of stocks of large US companies.
Tom O'Brien, a principal of SSgA Funds Management, Inc., is the portfolio
manager of the fund.
After three consecutive years of loss, the S&P 500 Index returned 28.68% for the
12-month period ended December 31, 2003. Investors responded favorably to low
interest rates, which made borrowing easier; lower tax rates; and to signs of an
improving economy and reduced geo-political risk. The fund's performance was
comparable to the index for the period.
Large-cap stocks trailed both mid-cap and small-cap stocks during the year.
Overall, small-cap stocks were the best performers. For the year, the S&P MidCap
400 Index gained 35.62% and the S&P SmallCap 600 Index returned 38.79%. Value
stocks edged out growth stocks during 2003, with the S&P 500/Barra Value Index
returning 31.79% and the S&P 500/Barra Growth Index returning 25.66%.
ALL SECTORS GAIN
All ten economic sectors of the S&P 500 had positive returns for 2003.
Information technology and materials were the best performers for the year, with
gains of over 46% and 38%, respectively. Yahoo!, Inc.; Intel Corp. and EMC Corp.
made the strongest contributions to the index's performance (0.3%, 2.0% and 0.3%
of net assets, respectively). Noteworthy names in the materials sector included
Alcoa Inc., Newmont Mining Corp. and Dow Chemical Co. (0.3%, 0.2% and 0.4% of
net assets, respectively).
The S&P telecommunications sector turned in the most disappointing performance
for the year. It gained 3.28%. Nextel Communications Inc. was the only standout
performer (0.3% of net assets). The biggest detractors in this sector included
Verizon Communications, AT&T Corp. and Qwest Communications International Inc.
(0.9%, 0.2% and 0.1% of net assets, respectively).
FOCUS ON COST-EFFECTIVE EXECUTION
Our focus on cost-effective trade execution is one hallmark of our management
style. We also manage the fund with a full replication investment strategy. This
approach means that the fund generally holds each of the 500 securities included
in the S&P 500 Index in approximately the same weighting as the company's
representation in the index. A full replication strategy tends to match the
performance of the index more closely than other methods. Since the fund incurs
trading costs in seeking to maintain the appropriate weight of each security in
the index, the fund's return may be different than that of the index. In
addition, the fund may be required to sell securities to meet redemption demand
or buy securities to invest new monies that come into the fund.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
The primary risks involved with investing in the fund include equity risk,
market risk and tracking error risk. Unlike the S&P 500 Index, the fund incurs
administrative expenses and transaction costs in trading stocks. The composition
of the S&P 500 Index and the stocks held by the fund may occasionally diverge.
Holdings are disclosed as of December 31, 2003, and are subject to change.
127
<Page>
PERFORMANCE INFORMATION
Liberty S&P 500 Index Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR LIFE
- ---------------------------------------------------------
Class A (5/30/00) 27.80 -5.22
S&P 500 Index(1) 28.68 -4.36
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ---------------------------------------------------------
Class A 7.59 9.62
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 12/31/03
Class A: $8,249
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
5/30/2000 $ 10,000 $ 10,000
5/31/2000 $ 10,008 $ 10,312
6/30/2000 $ 10,316 $ 10,567
7/31/2000 $ 10,167 $ 10,402
8/31/2000 $ 10,792 $ 11,048
9/30/2000 $ 10,225 $ 10,464
10/31/2000 $ 10,209 $ 10,421
11/30/2000 $ 9,426 $ 9,599
12/31/2000 $ 9,471 $ 9,646
1/31/2001 $ 9,815 $ 9,989
2/28/2001 $ 8,944 $ 9,078
3/31/2001 $ 8,367 $ 8,502
4/30/2001 $ 9,012 $ 9,163
5/31/2001 $ 9,070 $ 9,224
6/30/2001 $ 8,835 $ 9,000
7/31/2001 $ 8,743 $ 8,912
8/31/2001 $ 8,207 $ 8,354
9/30/2001 $ 7,554 $ 7,679
10/31/2001 $ 7,688 $ 7,826
11/30/2001 $ 8,274 $ 8,426
12/31/2001 $ 8,336 $ 8,500
1/31/2002 $ 8,201 $ 8,376
2/28/2002 $ 8,042 $ 8,214
3/31/2002 $ 8,336 $ 8,523
4/30/2002 $ 7,822 $ 8,007
5/31/2002 $ 7,764 $ 7,948
6/30/2002 $ 7,216 $ 7,382
7/31/2002 $ 6,652 $ 6,807
8/31/2002 $ 6,694 $ 6,851
9/30/2002 $ 5,970 $ 6,106
10/31/2002 $ 6,483 $ 6,644
11/30/2002 $ 6,853 $ 7,035
12/31/2002 $ 6,454 $ 6,622
1/31/2003 $ 6,284 $ 6,448
2/28/2003 $ 6,182 $ 6,352
3/31/2003 $ 6,242 $ 6,413
4/30/2003 $ 6,751 $ 6,942
5/31/2003 $ 7,100 $ 7,308
6/30/2003 $ 7,194 $ 7,401
7/31/2003 $ 7,312 $ 7,531
8/31/2003 $ 7,448 $ 7,678
9/30/2003 $ 7,372 $ 7,597
10/31/2003 $ 7,780 $ 8,027
11/30/2003 $ 7,848 $ 8,097
12/31/2003 $ 8,249 $ 8,519
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The S&P (Standard & Poor's) 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.
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.
(1) Index performance is from May 30, 2000.
128
<Page>
INVESTMENT PORTFOLIO
Liberty S&P 500 Index Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
-------------- --------------
COMMON STOCKS--98.6%
CONSUMER DISCRETIONARY--13.4%
AUTO COMPONENTS--0.2%
Cooper Tire & Rubber Co. 300 $ 6,414
Dana Corp. 657 12,056
Delphi Corp. 2,741 27,986
Goodyear Tire & Rubber Co. (a) 731 5,746
Johnson Controls, Inc. 416 48,306
Visteon Corp. 746 7,766
--------------
108,274
--------------
AUTOMOBILES--0.7%
Ford Motor Co. 8,550 136,800
General Motors Corp. 2,629 140,389
Harley-Davidson, Inc. 1,396 66,352
--------------
343,541
--------------
HOTELS, RESTAURANTS & LEISURE--1.3%
Carnival Corp. 2,924 116,171
Darden Restaurants, Inc. 671 14,118
Harrah's Entertainment, Inc. 519 25,831
Hilton Hotels Corp. 1,761 30,166
International Game Technology, Inc. 1,597 57,013
Marriott International, Inc., Class A 1,126 52,021
McDonald's Corp. 5,991 148,757
Starbucks Corp. (a) 1,813 59,938
Starwood Hotels & Resorts
Worldwide, Inc. 931 33,488
Wendy's International, Inc. 540 21,190
Yum! Brands, Inc. (a) 1,363 46,887
--------------
605,580
--------------
HOUSEHOLD DURABLES--0.5%
American Greetings Corp., Class A (a) 257 5,621
Black & Decker Corp. 378 18,643
Centex Corp. 292 31,434
Fortune Brands, Inc. 693 49,543
KB Home Corp. 190 13,779
Leggett & Platt, Inc. 816 17,650
Maytag Corp. 351 9,775
Newell Rubbermaid, Inc. 1,350 30,740
Pulte Homes, Inc. 270 25,277
Snap-On, Inc. 238 7,673
Stanley Works 381 14,428
Tupperware Corp. 250 4,335
Whirlpool Corp. 295 21,432
--------------
250,330
--------------
INTERNET & CATALOG RETAIL--0.4%
eBay, Inc. (a) 2,990 193,124
--------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Brunswick Corp. 391 12,446
Eastman Kodak Co. 1,257 32,267
Hasbro, Inc. 772 16,428
Mattel, Inc. 1,925 37,095
--------------
98,236
--------------
MEDIA--4.0%
Clear Channel Communications, Inc. 2,866 $ 134,215
Comcast Corp., Class A (a) 10,494 344,938
Dow Jones & Co., Inc. 347 17,298
Gannett Co., Inc. 1,265 112,787
Interpublic Group of Companies, Inc. (a) 1,872 29,203
Knight-Ridder, Inc. 412 31,876
McGraw-Hill Companies, Inc. 861 60,201
Meredith Corp. 257 12,544
New York Times Co., Class A 707 33,788
Omnicom Group, Inc. 915 79,907
Time Warner, Inc. (a) 20,938 376,675
Tribune Co. 1,451 74,872
Univision Communications, Inc.,
Class A (a) 1,445 57,352
Viacom, Inc., Class B 8,175 362,806
Walt Disney Co. 9,485 221,285
--------------
1,949,747
--------------
MULTI-LINE RETAIL--3.4%
Big Lots, Inc. (a) 501 7,119
Costco Wholesale Corp. (a) 2,072 77,037
Dillard's, Inc., Class A 322 5,300
Dollar General Corp. 1,564 32,828
Family Dollar Stores, Inc. 812 29,135
Federated Department Stores, Inc. 824 38,835
JC Penney Co., Inc. 1,276 33,533
Kohl's Corp. (a) 1,571 70,601
May Department Stores Co. 1,291 37,529
Nordstrom, Inc. 620 21,266
Sears, Roebuck and Co. 1,201 54,633
Target Corp. 4,185 160,704
Wal-Mart Stores, Inc. 20,135 1,068,162
--------------
1,636,682
--------------
SPECIALTY RETAIL--2.4%
Autonation, Inc. (a) 1,204 22,117
AutoZone, Inc. (a) 388 33,061
Bed Bath & Beyond, Inc. (a) 1,377 59,693
Best Buy Co., Inc. 1,561 81,547
Circuit City Stores, Inc. 972 9,846
Gap, Inc. 4,136 95,997
Home Depot, Inc. 10,619 376,868
Lowe's Companies, Inc. 3,707 205,331
Limited Brands 2,376 42,839
Office Depot, Inc. (a) 1,476 24,664
RadioShack Corp. 706 21,660
Sherwin-Williams Co. 618 21,469
Staples, Inc. (a) 2,261 61,725
Tiffany & Co. 689 31,143
TJX Companies, Inc. 2,306 50,847
Toys "R" US, Inc. (a) 846 10,693
--------------
1,149,500
--------------
TEXTILES, APPAREL & LUXURY GOODS-- 0.3%
Jones Apparel Group, Inc. 531 18,707
Liz Claiborne, Inc. 506 17,943
Nike, Inc. 1,281 87,697
</Table>
See Notes to Investment Portfolio.
129
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
Reebok International Ltd. 285 $ 11,206
VF Corp. 453 19,588
--------------
155,141
--------------
CONSUMER STAPLES--8.5%
BEVERAGES--2.6%
Adolph Coors Co. 229 12,847
Anheuser-Busch Companies, Inc. 3,771 198,656
Brown-Forman Corp., Class B 331 30,932
Coca-Cola Co. 11,371 577,078
Coca-Cola Enterprises, Inc. 2,205 48,223
Pepsi Bottling Group, Inc. 1,332 32,208
PepsiCo, Inc. 7,977 371,888
--------------
1,271,832
--------------
FOOD & DRUG RETAILING--1.1%
Albertson's, Inc. 1,614 36,557
CVS Corp. 1,795 64,835
Kroger Co. (a) 3,400 62,934
Safeway, Inc. (a) 1,972 43,207
Supervalu, Inc. 629 17,983
Sysco Corp. 3,031 112,844
Walgreen Co. 4,761 173,205
Winn-Dixie Stores, Inc. 458 4,557
--------------
516,122
--------------
FOOD PRODUCTS--1.2%
Archer-Daniels-Midland Co. 2,928 44,564
Campbell Soup Co. 1,841 49,339
ConAgra Foods, Inc. 2,506 66,133
General Mills, Inc. 1,691 76,602
Hershey Foods Corp. 578 44,500
HJ Heinz Co. 1,614 58,798
Kellogg Co. 1,879 71,552
McCormick & Co., Inc. 613 18,451
Sara Lee Corp. 3,646 79,155
WM Wrigley Jr. Co. 1,084 60,932
--------------
570,026
--------------
HOUSEHOLD PRODUCTS--1.9%
Clorox Co. 1,026 49,823
Colgate-Palmolive Co. 2,474 123,824
Kimberly-Clark Corp. 2,336 138,034
Procter & Gamble Co. 6,055 604,773
--------------
916,454
--------------
PERSONAL PRODUCTS--0.5%
Alberto-Culver Co., Inc., Class B 319 20,123
Avon Products, Inc. 1,148 77,479
Gillette Co. 4,721 173,402
--------------
271,004
--------------
TOBACCO--1.2%
Altria Group, Inc. 9,457 514,650
RJ Reynolds Tobacco Holdings, Inc. 400 23,260
UST, Inc. 724 25,840
--------------
563,750
--------------
ENERGY--5.7%
ENERGY EQUIPMENT & SERVICES--0.8%
Baker Hughes, Inc. 1,562 $ 50,234
BJ Services Co. (a) 756 27,140
Halliburton Co. 2,111 54,886
Nabors Industries Ltd. (a) 634 26,311
Noble Corp. (a) 617 22,076
Rowan Companies, Inc. (a) 440 10,195
Schlumberger Ltd. 2,746 150,261
Transocean, Inc. (a) 1,537 36,903
--------------
378,006
--------------
OIL & GAS--4.9%
Amerada Hess Corp. 442 23,501
Anadarko Petroleum Corp. 1,155 58,917
Apache Corp. 772 62,609
Ashland, Inc. 276 12,161
Burlington Resources, Inc. 931 51,559
ChevronTexaco Corp. 4,949 427,544
ConocoPhillips 3,205 210,152
Devon Energy Corp. 1,143 65,448
EOG Resources, Inc. 545 25,163
Exxon Mobil Corp. 30,780 1,261,980
Kerr-McGee Corp. 488 22,687
Marathon Oil Corp. 1,420 46,988
Occidental Petroleum Corp. 1,775 74,976
Sunoco, Inc. 339 17,340
Unocal Corp. 1,214 44,712
--------------
2,405,737
--------------
FINANCIALS--20.4%
BANKS--7.2%
AmSouth Bancorp 1,545 37,852
Bank of America Corp. 6,928 557,219
Bank of New York Co., Inc. 3,557 117,808
Bank One Corp. 5,231 238,481
BB&T Corp. 2,520 97,373
Charter One Financial, Inc. 1,026 35,448
Comerica, Inc. 788 44,175
Fifth Third Bancorp 2,687 158,802
First Tennessee National Corp. 567 25,005
FleetBoston Financial Corp. (b) 4,858 212,052
Golden West Financial Corp. 743 76,670
Huntington Bancshares, Inc. 1,061 23,872
KeyCorp 1,890 55,415
Marshall & Ilsley Corp. 1,030 39,398
Mellon Financial Corp. 1,986 63,770
National City Corp. 2,849 96,695
North Fork Bancorporation, Inc. 712 28,815
Northern Trust Corp. 1,072 49,762
PNC Financial Services Group, Inc. 1,306 71,477
Regions Financial Corp. 974 36,233
SouthTrust Corp. 1,497 48,997
SunTrust Banks, Inc. 1,342 95,953
Synovus Financial Corp. 1,416 40,951
Union Planters Corp. 902 28,404
</Table>
See Notes to Investment Portfolio.
130
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
US Bancorp 9,072 $ 270,164
Wachovia Corp. 6,126 285,410
Washington Mutual, Inc. 4,194 168,263
Wells Fargo & Co. 7,901 465,290
Zions Bancorporation 440 26,985
--------------
3,496,739
--------------
DIVERSIFIED FINANCIALS--8.2%
American Express Co. 6,032 290,923
Bear Stearns Companies, Inc. 437 34,938
Capital One Financial Corp. 1,121 68,706
Charles Schwab Corp. 6,330 74,947
Citigroup, Inc. 24,066 1,168,164
Countrywide Financial Corp. 845 64,118
Fannie Mae 4,512 338,671
Federated Investors, Inc. 528 15,502
Franklin Resources, Inc. 1,133 58,984
Freddie Mac 3,236 188,724
Goldman Sachs Group, Inc. 2,252 222,340
Janus Capital Group, Inc. 1,008 16,541
JP Morgan Chase & Co. 9,487 348,458
Lehman Brothers Holdings, Inc. 1,291 99,691
MBNA Corp. 5,917 147,037
Merrill Lynch & Co., Inc. 4,456 261,344
Moody's Corp. 706 42,748
Morgan Stanley 5,078 293,864
Principal Financial Group 1,448 47,885
Providian Financial Corp. (a) 1,446 16,831
SLM Corp. 2,067 77,885
State Street Corp. 1,516 78,953
T Rowe Price Group, Inc. 631 29,916
--------------
3,987,170
--------------
INSURANCE--4.6%
ACE Ltd. 1,333 55,213
AFLAC, Inc. 2,415 87,375
Allstate Corp. 3,308 142,310
Ambac Financial Group, Inc. 536 37,193
American International Group, Inc. 12,186 807,688
AON Corp. 1,531 36,652
Chubb Corp. 866 58,975
Cincinnati Financial Corp. 764 31,996
Hartford Financial Services
Group, Inc. 1,295 76,444
Jefferson-Pilot Corp. 645 32,669
John Hancock Financial
Services, Inc. 1,372 51,450
Lincoln National Corp. 817 32,982
Loews Corp. 863 42,675
Marsh & McLennan Companies, Inc. 2,433 116,516
MBIA, Inc. 646 38,263
MetLife, Inc. 3,540 119,192
MGIC Investment Corp. 513 29,210
Progressive Corp. 1,040 86,934
Prudential Financial, Inc. 2,494 104,174
SAFECO Corp. 655 25,499
St. Paul Companies 1,099 43,575
Torchmark Corp. 487 22,178
Travelers Property Casualty Corp.,
Class B 4,709 $ 79,912
UnumProvident Corp. 1,314 20,722
XL Capital Ltd., Class A 678 52,579
--------------
2,232,376
--------------
REAL ESTATE--0.4%
Apartment Investment &
Management Co., REIT 400 13,800
Equity Office Properties Trust, REIT 1,862 53,346
Equity Residential, REIT 1,281 37,802
Plum Creek Timber Co, Inc., REIT 781 23,781
ProLogis, REIT 900 28,881
Simon Property Group, Inc., REIT 900 41,706
--------------
199,316
--------------
HEALTH CARE--13.1%
BIOTECHNOLOGY--1.1%
Amgen, Inc. (a) 6,009 371,356
Biogen Idec, Inc. (a) 1,516 55,758
Chiron Corp. (a) 840 47,872
Genzyme Corp. (a) 1,042 51,412
MedImmune, Inc. (a) 1,106 28,092
--------------
554,490
--------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.0%
Applera Corp.--Applied Biosystems
Group 904 18,722
Bausch & Lomb, Inc. 279 14,480
Baxter International, Inc. 2,818 86,005
Becton Dickinson & Co. 1,199 49,327
Biomet, Inc. 1,217 44,311
Boston Scientific Corp. (a) 3,754 137,997
CR Bard, Inc. 213 17,306
Guidant Corp. 1,426 85,845
IMS Health, Inc. 867 21,554
Medtronic, Inc. 5,598 272,119
Millipore Corp. (a) 201 8,653
St. Jude Medical, Inc. (a) 796 48,835
Stryker Corp. 915 77,784
Zimmer Holdings, Inc. (a) 1,169 82,298
--------------
965,236
--------------
HEALTH CARE PROVIDERS & SERVICES--1.7%
Aetna, Inc. 706 47,711
AmerisourceBergen Corp. 551 30,939
Anthem, Inc. (a) 703 52,725
Cardinal Health, Inc. 1,985 121,403
CIGNA Corp. 665 38,238
Express Scripts, Inc. (a) 400 26,572
HCA, Inc. 2,287 98,250
Health Management Associates, Inc. 1,026 24,624
Humana, Inc. (a) 717 16,383
Manor Care, Inc. 358 12,376
McKesson Corp. 1,349 43,384
Quest Diagnostics, Inc. (a) 471 34,435
Tenet Healthcare Corp. (a) 2,080 33,384
</Table>
See Notes to Investment Portfolio.
131
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
UnitedHealth Group, Inc. 2,782 $ 161,857
WellPoint Health Networks (a) 678 65,759
--------------
808,040
--------------
PHARMACEUTICALS--8.3%
Abbott Laboratories 7,251 337,897
Allergan, Inc. 652 50,080
Bristol-Myers Squibb Co. 8,970 256,542
Eli Lilly & Co. 5,286 371,764
Forest Laboratories, Inc. (a) 1,724 106,543
Johnson & Johnson 13,817 713,786
King Pharmaceuticals, Inc. (a) 1,027 15,672
Medco Health Solutions, Inc. (a) 1,230 41,808
Merck & Co., Inc. 10,378 479,464
Pfizer, Inc. 35,569 1,256,653
Schering-Plough Corp. 6,857 119,243
Watson Pharmaceuticals, Inc. (a) 462 21,252
Wyeth 6,239 264,845
--------------
4,035,549
--------------
INDUSTRIALS--11.6%
AEROSPACE & DEFENSE--1.5%
Boeing Co. 3,928 165,526
General Dynamics Corp. 895 80,899
Goodrich Corp. 485 14,400
Lockheed Martin Corp. 2,133 109,636
Northrop Grumman Corp. 840 80,304
Raytheon Co. 1,865 56,025
Rockwell Collins, Inc. 773 23,213
United Technologies Corp. 2,200 208,494
--------------
738,497
--------------
AIR FREIGHT & LOGISTICS--1.0%
FedEx Corp. 1,395 94,162
Ryder System, Inc. 264 9,016
United Parcel Service, Inc. 5,293 394,593
--------------
497,771
--------------
AIRLINES--0.1%
Delta Air Lines, Inc. 600 7,086
Southwest Airlines Co. 3,639 58,733
--------------
65,819
--------------
BUILDING PRODUCTS--0.2%
American Standard Companies, Inc. (a) 340 34,238
Crane Co. 250 7,685
Masco Corp. 2,160 59,206
--------------
101,129
--------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
Allied Waste Industries, Inc. (a) 1,470 20,404
Apollo Group, Inc., Class A (a) 868 59,024
Automatic Data Processing, Inc. 2,800 110,908
Avery Dennison Corp. 481 26,946
Cendant Corp. (a) 4,751 105,805
Cintas Corp. 782 39,202
Concord EFS, Inc. (a) 2,145 31,832
Convergys Corp. (a) 680 11,873
Deluxe Corp. 237 9,795
Equifax, Inc. 596 $ 14,602
First Data Corp. 3,397 139,583
Fiserv, Inc. (a) 864 34,137
H&R Block, Inc. 832 46,068
Monster Worldwide, Inc. (a) 500 10,980
Paychex, Inc. 1,759 65,435
Pitney Bowes, Inc. 1,052 42,732
Robert Half International, Inc. (a) 700 16,338
R.R. Donnelley & Sons Co. 481 14,502
Sabre Holdings Corp. 708 15,286
Waste Management, Inc. 2,715 80,364
--------------
895,816
--------------
CONSTRUCTION & ENGINEERING--0.0%
Fluor Corp. 409 16,213
--------------
ELECTRICAL EQUIPMENT--0.4%
American Power Conversion Corp. 893 21,834
Cooper Industries Ltd. 399 23,114
Emerson Electric Co. 1,984 128,464
Power-One, Inc. (a) 467 5,058
Rockwell Automation, Inc. 809 28,800
Thomas & Betts Corp. (a) 250 5,722
--------------
212,992
--------------
INDUSTRIAL CONGLOMERATES--4.5%
3M Co. 3,634 308,999
General Electric Co. 46,739 1,447,974
Honeywell International, Inc. 4,014 134,188
Textron, Inc. 665 37,945
Tyco International Ltd. 9,229 244,568
--------------
2,173,674
--------------
MACHINERY--1.4%
Caterpillar, Inc. 1,592 132,168
Cummins, Inc. 180 8,809
Danaher Corp. 746 68,446
Deere & Co. 1,097 71,360
Dover Corp. 940 37,365
Eaton Corp. 333 35,957
Illinois Tool Works, Inc. 1,433 120,243
Ingersoll-Rand Co. 778 52,811
ITT Industries, Inc. 481 35,695
Navistar International Corp. (a) 371 17,767
Paccar, Inc. 513 43,667
Pall Corp. 500 13,415
Parker Hannifin Corp. 556 33,082
--------------
670,785
--------------
ROAD & RAIL--0.5%
Burlington Northern Santa Fe Corp. 1,703 55,092
CSX Corp. 963 34,610
Norfolk Southern Corp. 1,762 41,671
Union Pacific Corp. 1,239 86,086
--------------
217,459
--------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
Genuine Parts Co. 745 24,734
WW Grainger, Inc. 425 20,141
--------------
44,875
--------------
</Table>
See Notes to Investment Portfolio.
132
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
INFORMATION TECHNOLOGY--16.7%
COMMUNICATIONS EQUIPMENT--2.9%
ADC Telecommunications, Inc. (a) 3,064 $ 9,100
Andrew Corp. (a) 587 6,756
Avaya, Inc. (a) 1,898 24,560
CIENA Corp. (a) 2,019 13,406
Cisco Systems, Inc. (a) 32,135 780,559
Comverse Technology, Inc. (a) 921 16,200
Corning, Inc. (a) 6,009 62,674
JDS Uniphase Corp. (a) 6,993 25,524
Lucent Technologies, Inc. (a) 19,298 54,806
Motorola, Inc. 10,808 152,069
QUALCOMM, Inc. 3,745 201,968
Scientific-Atlanta, Inc. 705 19,246
Tellabs, Inc. (a) 1,791 15,098
--------------
1,381,966
--------------
COMPUTERS & PERIPHERALS--3.8%
Apple Computer, Inc. (a) 1,736 37,098
Dell, Inc. (a) 11,979 406,807
EMC Corp. (a) 11,092 143,309
Gateway, Inc. (a) 1,545 7,107
Hewlett-Packard Co. 14,109 324,084
International Business Machines Corp. 8,010 742,367
Lexmark International Group, Inc. (a) 595 46,791
NCR Corp. (a) 480 18,624
Network Appliance, Inc. (a) 1,584 32,520
Sun Microsystems, Inc. (a) 15,475 69,483
--------------
1,828,190
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.5%
Agilent Technologies, Inc. (a) 2,173 63,539
Jabil Circuit, Inc. (a) 915 25,894
Molex, Inc. 915 31,924
PerkinElmer, Inc. 537 9,167
Sanmina Corp. (a) 2,403 30,302
Solectron Corp. (a) 3,886 22,966
Symbol Technologies, Inc. 1,094 18,478
Tektronix, Inc. 387 12,229
Thermo Electron Corp. (a) 677 17,060
Waters Corp. (a) 539 17,873
--------------
249,432
--------------
INTERNET SOFTWARE & SERVICES--0.3%
Yahoo!, Inc. (a) 3,094 139,756
--------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--0.3%
Computer Sciences Corp. (a) 841 37,197
Electronic Data Systems Corp. 2,291 56,221
Sungard Data Systems, Inc. (a) 1,323 36,660
Unisys Corp. (a) 1,537 22,824
--------------
152,902
--------------
OFFICE ELECTRONICS--0.1%
Xerox Corp. (a) 3,709 51,184
--------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--4.2%
Advanced Micro Devices, Inc. (a) 1,537 22,901
Altera Corp. (a) 1,817 41,246
Analog Devices, Inc. 1,708 77,970
Applied Materials, Inc. (a) 7,730 $ 173,538
Applied Micro Circuits Corp. (a) 1,304 7,798
Broadcom Corp., Class A (a) 1,441 49,124
Intel Corp. 30,409 979,170
KLA-Tencor Corp. (a) 913 53,566
Linear Technology Corp. 1,423 59,866
LSI Logic Corp. (a) 1,591 14,112
Maxim Integrated Products, Inc. 1,487 74,053
Micron Technology, Inc. (a) 2,915 39,265
National Semiconductor Corp. (a) 895 35,272
Novellus Systems, Inc. (a) 742 31,201
NVIDIA Corp. (a) 780 18,135
PMC-Sierra, Inc. (a) 698 14,065
QLogic Corp. (a) 455 23,478
Teradyne, Inc. (a) 876 22,294
Texas Instruments, Inc. 8,063 236,891
Xilinx, Inc. (a) 1,626 62,991
--------------
2,036,936
--------------
SOFTWARE--4.6%
Adobe Systems, Inc. 1,093 42,955
Autodesk, Inc. 500 12,290
BMC Software, Inc. (a) 962 17,941
Citrix Systems, Inc. (a) 793 16,820
Computer Associates International, Inc. 2,739 74,884
Compuware Corp. (a) 1,536 9,277
Electronic Arts, Inc. (a) 1,428 68,230
Intuit, Inc. (a) 913 48,307
Mercury Interactive Corp. (a) 407 19,796
Microsoft Corp. 50,339 1,386,336
Novell, Inc. (a) 1,536 16,159
Oracle Corp. (a) 24,442 322,634
Parametric Technology Corp. (a) 1,191 4,693
PeopleSoft, Inc. (a) 1,681 38,327
Siebel Systems, Inc. (a) 2,348 32,567
Symantec Corp. (a) 1,416 49,064
Veritas Software Corp. (a) 1,994 74,097
--------------
2,234,377
--------------
MATERIALS--3.0%
CHEMICALS--1.5%
Air Products & Chemicals, Inc. 1,092 57,690
Dow Chemical Co. 4,310 179,167
Du Pont EI de Nemours & Co. 4,624 212,195
Eastman Chemical Co. 367 14,508
Ecolab, Inc. 1,120 30,654
Engelhard Corp. 584 17,491
Great Lakes Chemical Corp. 255 6,933
Hercules, Inc. (a) 383 4,673
International Flavors & Fragrances, Inc. 416 14,527
Monsanto Co. 1,155 33,241
PPG Industries, Inc. 821 52,560
Praxair, Inc. 1,540 58,828
Rohm & Haas Co. 1,081 46,170
Sigma-Aldrich Corp. 301 17,211
--------------
745,848
--------------
</Table>
See Notes to Investment Portfolio.
133
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
CONSTRUCTION MATERIALS--0.1%
Vulcan Materials Co. 522 $ 24,832
--------------
CONTAINERS & PACKAGING--0.2%
Ball Corp. 290 17,275
Bemis Co., Inc. 298 14,900
Pactiv Corp. (a) 672 16,061
Sealed Air Corp. (a) 390 21,115
Temple-Inland, Inc. 313 19,616
--------------
88,967
--------------
METALS & MINING--0.7%
Alcoa, Inc. 3,982 151,316
Allegheny Technologies, Inc. 282 3,728
Freeport-McMoRan Copper & Gold,
Inc., Class B 880 37,074
Newmont Mining Corp. 1,989 96,685
Nucor Corp. 394 22,064
Phelps Dodge Corp. (a) 414 31,501
United States Steel Corp. 509 17,825
Worthington Industries, Inc. 301 5,427
--------------
365,620
--------------
PAPER & FOREST PRODUCTS--0.5%
Boise Cascade Corp. 450 14,787
Georgia-Pacific Corp. 1,145 35,117
International Paper Co. 2,220 95,704
Louisiana-Pacific Corp. (a) 370 6,616
MeadWestvaco Corp. 911 27,102
Weyerhaeuser Co. 1,057 67,648
--------------
246,974
--------------
TELECOMMUNICATION SERVICES--3.4%
DIVERSIFIED TELECOMMUNICATION SERVICES-- 2.8%
Alltel Corp. 1,443 67,215
AT&T Corp. 3,620 73,486
BellSouth Corp. 8,682 245,701
CenturyTel, Inc. 689 22,475
Citizens Communications Co. (a) 1,179 14,643
Qwest Communications International,
Inc. (a) 7,856 33,938
SBC Communications, Inc. 15,451 402,808
Sprint Corp. (FON Group) 4,095 67,240
Verizon Communications, Inc. 12,905 452,707
--------------
1,380,213
--------------
WIRELESS TELECOMMUNICATION SERVICES--0.6%
AT&T Wireless Services, Inc. (a) 12,640 100,994
Nextel Communications, Inc.,
Class A (a) 5,109 143,359
Sprint Corp. (PCS Group) (a) 5,046 28,359
--------------
272,712
--------------
UTILITIES--2.8%
ELECTRIC UTILITIES--2.2%
AES Corp. (a) 2,926 $ 27,621
Allegheny Energy, Inc. 567 7,235
Ameren Corp. 764 35,144
American Electric Power Co., Inc. 1,832 55,894
CenterPoint Energy, Inc. 1,293 12,529
Cinergy Corp. 778 30,194
CMS Energy Corp. (a) 600 5,112
Consolidated Edison, Inc. 1,060 45,591
Constellation Energy Group, Inc. 787 30,819
Dominion Resources, Inc. 1,545 98,617
DTE Energy Co. 804 31,678
Edison International (a) 1,506 33,027
Entergy Corp. 1,028 58,730
Exelon Corp. 1,499 99,474
FirstEnergy Corp. 1,532 53,926
FPL Group, Inc. 875 57,242
PG&E Corp. (a) 1,922 53,374
Pinnacle West Capital Corp. 412 16,488
PPL Corp. 857 37,494
Progress Energy, Inc. 1,129 51,099
Public Service Enterprise Group, Inc. 1,100 48,180
Southern Co. 3,359 101,610
TECO Energy, Inc. 800 11,528
TXU Corp. 1,428 33,872
Xcel Energy, Inc. 1,857 31,532
--------------
1,068,010
--------------
GAS UTILITIES--0.3%
El Paso Corp. 2,764 22,637
KeySpan Corp. 769 28,299
Kinder Morgan, Inc. 546 32,269
Nicor, Inc. 145 4,936
Peoples Energy Corp. 152 6,390
Sempra Energy 980 29,459
--------------
123,990
--------------
MULTI-UTILITIES & UNREGULATED POWER--0.3%
Calpine Corp. (a) 1,526 7,340
Duke Energy Corp. 4,286 87,649
Dynegy, Inc. 1,600 6,848
NiSource, Inc. 1,209 26,525
Williams Companies, Inc. 2,258 22,173
--------------
150,535
--------------
TOTAL COMMON STOCKS
(cost of $46,278,377) 47,839,476
--------------
</Table>
See Notes to Investment Portfolio.
134
<Page>
<Table>
<Caption>
PAR VALUE
-------------- --------------
SHORT-TERM OBLIGATIONS--3.2%
U.S. GOVERNMENT OBLIGATION--0.2%
U.S. Treasury Bill,
0.870%, 03/11/04 (c) $ 80,000 $ 79,865
--------------
REPURCHASE AGREEMENT--3.0%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized by a
U.S. Treasury Bond maturing
08/15/28, market value $1,481,316
(repurchase proceeds $1,452,063) 1,452,000 1,452,000
--------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $1,531,865) 1,531,865
--------------
TOTAL INVESTMENTS--101.8%
(cost of $47,810,242)(d) 49,371,341
--------------
OTHER ASSETS & LIABILITIES, NET--(1.8)% (847,114)
--------------
NET ASSETS--100.0% $ 48,524,227
==============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Investments in Affiliates during the year ended December 31, 2003:
Security Name: FleetBoston Financial Corp., the parent company of the
Investment Advisor.
<Table>
Shares as of 12/31/02: 3,612
Shares purchased: 1,299
Shares sold: 53
Shares as of 12/31/03: 4,858
Net realized loss: $ (785)
Dividend income earned: $ 5,854
Value at end of period: $ 212,052
</Table>
(c) This security, with a total market value of $79,865, is being used to
collateralize open future contracts.
(d) Cost for federal income tax purposes is $49,656,743.
Long future contracts open on December 31, 2003:
<Table>
<Caption>
NUMBER EXPIRATION UNREALIZED
TYPE OF CONTRACTS MONTH APPRECIATION
- ---- ------------ ----------- ------------
S&P Mini 500 22 March $ 40,166
========
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
135
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty S&P 500 Index Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 47,810,242
--------------
Investments, at value $ 49,371,341
Cash 438
Receivable for:
Fund shares sold 49,911
Interest 31
Dividends 63,570
Futures variation margin 3,268
Expense reimbursement due from Investment Advisor/Distributor 27,272
Deferred Trustees' compensation plan 1,825
--------------
TOTAL ASSETS 49,517,656
--------------
LIABILITIES:
Payable for:
Investments purchased 327,599
Fund shares repurchased 601,588
Investment advisory fee 15,985
Transfer agent fee 626
Pricing and bookkeeping fees 2,438
Audit fee 22,330
Custody fee 3,911
Distribution fee--Class B 10,834
Deferred Trustees' fees 1,825
Other liabilities 6,293
--------------
TOTAL LIABILITIES 993,429
--------------
NET ASSETS $ 48,524,227
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 50,296,473
Overdistributed net investment income (934)
Accumulated net realized loss (3,372,577)
Net unrealized appreciation on:
Investments 1,561,099
Futures contracts 40,166
--------------
NET ASSETS $ 48,524,227
==============
CLASS A:
Net assets $ 82,487
Shares outstanding 8,576
==============
Net asset value per share $ 9.62
==============
CLASS B:
Net assets $ 48,441,740
Shares outstanding 5,049,349
==============
Net asset value per share $ 9.59
==============
</Table>
See Notes to Financial Statements.
136
<Page>
STATEMENT OF OPERATIONS
Liberty S&P 500 Index Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 639,323
Interest 11,069
--------------
Total Investment Income 650,392
--------------
EXPENSES:
Investment advisory fee 145,520
Distribution fee--Class B 90,677
Transfer agent fee 7,500
Pricing and bookkeeping fees 33,264
Trustees' fees 6,530
Custody fee 30,380
Audit fee 27,673
Other expenses 10,886
--------------
Total Expenses 352,430
Fees and expenses waived or reimbursed by Investment Advisor (9,478)
Fees reimbursed by Distributor--Class B (69,991)
Custody earnings credit (17)
--------------
Net Expenses 272,944
--------------
Net Investment Income 377,448
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments (569,595)
Futures contracts 198,161
--------------
Net realized loss (371,434)
--------------
Net change in unrealized appreciation/depreciation on:
Investments 9,202,919
Futures contracts 65,581
--------------
Net change in unrealized appreciation/depreciation 9,268,500
--------------
Net Gain 8,897,066
--------------
Net Increase in Net Assets from Operations $ 9,274,514
==============
</Table>
See Notes to Financial Statements.
137
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty S&P 500 Index Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 377,448 $ 245,814
Net realized loss on investments and futures contracts (371,434) (2,364,659)
Net change in unrealized appreciation/depreciation
on investments and futures contracts 9,268,500 (5,099,064)
-------------- --------------
Net Increase (Decrease) from Operations 9,274,514 (7,217,909)
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (680) (587)
Class B (377,651) (243,630)
Return of capital:
Class A -- (53)
Class B -- (21,942)
-------------- --------------
Total Distributions Declared to Shareholders (378,331) (266,212)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Distributions reinvested 680 640
-------------- --------------
Net Increase 680 640
-------------- --------------
Class B:
Subscriptions 13,560,308 13,853,223
Distributions reinvested 377,651 265,572
Redemptions (3,136,822) (6,727,578)
-------------- --------------
Net Increase 10,801,137 7,391,217
-------------- --------------
Net Increase from Share Transactions 10,801,817 7,391,857
-------------- --------------
Total Increase (Decrease) in Net Assets 19,698,000 (92,264)
NET ASSETS:
Beginning of period 28,826,227 28,918,491
-------------- --------------
End of period (including overdistributed net investment income of
$(934) and $(792), respectively) $ 48,524,227 $ 28,826,227
============== ==============
CHANGES IN SHARES:
Class A:
Issued for distributions reinvested 71 85
-------------- --------------
Net Increase 71 85
-------------- --------------
Class B:
Subscriptions 1,585,888 1,597,362
Issued for distributions reinvested 39,462 35,222
Redemptions (374,208) (749,858)
-------------- --------------
Net Increase 1,251,142 882,726
-------------- --------------
</Table>
See Notes to Financial Statements.
138
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty S&P 500 Index Fund, Variable Series / December 31, 2003
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 at
the close of the principal exchange on which they trade. 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 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.
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, stock indices 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, Inc. 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 payable or receivable
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 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.
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.
139
<Page>
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for Real Estate Investment Trust ("REIT") adjustments
and distributions in excess were identified and reclassified among the
components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED NET ACCUMULATED NET PAID-IN
INVESTMENT INCOME REALIZED LOSS CAPITAL
------------------- --------------- -------
$ 741 $ 916 $ (1,657)
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 378,331 $ 244,217
Long-Term Capital Gains -- --
Tax Return of Capital -- 21,995
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS DEPRECIATION*
------------- -------------- --------------
$ -- $ -- $ (285,402)
</Table>
* The differences between book-basis and tax-basis net unrealized depreciation
are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 4,599,890
Unrealized depreciation (4,885,292)
--------------
Net unrealized depreciation $ (285,402)
==============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 19,479
2009 243,840
2010 1,209,651
2011 12,140
------------
$ 1,485,110
============
</Table>
No capital loss carryforwards were utilized and/or expired during the year ended
December 31, 2003 for the Fund.
Expired capital loss carryforwards are recorded as a reduction of paid-in
capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee at
the annual rate of 0.40% of the Fund's average daily net assets. For the period
July 1, 2003 through October 31, 2003, Columbia
140
<Page>
agreed to waive a portion of its fees at the annual rate of 0.07% of the Fund's
average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.37%.
SUB-ADVISORY FEE--State Street Global Advisors ("SSgA") has been retained by
Columbia as sub-advisor to the Fund. As the sub-advisor, SSgA is responsible for
daily investment operations, including placing all orders for the purchase and
sale of portfolio securities for the fund. Columbia, out of the management fee
it receives, pays SSgA a monthly sub-advisory fee at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $50 million $ 25,000
Over $50 million 0.05%
</Table>
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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.091%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
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) would 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. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $11,918,035 and $904,832, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved
141
<Page>
in those trading activities, was harmed by them, the Columbia Group has
undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
142
<Page>
FINANCIAL HIGHLIGHTS
Liberty S&P 500 Index Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughtout each period is as follows:
<Table>
<Caption>
PERIOD
YEAR ENDED DECEMBER 31, ENDED
------------------------------------- DECEMBER 31,
2003 2002 2001 2000 (a)
-------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.59 $ 9.90 $ 11.31 $ 12.00
-------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.09 0.09 0.07 0.07
Net realized and unrealized gain (loss) on investments and
futures contracts 2.02 (2.32) (1.42) (0.70)
-------- -------- -------- ------------
Total from Investment Operations 2.11 (2.23) (1.35) (0.63)
-------- -------- -------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.08) (0.07) (0.06) (0.06)
Return of capital -- (0.01) -- --
-------- -------- -------- ------------
Total Distributions Declared to Shareholders (0.08) (0.08) (0.06) (0.06)
-------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 9.62 $ 7.59 $ 9.90 $ 11.31
======== ======== ======== ============
Total return (c)(d) 27.80%(e) (22.55)% (11.98)%(e) (5.29)%(e)(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 0.69% 0.64% 0.75% 0.75%(h)
Net investment income (g) 1.11% 0.99% 0.72% 0.89%(h)
Waiver/reimbursement 0.03% -- 0.28% 0.36%(h)
Portfolio turnover rate 3% 17% 7% 2%(f)
Net assets, end of period (000's) $ 82 $ 65 $ 83 $ 95
</Table>
(a) For the period from commencement of operations May 30, 2000 to December 31,
2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
143
<Page>
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
144
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
99.92% of the ordinary income distributed by the Fund, for the year ended
December 31, 2003, qualifies for the corporate dividends received deduction.
145
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Select Value Fund, Variable Series / December 31, 2003
Liberty Select Value Fund, Variable Series seeks long-term growth.
Daniel K. Cantor and Jeffrey C. Kinzel are co-managers of the fund. Mr. Cantor
has been affiliated with Columbia Management Advisors, Inc. and its predecessors
since 1985. Mr. Kinzel has been with the firm and its predecessors since 1991.
The fund posted a strong return for the year ended December 31, 2003, but did
not perform as well as either the S&P MidCap 400 Index or its new benchmark, the
Russell Midcap Value Index, which more closely reflects the fund's emphasis on
value stocks.
Early in the period, our emphasis on stable, less-risky companies restrained
performance during a bull market led by sharp gains in more speculative stocks.
By mid-year, we had positioned the portfolio somewhat more aggressively, and
relative returns in the second half were more in line with the S&P MidCap 400
benchmark.
TURNAROUND YEAR FOR VALUE STOCKS
After several years of poor returns, equities roared back to life in 2003 as the
S&P 500 Index, a broad measure of the stock market's performance, gained 28.68%.
Uncertainty related to military action in Iraq held equity performance back
early in the year. By the second quarter, expectations for economic recovery
began to fuel a rally in stocks even though signs of an improvement were scant.
The rally broadened in the second half as more tangible evidence of a recovery
emerged. Industrial production rose, retail sales increased, interest rates
remained low and inflation was minimal. Later in the year, capital spending by
businesses also picked up, particularly helping the industrial, energy and
telecommunications sectors.
GAINS CAME FROM PAPER, INDUSTRIALS AND ENERGY
Early in the year we boosted our holdings in stocks we believed would benefit
from a more buoyant economy, and this strategy paid off. Paper company
Georgia-Pacific and the diversified industrial firm Carlisle Companies (1.5% and
1.4% of net assets, respectively) were both up more than 50% for the year. The
two largest contributors to performance were Navistar International and XTO
Energy (1.8% and 2.7% of net assets, respectively). Navistar benefited from a
budding recovery in medium and heavy-duty trucks, and natural gas producer XTO
was helped by higher gas prices and strong production growth. Another large
contributor was International Game Technology, which makes gaming products. Its
growth was driven by gaming expansion in the United States, the proliferation of
cashless slot machines and increasing opportunities overseas. We sold the stock
in late December after it had risen strongly and appeared fully valued.
DEFENSIVE HOLDINGS HURT RETURNS
Most of the fund's underperformance occurred during the first half of the
period, but it affected the full year. Our more defensive investments did not
rise as quickly as more aggressive stocks when the market rallied, and this was
a drag on performance. For example, we entered the year with a 1.5% stake in
Lockheed Martin, which we subsequently sold. The stock had performed well the
previous year, but performed poorly as defense companies moved out of favor. We
also had disappointing performance from First Health Group (0.8% of net assets),
which provides a variety of health care services such as cost management and
claims processing. The value declined primarily due to increased competition and
severe pricing pressure in one of its key business segments.
MANAGING WITH AN EYE ON RISK
Although we are generally optimistic that the economic recovery will continue to
gain breadth and momentum, we continue to manage the fund with an eye on
downside risk. Given the run in some of the industrial stocks in the portfolio,
we may look for opportunities to take profits in this sector. As value managers,
we will continue to seek out companies that meet our disciplined investment
criteria. Our goal remains to focus on identifying well-managed companies in
good or improving businesses that have the potential to do well under most
market conditions.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Liberty Select Value Fund, Variable Series offers the
potential for long-term growth, but also involves certain risks, including stock
market fluctuations due to economic and business developments. The value and
returns earned on an investment in the fund may also be affected by stock market
fluctuations. Mid-cap stocks can present special risks including greater price
volatility than stocks of larger, more established companies.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the advisor's assessment of a company's
prospects is wrong, the price of its stock may not approach the value the
advisor has placed on it.
Holdings are disclosed as of December 31, 2003, and are subject to
change.
146
<Page>
PERFORMANCE INFORMATION
Liberty Select Value Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR LIFE
- --------------------------------------------------------------
Class A (5/30/00) 27.61 7.78
Russell Midcap Value Index(1) 38.07 11.99
S&P MidCap 400 Index(1) 35.62 7.77
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- --------------------------------------------------------------
Class A 12.12 15.42
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 12/31/03
Class A: $13,089
<Table>
<Caption>
CLASS A SHARES S&P MIDCAP 400 INDEX RUSSELL MIDCAP VALUE INDEX
5/30/2000 $ 10,000 $ 10,000 $ 10,000
5/31/2000 $ 10,200 $ 10,375 $ 10,183
6/30/2000 $ 10,066 $ 10,528 $ 9,803
7/31/2000 $ 10,333 $ 10,694 $ 10,033
8/31/2000 $ 11,184 $ 11,888 $ 10,648
9/30/2000 $ 10,983 $ 11,806 $ 10,750
10/31/2000 $ 11,034 $ 11,406 $ 10,954
11/30/2000 $ 10,309 $ 10,537 $ 10,812
12/31/2000 $ 11,139 $ 11,351 $ 11,765
1/31/2001 $ 11,551 $ 11,605 $ 11,723
2/28/2001 $ 11,206 $ 10,942 $ 11,674
3/31/2001 $ 10,961 $ 10,129 $ 11,350
4/30/2001 $ 11,769 $ 11,246 $ 11,975
5/31/2001 $ 12,106 $ 11,508 $ 12,315
6/30/2001 $ 11,870 $ 11,462 $ 12,151
7/31/2001 $ 11,971 $ 11,291 $ 12,102
8/31/2001 $ 11,676 $ 10,922 $ 11,881
9/30/2001 $ 10,238 $ 9,563 $ 10,747
10/31/2001 $ 10,439 $ 9,986 $ 10,804
11/30/2001 $ 11,070 $ 10,730 $ 11,561
12/31/2001 $ 11,533 $ 11,285 $ 12,040
1/31/2002 $ 11,626 $ 11,226 $ 12,162
2/28/2002 $ 11,828 $ 11,240 $ 12,359
3/31/2002 $ 12,377 $ 12,043 $ 12,991
4/30/2002 $ 12,411 $ 11,987 $ 12,981
5/31/2002 $ 12,444 $ 11,784 $ 12,962
6/30/2002 $ 11,760 $ 10,922 $ 12,384
7/31/2002 $ 10,923 $ 9,864 $ 11,171
8/31/2002 $ 11,000 $ 9,914 $ 11,301
9/30/2002 $ 9,835 $ 9,115 $ 10,160
10/31/2002 $ 10,038 $ 9,509 $ 10,483
11/30/2002 $ 10,620 $ 10,049 $ 11,143
12/31/2002 $ 10,256 $ 9,636 $ 10,878
1/31/2003 $ 9,993 $ 9,365 $ 10,577
2/28/2003 $ 9,764 $ 9,141 $ 10,401
3/31/2003 $ 9,748 $ 9,218 $ 10,436
4/30/2003 $ 10,366 $ 9,887 $ 11,230
5/31/2003 $ 10,957 $ 10,696 $ 12,218
6/30/2003 $ 11,033 $ 10,831 $ 12,303
7/31/2003 $ 11,363 $ 11,227 $ 12,686
8/31/2003 $ 11,727 $ 11,725 $ 13,136
9/30/2003 $ 11,506 $ 11,545 $ 13,034
10/31/2003 $ 12,284 $ 12,419 $ 13,991
11/30/2003 $ 12,554 $ 12,851 $ 14,396
12/31/2003 $ 13,089 $ 13,082 $ 15,018
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The S&P (Standard & Poor's) MidCap 400 Index is an unmanaged
index that tracks the performance of middle-capitalization US stocks. The
Russell Midcap Value Index is an unmanaged index that measures the performance
of those Russell Midcap 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.
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.
(1) Index performance is from May 30, 2000.
147
<Page>
INVESTMENT PORTFOLIO
Liberty Select Value Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
-------------- --------------
COMMON STOCKS--96.1%
CONSUMER DISCRETIONARY--17.2%
AUTO COMPONENTS--4.3%
Gentex Corp. 9,700 $ 428,352
Johnson Controls, Inc. 3,300 383,196
Lear Corp. 7,900 484,507
Superior Industries International 8,400 365,568
--------------
1,661,623
--------------
HOTELS, RESTAURANTS & LEISURE--3.2%
Brinker International, Inc. (a) 14,000 464,240
Darden Restaurants, Inc. 8,700 183,048
Harrah's Entertainment, Inc. 6,300 313,551
Six Flags, Inc. (a) 36,000 270,720
--------------
1,231,559
--------------
HOUSEHOLD DURABLES--0.8%
Newell Rubbermaid, Inc. 12,600 286,902
--------------
LEISURE EQUIPMENT & PRODUCTS--0.7%
Mattel, Inc. 14,600 281,342
--------------
MEDIA--2.3%
Knight-Ridder, Inc. 4,100 317,217
Mediacom Communications Corp. (a) 18,800 162,996
New York Times Co., Class A 8,000 382,320
--------------
862,533
--------------
MULTI-LINE RETAIL--2.3%
Federated Department Stores, Inc. 19,000 895,470
--------------
SPECIALTY RETAIL--3.2%
Borders Group, Inc. (a) 16,100 352,912
Ross Stores, Inc. 10,800 285,444
TJX Companies, Inc. 26,000 573,300
--------------
1,211,656
--------------
TEXTILES, APPAREL & LUXURY GOODS--0.4%
Wolverine World Wide, Inc. 7,100 144,698
--------------
CONSUMER STAPLES--4.6%
BEVERAGES--0.8%
Pepsi Bottling Group, Inc. 12,000 290,160
--------------
FOOD PRODUCTS--2.7%
Dean Foods Co. (a) 26,300 864,481
Hormel Foods Corp. 6,900 178,089
--------------
1,042,570
--------------
PERSONAL PRODUCTS--1.1%
Avon Products, Inc. 6,400 431,936
--------------
ENERGY--6.8%
ENERGY EQUIPMENT & SERVICES--2.5%
BJ Services Co. (a) 5,400 193,860
Noble Corp. (a) 8,200 293,396
Transocean, Inc. (a) 12,650 303,726
Weatherford International Ltd. (a) 4,400 158,400
--------------
949,382
--------------
OIL & GAS--4.3%
Amerada Hess Corp. 7,100 $ 377,507
Occidental Petroleum Corp. 6,100 257,664
XTO Energy, Inc. 35,833 1,014,074
--------------
1,649,245
--------------
FINANCIALS--22.2%
BANKS--11.6%
Banknorth Group, Inc. 12,800 416,384
Charter One Financial, Inc. 10,895 376,422
City National Corp. 6,300 391,356
Cullen/Frost Bankers, Inc. 3,800 154,166
Golden West Financial Corp. 9,600 990,624
Greenpoint Financial Corp. 13,500 476,820
North Fork Bancorporation, Inc. 13,900 562,533
Sovereign Bancorp, Inc. 26,500 629,375
Webster Financial Corp. 9,100 417,326
--------------
4,415,006
--------------
DIVERSIFIED FINANCIALS--3.9%
Bear Stearns Companies, Inc. 4,200 335,790
Citigroup, Inc. 6,831 331,577
Janus Capital Group, Inc. 34,700 569,427
Lehman Brothers Holdings, Inc. 3,500 270,270
--------------
1,507,064
--------------
INSURANCE--6.7%
Ambac Financial Group, Inc. 7,250 503,077
Cincinnati Financial Corp. 5,300 221,964
Loews Corp. 4,300 212,635
Nationwide Financial Services, Class A 7,400 244,644
Old Republic International Corp. 4,500 114,120
PMI Group, Inc. 12,300 457,929
Radian Group, Inc. 9,900 482,625
St. Paul Companies, Inc. 7,900 313,235
--------------
2,550,229
--------------
HEALTH CARE--4.6%
HEALTH CARE EQUIPMENT & SUPPLIES--1.7%
Biomet, Inc. 10,000 364,100
Millipore Corp. (a) 6,900 297,045
--------------
661,145
--------------
HEALTH CARE PROVIDERS & SERVICES--2.9%
Anthem, Inc. (a) 2,700 202,500
First Health Group Corp. (a) 15,800 307,468
HCA, Inc. 6,800 292,128
WellPoint Health Networks, Inc. (a) 3,200 310,368
--------------
1,112,464
--------------
INDUSTRIALS--13.1%
AEROSPACE & DEFENSE--1.0%
Alliant Techsystems, Inc. (a) 4,300 248,368
Northrop Grumman Corp. 1,200 114,720
--------------
363,088
--------------
</Table>
See Notes to Investment Portfolio.
148
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
AIR FREIGHT & LOGISTICS--0.6%
CNF, Inc. 6,500 $ 220,350
--------------
AIRLINES--0.6%
AMR Corp. (a) 18,600 240,870
--------------
COMMERCIAL SERVICES & SUPPLIES--4.1%
Brink's Co. 20,000 452,200
Cendant Corp. (a) 24,400 543,388
DST Systems, Inc. (a) 6,500 271,440
Manpower, Inc. 6,700 315,436
--------------
1,582,464
--------------
ELECTRICAL EQUIPMENT--0.5%
Ametek, Inc. 4,000 193,040
--------------
INDUSTRIAL CONGLOMERATES--1.4%
Carlisle Companies, Inc. 8,900 541,654
--------------
MACHINERY--4.9%
AGCO Corp. (a) 6,000 120,840
Dover Corp. 5,800 230,550
Ingersoll-Rand Co., Class A 6,200 420,856
Mueller Industries, Inc. (a) 4,700 161,492
Navistar International Corp. (a) 14,300 684,827
Parker Hannifin Corp. 4,000 238,000
--------------
1,856,565
--------------
INFORMATION TECHNOLOGY--8.7%
COMMUNICATIONS EQUIPMENT--1.0%
Andrew Corp. (a) 31,900 367,169
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--5.0%
Amphenol Corp., Class A (a) 10,000 639,300
Arrow Electronics, Inc. (a) 10,400 240,656
AVX Corp. 13,600 226,032
Littelfuse, Inc. (a) 11,000 317,020
Varian, Inc. (a) 6,700 279,591
Vishay Intertechnology, Inc. (a) 9,450 216,405
--------------
1,919,004
--------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--1.0%
Affiliated Computer Services, Inc.,
Class A (a) 6,900 375,774
--------------
OFFICE ELECTRONICS--0.6%
Zebra Technologies Corp., Class A (a) 3,800 252,206
--------------
SOFTWARE--1.1%
Reynolds & Reynolds Co., Class A 14,100 409,605
--------------
MATERIALS--12.2%
CHEMICALS--7.3%
Air Products & Chemicals, Inc. 6,800 359,244
Eastman Chemical Co. 9,100 359,723
Engelhard Corp. 11,200 335,440
International Flavors & Fragrances, Inc. 14,900 520,308
Lubrizol Corp. 7,900 256,908
OM Group, Inc. (a) 4,700 123,093
PPG Industries, Inc. 6,700 428,934
Praxair, Inc. 10,600 404,920
--------------
2,788,570
--------------
CONTAINERS & PACKAGING--1.7%
Crown Holdings, Inc. (a) 25,000 $ 226,500
Packaging Corp. of America 12,200 266,692
Pactiv Corp. (a) 6,000 143,400
--------------
636,592
--------------
PAPER & FOREST PRODUCTS--3.2%
Boise Cascade Corp. 8,500 279,310
Georgia-Pacific Corp. 18,100 555,127
MeadWestvaco Corp. 13,634 405,612
--------------
1,240,049
--------------
TELECOMMUNICATION SERVICES--1.4%
WIRELESS TELECOMMUNICATION SERVICES--1.4%
Telephone & Data Systems, Inc. 8,500 531,675
--------------
UTILITIES--5.3%
ELECTRIC UTILITIES--4.6%
Allete, Inc. 6,700 205,020
Entergy Corp. 5,400 308,502
Exelon Corp. 7,850 520,926
PPL Corp. 5,700 249,375
Progress Energy, Inc. 10,800 488,808
--------------
1,772,631
--------------
MULTI-UTILITIES & UNREGULATED POWER- 0.7%
Energy East Corp. 11,300 253,120
--------------
TOTAL COMMON STOCKS
(cost of $30,597,499) 36,729,410
--------------
<Caption>
PAR
--------------
SHORT-TERM OBLIGATION--5.0%
Repurchase agreement with State Street
Bank & Trust Co., dated
12/31/03, due 01/02/04 at 0.780%,
collateralized by a U.S. Treasury
Bond maturing 08/15/28,
market value $1,937,922
(repurchase proceeds $1,896,082)
(cost of $1,896,000) $ 1,896,000 1,896,000
--------------
TOTAL INVESTMENTS--101.1%
(cost of $32,493,499) (b) 38,625,410
--------------
OTHER ASSETS & LIABILITIES, NET--(1.1)% (425,012)
--------------
NET ASSETS--100.0% $ 38,200,398
==============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $32,542,033.
See Notes to Financial Statements.
149
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Select Value Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 32,493,499
--------------
Investments, at value $ 38,625,410
Cash 354
Receivable for:
Fund shares sold 5,272
Interest 41
Dividends 29,802
Expense reimbursement due from Distributor 5,969
Deferred Trustees' compensation plan 1,736
--------------
TOTAL ASSETS 38,668,584
--------------
LIABILITIES:
Payable for:
Fund shares repurchased 410,122
Investment advisory fee 21,874
Transfer agent fee 625
Pricing and bookkeeping fees 856
Trustees' fees 209
Audit fee 21,280
Custody fee 733
Distribution fee--Class B 7,865
Deferred Trustees' fees 1,736
Other liabilities 2,886
--------------
TOTAL LIABILITIES 468,186
--------------
NET ASSETS $ 38,200,398
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 32,844,651
Overdistributed net investment income (1,403)
Accumulated net realized loss (774,761)
Net unrealized appreciation on investments 6,131,911
--------------
NET ASSETS $ 38,200,398
==============
CLASS A:
Net assets $ 1,418,237
Shares outstanding 91,949
==============
Net asset value per share $ 15.42
==============
CLASS B:
Net assets $ 36,782,161
Shares outstanding 2,387,050
==============
Net asset value per share $ 15.41
==============
</Table>
See Notes to Financial Statements.
150
<Page>
STATEMENT OF OPERATIONS
Liberty Select Value Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 368,766
Interest 20,786
--------------
Total Investment Income 389,552
--------------
EXPENSES:
Investment advisory fee 211,079
Distribution fee--Class B 72,709
Transfer agent fee 7,500
Pricing and bookkeeping fees 12,441
Trustees' fees 6,617
Custody fee 4,785
Audit fee 28,495
Other expenses 14,784
--------------
Total Expenses 358,410
Fees reimbursed by Distributor--Class B (28,337)
Custody earnings credit (6)
--------------
Net Expenses 330,067
--------------
Net Investment Income 59,485
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (705,613)
Net change in unrealized appreciation/depreciation on investments 8,564,493
--------------
Net Gain 7,858,880
--------------
Net Increase in Net Assets from Operations $ 7,918,365
==============
</Table>
See Notes to Financial Statements.
151
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Select Value Fund, Variable Series / December 31, 2003
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 59,485 $ 18,662
Net realized loss on investments (705,613) (64,635)
Net change in unrealized appreciation/depreciation on investments 8,564,493 (2,874,205)
-------------- --------------
Net Increase (Decrease) from Operations 7,918,365 (2,920,178)
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (4,195) (1,387)
Class B (55,597) (20,257)
-------------- --------------
Total Distributions Declared to Shareholders (59,792) (21,644)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 578,918 546,422
Distributions reinvested 4,195 1,387
Redemptions (93,140) (9,127)
-------------- --------------
Net Increase 489,973 538,682
-------------- --------------
Class B:
Subscriptions 7,832,430 14,432,250
Distributions reinvested 55,597 20,257
Redemptions (3,283,568) (3,803,086)
-------------- --------------
Net Increase 4,604,459 10,649,421
-------------- --------------
Net Increase from Share Transactions 5,094,432 11,188,103
-------------- --------------
Total Increase in Net Assets 12,953,005 8,246,281
NET ASSETS:
Beginning of period 25,247,393 17,001,112
-------------- --------------
End of period (including overdistributed net investment income of $(1,403) and
$(1,096), respectively) $ 38,200,398 $ 25,247,393
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 46,620 44,354
Issued for distributions reinvested 272 115
Redemptions (7,103) (752)
-------------- --------------
Net Increase 39,789 43,717
-------------- --------------
Class B:
Subscriptions 601,441 1,069,404
Issued for distributions reinvested 3,606 1,685
Redemptions (251,382) (275,153)
-------------- --------------
Net Increase 353,665 795,936
-------------- --------------
</Table>
See Notes to Financial Statements.
152
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Select Value Fund, Variable Series / December 31, 2003
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 at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Investments for which market quotations are not readily available 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.
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.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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.
153
<Page>
The tax character of distributions paid during the years ended December 31, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 59,792 $ 21,644
Long-Term Capital Gains -- --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ 319 $ -- $ 6,083,377
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciationare primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2003, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 7,763,880
Unrealized depreciation (1,680,503)
--------------
Net unrealized appreciation $ 6,083,377
==============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2010 $ 20,614
2011 705,613
----------
$ 726,227
==========
</Table>
No capital loss carryforwards were utilized and/or expired during the year ended
December 31, 2003 for the Fund. Expired capital loss carryforwards are recorded
as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Colonial Management Associates,
Inc., the previous sub-advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia
is an indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As
a result of the merger, Columbia now serves as the Fund's investment advisor.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $500 million 0.70%
Next $500 million 0.65%
Over $1 billion 0.60%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.70% of the Fund's average daily net assets.
For the year ended December 31, 2003, 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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.041%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
154
<Page>
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. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $9,218,751 and $3,400,322, 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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
155
<Page>
FINANCIAL HIGHLIGHTS
Liberty Select Value Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- DECEMBER 31,
2003 2002 2001 2000 (a)
-------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.12 $ 13.66 $ 13.24 $ 12.00
-------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.05 0.03 0.05 0.09
Net realized and unrealized gain (loss) on investments 3.30 (1.54) 0.42 1.28
-------- -------- -------- ------------
Total from Investment Operations 3.35 (1.51) 0.47 1.37
-------- -------- -------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.05) (0.03) (0.03) (0.07)
From net realized gains -- -- (0.02) --(c)
Return of capital -- -- -- (0.06)
-------- -------- -------- ------------
Total Distributions Declared to Shareholders (0.05) (0.03) (0.05) (0.13)
-------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 15.42 $ 12.12 $ 13.66 $ 13.24
======== ======== ======== ============
Total return (d)(e) 27.61% (11.07)% 3.55%(f) 11.38%(f)(g)
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Expenses (h) 0.95% 0.93% 1.10% 1.10%(i)
Net investment income (h) 0.35% 0.26% 0.34% 1.13%(i)
Waiver/reimbursement -- -- 0.48% 1.31%(i)
Portfolio turnover rate 12% 21% 15% 26%(g)
Net assets, end of period (000's) $ 1,418 $ 632 $ 115 $ 111
</Table>
(a) For the period from commencement of operations on May 30, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
156
<Page>
REPORT OF INDEPENDENT AUDITORS
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, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
157
<Page>
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
100% of the ordinary income distributed by the Fund, for the year ended December
31, 2003, qualifies for the corporate dividends received deduction.
158
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Newport Tiger Fund, Variable Series / December 31, 2003
Newport Tiger Fund, Variable Series seeks capital appreciation.
Eric Sandlund and Christopher Legallet are co-managers of the fund. Mr. Sandlund
has co-managed the fund since August 2002. Mr. Legallet, chief investment
officer-international equities of Columbia Advisors, Inc., has co-managed the
fund since January 1999.
The fund posted substantial gains for the 12-month period ended December 31,
2003, but came out slightly behind its benchmark, the MSCI All Country Free Asia
ex Japan Index. The fund benefited from a strong rebound in Asian markets during
the second half of the year. Once SARS (severe acute respiratory syndrome)
appeared under control, major military campaigns in Iraq ended and global
economic growth improved, Asian stocks took off. The fund modestly trailed its
benchmark in part because of selected technology investments, which suffered as
investors worried that the strong product sales of 2003 might not be sustainable
in 2004.
GROWING COMMITMENTS TO INDIA AND THAILAND
During the 12-month period, we added to our positions in countries with growing
economies and strong upward trends in domestic consumption and infrastructure
development, such as India and Thailand. The fund had a bigger stake than its
benchmark in India, where the economy is expected to grow at a rate of 8.0% in
2004. During the past year, the Indian economy benefited from relatively low
interest rates and expansion in the manufacturing and service sectors. In India,
we purchased Bajaj Auto, a motorcycle distributor; Bharat Forge, a producer of
axles and crankshafts for heavy vehicles and machinery and Maruti Udyog, a
manufacturer of low-cost automobiles for the domestic population (0.3%, 0.4% and
1.0% of net assets, respectively). All three stocks added to total return.
We also increased our investments in Thailand, making it the fifth largest
country in the portfolio at the end of the period. In the consumer staples area,
we added Thai Union Frozen Products (0.5% of net assets), one of the largest
canned fish producers in the world. The company owns the Chicken of the Sea tuna
brand and exports shrimp from Thailand to the United States. We took some
profits in Land & House (1.6% of net assets), a company that has contributed
significantly to performance for more than a year and continues to be a positive
holding for the fund. This sale lowered our exposure to the property sector in
Thailand.
REDUCED EXPOSURE TO CHINA AND HONG KONG
Although we maintained significant commitments to China and Hong Kong, we
reduced our exposure to both markets for the following reasons. First, we viewed
the prospects for individual holdings as less attractive than securities we
found elsewhere. Second, we thought other stock markets offered more plentiful
opportunities. In China, we cut back on Huaneng Power International (3.5% of net
assets), the country's largest electric utility, when the stock's valuation rose
beyond our target. In our opinion, Huaneng Power International continues to be a
proxy for China's attractive long-term growth potential, and it remains an
important position for the fund. After trimming our stake in a number of Hong
Kong stocks that had done well, we added Standard Chartered (1.3% of net
assets), a diversified financial institution that does business in the emerging
economies of Asia.
We maintained investments in Indonesia, South Korea, Malaysia, Taiwan and
other parts of Asia. Certain South Korean investments, however, hampered
returns. We held on even as an uncertain regulatory environment hurt
telecommunications company KT Corporation, and concerns about the nation's
growing level of debt hampered Kookmin Bank (1.4% and 1.8% of net assets,
respectively).
POSITIONED FOR GLOBAL ECONOMIC GROWTH
If global economic growth picks up, we expect the Asian economies to benefit
from increased export activity as well as expansion of their domestic markets.
We have positioned the portfolio to take advantage of these trends.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Newport Tiger Fund, Variable Series offers long-term growth
potential; however, the net asset value of the fund will fluctuate due to
economic and political developments and currency exchange rate fluctuations.
Many of the Asian countries 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.
Holdings are disclosed as of December 31, 2003, and are subject to change.
159
<Page>
PERFORMANCE INFORMATION
Newport Tiger Fund, Variable Series / December 31, 2003
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2003 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- --------------------------------------------------------------
Class A (5/1/95) 44.79 6.80 1.63
MSCI All Country Free Asia
ex Japan Index(1) 46.98 6.68 -1.10
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/02 12/31/03
- ------------------------------------------------------
Class A 1.45 2.08
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/1/95 - 12/31/03
Class A: $11,501
<Table>
<Caption>
CLASS A SHARES MSCI ALL COUNTRY FREE ASIA EX JAPAN INDEX
5/31/1995 $ 11,100 $ 11,125
6/30/1995 $ 10,900 $ 10,951
7/31/1995 $ 11,200 $ 11,157
8/31/1995 $ 10,851 $ 10,643
9/30/1995 $ 11,050 $ 10,770
10/31/1995 $ 11,000 $ 10,584
11/30/1995 $ 11,050 $ 10,344
12/31/1995 $ 11,501 $ 10,855
1/31/1996 $ 12,661 $ 11,699
2/29/1996 $ 12,560 $ 11,826
3/31/1996 $ 12,560 $ 11,912
4/30/1996 $ 12,510 $ 12,341
5/31/1996 $ 12,460 $ 12,203
6/30/1996 $ 12,208 $ 12,021
7/31/1996 $ 11,552 $ 11,134
8/31/1996 $ 11,956 $ 11,470
9/30/1996 $ 12,308 $ 11,668
10/31/1996 $ 12,207 $ 11,446
11/30/1996 $ 12,813 $ 11,986
12/31/1996 $ 12,851 $ 11,944
1/31/1997 $ 12,750 $ 12,191
2/28/1997 $ 12,750 $ 12,295
3/31/1997 $ 11,985 $ 11,600
4/30/1997 $ 11,781 $ 11,428
5/31/1997 $ 12,852 $ 11,944
6/30/1997 $ 13,464 $ 12,381
7/31/1997 $ 13,668 $ 12,485
8/31/1997 $ 11,324 $ 10,272
9/30/1997 $ 11,681 $ 10,225
10/31/1997 $ 9,028 $ 7,952
11/30/1997 $ 8,876 $ 7,407
12/31/1997 $ 8,850 $ 7,130
1/31/1998 $ 7,556 $ 6,514
2/28/1998 $ 9,212 $ 7,895
3/31/1998 $ 9,161 $ 7,779
4/30/1998 $ 8,385 $ 7,097
5/31/1998 $ 7,246 $ 6,014
6/30/1998 $ 6,522 $ 5,339
7/31/1998 $ 6,004 $ 5,204
8/31/1998 $ 5,124 $ 4,454
9/30/1998 $ 6,003 $ 4,896
10/31/1998 $ 7,763 $ 5,961
11/30/1998 $ 8,281 $ 6,442
12/31/1998 $ 8,281 $ 6,576
1/31/1999 $ 7,806 $ 6,471
2/28/1999 $ 7,806 $ 6,345
3/31/1999 $ 8,492 $ 7,106
4/30/1999 $ 10,338 $ 8,405
5/31/1999 $ 9,652 $ 8,223
6/30/1999 $ 10,707 $ 9,508
7/31/1999 $ 10,707 $ 9,299
8/31/1999 $ 10,760 $ 9,529
9/30/1999 $ 10,338 $ 8,862
10/31/1999 $ 11,023 $ 9,147
11/30/1999 $ 12,342 $ 10,017
12/31/1999 $ 13,912 $ 10,829
1/31/2000 $ 13,274 $ 10,775
2/29/2000 $ 13,646 $ 10,550
3/31/2000 $ 14,177 $ 10,798
4/30/2000 $ 13,274 $ 9,808
5/31/2000 $ 12,530 $ 8,955
6/30/2000 $ 13,857 $ 9,428
7/31/2000 $ 13,805 $ 9,024
8/31/2000 $ 13,698 $ 8,957
9/30/2000 $ 12,742 $ 7,931
10/31/2000 $ 12,159 $ 7,307
11/30/2000 $ 11,522 $ 7,024
12/31/2000 $ 11,736 $ 7,013
1/31/2001 $ 12,594 $ 7,916
2/28/2001 $ 11,843 $ 7,542
3/31/2001 $ 10,396 $ 6,688
4/30/2001 $ 10,985 $ 6,698
5/31/2001 $ 10,664 $ 6,688
6/30/2001 $ 10,342 $ 6,528
7/31/2001 $ 10,127 $ 6,281
8/31/2001 $ 9,484 $ 6,183
9/30/2001 $ 7,984 $ 5,211
10/31/2001 $ 8,198 $ 5,492
11/30/2001 $ 9,109 $ 6,226
12/31/2001 $ 9,566 $ 6,744
1/31/2002 $ 9,566 $ 7,013
2/28/2002 $ 9,404 $ 7,065
3/31/2002 $ 9,782 $ 7,538
4/30/2002 $ 9,782 $ 7,616
5/31/2002 $ 9,459 $ 7,444
6/30/2002 $ 8,972 $ 7,074
7/31/2002 $ 8,486 $ 6,806
8/31/2002 $ 8,270 $ 6,685
9/30/2002 $ 7,567 $ 5,949
10/31/2002 $ 7,891 $ 6,251
11/30/2002 $ 8,324 $ 6,583
12/31/2002 $ 7,944 $ 6,182
1/31/2003 $ 7,889 $ 6,233
2/28/2003 $ 7,616 $ 5,981
3/31/2003 $ 7,342 $ 5,701
4/30/2003 $ 7,451 $ 5,881
5/31/2003 $ 8,054 $ 6,389
6/30/2003 $ 8,547 $ 6,791
7/31/2003 $ 9,258 $ 7,370
8/31/2003 $ 9,970 $ 7,936
9/30/2003 $ 10,190 $ 7,996
10/31/2003 $ 10,902 $ 8,682
11/30/2003 $ 10,792 $ 8,575
12/31/2003 $ 11,501 $ 9,088
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA PROVIDED. FOR CURRENT MONTH-END
PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
Total return performance includes changes in share price and reinvestment of all
distributions. The MSCI (Morgan Stanley Capital International) All Country Free
Asia ex Japan Index is an unmanaged index that tracks the performance of equity
securities in eleven countries in Asia, excluding Japan and taking into account
local market restrictions on share ownership by foreigners. 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.
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.
(1) Index performance is from April 30, 1995.
160
<Page>
INVESTMENT PORTFOLIO
Newport Tiger Fund, Variable Series / December 31, 2003
<Table>
<Caption>
SHARES VALUE
------------ ------------
COMMON STOCKS--100.5%
CONSUMER DISCRETIONARY--11.9%
AUTOMOBILES--4.7%
Bajaj Auto Ltd. 4,000 $ 99,987
Hyundai Motor Co., Ltd. 15,200 644,230
Maruti Udyog Ltd. (a) 35,462 293,282
PT Astra International, Inc. (a) 518,000 307,510
------------
1,345,009
------------
HOTELS, RESTAURANTS & LEISURE--1.9%
Genting Berhad 128,000 559,158
------------
MEDIA--3.3%
Singapore Press Holdings Ltd. 54,164 602,779
Television Broadcasts Ltd. 66,000 333,241
------------
936,020
------------
TEXTILES, APPAREL & LUXURY GOODS--2.0%
Li & Fung Ltd. 328,000 561,893
------------
CONSUMER STAPLES--1.4%
FOOD & DRUG RETAILING--0.2%
Convenience Retail Asia Ltd. (a) 198,000 57,382
------------
FOOD PRODUCTS--1.2%
Nestle India Ltd. 14,800 224,277
Thai Union Frozen Products
Public Co., Ltd. 163,600 132,127
------------
356,404
------------
FINANCIALS--33.1%
BANKS--19.6%
Bangkok Bank Public Co., Ltd. (a) 297,400 818,136
Bank Rakyat Indonesia (a) 1,772,500 263,060
Chinatrust Financial Holding Co., Ltd. 532,000 534,351
DBS Group Holdings Ltd. 32,638 282,505
Hang Seng Bank Ltd. 27,700 363,922
Hong Leong Bank Berhad 167,000 228,526
Kasikornbank Public Co., Ltd.,
NVDR (a) 455,000 746,419
Kookmin Bank 13,783 516,501
Koram Bank (a) 12,860 151,104
Public Bank Berhad 657,187 536,126
Siam Commercial Bank Public Co.,
Ltd. (a) 189,500 265,436
Standard Chartered PLC 23,462 386,351
United Overseas Bank Ltd. 66,000 512,984
------------
5,605,421
------------
DIVERSIFIED FINANCIALS--5.2%
Hong Leong Credit Berhad 68,000 89,474
Housing Development Finance
Corp., Ltd. 78,108 1,106,129
Swire Pacific Ltd., Series A 50,000 307,841
------------
1,503,444
------------
REAL ESTATE--8.3%
City Developments Ltd. 133,000 $ 473,797
Henderson Land
Development Co., Ltd. 70,000 309,258
SM Prime Holdings, Inc. 2,573,000 301,234
Sun Hung Kai Properties Ltd. 158,000 1,302,463
------------
2,386,752
------------
HEALTH CARE--3.7%
HEALTH CARE EQUIPMENT & SUPPLIES--0.3%
Pihsiang Machinery
Manufacturing Co., Ltd. 24,150 83,938
------------
PHARMACEUTICALS--3.4%
Dr. Reddy's Laboratories Ltd., ADR 19,300 610,845
Ranbaxy Laboratories Ltd. (a) 14,700 354,803
------------
965,648
------------
INDUSTRIALS--9.1%
CONSTRUCTION & ENGINEERING--1.6%
Land & House Public Co., Ltd. 1,478,100 473,768
------------
ELECTRICAL EQUIPMENT--0.4%
Phoenixtec Power Co., Ltd. 96,480 113,105
------------
INDUSTRIAL CONGLOMERATES--5.0%
China Merchants Holdings
International Co., Ltd. 337,000 442,750
Hutchison Whampoa Ltd. 133,500 980,132
------------
1,422,882
------------
MACHINERY--0.4%
Bharat Forge Ltd. 6,200 108,214
------------
TRANSPORTATION INFRASTRUCTURE--1.7%
Zhejiang Expressway Co., Ltd. 692,000 485,770
------------
INFORMATION TECHNOLOGY--20.8%
COMPUTERS & PERIPHERALS--2.1%
Ambit Microsystems Corp. 106,300 280,231
Asustek Computer, Inc. 148,500 328,056
------------
608,287
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.3%
Synnex Technology International Corp. 127,000 172,077
Venture Corp., Ltd. 18,000 211,977
------------
384,054
------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--3.7%
Infosys Technologies Ltd. 8,756 1,070,676
------------
INTERNET SOFTWARE & SERVICES--1.0%
NCsoft Corp. (a) 4,880 270,315
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS--12.7%
Realtek Semiconductor Corp. 110,400 188,607
Samsung Electronics Co., Ltd. 5,250 1,987,201
Taiwan Semiconductor
Manufacturing Co., Ltd. (a) 775,624 1,450,725
------------
3,626,533
------------
</Table>
See Notes to Investment Portfolio.
161
<Page>
<Table>
<Caption>
SHARES VALUE
------------ ------------
MATERIALS--2.7%
CONSTRUCTION MATERIALS--2.7%
Siam Cement Public
Co., Ltd., NVDR 123,450 $ 791,376
------------
TELECOMMUNICATION SERVICES--9.1%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.1%
KT Corp. 10,400 389,291
Philippine Long Distance
Telephone Co. (a) 27,600 482,205
PT Telekomunikasi 389,600 312,235
------------
1,183,731
------------
WIRELESS TELECOMMUNICATION SERVICES--5.0%
China Mobile Ltd. 385,500 1,181,761
Taiwan Cellular Corp. 297,000 258,071
------------
1,439,832
------------
UTILITIES--8.7%
ELECTRIC UTILITIES--5.2%
Beijing Datang Power
Generation Co., Ltd. 700,000 500,403
Huaneng Power International, Inc. 578,000 1,001,333
------------
1,501,736
------------
GAS UTILITIES--3.5%
Hong Kong & China Gas Co., Ltd 653,002 996,693
------------
TOTAL COMMON STOCKS
(cost of $18,844,535) 28,838,041
------------
<Caption>
PAR
------------
SHORT-TERM OBLIGATION--1.4%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 12/31/03, due 01/02/04
at 0.780%, collateralized by a
U.S. Treasury Bond maturing
02/15/29, market value $395,708
(repurchase proceeds $387,017)
(cost of $387,000) $ 387,000 387,000
------------
TOTAL INVESTMENTS--101.9%
(cost of $19,231,535) (b) 29,225,041
------------
OTHER ASSETS & LIABILITIES, NET--(1.9)% (541,424)
------------
NET ASSETS--100.0% $ 28,683,617
============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income tax purposes is $19,325,596.
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY (UNAUDITED): VALUE INVESTMENTS
- ----------------------- ------------ ------------
Hong Kong $ 6,218,062 21.3%
South Korea 3,958,641 13.6
India 3,868,214 13.2
Taiwan 3,409,160 11.7
Thailand 3,227,263 11.1
Singapore 2,084,042 7.1
China 1,987,506 6.8
Malaysia 1,413,284 4.8
Indonesia 882,805 3.0
Philippines 783,438 2.7
Bermuda 561,893 1.9
United States 387,000 1.3
United Kingdom 386,351 1.3
Cayman Islands 57,382 0.2
------------ ------------
$ 29,225,041 100.0%
============ ============
</Table>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
<Table>
<Caption>
ACRONYM NAME
------- -----------------------------
ADR American Depositary Receipt
NVDR Non-Voting Depositary Receipt
</Table>
See Notes to Financial Statements.
162
<Page>
STATEMENT OF ASSETS & LIABILITIES
Newport Tiger Fund, Variable Series / December 31, 2003
<Table>
ASSETS:
Investments, at cost $ 19,231,535
-------------
Investments, at value $ 29,225,041
Cash 3,548
Foreign currency (cost of $70,993) 71,099
Receivable for:
Fund shares sold 24,981
Interest 8
Dividends 20,935
Deferred Trustees' compensation plan 4,078
-------------
TOTAL ASSETS 29,349,690
-------------
LIABILITIES:
Payable for:
Fund shares repurchased 171,266
Investment advisory fee 21,083
Transfer agent fee 625
Pricing and bookkeeping fees 950
Trustees' fees 524
Audit fee 32,690
Custody fee 4,165
Distribution fee--Class B 646
Deferred Trustees' fees 4,078
Foreign capital gains tax accrued 426,782
Other liabilities 3,264
-------------
TOTAL LIABILITIES 666,073
-------------
NET ASSETS $ 28,683,617
=============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 31,156,424
Overdistributed net investment income (5,343)
Accumulated net realized loss (12,034,361)
Net unrealized appreciation (depreciation) on:
Investments 9,993,506
Foreign currency translations 173
Foreign capital gains tax (426,782)
-------------
NET ASSETS $ 28,683,617
=============
CLASS A:
Net assets $ 25,683,608
Shares outstanding 12,340,449
=============
Net asset value per share $ 2.08
=============
CLASS B:
Net assets $ 3,000,009
Shares outstanding 1,415,831
=============
Net asset value per share $ 2.12
=============
</Table>
See Notes to Financial Statements.
163
<Page>
STATEMENT OF OPERATIONS
Newport Tiger Fund, Variable Series
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 601,916
Interest 3,948
-------------
Total Investment Income (net of foreign taxes withheld
of $51,299) 605,864
-------------
EXPENSES:
Investment advisory fee 213,330
Distribution fee--Class B 4,120
Pricing and bookkeeping fees 12,067
Transfer agent fee 7,500
Trustees' fees 7,807
Custody fee 58,510
Audit fee 45,370
Other expenses 14,938
-------------
Total Expenses 363,642
Custody earnings credit (88)
-------------
Net Expenses 363,554
-------------
Net Investment Income 242,310
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN
CURRENCY AND FOREIGN CAPITAL GAINS TAX:
Net realized gain (loss) on:
Investments 82,247
Foreign currency transactions (22,348)
Foreign capital gains tax (21,551)
-------------
Net realized gain 38,348
-------------
Net change in unrealized appreciation/depreciation on:
Investments 8,854,669
Foreign currency translations 614
Foreign capital gains tax (426,782)
-------------
Net change in unrealized appreciation/depreciation 8,428,501
-------------
Net Gain 8,466,849
-------------
Net Increase in Net Assets from Operations $ 8,709,159
=============
</Table>
See Notes to Financial Statements.
164
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Newport Tiger Fund, Variable Series
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
- ---------------------------------- ------------- -------------
OPERATIONS:
Net investment income $ 242,310 $ 304,732
Net realized gain (loss) on investments, foreign currency transactions and
foreign capital gains tax 38,348 (48,595)
Net change in unrealized appreciation/depreciation on investments, foreign
currency translations and foreign capital gains tax 8,428,501 (3,025,068)
------------- -------------
Net Increase (Decrease) from Operations 8,709,159 (2,768,931)
------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (238,610) (253,001)
Class B (19,194) (11,587)
Return of capital:
Class A -- (62,217)
Class B -- (2,850)
------------- -------------
Total Distributions Declared to Shareholders (257,804) (329,655)
------------- -------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 4,595,945 349,774,001
Distributions reinvested 238,610 315,218
Redemptions (9,993,129) (357,739,000)
------------- -------------
Net Decrease (5,158,574) (7,649,781)
------------- -------------
Class B:
Subscriptions 1,441,440 2,488,667
Distributions reinvested 19,194 14,437
Redemptions (242,928) (3,501,399)
------------- -------------
Net Increase (Decrease) 1,217,706 (998,295)
------------- -------------
Net Decrease from Share Transactions (3,940,868) (8,648,076)
------------- -------------
Total Increase (Decrease) in Net Assets 4,510,487 (11,746,662)
NET ASSETS:
Beginning of period 24,173,130 35,919,792
------------- -------------
End of period (including overdistributed net investment income of $(5,343) and
$(3,562), respectively) $ 28,683,617 $ 24,173,130
============= =============
CHANGES IN SHARES:
Class A:
Subscriptions 2,997,732 199,407,089
Issued for distributions reinvested 115,267 214,434
Redemptions (6,743,620) (202,704,318)
------------- -------------
Net Decrease (3,630,621) (3,082,795)
------------- -------------
Class B:
Subscriptions 802,770 1,369,557
Issued for distributions reinvested 9,140 9,625
Redemptions (134,468) (1,874,153)
------------- -------------
Net Increase (Decrease) 677,442 (494,971)
------------- -------------
</Table>
See Notes to Financial Statements.
165
<Page>
NOTES TO FINANCIAL STATEMENTS
Newport Tiger Fund, Variable Series / December 31, 2003
NOTE 1. ORGANIZATION
Newport Tiger 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.
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 at
the close of the principal exchange on which they trade. 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 obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Foreign securities are generally valued at the closing 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.
Investments for which market quotations are not readily available, which tend to
be more thinly traded and of lesser quality 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. Foreign markets
close each day at various times prior to the close of the New York Stock
Exchange ("NYSE"). Foreign currency exchange rates are generally determined
prior to the close of the NYSE at 12:00 p.m. Eastern (U.S.) time. Occasionally,
events affecting the value of a foreign security may occur subsequent to the
close of the exchange or market which would not be reflected in the computation
of the Fund's net asset value. In such an event, the foreign security will be
valued at the fair value.
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.
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.
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.
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.
166
<Page>
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.
FOREIGN CAPITAL GAINS TAX--Realized gains in certain countries may be subject
to foreign taxes at the Fund level, at rates ranging from approximately 10% to
30%. The Fund accrues for such foreign taxes on net realized and unrealized
gains at the rate appropriate for each jurisdiction.
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, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, the Fund
will 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. Net realized capital gains, if any, are distributed at least annually.
Income and capital gains dividends are determined in accordance with income tax
regulations which may differ from GAAP. 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, 2003, permanent differences resulting primarily
from differing treatments for foreign currency transactions, excess return of
capital distributions and foreign capital gains tax were identified and
reclassified among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED NET ACCUMULATED PAID-IN
INVESTMENT INCOME NET REALIZED LOSS CAPITAL
---------------------- ----------------- -----------
$ 13,713 $ 43,898 $ (57,611)
</Table>
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, 2003
and December 31, 2002 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Distributions paid from:
Ordinary Income* $ 257,804 $ 264,588
Long-Term Capital Gains -- --
Tax Return of Capital -- 65,067
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of December 31, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
- ------------------ ----------------- -----------------
$ -- $ -- $ 9,472,836
</Table>
* The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to deferral of losses from wash sales and foreign capital
gains tax.
Unrealized appreciation and depreciation at December 31, 2003, based on cost of
investments for federal income tax purposes and excluding any unrealized
appreciation and depreciation from changes in the value of assets and
liabilities resulting from changes in exchange rates was:
<Table>
Unrealized appreciation $ 10,454,400
Unrealized depreciation (554,955)
------------
Net unrealized appreciation $ 9,899,445
============
</Table>
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- -------------
2005 $ 2,121,889
2006 5,726,423
2007 1,050,865
2009 2,161,521
2010 879,602
-------------
$ 11,940,300
=============
</Table>
Capital loss carryforwards of $69,477 were utilized and/or expired during the
year ended December 31, 2003 for the Fund.
Expired capital loss carryforwards are recorded as a reduction of paid-in
capital.
167
<Page>
POST-OCTOBER LOSSES--Under current tax rules, certain currency and 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, 2003, post-October
currency losses of $1,046 were deferred to January 1, 2004.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISOR MERGER--On April 1, 2003, Liberty Advisory Services Corp.,
the previous investment advisor to the Fund, and Newport Fund Management, Inc.,
the previous sub-advisor to the Fund, merged into Columbia Management Advisors,
Inc. ("Columbia"), formerly known as Columbia Management Co. Columbia is an
indirect, wholly owned subsidiary of FleetBoston Financial Corporation. As a
result of the merger, Columbia now serves as the Fund's investment advisor. The
merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE--Columbia is the investment advisor to the Fund and
provides administrative and other services. Columbia receives a monthly fee
based on the Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------ --------
First $1 billion 0.90%
Next $500 million 0.85%
Over $1.5 billion 0.80%
</Table>
Prior to November 1, 2003, Columbia received a monthly investment advisory fee
at the annual rate of 0.90% of the Fund's average daily net assets.
For the year ended December 31, 2003, the Fund's effective investment advisory
fee rate was 0.90%.
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"). Columbia pays the
total fees collected to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the year ended December 31, 2003, the
effective pricing and bookkeeping fee rate was 0.051%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"),
formerly Liberty Funds Services, Inc., an affiliate of Columbia, provides
shareholder services for a monthly fee at an annual rate of $7,500.
Effective October 13, 2003, Liberty Funds Services, Inc. changed its name to
Columbia Funds Services, Inc.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. Prior to
October 13, 2003, Columbia Funds Distributor, Inc. was known as Liberty Funds
Distributor, Inc. The Fund has adopted a 12b-1 plan which requires the payment
of a monthly distribution fee to the Distributor at the annual rate of 0.25% of
Class B average daily net assets.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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--The Fund pays no compensation to its
officers, all of whom are employees of Columbia or its affiliates.
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.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES--For the year ended December 31, 2003, the
cost of purchases and proceeds from sales of securities, excluding short-term
obligations, were $6,595,885 and $10,549,508, 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.
168
<Page>
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--Columbia, the Distributor and certain of their affiliates
(collectively, "the Columbia Group") have received information requests and
subpoenas from various regulatory authorities, including the Securities and
Exchange Commission ("SEC") and the New York Attorney General, in connection
with their investigations of late trading and market timing in mutual funds. The
Columbia Group has not uncovered any instances where Columbia or the Distributor
was knowingly involved in late trading of mutual fund shares. The Columbia Group
has identified a limited number of investors who had informal arrangements for
trading certain Columbia Fund shares between 1998 and 2003. A substantial
majority of the trading had ended by October 2002. None of these arrangements
exists today. Information relating to those trading arrangements has been
supplied to various regulatory authorities. To the extent that any Columbia
Fund, whose shares were involved in those trading activities, was harmed by
them, the Columbia Group has undertaken to reimburse such fund.
The SEC staff has issued notices to the effect that it has made a preliminary
determination to recommend that the SEC bring civil enforcement actions,
including injunctive proceedings, against Columbia and the Distributor, alleging
that they have violated certain provisions of the federal securities laws. The
Columbia Group believes that those allegations are based principally on the
trading arrangements referred to above. Columbia and the Distributor are engaged
in discussions with the SEC staff in an effort to reach a satisfactory
resolution of these matters. However, there can be no assurance that such a
resolution will be reached. Any potential resolution of these matters may
include, but not be limited to, sanctions, financial penalties, damages or
injunctions regarding Columbia or the Distributor, and structural changes in the
conduct of their business.
Although the Columbia Group does not believe that these regulatory developments
or their resolution will have a material adverse effect on the Columbia Funds,
or on the ability of Columbia and the Distributor to provide services to the
Columbia Funds, there can be no assurance that these matters or any adverse
publicity or other developments resulting from them will not result in increased
redemptions or reduced sales of Columbia Fund shares, which could increase
transactions costs or operating expenses, or other consequences for the Columbia
Funds.
169
<Page>
FINANCIAL HIGHLIGHTS
Newport Tiger Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as
follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.45 $ 1.77 $ 2.19 $ 2.62 $ 1.57
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.02 0.02 0.02 0.02 0.03
Net realized and unrealized gain (loss) on investments,
foreign currency and foreign capital gains tax 0.63 (0.32) (0.42) (0.43) 1.04
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.65 (0.30) (0.40) (0.41) 1.07
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.02) (0.02) (0.02) (0.02) (0.02)
Return of capital -- --(b) -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.02) (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 2.08 $ 1.45 $ 1.77 $ 2.19 $ 2.62
========== ========== ========== ========== ==========
Total return (c)(d) 44.79% (16.96)% (18.48)% (15.63)% 68.01%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (e) 1.52% 1.27% 1.31% 1.15% 1.21%
Net investment income (e) 1.06% 0.96% 0.99% 0.80% 1.65%
Portfolio turnover rate 28% 28% 24% 22% 12%
Net assets, end of period (000's) $ 25,684 $ 23,087 $ 33,688 $ 44,346 $ 46,125
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
170
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Newport Tiger 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 Newport Tiger Fund, Variable
Series (the "Fund") (a series of Liberty Variable Investment Trust) at December
31, 2003, 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 auditing standards generally accepted in the United States of America,
which 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 2004
171
<Page>
TRUSTEES
Liberty Variable Investment Trust
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also
effective October 8, 2003, the incumbent trustees of the Fund were elected as
directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG
Fund Trust. The new combined Board of Trustees/Directors of the Fund now
oversees 119 funds in the Columbia Funds Complex (including the former Liberty
Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these
trustees/directors also serve on the Boards of other funds in the Columbia Funds
Complex.
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 years, 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.
<Table>
<Caption>
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUNDS OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUNDS TO OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE/DIRECTOR HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (age 48) Trustee 1996 Executive Vice 119 Orbitz (online
P.O. Box 66100 President--Strategy of United travel company)
Chicago, IL 60666 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 March, 1993 to
September, 2001).
Janet Langford Kelly (age 45) Trustee 1996 Chief Administrative Officer 119 None
3100 West Beaver Road and Senior Vice President,
Troy, MI 48084-3163 Kmart Holding Corporation
(consumer goods) since
September, 2003 (formerly
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).
Richard W. Lowry (age 67) Trustee 1995 Private Investor since 121(3) None
10701 Charleston Drive August, 1987 (formerly
Vero Beach, FL 32963 Chairman and Chief Executive
Officer, U.S. Plywood
Corporation (building
products manufacturer)).
Charles R. Nelson (age 61) Trustee 1981 Professor of Economics, 119 None
Department of Economics University of Washington,
University of Washington since January, 1976; Ford and
Seattle, WA 98195 Louisa Van Voorhis Professor
of Political Economy,
University of Washington,
since September, 1993;
Director, Institute for
Economic Research, University
of Washington, since
September, 2001; 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.
John J. Neuhauser (age 60) Trustee 1985 Academic Vice President and 122(3),(4) Saucony, Inc.
84 College Road Dean of Faculties since (athletic
Chestnut Hill, MA 02467-3838 August, 1999, Boston College footwear);
(formerly Dean, Boston SkillSoft Corp.
College School of Management (e-learning)
from September, 1977 to
September, 1999).
</Table>
172
<Page>
<Table>
<Caption>
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUNDS OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE FUNDS TO OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE/DIRECTOR HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES(CONTINUED)
Patrick J. Simpson (age 58) Trustee 2000 Partner, Perkins Coie L.L.P. 119 None
1211 S.W. 5th Avenue (law firm).
Suite 1500
Portland, OR 97204
Thomas E. Stitzel (age 67) Trustee 1998 Business Consultant since 119 None
2208 Tawny Woods Place 1999 (formerly Professor of
Boise, ID 83706 Finance from 1975 to 1999,
College of Business, Boise
State University); Chartered
Financial Analyst.
Thomas C. Theobald (age 66) Trustee 1996 Managing Director, William 119 Anixter
27 West Monroe Street, and Blair Capital Partners International
Suite 3500 Chairman of (private equity investing) (network support
Chicago, IL 60606 the Board(6) since September, 1994. equipment
distributor), Jones
Lang LaSalle (real
estate management
services) and MONY
Group (life
insurance)
Anne-Lee Verville (age 58) Trustee 1998 Author and speaker on 120(4) Chairman of the
359 Stickney Hill Road educational systems needs Board of Directors,
Hopkinton, NH 03229 (formerly General Manager, Enesco Group, Inc.
Global Education Industry, (designer, importer
IBM Corporation (computer and and distributor of
technology) from 1994 to giftware and
1997). collectibles)
Richard L. Woolworth (age 62) Trustee 1991 Retired since December 2003 119 NW Natural (a
100 S.W. Market Street #1500 (formerly Chairman and Chief natural gas service
Portland, OR 97207 Executive Officer, The provider)
Regence Group (regional
health insurer); Chairman and
Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company).
</Table>
173
<Page>
<Table>
<Caption>
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUNDS OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE FUNDS TO OFFICE(1) DURING PAST FIVE YEARS TRUSTEE/DIRECTOR HELD
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
William E. Mayer(2) (age 63) Trustee 1994 Managing Partner, Park Avenue 121(3) Lee Enterprises
399 Park Avenue Equity Partners (private (print media), WR
Suite 3204 equity) since February, 1999 Hambrecht + Co.
New York, NY 10022 (formerly Founding Partner, (financial service
Development Capital LLC from provider) and First
November 1996 to February, Health (healthcare)
1999).
Joseph R. Palombo(2) (age 50) Trustee and 2000 Executive Vice President and 120(5) None
One Financial Center President Chief Operating Officer of
Boston, MA 02111 Columbia Management Group,
Inc. since December, 2001 and
Director, Executive Vice
President and Chief Operating
Officer of Columbia
Management Advisors, Inc.
(Advisor) since April, 2003
(formerly Chief Operations
Officer of Mutual Funds,
Liberty Financial Companies,
Inc. from August, 2000 to
November, 2001; Executive
Vice President of Stein Roe &
Farnham Incorporated (Stein
Roe) from April, 1999 to
April, 2003; Director of
Colonial Management
Associates, Inc. (Colonial)
from April, 1999 to April,
2003; Director of Stein Roe
from September, 2000 to
April, 2003) President of
Columbia Funds and Galaxy
Funds since February, 2003
(formerly Vice President
from September 2002 to February
2003); Manager of Columbia
Floating Rate Limited
Liability Company since
October, 2000; (formerly Vice
President of the Columbia
Funds from April, 1999 to
August, 2000; Chief Operating
Officer and Chief Compliance
Officer, Putnam Mutual Funds
from December, 1993 to March,
1999).
</Table>
(1) In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for
the oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. 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. Mr. Palombo is an interested person as an employee of the Advisor.
(3) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5) Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
(6) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003. Prior to that date, Mr. Palombo was Chairman of the Board.
174
<Page>
OFFICERS
Liberty Variable Investment Trust
<Table>
<Caption>
YEAR FIRST
ELECTED OR
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE COLUMBIA FUNDS TO OFFICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Vicki L. Benjamin (Age 42) Chief Accounting 2001 Controller of the Columbia Funds and of the Liberty All-Star
One Financial Center Officer and Funds since May, 2002; Chief Accounting Officer of the Columbia
Boston, MA 02111 Controller Funds and Liberty All-Star Funds since June, 2001; Controller
and Chief Accounting Officer of the Galaxy Funds since
September, 2002 (formerly Vice President, Corporate Audit,
State Street Bank and Trust Company from May, 1998 to April,
2001).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty All-Star
One Financial Center Funds since December, 2000; Vice President of the Advisor since
Boston, MA 02111 April, 2003 (formerly Controller of the Liberty Funds and of
the Liberty All-Star Funds from February, 1998 to October,
2000); Treasurer of the Galaxy Funds since September 2002;
Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC
since December, 2002 (formerly Vice President of Colonial from
February, 1998 to October, 2000).
David A. Rozenson (Age 49) Secretary 2003 Secretary of the Columbia Funds and of the Liberty All-Star
One Financial Center Funds since December, 2003; Senior Counsel, FleetBoston
Boston, MA 02111 Financial Corporation since January, 1996; Associate General
Counsel, Columbia Management Group since November, 2002.
</Table>
175
<Page>
LIBERTY VARIABLE INVESTMENT TRUST
INVESTMENT MANAGER AND ADMINISTRATOR
Columbia Management Advisors, Inc.
100 Federal Street
Boston, MA 02110
TRANSFER AGENT
Columbia Funds Services, Inc.
PO Box 8081
Boston, MA 02266-8081
176
<Page>
[KEYPORT LOGO]
P.O. Box 9133
Wellesley Hills, MA 02481
ANN-02/727Q-1203 (02/04) 04/0389
<Page>
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 series of the registrant whose
reports to stockholders are included in this annual filing, as well as the
series of the registrant whose reports to stockholders would have been included
in this filing had they not merged during the period.
4(a) Aggregate Audit Fees billed to the registrant by the principal accountant
for professional services rendered during the fiscal years ended December 31,
2003 and December 31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
$238,600 $340,900
</Table>
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 to the registrant by the principal
accountant for professional services rendered during the fiscal years ended
December 31, 2003 and December 31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
$67,800 $34,000
</Table>
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 fiscal year 2003, Audit-Related Fees primarily consist of certain
agreed-upon procedures performed for semi-annual shareholder reports, as well as
agreed-upon procedures relating to fund mergers. Audit-Related fees in fiscal
year 2002 relate to certain agreed-upon procedures conducted during the
conversion of the registrant's accounting system.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. The percentage of Audit-Related
services to the registrant that were approved under the "de minimis" exception
during the fiscal years ended December 31, 2003 and December 31, 2002 are as
follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
The pre-approval requirements 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 became effective on May 6, 2003. During the fiscal year
ended December 31, 2003, there were no Audit-Related Fees that were approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
<Page>
The percentage of Audit-Related 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 the fiscal years ended December 31, 2003 and December
31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
(c) Aggregate Tax Fees billed to the registrant by the principal accountant for
professional services rendered during the fiscal years ended December 31, 2003
and December 31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
$94,400 $50,000
</Table>
Tax Fees include amounts for professional services by the principal accountant
for tax compliance, tax advice and tax planning. Tax Fees in fiscal year 2003
include the review of annual tax returns, the review of calculations of required
shareholder distributions, tax compliance testing and agreed-upon procedures
relating to fund mergers. Tax fees in fiscal year 2002 include the review of
annual tax returns and assistance with foreign tax filings.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. The percentage of Tax Fees
billed to the registrant that were approved under the "de minimis" exception
during the fiscal years ended December 31, 2003 and December 31, 2002 are as
follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
The pre-approval requirements 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 became effective on May 6, 2003. During the fiscal year
ended December 31, 2003, there were no Tax Fees that were approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Tax 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 the fiscal years ended December 31, 2003 and December 31, 2002 are as
follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
<Page>
(d) Aggregate All Other Fees billed to the registrant by the principal
accountant for professional services rendered during the fiscal years ended
December 31, 2003 and December 31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
$0 $0
</Table>
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in (a)-(c) above.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. The percentage of All Other Fees
billed to the registrant that were approved under the "de minimis" exception
during the fiscal years ended December 31, 2003 and December 31, 2002 are as
follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
The pre-approval requirements 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 became effective on May 6, 2003. During the fiscal year
ended December 31, 2003, All Other Fees that were approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately $95,000. During the
fiscal year ended December 31, 2002, All Other Fees that would have been subject
to pre-approval had paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X been
applicable at the time, were approximately $95,000. For both fiscal years, All
Other Fees relate to internal controls reviews of the registrant's transfer
agent.
The percentage of 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 the fiscal years ended December 31, 2003 and December
31, 2002 are as follows:
<Table>
<Caption>
2003 2002
---- ----
0% N/A
</Table>
(e)(1) Audit Committee Pre-Approval Policies and Procedures
I. GENERAL OVERVIEW
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
<Page>
(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 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.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. GENERAL PROCEDURES
On an annual basis, the Fund Treasurer and/or Director of Trustee Administration
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 services will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide projected fees
for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover the period from July 1
through June 30 of the following year. The Audit Committee will review and
approve the types of services and review the projected fees for the next fiscal
year 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.
In addition to the fees for each individual service, the Audit Committee has the
authority to implement a fee cap on the aggregate amount of non-audit services
provided to an individual fund.
If, subsequent to general pre-approval, a fund, adviser or control affiliate
determines that it would like to engage the independent auditor to perform a
service that requires pre-approval and that is not included in the general
pre-approval list, the specific pre-approval procedure shall be as follows:
<Page>
- A brief written request shall be prepared by management detailing the
proposed engagement with explanation as to why the work is proposed to
be performed by the independent auditor;
- The request should be addressed to the Audit Committee with copies to
the Fund Treasurer and/or Director of Trustee Administration;
- The Fund Treasurer and/or Director of Trustee Administration will
arrange for a discussion of the service to be included on the agenda
for the next regularly scheduled Audit Committee meeting, when the
Committee will discuss the proposed engagement and approve or deny the
request.
- 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, or, in the Chairperson's discretion, determine to
call a special meeting of the Audit Committee for the purpose of
considering the proposal. Should the Chairperson of the Audit
Committee be unavailable, any other member of the Audit Committee may
serve as an alternate for the purpose of approving or denying the
request. Discussion with the Chairperson (or alternate, if necessary)
will be arranged by the Fund Treasurer and/or Director of Trustee
Administration. The independent auditor will not commence any such
project unless and until specific approval has been given.
III. ADDITIONAL PRE-APPROVAL INFORMATION
The engagement of the independent auditor to provide Fund Services and
Fund-related Adviser Services shall be approved by the Audit Committee prior to
the commencement of any such engagement.
A. Audit Services to the Funds
The Audit Committee will monitor the Audit services engagement throughout the
year and will also approve, if necessary, any changes in terms and conditions
resulting from changes in audit scope, fund structure or other items.
B. Audit-related Services to the Funds
The Audit Committee believes that the provision of Audit-related Services is
consistent with the SEC's rules on auditor independence, and will grant general
pre-approval to specific Audit-related Services.
C. Tax Services to the Funds
The Audit Committee will grant general pre-approval to those specific Tax
services that have historically been provided by the auditor, that the Audit
Committee has reviewed and believes would not impair the independence of the
auditor, and that are consistent with the SEC's rules on auditor independence.
D. All Other Services to the Funds
The Audit Committee will grant general pre-approval to those specific
permissible non-audit services classified as All Other Services that it believes
are routine and recurring services, would not impair the independence of the
auditor and are consistent with the SEC's rules on auditor independence.
E. Fund-Related Adviser Services
The Audit Committee will grant general pre-approval to provide specific
non-audit services to the funds' investment adviser, or any control affiliates,
that relate directly to the funds' operations and financial statements. This
includes services customarily required by one or more adviser entities or
control affiliates in the ordinary course of their operations.
F. Certain Other Services Provided to Adviser Entities
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 or control affiliate 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 (or the
aggregate of all such engagements) exceeds a pre-determined threshold
established by the Audit Committee, the independent auditor, Fund Treasurer
and/or Director of Trustee Administration will notify the Audit Committee not
later than its next meeting. Such notification shall include a general
description of the services provided, the entity that is to be the recipient of
such services, the timing of the engagement, the entity's reasons for selecting
the independent auditor, and the projected fees. Such information will allow the
Audit Committee to consider whether non-audit services provided to the adviser
and Adviser Entities, which were not subject to Audit Committee pre-approval,
are compatible with maintaining the auditor's independence.
IV. REPORTING TO THE AUDIT COMMITTEE
The Fund Treasurer or Director of Trustee Administration 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, and
- Actual billed and projected fees, and
- The means by which such Fund Services or Fund-related Adviser Services
were approved by the Audit Committee.
<Page>
In addition, in accordance with Section 208-5 of the Sarbanes-Oxley Act of 2002,
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. In addition, the independent auditor must
annually disclose to the Audit Committee all relationships with the funds of
which the independent auditor is aware that may be reasonably thought to bear on
the auditor's independence. The independent auditor shall tabulate, calculate
and disclose its fees annually for such relationships.
V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(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, 2003 and
December 31, 2002 are disclosed in 4(b)-(d) above.
All non-audit fees billed by the registrant's accountant for services rendered
to the registrant's 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
for the fiscal years ended December 31, 2003 and December 31, 2002 are also
disclosed in 4(b)-(d) above. Such fees were approximately $95,000 and $95,000,
respectively.
(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. RESERVED.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
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ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable at this time.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer, 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, have 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 last fiscal half-year
(the registrant's second fiscal half-year in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 11. 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.
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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/ J. Kevin Connaughton
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J. Kevin Connaughton, President and Treasurer
Date March 4, 2004
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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/ J. Kevin Connaughton
----------------------------------------------------
J. Kevin Connaughton, President and Treasurer
Date March 4, 2004
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