<Page>
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)
Vincent Pietropaolo, 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: 1-617-772-3698
----------------------------
Date of fiscal year end: 12/31/04
--------------------------
Date of reporting period: 06/30/04
-------------------------
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.
<Page>
[GRAPHIC]
SEMIANNUAL REPORT - CLASS B SHARES
JUNE 30, 2004
LIBERTY VARIABLE INVESTMENT TRUST
<Page>
PRESIDENT'S MESSAGE
Liberty Variable Investment Trust
Dear Shareholder:
We are pleased to let you know that FleetBoston Financial Corporation and Bank
of America Corporation have merged, effective April 1, 2004. As a result of the
merger, Columbia Management Group became part of the Bank of America family of
companies. Looking ahead, we believe this merger will be a real benefit to our
shareholders. Preserving and leveraging our strengths, the combined organization
intends to deliver additional research and management capabilities, as well as
new products to you. There are no immediate changes planned for fund names or
customer service contacts.
As you might know, on March 15, 2004, FleetBoston Financial announced an
agreement in principle between Columbia Management Advisors, Inc. and Columbia
Funds Distributor, Inc. (collectively "Columbia Management") with the staff of
the Securities and Exchange Commission ("SEC") and the New York Attorney General
("NYAG") to settle charges involving market timing in Columbia Management mutual
funds. (Bank of America came to a similar settlement in principle at the same
time.) Under the agreements Columbia Management agreed, among other things, to
pay $70 million in disgorgement; $70 million in civil penalties and to reduce
mutual fund fees by $80 million over a five-year period. Please rest assured
that the settlement and all associated legal fees will be paid by Columbia
Management; not by the affected funds or their shareholders. The agreement
requires the final approval of the SEC and the NYAG.
SIX-MONTH ECONOMIC AND MARKET REVIEW
Uncertainty about the economic environment, interest rates and geopolitical
factors weighed on investors during the period. Most segments of the financial
markets delivered muted returns.
Despite strong profit growth, the US stock market made only modest headway
during the period. The S&P 500 Index returned 3.44%, led by energy stocks which
gained nearly 12% in the first half of 2004. Foreign stock markets did slightly
better than the US market. The MSCI EAFE Index gained 4.56%. However,
performance varied widely from market to market. Japanese stocks were strong.
But emerging Asia markets, which had done well in 2003, pulled back in 2004.
Some European markets registered solid gains, but Germany--Europe's largest
market--slumped under the weight of mounting economic woes.
Although the bond market was essentially flat for the period, it experienced
significant volatility. Early in the period, bonds gained as a weak job picture
raised concerns about the sustainability of the economic recovery. However, when
more than 1.2 million new jobs were added between March and June, the Federal
Reserve Board signaled that it was prepared to put an end to the lowest
short-term interest rates in four decades. Bond yields rose and prices fell in
anticipation of the rate increase, which occurred on June 30. The Lehman
Brothers Aggregate Bond Index returned 0.15% for the period. This index measures
the performance of government, corporate, mortgage- and asset-backed fixed
income securities. High-yield bonds were the strongest performing segment of the
bond market. The Merrill Lynch US High Yield, Cash Pay Index gained 1.33% for
the period.
ABOUT YOUR FUND'S PERFORMANCE
In the reports that follow your fund's managers will discuss the reasons for
fund performance and the strategies that aided or hindered them during the
six-month period ended June 30, 2004. As always, we encourage you to read the
reports of the funds you own and to discuss them with your investment
professional. We thank you for your business and look forward to helping you
reach your financial goals.
Sincerely,
/s/ Thomas C. Theobald /s/ J. Kevin Connaughton
Thomas C. Theobald J. Kevin Connaughton
Chairman, Board of Trustees President, Columbia Funds
J. Kevin Connaughton was named president of Columbia Funds on February 27,
2004
May Lose Value
Not FDIC -----------------
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 6/30/04 (%)
(CUMULATIVE)
INCEPTION 6-MONTH 1-YEAR 5-YEAR 10-YEAR LIFE
- -----------------------------------------------------------------------------------------------------------------------------------
LIBERTY VARIABLE INVESTMENT TRUST
Colonial Small Cap Value Fund, Variable Series -- Class B(1) 6/1/00 9.07 38.01 14.22 -- 9.15
Colonial Strategic Income Fund, Variable Series -- Class B(1) 6/1/00 -0.20 5.70 6.06 -- 7.44
Columbia High Yield Fund, Variable Series -- Class B(1) 4/14/03 0.29 4.45 5.05 -- 5.51
Columbia International Fund, Variable Series -- Class B(1) 6/1/00 2.37 25.46 -0.90 2.07 --
Columbia Real Estate Equity Fund, Variable Series -- Class B(1) 4/14/03 5.93 26.58 12.39 -- 8.68
Liberty Equity Fund, Variable Series -- Class B(1) 4/14/03 3.21 14.47 -3.49 9.14 --
Liberty Growth & Income Fund, Variable Series -- Class B(1) 6/1/00 4.10 15.57 0.47 -- 11.36
Liberty S&P 500 Index Fund, Variable Series -- Class B 5/30/00 3.13 18.24 -- -- -3.98
Liberty Select Value Fund, Variable Series -- Class B 5/30/00 7.72 27.69 -- -- 8.67
Newport Tiger Fund, Variable Series -- Class B(1) 6/1/00 -4.72 27.90 0.88 -- 1.23
</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.
(1) Class B shares (newer class shares) performance information includes
returns of the fund's class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These class A
share returns were not restated to reflect any expense differential (e.g.,
Rule 12b-1 fees) between class A shares and the newer class shares. If
differences in expenses were reflected, the returns for the periods prior
to the inception of the new class of shares would be lower.
<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 16
Columbia High Yield Fund, Variable Series 36
Columbia International Fund, Variable Series 50
Columbia Real Estate Equity Fund, Variable Series 64
Liberty Equity Fund, Variable Series 74
Liberty Growth & Income Fund, Variable Series 86
Liberty S&P 500 Index Fund, Variable Series 98
Liberty Select Value Fund, Variable Series 115
Newport Tiger Fund, Variable Series 126
FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series 4
Colonial Strategic Income Fund, Variable Series 18
Columbia High Yield Fund, Variable Series 38
Columbia International Fund, Variable Series 52
Columbia Real Estate Equity Fund, Variable Series 66
Liberty Equity Fund, Variable Series 76
Liberty Growth & Income Fund, Variable Series 88
Liberty S&P 500 Index Fund, Variable Series 100
Liberty Select Value Fund, Variable Series 117
Newport Tiger Fund, Variable Series 128
</Table>
Must be preceded or accompanied by a prospectus.
Columbia Funds Distributor, Inc. 08/2004
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Small Cap Value Fund, Variable Series / June 30, 2004
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.
Although the economy improved and many companies continued to deliver strong
earnings growth, the pace of the stock market's climb slowed in the first half
of 2004. Worries about rising interest rates, the economy's ability to maintain
steady progress and geopolitical tensions put a damper on returns. Small-cap
stocks, however, continued to fare well and outperformed large-cap stocks. In
this environment, the fund's return was largely in line with its benchmark, the
S&P SmallCap 600/Barra Value Index.
STOCK SELECTION WAS THE KEY TO PERFORMANCE
We continued to focus on identifying companies with strong competitive and
financial positions, good earnings growth prospects and reasonable stock
valuations. This strategy enabled us to pick stocks that were winners in their
sectors during the period. Stock selection in health care, industrials and
financials was particularly helpful to performance.
STRONGEST GAINS CAME FROM HEALTH CARE AND INDUSTRIALS
The fund's modest investment in the health care sector produced outsized gains.
Standouts included nursing homes and other non-hospital and specialty facilities
companies, an oncology practice that was bought out at a premium during the
period and a funeral home. The fund also owned a contact lens manufacturer that
was a strong performer. Overall, we benefited from our decision to avoid
biotechnology and more expensive pharmaceutical stocks which were weak
performers during the period.
The fund also benefited from its investment in industrial stocks, which
rallied as the economy improved. The fund owned machinery and equipment,
transportation, business services, construction and security services companies
that produced very strong gains. Financials also boosted performance. We also
avoided the sector's worst performers, including real estate investment trusts
and thrifts which are sensitive to interest rates. Our decision to focus on
banks, insurance and specialty financial companies, resulted in moderately
positive returns. Telecommunications and energy stocks, although small positions
in the portfolio, also aided performance.
TECHNOLOGY STOCKS MADE LITTLE HEADWAY
After strong gains in 2003, technology stocks were basically flat in the first
half of 2004. The fund's sizable stake in this weaker-performing sector, as well
as below-average returns from the stocks we owned, hindered performance.
Although earnings growth at many companies remained strong, investors became
concerned that stock prices had gotten ahead of expectations. Semiconductor and
computer storage stocks were the biggest disappointments for the fund, but
software, telecommunications equipment and information technology services
investments also hurt its return.
Elsewhere, the fund's stakes in the consumer discretionary and materials
sectors posted positive absolute returns that were in line with the average for
their sectors. In the consumer discretionary area, our investments included
restaurants and retailers, as well as manufacturers of apparel, shoes, toys and
leisure products. In the economically sensitive materials groups, we owned
metals, paper and chemicals companies.
MORE VOLATILITY AHEAD
Caught in a tug of war between positive earnings growth and worries about rising
interest rates, inflation, the progress of the economic recovery and global
tensions, the market is likely to remain choppy for the remainder of the year.
Regardless of market conditions, our focus will remain on reasonably valued
small-cap stocks with strong balance sheets and good management. We plan to
maintain an economically sensitive bias as long as these stocks do not become
expensive relative to opportunities in other sectors.
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 greater volatility and price fluctuations because small-cap
stocks are generally thinly traded and less liquid than stocks of larger
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 / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- --------------------------------------------------------------------------------
Class B (6/1/00) 9.07 38.01 14.22 9.15
S&P SmallCap 600/Barra Value Index(1) 9.71 36.00 11.28 8.46
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 14.22 15.51
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/19/98(2) - 6/30/04
Class B: $17,083
<Table>
<Caption>
CLASS B SHARES S&P SMALLCAP 600/BARRA VALUE INDEX
5/19/98 $ 10,000 $ 10,000
5/31/98 $ 10,020 $ 10,000
6/30/98 $ 10,050 $ 9,995
7/31/98 $ 9,120 $ 9,070
8/31/98 $ 7,201 $ 7,434
9/30/98 $ 7,461 $ 7,829
10/31/98 $ 7,881 $ 8,171
11/30/98 $ 8,401 $ 8,520
12/31/98 $ 8,675 $ 8,855
1/31/99 $ 8,464 $ 8,753
2/28/99 $ 7,626 $ 8,040
3/31/99 $ 7,525 $ 8,009
4/30/99 $ 8,030 $ 8,707
5/31/99 $ 8,354 $ 9,055
6/30/99 $ 8,788 $ 9,604
7/31/99 $ 8,778 $ 9,454
8/31/99 $ 8,324 $ 9,057
9/30/99 $ 8,273 $ 8,891
10/31/99 $ 8,313 $ 8,685
11/30/99 $ 8,545 $ 8,879
12/31/99 $ 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 $ 9,692 $ 9,559
7/31/2000 $ 9,783 $ 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 $ 9,864 $ 9,662
12/31/2000 $ 10,969 $ 11,026
1/31/2001 $ 11,061 $ 11,899
2/28/2001 $ 10,743 $ 11,397
3/31/2001 $ 10,569 $ 10,923
4/30/2001 $ 11,346 $ 11,581
5/31/2001 $ 11,683 $ 11,877
6/30/2001 $ 11,765 $ 12,332
7/31/2001 $ 11,847 $ 12,216
8/31/2001 $ 11,613 $ 12,019
9/30/2001 $ 10,215 $ 10,298
10/31/2001 $ 10,460 $ 10,769
11/30/2001 $ 11,165 $ 11,630
12/31/2001 $ 11,978 $ 12,470
1/31/2002 $ 12,071 $ 12,703
2/28/2002 $ 12,310 $ 12,648
3/31/2002 $ 13,181 $ 13,747
4/30/2002 $ 13,410 $ 14,310
5/31/2002 $ 12,995 $ 13,767
6/30/2002 $ 12,591 $ 13,152
7/31/2002 $ 11,046 $ 11,013
8/31/2002 $ 11,295 $ 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 $ 11,243 $ 10,665
1/31/2003 $ 10,910 $ 10,225
2/28/2003 $ 10,352 $ 9,847
3/31/2003 $ 10,373 $ 9,816
4/30/2003 $ 11,190 $ 10,704
5/31/2003 $ 12,113 $ 11,702
6/30/2003 $ 12,382 $ 12,050
7/31/2003 $ 13,037 $ 12,639
8/31/2003 $ 13,617 $ 13,247
9/30/2003 $ 13,496 $ 12,812
10/31/2003 $ 14,583 $ 13,954
11/30/2003 $ 15,161 $ 14,530
12/31/2003 $ 15,667 $ 14,937
1/31/2004 $ 16,230 $ 15,294
2/29/2004 $ 16,483 $ 15,656
3/31/2004 $ 16,814 $ 15,930
4/30/2004 $ 16,120 $ 15,344
5/31/2004 $ 16,220 $ 15,536
6/30/2004 $ 17,083 $ 16,391
</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 Standard & Poor's (S&P) SmallCap 600/Barra Value Index is an
unmanaged index that tracks the performance of value stocks contained in the S&P
SmallCap 600 Index, as determined by their low price to book ratios. 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from May 31, 1998.
(2) Inception date of class A shares (oldest existing share class).
3
<Page>
INVESTMENT PORTFOLIO
Colonial Small Cap Value Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
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COMMON STOCKS--99.3%
CONSUMER DISCRETIONARY--16.2%
AUTO COMPONENTS--1.1%
BorgWarner, Inc. 21,700 $ 949,809
Modine Manufacturing Co. 16,050 511,192
Standard Motor Products, Inc. 36,700 540,591
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2,001,592
---------------
DISTRIBUTORS--0.1%
Brightpoint, Inc. (a) 10,600 145,750
---------------
HOTELS, RESTAURANTS & LEISURE--4.0%
Bally Total Fitness Holding Corp. (a) 67,400 337,000
Bob Evans Farms, Inc. 19,990 547,326
Buca, Inc. (a) 75,400 401,882
Dave & Buster's, Inc. (a) 42,800 804,212
Landry's Restaurants, Inc. 35,250 1,053,622
Lone Star Steakhouse & Saloon 47,050 1,279,290
Marcus Corp. 44,100 760,725
Prime Hospitality Corp. (a) 58,120 617,234
Scientific Games Corp., Class A (a) 63,700 1,219,218
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7,020,509
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HOUSEHOLD DURABLES--1.4%
American Greetings Corp. (a) 26,300 609,634
CSS Industries, Inc. 22,000 770,880
Kimball International, Inc., Class B 47,200 696,200
Russ Berrie & Co., Inc. 15,000 291,450
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2,368,164
---------------
LEISURE EQUIPMENT & PRODUCTS--1.3%
Action Performance Companies, Inc. 53,000 798,710
Jakks Pacific, Inc. (a) 45,150 938,668
M&F Worldwide Corp. (a) 36,600 501,420
Travis Boats & Motors, Inc. (a) 18,536 13,902
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2,252,700
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MEDIA--2.8%
4Kids Entertainment, Inc. (a) 41,800 999,856
Alliance Atlantis Communications, Inc. (a) 53,800 989,974
Catalina Marketing Corp. (a) 31,600 577,964
Journal Communications, Inc., Class A 28,100 529,123
Liberty Corp. 20,100 943,695
Media General, Inc. 12,400 796,328
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4,836,940
---------------
MULTILINE RETAIL--0.5%
BJ's Wholesale Club, Inc. (a) 19,000 475,000
ShopKo Stores, Inc. (a) 31,550 446,117
---------------
921,117
---------------
SPECIALTY RETAIL--2.8%
Building Material Holding Corp. 21,100 $ 399,423
Compucom Systems, Inc. (a) 97,500 442,650
GameStop Corp., Class A (a) 41,300 628,586
Goody's Family Clothing, Inc. 60,800 630,496
Monro Muffler, Inc. (a) 46,175 1,120,206
Movie Gallery, Inc. 15,000 293,250
Rent-Way, Inc. (a) 50,400 453,600
TBC Corp. (a) 13,350 317,730
United Rentals, Inc. (a) 34,300 613,627
---------------
4,899,568
---------------
TEXTILES, APPAREL & LUXURY GOODS--2.2%
Culp, Inc. (a) 5,400 42,012
Delta Apparel, Inc. 14,150 344,552
Hampshire Group Ltd. (a) 24,500 710,255
Kellwood Co. 31,550 1,374,002
Russell Corp. 34,700 623,212
Stride Rite Corp. 43,400 478,702
Tandy Brands Accessories, Inc. 15,000 202,500
---------------
3,775,235
---------------
CONSUMER STAPLES--2.2%
FOOD & STAPLES RETAILING--0.2%
Winn-Dixie Stores, Inc. 49,200 354,240
---------------
FOOD PRODUCTS--1.8%
Central Garden and Pet Co. (a) 19,400 693,938
Corn Products International, Inc. 34,800 1,619,940
John B. Sanfilippo & Son, Inc. (a) 11,000 293,920
Omega Protein Corp. (a) 49,000 475,300
---------------
3,083,098
---------------
TOBACCO--0.2%
Schweitzer-Mauduit International, Inc. 11,100 339,993
---------------
ENERGY--5.6%
ENERGY EQUIPMENT & SERVICES--1.8%
Cimarex Energy Co. (a) 13,700 414,151
Lufkin Industries, Inc. 28,150 900,237
Universal Compression Holdings, Inc. (a) 24,650 756,262
Willbros Group, Inc. (a) 75,340 1,135,374
---------------
3,206,024
---------------
OIL & GAS--3.8%
Atlas America, Inc. (a) 8,900 178,089
Carrizo Oil & Gas, Inc. (a) 77,500 791,275
Energy Partners Ltd. (a) 41,700 638,010
</Table>
See Notes to Investment Portfolio.
4
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Harvest Natural Resources, Inc. (a) 61,450 $ 916,220
Magnum Hunter Resources, Inc. (a) 68,800 714,144
Range Resources Corp. 42,600 621,960
Stone Energy Corp. (a) 24,500 1,119,160
Western Gas Resources, Inc. 35,500 1,153,040
Whiting Petroleum Corp. (a) 18,800 472,820
---------------
6,604,718
---------------
FINANCIALS--24.9%
CAPITAL MARKETS--0.2%
LaBranche & Co., Inc. 40,200 338,484
---------------
COMMERCIAL BANKS--11.2%
BancFirst Corp. 4,200 250,950
BancorpSouth, Inc. 32,500 732,225
BancTrust Financial Group, Inc. 22,400 392,448
Bank of Granite Corp. 31,500 658,665
Bryn Mawr Bank Corp. 38,800 882,700
Capitol Bancorp Ltd. 33,200 863,532
Chemical Financial Corp. 31,167 1,149,751
Chittenden Corp. 35,600 1,251,340
Columbia Banking System, Inc. 20,100 446,220
Community Trust Bancorp, Inc. 19,184 585,112
Corus Bankshares, Inc. 29,100 1,196,301
First Citizens BancShares, Inc. 4,600 561,200
First Financial Bankshares, Inc. 15,975 669,832
Greater Bay Bancorp 25,500 736,950
Hancock Holding Co. 14,700 427,182
ITLA Capital Corp. (a) 900 36,513
MainSource Financial Group, Inc. 7,067 143,460
MASSBANK Corp. 11,100 384,171
Merchants Bancshares, Inc. 25,400 666,750
Mid-State Bancshares 44,850 1,054,424
Northrim BanCorp., Inc. 23,300 471,359
Omega Financial Corp. 5,100 175,593
Riggs National Corp. 49,680 1,049,242
Sterling Bancshares, Inc. 71,700 1,017,423
S.Y. Bancorp, Inc. 4,700 110,027
Trico Bancshares 63,800 1,205,820
UMB Financial Corp. 17,500 903,350
Whitney Holding Corp. 18,500 826,395
Wintrust Financial Corp. 13,000 656,630
---------------
19,505,565
---------------
CONSUMER FINANCE--0.8%
Cash America International, Inc. 58,740 1,351,020
---------------
DIVERSIFIED FINANCIAL SERVICES--1.3%
Metris Companies, Inc. (a) 95,800 832,502
MFC Bancorp Ltd. (a) 77,100 1,433,289
---------------
2,265,791
---------------
INSURANCE--5.1%
AmerUs Group Co. 13,300 $ 550,620
CNA Surety Corp. (a) 49,200 538,740
Commerce Group, Inc. 15,900 784,983
Delphi Financial Group 28,286 1,258,727
Harleysville Group, Inc. 38,700 729,495
Horace Mann Educators Corp. 37,900 662,492
Kansas City Life Insurance Co. 3,600 151,524
Navigators Group, Inc. (a) 15,700 453,573
Phoenix Companies, Inc. 79,850 978,163
ProCentury Corp. (a) 53,300 518,609
Quanta Capital Holdings Ltd. 60,000 644,400
RLI Corp. 23,400 854,100
UICI (a) 10,500 250,005
United National Group Ltd. (a) 14,100 213,051
Universal American Financial
Corp. (a) 32,500 356,850
---------------
8,945,332
---------------
REAL ESTATE--6.3%
American Financial Realty Trust,
REIT 37,100 530,159
Alexandria Real Estate Equity,
REIT 16,200 919,836
Boykin Lodging Co., REIT (a) 64,000 489,600
Brandywine Realty Trust, REIT 23,900 649,841
EastGroup Properties, Inc.,
REIT 27,950 941,076
Equity One, Inc., REIT 37,700 681,616
First Potomac Realty Trust,
REIT 33,100 634,527
Getty Realty Corp. 25,250 635,290
Gladstone Commercial Corp. 30,000 495,000
Mid-America Apartment
Communities, Inc., REIT 28,850 1,093,127
Nationwide Health Properties,
Inc., REIT 48,050 908,145
PS Business Parks, Inc., REIT 34,100 1,372,184
Tanger Factory Outlet Centers,
Inc., REIT 16,800 656,880
Universal Health Realty Income
Trust, REIT 16,800 482,160
Urstadt Biddle Properties, REIT 36,800 545,008
---------------
11,034,449
---------------
HEALTH CARE--5.2%
HEALTH CARE EQUIPMENT & SUPPLIES--0.7%
Ocular Sciences, Inc. (a) 22,300 847,400
Sola International, Inc. (a) 20,100 346,323
---------------
1,193,723
---------------
HEALTH CARE PROVIDERS & SERVICES--4.5%
Capital Senior Living Corp. (a) 17,200 82,732
Chronimed, Inc. (a) 50,400 410,760
</Table>
See Notes to Investment Portfolio.
5
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Cross Country Healthcare,
Inc. (a) 36,300 $ 658,845
Genesis HealthCare Corp. (a) 19,700 572,088
Hooper Holmes, Inc. 65,800 377,692
Kindred Healthcare, Inc. (a) 42,300 1,114,605
MAXIMUS, Inc. (a) 13,300 471,618
Orthodontic Centers of America,
Inc. (a) 74,300 608,517
Parexel International Corp. (a) 46,500 920,700
Pediatrix Medical Group,
Inc. (a) 18,300 1,278,255
Province Healthcare Co. (a) 25,400 435,610
Stewart Enterprises, Inc. (a) 118,700 966,218
---------------
7,897,640
---------------
INDUSTRIALS--21.1%
AEROSPACE & DEFENSE--2.2%
AAR Corp. (a) 53,123 602,946
Armor Holdings, Inc. (a) 10,100 343,400
Herley Industries, Inc. (a) 26,800 523,672
Kaman Corp. 44,600 623,954
Ladish Co., Inc. (a) 56,450 479,825
Precision Castparts Corp. 21,700 1,186,773
---------------
3,760,570
---------------
AIR FREIGHT & LOGISTICS--0.9%
HUB Group, Inc., Class A (a) 27,003 920,802
Ryder System, Inc. 17,100 685,197
---------------
1,605,999
---------------
AIRLINES--0.6%
Atlantic Coast Airlines Holdings,
Inc. (a) 32,900 188,846
MAIR Holdings, Inc. (a) 26,350 215,016
Skywest, Inc. 39,900 694,659
---------------
1,098,521
---------------
BUILDING PRODUCTS--2.1%
Hughes Supply, Inc. 19,611 1,155,676
Jacuzzi Brands, Inc. (a) 42,000 338,520
NCI Building Systems, Inc. (a) 28,900 940,695
Watsco, Inc. 43,850 1,230,870
---------------
3,665,761
---------------
COMMERCIAL SERVICES & SUPPLIES--6.4%
ABM Industries, Inc. 31,600 615,252
ActivCard Corp. (a) 61,400 445,764
Angelica Corp. 20,500 514,755
Casella Waste Systems, Inc. (a) 80,500 1,058,575
Century Business Services,
Inc. (a) 50,474 220,067
Consolidated Graphics, Inc. (a) 37,250 1,640,862
Danka Business Systems,
ADR (a) 52,700 238,204
Electro Rent Corp. (a) 16,450 172,232
First Consulting Group, Inc. (a) 13,427 74,117
Healthcare Services Group, Inc. 47,600 728,280
Imagistics International, Inc. (a) 41,250 1,460,250
Lightbridge, Inc. (a) 59,400 $ 332,640
MPS Group, Inc. (a) 138,600 1,679,832
NCO Group, Inc. (a) 25,400 677,926
SourceCorp (a) 25,400 699,008
Teletech Holdings, Inc. (a) 59,200 519,184
---------------
11,076,948
---------------
CONSTRUCTION & ENGINEERING--1.3%
Comfort Systems USA, Inc. (a) 84,850 542,192
EMCOR Group, Inc. (a) 12,700 558,546
MasTec, Inc. (a) 15,200 82,536
Quanta Services, Inc. (a) 25,600 159,232
Washington Group International,
Inc. (a) 23,800 854,182
---------------
2,196,688
---------------
ELECTRICAL EQUIPMENT--1.9%
C&D Technologies, Inc. 36,400 649,012
Genlyte Group, Inc. (a) 14,200 892,896
Powell Industries, Inc. (a) 4,300 73,444
Tecumseh Products Co. 17,200 708,468
Woodward Governor Co. 14,000 1,009,540
---------------
3,333,360
---------------
MACHINERY--4.4%
Alamo Group, Inc. 17,800 283,020
Briggs & Stratton 13,400 1,183,890
EnPro Industries, Inc. (a) 38,400 882,432
Esterline Technologies Corp. (a) 36,700 1,083,751
Harsco Corp. 28,400 1,334,800
Kadant, Inc. (a) 37,000 855,810
Robbins & Myers, Inc. 34,287 769,743
Stewart & Stevenson Services,
Inc. 52,200 935,424
UNOVA, Inc. (a) 20,700 419,175
---------------
7,748,045
---------------
ROAD & RAIL--1.3%
Covenant Transport, Inc. (a) 28,750 491,338
Dollar Thrifty Automotive Group,
Inc. (a) 25,200 691,488
US Xpress Enterprises, Inc. (a) 17,200 270,556
Werner Enterprises, Inc. 42,200 890,420
---------------
2,343,802
---------------
INFORMATION TECHNOLOGY--11.1%
COMMUNICATIONS EQUIPMENT--1.4%
Anaren, Inc. (a) 50,500 825,170
Black Box Corp. 15,400 727,804
Cable Design Technologies
Corp. (a) 48,400 513,040
Tollgrade Communications,
Inc. (a) 38,650 410,463
---------------
2,476,477
---------------
COMPUTERS & PERIPHERALS--1.7%
Advanced Digital Information
Corp. (a) 11,400 110,580
Electronics for Imaging, Inc. (a) 26,100 737,586
</Table>
See Notes to Investment Portfolio.
6
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Hutchinson Technology, Inc. (a) 22,200 $ 545,898
Hypercom Corp. (a) 72,200 610,090
Imation Corp. 6,900 294,009
Innovex, Inc. (a) 48,000 219,360
Intergraph Corp. (a) 14,866 384,435
---------------
2,901,958
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.6%
Analogic Corp. 17,200 729,796
Anixter International, Inc. (a) 15,650 532,569
Benchmark Electronics, Inc. (a) 20,500 596,550
Checkpoint Systems, Inc. (a) 38,700 693,891
Exar Corp. (a) 39,200 574,672
Identix, Inc. (a) 75,200 561,744
MTS Systems Corp. 27,850 653,082
NU Horizons Electronics
Corp. (a) 64,000 576,000
OSI Systems, Inc. (a) 25,400 506,222
Planar Systems, Inc. (a) 29,800 399,022
Vishay Intertechnology, Inc. (a) 24,200 449,636
---------------
6,273,184
---------------
INTERNET SOFTWARE & SERVICES--0.5%
Keynote Systems, Inc. (a) 48,600 668,250
Modem Media, Inc. (a) 45,500 239,330
---------------
907,580
---------------
IT SERVICES--1.2%
Acxiom Corp. 37,300 926,159
Agilysys, Inc. 31,050 428,179
Computer Horizons Corp. (a) 70,500 281,295
Inforte Corp. (a) 48,400 488,792
---------------
2,124,425
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.3%
Pericom Semiconductor
Corp. (a) 39,000 417,690
---------------
SOFTWARE--2.4%
Captaris, Inc. (a) 98,300 635,018
Internet Security Systems,
Inc. (a) 36,200 555,308
Lawson Software, Inc. (a) 48,200 341,256
MSC.Software Corp. (a) 62,700 561,165
PLATO Learning, Inc. (a) 81,262 805,306
SeaChange International,
Inc. (a) 41,200 695,456
Sybase, Inc. (a) 29,700 534,600
---------------
4,128,109
---------------
MATERIALS--8.6%
CHEMICALS--3.0%
Cytec Industries, Inc. 18,900 859,005
HB Fuller Co. 22,000 624,800
Lubrizol Corp. 27,500 1,007,050
Minerals Technologies, Inc. 14,300 829,400
Schulman (A.), Inc. 28,850 619,986
Sensient Technologies Corp. 28,500 612,180
Stepan Co. 24,000 627,600
---------------
5,180,021
---------------
CONSTRUCTION MATERIALS--1.0%
AMCOL International Corp. 26,100 $ 494,595
Eagle Materials, Inc. 18,400 1,306,768
---------------
1,801,363
---------------
CONTAINERS & PACKAGING--1.1%
Aptargroup, Inc. 16,800 733,992
Greif, Inc., Class A 27,950 1,180,887
---------------
1,914,879
---------------
METALS & MINING--2.8%
Carpenter Technology Corp. 39,900 1,358,595
Metal Management, Inc. (a) 47,700 944,937
Peabody Energy Corp. 16,250 909,838
RTI International Metals,
Inc. (a) 49,950 796,702
Steel Technologies, Inc. 40,500 894,240
---------------
4,904,312
---------------
PAPER & FOREST PRODUCTS--0.7%
Glatfelter 35,500 499,840
Mercer International, Inc. (a) 65,500 640,590
---------------
1,140,430
---------------
TELECOMMUNICATION SERVICES--0.7%
DIVERSIFIED TELECOMMUNICATION SERVICES--0.4%
North Pittsburgh Systems, Inc. 29,800 597,490
---------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Price Communications Corp. (a) 38,275 564,939
---------------
UTILITIES--3.7%
ELECTRIC UTILITIES--3.0%
Central Vermont Public Service
Corp. 41,800 856,482
CH Energy Group, Inc. 28,100 1,304,964
El Paso Electric Co. (a) 47,300 730,312
Maine & Maritimes Corp. 9,300 297,600
MGE Energy, Inc. 16,600 541,658
Otter Tail Corp. 24,000 644,640
Puget Energy, Inc. 40,900 896,119
---------------
5,271,775
---------------
GAS UTILITIES--0.7%
Cascade Natural Gas Corp. 18,100 399,467
Northwest Natural Gas Co. 13,700 417,850
WGL Holdings, Inc. 14,500 416,440
---------------
1,233,757
---------------
TOTAL COMMON STOCKS
(cost of $158,643,487) 173,009,735
---------------
</Table>
See Notes to Investment Portfolio.
7
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
SHORT-TERM OBLIGATION--2.2%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.170%, collateralized by a
U.S. Treasury Bond maturing
08/15/22, market value $3,947,325
(repurchase proceeds $3,865,126)
(cost of $3,865,000) $ 3,865,000 $ 3,865,000
---------------
TOTAL INVESTMENTS--101.5%
(cost of $162,508,487) (b) 176,874,735
---------------
OTHER ASSETS & LIABILITIES, NET--(1.5)% (2,630,150)
---------------
NET ASSETS--100.0% $ 174,244,585
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
8
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Small Cap Value Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 162,508,487
---------------
Investments, at value $ 176,874,735
Cash 2,214
Receivable for:
Investments sold 2,178,649
Fund shares sold 932,075
Interest 126
Dividends 146,081
Expense reimbursement due from Distributor 14,978
Deferred Trustees' compensation plan 4,076
Other assets 51,242
---------------
TOTAL ASSETS 180,204,176
---------------
LIABILITIES:
Payable for:
Investments purchased 5,730,442
Fund shares repurchased 66,707
Investment advisory fee 104,654
Transfer agent fee 604
Pricing and bookkeeping fees 4,982
Audit fee 17,865
Distribution fee--Class B 30,261
Deferred Trustees' fees 4,076
---------------
TOTAL LIABILITIES 5,959,591
---------------
NET ASSETS $ 174,244,585
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 154,159,955
Undistributed net investment income 362,487
Accumulated net realized gain 5,355,895
Net unrealized appreciation on investments 14,366,248
---------------
NET ASSETS $ 174,244,585
===============
CLASS A:
Net assets $ 12,406,016
Shares outstanding 798,380
===============
Net asset value per share $ 15.54
===============
CLASS B:
Net assets $ 161,838,569
Shares outstanding 10,432,492
===============
Net asset value per share $ 15.51
===============
</Table>
See Notes to Financial Statements.
9
<Page>
STATEMENT OF OPERATIONS
Colonial Small Cap Value Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 947,192
Interest 14,592
---------------
Total Investment Income (net of foreign taxes
withheld of $26) 961,784
---------------
EXPENSES:
Investment advisory fee 463,676
Distribution fee--Class B 130,498
Transfer agent fee 3,730
Pricing and bookkeeping fees 21,270
Trustees' fees 2,852
Custody fee 18,096
Audit fee 14,724
Non-recurring costs (See Note 6) 5,980
Other expenses 8,693
---------------
Total Expenses 669,519
Fees reimbursed by Distributor--Class B (37,333)
Non-recurring costs assumed by Investment Advisor (See Note 6) (5,980)
Custody earnings credit (161)
---------------
Net Expenses 626,045
---------------
Net Investment Income 335,739
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on:
Investments 4,057,956
Foreign currency transactions 10
---------------
Net realized gain 4,057,966
---------------
Net change in unrealized appreciation/depreciation
on investments 5,485,798
---------------
Net Gain 9,543,764
---------------
Net Increase in Net Assets from Operations $ 9,879,503
===============
</Table>
See Notes to Financial Statements.
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Small Cap Value Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 335,739 $ 168,931
Net realized gain on investments and foreign currency transactions 4,057,966 2,017,004
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations 5,485,798 9,341,998
--------------- ---------------
Net Increase from Operations 9,879,503 11,527,933
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (22,479)
Class B -- (119,531)
From net realized gains:
Class A -- (238,640)
Class B -- (908,385)
--------------- ---------------
Total Distributions Declared to Shareholders -- (1,289,035)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,012,258 2,010,453
Distributions reinvested -- 259,626
Redemptions (1,348,478) (2,180,602)
--------------- ---------------
Net Increase 663,780 89,477
--------------- ---------------
Class B:
Subscriptions 96,122,695 40,839,812
Distributions reinvested -- 1,029,409
Redemptions (1,889,526) (2,701,725)
--------------- ---------------
Net Increase 94,233,169 39,167,496
--------------- ---------------
Net Increase from Share Transactions 94,896,949 39,256,973
--------------- ---------------
Total Increase in Net Assets 104,776,452 49,495,871
NET ASSETS:
Beginning of period 69,468,133 19,972,262
--------------- ---------------
End of period (including undistributed net investment income of $362,487 and
$26,748, respectively) $ 174,244,585 $ 69,468,133
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 134,501 173,870
Issued for distributions reinvested -- 19,197
Redemptions (90,594) (191,845)
--------------- ---------------
Net Increase 43,907 1,222
--------------- ---------------
Class B:
Subscriptions 6,431,815 3,132,027
Issued for distributions reinvested -- 74,615
Redemptions (128,701) (230,723)
--------------- ---------------
Net Increase 6,303,114 2,975,919
--------------- ---------------
</Table>
See Notes to Financial Statements.
11
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series / June 30, 2004 (Unaudited)
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 on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
12
<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, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 977,202
Long-term capital gains 311,833
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 19,032,730
Unrealized depreciation (4,666,482)
-------------
Net unrealized appreciation $ 14,366,248
=============
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.80%
Next $500 million 0.75%
Over $1 billion 0.70%
</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"). As a result,
Columbia pays the total fees received 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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.037%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) 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
13
<Page>
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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$672 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $118,942,257 and
$23,176,481, 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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $5,980 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
14
<Page>
FINANCIAL HIGHLIGHTS
Colonial Small Cap Value Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.22 $ 10.47 $ 11.55 $ 10.73 $ 9.21
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.04 0.07 0.02 0.02 0.06
Net realized and unrealized gain (loss) on
investments and foreign currency 1.25 4.03 (0.73) 0.97 1.57
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 1.29 4.10 (0.71) 0.99 1.63
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.03) (0.01) (0.02) (0.05)
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)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 15.51 $ 14.22 $ 10.47 $ 11.55 $ 10.73
============ ============ ============ ============ ============
Total return (c)(d)(e) 9.07%(f) 39.34% (6.14)% 9.20% 17.72%(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 1.10%(h) 1.10% 1.10% 1.10% 1.10%(h)
Net investment income (g) 0.57%(h) 0.54% 0.18% 0.22% 1.01%(h)
Waiver/reimbursement 0.07%(h) 0.36% 0.29% 0.47% 1.07%(h)
Portfolio turnover rate 20%(f) 55% 125% 56% 54%
Net assets, end of period (000's) $ 161,839 $ 58,730 $ 12,080 $ 9,020 $ 3,469
</Table>
(a) For the period from commencement of operations on April 14, 2003 to
December 31, 2003.
(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) 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.
15
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Strategic Income Fund, Variable Series / June 30, 2004
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.
Although the fund made no gain during this six-month reporting period, there was
considerable return differential within the subsectors of the fund. High-yield
corporate bonds were the best performing category, continuing a trend that has
been in place since late 2002. Although the yield advantage of corporate versus
Treasury bonds diminished considerably during the period, corporate bonds were
still able to outperform because the economic recovery has created a much more
favorable environment for many low-quality issuers. High-yield bonds as a group
returned approximately 2.3% during the first six months of 2004, as measured by
the JP Morgan Global High Yield Index, with the best performance coming from B-
and CCC-rated securities.
Within the fund's corporate bond holdings, the cable and cellular industries
continued to rebound from the depressed levels that prevailed just 18 months
ago. Charter Communications Holding (0.6% of net assets) solidified its
turnaround with impressive gains in its subscriber base. On the negative side,
the aerospace and airline sectors underperformed the overall market. Delta Air
Lines (0.1% of net assets) was a poor performer, buffeted by higher fuel prices,
pressure from labor unions, and increased competition from new, low-cost
carriers. Despite these performance differentials, we continued to believe in
the prospects for the high-yield sector. By the end of June, the fund had
approximately 39.0% of its assets in high-yield corporate bonds, an allocation
that we plan to maintain.
TREASURIES AND FOREIGN BONDS FALTER
US Treasury securities, which accounted for approximately 22.0% of the fund's
assets, performed erratically during the period. They enjoyed a technical rally
during the first three months of the year only to retreat during the second
quarter when new economic data suggested that inflation was on the rise.
Investors became concerned that the continued economic expansion would lead the
Federal Reserve to raise interest rates from their historically low levels. In
fact the federal funds rate--the overnight borrowing rate paid by banks--was
raised by one-quarter of one percentage point as the second quarter ended.
Foreign government bonds, which constitute approximately one-third of the
portfolio, fell victim to currency translations and performed poorly during the
second quarter. As the US economy strengthened and the likelihood of a rate hike
increased, virtually every major foreign currency lost ground relative to the
dollar. Meanwhile, emerging market bonds, which historically have performed best
during periods of buoyant growth and ample global liquidity, lost ground amid
fears that higher rates in the United States would lead to tighter global
monetary conditions and ultimately slow global growth.
ALL EYES ON THE FED
Going forward, we do not expect to make significant shifts in the portfolio's
asset allocations. We will be watching the Fed and new economic data for any
signals that additional rate hikes are on the way. However, our current view is
that inflation is sufficiently under control and that a quick move to higher
rates is unlikely. With the economy expected to show nice gains for the
remainder of the year, we believe that the environment remains favorable for
corporate bonds and high-yield bonds in particular.
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 June 30, 2004, and are subject to change.
16
<Page>
PERFORMANCE INFORMATION
Colonial Strategic Income Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- -----------------------------------------------------------------
Class B (6/1/00) -0.20 5.70 6.06 7.44
Lehman Brothers
Government/
Credit Bond
Index(1) -0.19 -0.72 7.11 7.41
JP Morgan Global
High Yield Index(2) 2.28 11.70 5.83 7.98
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- ---------------------------------------------------------
Class B 9.80 9.78
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/5/94(3) - 6/30/04
Class B: $20,471
<Table>
<Caption>
LEHMAN BROTHERS GOVERNMENT/CREDIT JP MORGAN GLOBAL
CLASS B SHARES BOND INDEX HIGH YIELD INDEX
7/5/94 $ 10,000 $ 10,000 $ 10,000
7/31/94 $ 10,080 $ 10,170 $ 10,015
8/31/94 $ 10,130 $ 10,174 $ 10,055
9/30/94 $ 10,091 $ 10,020 $ 10,054
10/31/94 $ 10,131 $ 10,009 $ 10,069
11/30/94 $ 10,021 $ 9,991 $ 9,976
12/31/94 $ 10,110 $ 10,057 $ 10,276
1/31/95 $ 10,244 $ 10,250 $ 10,407
2/28/95 $ 10,492 $ 10,488 $ 10,778
3/31/95 $ 10,678 $ 10,559 $ 10,887
4/30/95 $ 10,875 $ 10,706 $ 11,168
5/31/95 $ 11,174 $ 11,155 $ 11,486
6/30/95 $ 11,225 $ 11,244 $ 11,532
7/31/95 $ 11,328 $ 11,200 $ 11,712
8/31/95 $ 11,328 $ 11,344 $ 11,757
9/30/95 $ 11,524 $ 11,459 $ 11,897
10/31/95 $ 11,679 $ 11,628 $ 12,008
11/30/95 $ 11,792 $ 11,820 $ 12,086
12/31/95 $ 11,959 $ 11,993 $ 12,282
1/31/96 $ 12,134 $ 12,068 $ 12,515
2/29/96 $ 12,036 $ 11,812 $ 12,590
3/31/96 $ 11,982 $ 11,713 $ 12,549
4/30/96 $ 12,036 $ 11,632 $ 12,626
5/31/96 $ 12,046 $ 11,612 $ 12,722
6/30/96 $ 12,122 $ 11,767 $ 12,777
7/31/96 $ 12,220 $ 11,794 $ 12,863
8/31/96 $ 12,362 $ 11,764 $ 13,053
9/30/96 $ 12,612 $ 11,974 $ 13,362
10/31/96 $ 12,807 $ 12,253 $ 13,485
11/30/96 $ 13,112 $ 12,478 $ 13,734
12/31/96 $ 13,134 $ 12,340 $ 13,880
1/31/97 $ 13,099 $ 12,354 $ 13,990
2/28/97 $ 13,195 $ 12,380 $ 14,231
3/31/97 $ 13,005 $ 12,233 $ 13,999
4/30/97 $ 13,171 $ 12,412 $ 14,130
5/31/97 $ 13,386 $ 12,527 $ 14,457
6/30/97 $ 13,576 $ 12,677 $ 14,648
7/31/97 $ 13,898 $ 13,065 $ 15,037
8/31/97 $ 13,803 $ 12,919 $ 15,046
9/30/97 $ 14,101 $ 13,122 $ 15,346
10/31/97 $ 14,125 $ 13,332 $ 15,324
11/30/97 $ 14,197 $ 13,402 $ 15,462
12/31/97 $ 14,335 $ 13,543 $ 15,601
1/31/98 $ 14,566 $ 13,734 $ 15,843
2/28/98 $ 14,604 $ 13,707 $ 15,965
3/31/98 $ 14,706 $ 13,749 $ 16,126
4/30/98 $ 14,771 $ 13,818 $ 16,207
5/31/98 $ 14,836 $ 13,966 $ 16,230
6/30/98 $ 14,861 $ 14,108 $ 16,264
7/31/98 $ 14,990 $ 14,119 $ 16,400
8/31/98 $ 14,435 $ 14,395 $ 15,338
9/30/98 $ 14,757 $ 14,806 $ 15,322
10/31/98 $ 14,782 $ 14,701 $ 14,993
11/30/98 $ 15,207 $ 14,789 $ 15,819
12/31/98 $ 15,198 $ 14,826 $ 15,754
1/31/99 $ 15,321 $ 14,932 $ 15,943
2/28/99 $ 15,143 $ 14,576 $ 15,862
3/31/99 $ 15,349 $ 14,649 $ 16,057
4/30/99 $ 15,555 $ 14,686 $ 16,465
5/31/99 $ 15,239 $ 14,535 $ 13,567
6/30/99 $ 15,253 $ 14,490 $ 16,230
7/31/99 $ 15,239 $ 14,449 $ 16,235
8/31/99 $ 15,184 $ 14,437 $ 16,073
9/30/99 $ 15,266 $ 14,567 $ 15,957
10/31/99 $ 15,266 $ 14,605 $ 15,869
11/30/99 $ 15,362 $ 14,596 $ 16,128
12/31/99 $ 15,468 $ 14,507 $ 16,286
1/31/2000 $ 15,320 $ 14,503 $ 16,224
2/29/2000 $ 15,513 $ 14,684 $ 16,289
3/31/2000 $ 15,454 $ 14,897 $ 16,012
4/30/2000 $ 15,321 $ 14,824 $ 16,009
5/31/2000 $ 15,188 $ 14,811 $ 15,782
6/30/2000 $ 15,470 $ 15,113 $ 16,092
7/31/2000 $ 15,589 $ 15,273 $ 16,234
8/31/2000 $ 15,737 $ 15,489 $ 16,359
9/30/2000 $ 15,566 $ 15,547 $ 16,145
10/31/2000 $ 15,268 $ 15,645 $ 15,672
11/30/2000 $ 15,016 $ 15,913 $ 15,073
12/31/2000 $ 15,479 $ 16,226 $ 15,338
1/31/2001 $ 16,120 $ 16,499 $ 16,268
2/28/2001 $ 16,170 $ 16,669 $ 16,457
3/31/2001 $ 15,808 $ 16,746 $ 16,134
4/30/2001 $ 15,627 $ 16,620 $ 15,965
5/31/2001 $ 15,743 $ 16,716 $ 16,277
6/30/2001 $ 15,562 $ 16,797 $ 15,996
7/31/2001 $ 15,627 $ 17,215 $ 16,157
8/31/2001 $ 15,907 $ 17,435 $ 16,367
9/30/2001 $ 15,446 $ 17,596 $ 15,287
10/31/2001 $ 15,874 $ 18,043 $ 15,668
11/30/2001 $ 16,088 $ 17,747 $ 16,201
12/31/2001 $ 16,028 $ 17,607 $ 16,180
1/31/2002 $ 16,083 $ 17,735 $ 16,298
2/28/2002 $ 16,118 $ 17,886 $ 16,175
3/31/2002 $ 16,171 $ 17,523 $ 16,541
4/30/2002 $ 16,477 $ 17,863 $ 16,792
5/31/2002 $ 16,550 $ 18,027 $ 16,735
6/30/2002 $ 16,316 $ 18,180 $ 16,133
7/31/2002 $ 16,155 $ 18,398 $ 15,684
8/31/2002 $ 16,424 $ 18,811 $ 15,829
9/30/2002 $ 16,515 $ 19,215 $ 15,643
10/31/2002 $ 16,569 $ 19,030 $ 15,531
11/30/2002 $ 16,911 $ 19,042 $ 16,335
12/31/2002 $ 17,325 $ 19,546 $ 16,525
1/31/2003 $ 17,540 $ 19,546 $ 16,954
2/28/2003 $ 17,891 $ 19,894 $ 17,202
3/31/2003 $ 18,066 $ 19,869 $ 17,617
4/30/2003 $ 18,709 $ 20,081 $ 18,490
5/31/2003 $ 19,235 $ 20,651 $ 18,747
6/30/2003 $ 19,371 $ 20,569 $ 19,295
7/31/2003 $ 18,904 $ 19,707 $ 19,173
8/31/2003 $ 18,982 $ 19,837 $ 19,363
9/30/2003 $ 19,625 $ 20,466 $ 19,899
10/31/2003 $ 19,684 $ 20,206 $ 20,269
11/30/2003 $ 19,995 $ 20,261 $ 20,553
12/31/2003 $ 20,517 $ 20,461 $ 21,073
1/31/2004 $ 20,642 $ 20,647 $ 21,459
2/29/2004 $ 20,768 $ 20,899 $ 21,476
3/31/2004 $ 20,937 $ 21,092 $ 21,644
4/30/2004 $ 20,392 $ 20,444 $ 21,563
5/31/2004 $ 20,288 $ 20,340 $ 21,229
6/30/2004 $ 20,471 $ 20,427 $ 21,545
</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 US government and corporate bonds rated
investment grade or better with maturities of at least one year. 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from July 5, 1994.
(2) Index performance for the life of the fund is from June 30, 1994.
(3) Inception date of class A shares (oldest existing share class). Index
performance for the Lehman Brothers index is from July 5, 1994, and index
performance for the JP Morgan index is from June 30, 1994.
17
<Page>
INVESTMENT PORTFOLIO
Colonial Strategic Income Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
PAR VALUE
--------------- ---------------
CORPORATE FIXED-INCOME
BONDS & NOTES--39.1%
AGRICULTURE--0.2%
AGRICULTURE PRODUCTION--0.2%
Seminis Vegetable Seeds, Inc.
10.250% 10/01/13 USD 303,000 $ 331,785
---------------
CONSTRUCTION--1.8%
BUILDING CONSTRUCTION--1.8%
Associated Materials, Inc.:
(b) 03/01/14
(11.250% 03/01/09) (a) 130,000 87,100
9.750% 04/15/12 190,000 210,900
Atrium Companies, Inc.,
Series B,
10.500% 05/01/09 415,000 434,713
D.R. Horton, Inc.,
9.750% 09/15/10 575,000 667,000
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 45,000 47,700
10.500% 10/01/07 250,000 286,875
Norcraft Companies,
9.000% 11/01/11 (a) 90,000 94,950
Nortek Holdings, Inc.,
(b) 05/15/11
(10.000% 11/15/07) (a) 350,000 276,500
Standard Pacific Corp.,
9.250% 04/15/12 275,000 299,063
WII Components, Inc.,
10.000% 02/15/12 (a) 205,000 205,000
William Lyon Homes, Inc.,
10.750% 04/01/13 140,000 154,350
---------------
2,764,151
---------------
CONSUMER STAPLES--0.3%
HOUSEHOLD PRODUCTS--0.3%
Elizabeth Arden, Inc.,
7.750% 01/15/14 (a) 155,000 157,713
Playtex Products, Inc.,
9.375% 06/01/11 380,000 375,250
---------------
532,963
---------------
FINANCE, INSURANCE & REAL ESTATE--1.4%
DEPOSITORY INSTITUTIONS--0.1%
Western Financial Bank,
9.625% 05/15/12 140,000 152,600
---------------
FINANCIAL SERVICES--1.3%
Dollar Financial Group,
9.750% 11/15/11 260,000 271,700
E*Trade Financial Corp.,
8.000% 06/15/11 (a) 150,000 149,062
Finova Group, Inc.,
7.500% 11/15/09 358,792 197,335
Global Cash Access LLC/
Global Cash Finance Group,
8.750% 03/15/12 (a) USD 205,000 $ 213,969
LaBranche & Co.,
11.000% 05/15/12 (a) 320,000 326,400
Pemex Finance Ltd.:
9.150% 11/15/18 310,000 377,992
10.610% 08/15/17 215,000 283,776
Thornburg Mortgage, Inc.,
8.000% 05/15/13 160,000 160,000
---------------
1,980,234
---------------
INDUSTRIALS--0.1%
INDUSTRIAL CONGLOMERATES--0.1%
SPX Corp.,
7.500% 01/01/13 75,000 76,500
---------------
MANUFACTURING--12.1%
APPAREL--0.4%
Broder Brothers Co.,
11.250% 10/15/10 150,000 142,125
Levi Strauss & Co.,
12.250% 12/15/12 180,000 176,400
Phillips Van-Heusen:
7.250% 02/15/11 (a) 95,000 95,950
8.125% 05/01/13 90,000 94,275
Warnaco, Inc.,
8.875% 06/15/13 65,000 69,225
---------------
577,975
---------------
AUTO PARTS & EQUIPMENT--0.8%
Accuride Corp.,
9.250% 02/01/08 100,000 101,750
Dana Corp.,
9.000% 08/15/11 135,000 157,950
Delco Remy International, Inc.,
11.000% 05/01/09 200,000 212,000
Dura Operating Corp.:
8.625% 04/15/12 225,000 229,500
9.000% 05/01/09 190,000 186,675
Goodyear Tire & Rubber Co.,
4.000% 06/15/34 (a) 90,000 91,125
Navistar International,
7.500% 06/15/11 175,000 177,625
TRW Automotive, Inc.,
9.375% 02/15/13 (a) 49,000 55,370
---------------
1,211,995
---------------
CHEMICALS & ALLIED PRODUCTS--2.1%
Avecia Group PLC,
11.000% 07/01/09 200,000 151,000
BCP Caylux Holdings,
9.625% 06/15/14 (a) 140,000 145,600
Equistar Chemicals Funding LP:
10.125% 09/01/08 195,000 214,500
10.625% 05/01/11 130,000 144,300
</Table>
See Notes to Investment Portfolio.
18
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Huntsman ICI Holdings LLC:
(c) 12/31/09 USD 1,270,000 $ 615,950
11.500% 07/15/12 (a) 135,000 136,181
IMC Global, Inc.,
10.875% 08/01/13 205,000 248,050
Invista,
9.250% 05/01/12 (a) 135,000 135,675
Koppers Industries, Inc.,
9.875% 10/15/13 240,000 262,800
Lyondell Chemical Co.:
9.625% 05/01/07 290,000 303,050
9.875% 05/01/07 20,000 20,950
Nova Chemicals Corp.,
6.500% 01/15/12 110,000 108,292
Terra Capital, Inc.,
12.875% 10/15/08 310,000 369,675
UAP Holding Corp.,
(b) 07/15/12
(10.750% 01/15/08) (a) 190,000 147,250
United Agriculture Products, Inc.,
8.250% 12/15/11 (a) 160,000 176,800
Westlake Chemical Corp.,
8.750% 07/15/11 130,000 141,375
---------------
3,321,448
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT--0.2%
Amkor Technology, Inc.,
9.250% 02/15/08 195,000 204,750
Lucent Technologies, Inc.,
6.450% 03/15/29 220,000 169,400
---------------
374,150
---------------
FABRICATED METAL--0.2%
Earle M. Jorgensen & Co.,
9.750% 06/01/12 270,000 295,650
---------------
FOOD & KINDRED PRODUCTS--1.6%
Constellation Brands, Inc.,
8.125% 01/15/12 175,000 184,625
Del Monte Corp.,
9.250% 05/15/11 420,000 453,600
Dole Food Co., Inc.,
8.625% 05/01/09 275,000 289,437
Merisant Co.,
9.500% 07/15/13 (a) 135,000 143,775
Pinnacle Foods Holdings,
8.250% 12/01/13 (a) 245,000 237,038
Premier International
Foods PLC,
12.000% 09/01/09 750,000 798,750
Roundy's, Inc.,
8.875% 06/15/12 145,000 154,787
Tabletop Holdings, Inc.,
(b) 05/15/14
(12.250% 11/15/08) (a) 340,000 207,400
Wornick Co.,
10.875% 07/15/11 (a) 30,000 30,600
---------------
2,500,012
---------------
FURNITURE & FIXTURES--0.2%
Congoleum Corp.,
8.625% 08/01/08 (d) USD 140,000 $ 110,600
Tempur-Pedic, Inc.,
10.250% 08/15/10 173,000 195,058
---------------
305,658
---------------
LUMBER & WOOD PRODUCTS--0.1%
Millar Western Forest,
7.750% 11/15/13 (a) 145,000 145,725
---------------
MISCELLANEOUS MANUFACTURING--2.0%
Amscan Holdings, Inc.,
8.750% 05/01/14 (a) 225,000 221,063
Fastentech, Inc.,
11.500% 05/01/11 (a) 290,000 317,550
Flowserve Corp.,
12.250% 08/15/10 205,000 232,163
Hexcel Corp.,
9.750% 01/15/09 225,000 236,250
J.B. Poindexter & Co.,
8.750% 03/15/14 (a) 215,000 217,687
Maax Corp.,
9.750% 06/15/12 (a) 130,000 134,427
Mueller Group, Inc.,
10.000% 05/01/12 (a) 185,000 192,400
Rexnord Corp.,
10.125% 12/15/12 125,000 137,500
Superior Essex
Communications Group,
9.000% 04/15/12 (a) 165,000 159,225
Tekni-Plex, Inc.,
12.750% 06/15/10 320,000 307,200
Terex Corp., Series 2001 B,
10.375% 04/01/11 215,000 239,188
TriMas Corp.,
9.875% 06/15/12 455,000 484,575
Trinity Industries, Inc.,
6.500% 03/15/14 (a) 105,000 95,550
Valmont Industries, Inc.,
6.875% 05/01/14 (a) 65,000 63,700
---------------
3,038,478
---------------
PAPER PRODUCTS--1.0%
Buckeye Technologies, Inc.,
8.500% 10/01/13 (a) 40,000 40,600
Caraustar Industries, Inc.,
9.875% 04/01/11 190,000 188,575
Consolidated Container Co.,
(b) 06/15/09
(10.750% 06/15/07) (a) 175,000 133,000
Georgia-Pacific Corp.,
8.000% 01/15/24 90,000 90,000
MDP Acquisitions PLC,
9.625% 10/01/12 340,000 377,400
Newark Group, Inc.,
9.750% 03/15/14 (a) 130,000 122,850
</Table>
See Notes to Investment Portfolio.
19
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Norske Skog Canada Ltd.:
7.375% 03/01/14 (a) USD 65,000 $ 63,504
8.625% 06/15/11 90,000 94,500
Portola Packaging, Inc.,
8.250% 02/01/12 (a) 140,000 114,100
Smurfit-Stone Container Corp.,
8.250% 10/01/12 165,000 170,775
Solo Cup Co.,
8.500% 02/15/14 (a) 90,000 84,600
Tembec Industries, Inc.,
8.500% 02/01/11 85,000 85,850
---------------
1,565,754
---------------
PRIMARY METAL--0.7%
Bayou Steel Corp.,
9.000% 03/31/11 125,000 113,125
Kaiser Aluminum &
Chemical Corp.,
10.875% 10/15/06 (e) 240,000 249,600
Metallurg, Inc.,
11.000% 12/01/07 120,000 54,000
Oregon Steel Mills, Inc.,
10.000% 07/15/09 130,000 138,125
Steel Dynamics, Inc.:
9.500% 03/15/09 (a) 55,000 60,775
9.500% 03/15/09 50,000 55,250
UCAR Finance, Inc.,
10.250% 02/15/12 250,000 277,500
Wise Metals Group LLC,
10.250% 05/15/12 (a) 200,000 202,500
---------------
1,150,875
---------------
PRINTING & PUBLISHING--1.9%
Dex Media, Inc.:
(b) 11/15/13
(9.000% 11/15/08) (a) 160,000 103,200
8.000% 11/15/13 (a) 220,000 211,200
Dex Media East LLC,
12.125% 11/15/12 370,000 431,975
Dex Media West LLC,
9.875% 08/15/13 (a) 180,000 198,000
Haights Cross
Communications, Inc.:
(b) 08/15/11
(12.500% 02/01/09) (a) 205,000 112,750
11.750% 08/15/11 195,000 210,600
Hollinger, Inc.,
11.875% 03/01/11 (a) 127,000 148,273
Primedia, Inc.,
8.875% 05/15/11 285,000 283,575
Quebecor Media, Inc.,
11.125% 07/15/11 400,000 456,000
Sheridan Group.,
10.250% 08/15/11 (a) 155,000 163,912
Von Hoffman Corp.,
10.250% 03/15/09 360,000 369,900
Yell Finance BV,
10.750% 08/01/11 255,000 297,713
---------------
2,987,098
---------------
STONE, CLAY, GLASS & CONCRETE--0.7%
Crown European Holdings SA,
10.875% 03/01/13 USD 190,000 $ 217,550
Owens-Brockway
Glass Container,
8.250% 05/15/13 370,000 381,100
Owens-Illinois, Inc.:
7.350% 05/15/08 240,000 239,400
7.500% 05/15/10 45,000 44,100
US Concrete, Inc.,
8.375% 04/01/14 (a) 195,000 195,000
---------------
1,077,150
---------------
TEXTILE MILL PRODUCTS--0.1%
Collins & Aikman
Floor Covering, Inc.,
9.750% 02/15/10 150,000 152,250
---------------
TOBACCO PRODUCTS--0.1%
North Atlantic Trading,
9.250% 03/01/12 (a) 145,000 145,000
---------------
MINING & ENERGY--2.4%
OIL & GAS EXTRACTION--1.7%
Benton Oil & Gas Co.,
9.375% 11/01/07 215,000 219,300
Chesapeake Energy Corp.,
7.500% 06/15/14 (a) 185,000 190,088
Compton Petroleum Corp.,
9.900% 05/15/09 195,000 212,061
Encore Acquisition Co.,
8.375% 06/15/12 195,000 206,700
Energy Partners Ltd.,
8.750% 08/01/10 125,000 130,625
Ferrellgas Partners LP,
8.750% 06/15/12 180,000 192,150
Gazprom,
9.625% 03/01/13 630,000 648,585
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 155,000 170,500
PDVSA Finance Ltd.,
6.250% 02/15/06 EUR 254,150 309,135
Pride International, Inc.,
7.375% 07/15/14 (a)(f) USD 105,000 106,050
Whiting Petroleum Corp.,
7.250% 05/01/12 (a) 270,000 270,000
---------------
2,655,194
---------------
OIL & GAS FIELD SERVICES--0.7%
CHC Helicopter Corp.,
7.375% 05/01/14 (a) 175,000 171,936
J. Ray McDermott SA,
11.000% 12/15/13 (a) 120,000 115,200
Newpark Resources, Inc.,
8.625% 12/15/07 185,000 188,006
Petroleum Helicopters, Inc.,
9.375% 05/01/09 325,000 341,250
Premcor Refining Group,
7.500% 06/15/15 165,000 170,775
</Table>
See Notes to Investment Portfolio.
20
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Seitel, Inc.,
11.750% 07/15/11 (a) USD 150,000 $ 147,000
---------------
1,134,167
---------------
RETAIL TRADE--0.8%
APPAREL AND ACCESSORY--0.2%
Finlay Fine Jewelry Corp.,
8.375% 06/01/12 (a) 175,000 182,000
Saks, Inc.,
7.000% 12/01/13 55,000 54,313
---------------
236,313
---------------
FOOD STORES--0.1%
Stater Brothers Holdings,
8.125% 06/15/12 (a) 205,000 205,513
---------------
MISCELLANEOUS RETAIL--0.5%
Asbury Automotive Group,
8.000% 03/15/14 195,000 186,225
Leiner Health Products,
11.000% 06/01/12 (a) 50,000 51,500
Nebraska Book Co.,
8.625% 03/15/12 130,000 127,725
Rite Aid Corp.,
9.250% 06/01/13 295,000 311,594
Steinway Musical
Instruments, Inc.,
8.750% 04/15/11 155,000 167,400
---------------
844,444
---------------
SERVICES--7.0%
AMUSEMENT & RECREATION--3.9%
American Casino &
Entertainment,
7.850% 02/01/12 (a) 250,000 253,750
Ameristar Casinos, Inc.,
10.750% 02/15/09 215,000 244,563
AMF Bowling Worldwide, Inc.,
10.000% 03/01/10 (a) 160,000 164,400
Bombardier Recreational,
8.375% 12/15/13 (a) 320,000 317,600
Boyd Gaming Corp.,
8.750% 04/15/12 85,000 90,313
Cinemark, Inc.,
(b) 03/15/14
(9.750% 03/15/09) (a) 295,000 192,487
Circus & Eldorado/Silver
Legacy Capital Corp.,
10.125% 03/01/12 125,000 125,625
Equinox Holdings, Inc.,
9.000% 12/15/09 (a) 240,000 238,800
Hard Rock Hotel, Inc.,
8.875% 06/01/13 210,000 212,625
Hollywood Casino Shreveport,
13.000% 08/01/06 (g) 600,000 480,000
Inn of the Mountain Gods Resort,
12.000% 11/15/10 (a) USD 155,000 $ 172,050
K2, Inc.,
7.375% 07/01/14 (a)(f) 120,000 122,707
Mohegan Tribal
Gaming Authority:
8.000% 04/01/12 350,000 373,188
8.375% 07/01/11 125,000 134,531
Park Place Entertainment Corp.,
9.375% 02/15/07 285,000 309,938
Pinnacle Entertainment, Inc.:
8.250% 03/15/12 (a) 450,000 429,750
8.750% 10/01/13 175,000 172,375
Premier Entertainment
Biloxi Financial,
10.750% 02/01/12 (a) 130,000 136,825
River Rock Entertainment,
9.750% 11/01/11 (a) 225,000 245,250
Seneca Gaming Corp.,
7.250% 05/01/12 (a) 215,000 214,463
Six Flags, Inc.,
9.500% 02/01/09 550,000 567,875
Station Casinos, Inc.:
6.000% 04/01/12 105,000 101,325
6.875% 03/01/16 185,000 177,600
Town Sports International, Inc.,
(b) 02/01/14
(11.000% 02/01/09) (a) 280,000 130,200
Vail Resorts, Inc.,
6.750% 02/15/14 (a) 180,000 170,550
Warner Music Group,
7.375% 04/15/14 (a) 220,000 211,750
Wynn Las Vegas LLC,
12.000% 11/01/10 97,000 115,915
---------------
6,106,455
---------------
BUSINESS SERVICES--0.3%
Buhrmann US, Inc.,
8.250% 07/01/14 (a) 120,000 119,250
Iron Mountain, Inc.,
7.750% 01/15/15 55,000 54,725
Language Line Holdings, Inc.:
(b) 06/15/13
(14.125% 06/15/09) (a) 135,000 70,538
11.125% 06/15/12 (a) 170,000 172,550
---------------
417,063
---------------
FUNERAL SERVICES--0.2%
Service Corp. International,
7.700% 04/15/09 275,000 281,875
---------------
HEALTH SERVICES--1.5%
Bio-Rad Laboratories, Inc.,
7.500% 08/15/13 220,000 229,900
Coventry Health Care, Inc.,
8.125% 02/15/12 265,000 290,838
HCA, Inc.,
8.750% 09/01/10 140,000 159,429
</Table>
See Notes to Investment Portfolio.
21
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Insight Health Services Corp.,
9.875% 11/01/11 USD 230,000 $ 247,825
MedQuest, Inc.,
11.875% 08/15/12 (a) 310,000 351,850
PacifiCare Health Systems, Inc.,
10.750% 06/01/09 81,000 92,138
Team Health, Inc.,
9.000% 04/01/12 (a) 190,000 183,350
Tenet Healthcare Corp.:
5.375% 11/15/06 80,000 80,200
6.375% 12/01/11 60,000 52,800
9.875% 07/01/14 (a) 445,000 451,675
United Surgical Partners
International, Inc.,
10.000% 12/15/11 250,000 282,500
---------------
2,422,505
---------------
HOTELS, CAMPS & LODGING--0.3%
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 (a) 375,000 400,312
---------------
OTHER SERVICES--0.8%
Advanstar Communications, Inc.,
12.000% 02/15/11 330,000 351,450
Cornell Companies, Inc.,
10.750% 07/01/12 (a) 160,000 163,200
Corrections Corp. of America,
9.875% 05/01/09 190,000 210,425
Geo Group, Inc.,
8.250% 07/15/13 100,000 99,000
NationsRent, Inc.,
9.500% 10/15/10 (a) 275,000 290,125
Williams Scotsman, Inc.,
9.875% 06/01/07 125,000 123,750
---------------
1,237,950
---------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--11.0%
AEROSPACE--0.5%
Argo Tech Corp.,
9.250% 06/01/11 (a) 125,000 128,750
BE Aerospace, Inc.,
8.875% 05/01/11 270,000 252,450
Sequa Corp.,
8.875% 04/01/08 145,000 152,975
TransDigm, Inc.,
8.375% 07/15/11 (a) 155,000 159,650
Vought Aircraft Industries, Inc.,
8.000% 07/15/11 (a) 105,000 99,750
---------------
793,575
---------------
AIR TRANSPORTATION--0.5%
Continental Airlines, Inc.,
7.568% 12/01/06 255,000 204,000
Delta Air Lines, Inc.,
7.900% 12/15/09 360,000 183,600
Northwest Airlines, Inc.,
9.875% 03/15/07 USD 255,000 $ 201,450
United Airlines,
1.535% 03/02/49 (h) 226,143 183,176
---------------
772,226
---------------
BROADCASTING--1.2%
Canwest Media, Inc.,
10.625% 05/15/11 290,000 325,525
Granite Broadcasting,
9.750% 12/01/10 (a) 275,000 255,750
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 250,000 266,875
Spanish Broadcasting System,
9.625% 11/01/09 310,000 326,275
TV Azteca SA de CV,
10.500% 02/15/07 470,000 479,400
XM Satellite Radio, Inc.,
6.650% 05/01/09 (a)(h) 160,000 160,000
---------------
1,813,825
---------------
CABLE--2.0%
Atlantic Broadband Financial,
9.375% 01/15/14 (a) 225,000 213,750
Cablevision Systems Corp.,
5.670% 04/01/09 (a)(h) 185,000 189,625
Charter Communications
Holding LLC:
9.920% 04/01/11 1,045,000 822,938
10.250% 09/15/10 (a) 160,000 162,000
CSC Holdings, Inc.:
6.750% 04/15/12 (a) 105,000 101,325
7.625% 04/01/11 25,000 25,187
DirecTV Holdings LLC,
8.375% 03/15/13 200,000 221,500
EchoStar DBS Corp.,
6.375% 10/01/11 290,000 285,650
Insight Communications, Inc.,
(b) 02/15/11
(12.250% 02/15/06) 275,000 247,500
Insight Midwest,
9.750% 10/01/09 (a) 135,000 142,088
Northland Cable Television, Inc.,
10.250% 11/15/07 305,000 295,850
NTL Cable PLC,
8.750% 04/15/14 (a) 155,000 160,038
Pegasus Satellite
Communications, Inc.,
11.250% 01/15/10 (a)(e) 220,000 110,000
Telenet Group Holding NV,
(b) 06/15/14
(11.500% 12/15/08) (a) 260,000 163,800
---------------
3,141,251
---------------
ELECTRIC, GAS & SANITARY SERVICES--0.6%
Allied Waste North America, Inc.:
6.500% 11/15/10 (a) 470,000 462,950
Series 2001 B,
8.500% 12/01/08 305,000 333,594
</Table>
See Notes to Investment Portfolio.
22
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Waste Services, Inc.,
9.500% 04/15/14 (a) USD 140,000 $ 143,850
---------------
940,394
---------------
ELECTRIC SERVICES--0.6%
Beaver Valley Funding Corp.,
9.000% 06/01/17 235,000 265,738
CMS Energy Corp.,
8.900% 07/15/08 265,000 278,581
Illinova Power Co.,
11.500% 12/15/10 75,000 88,500
Nevada Power Co.:
9.000% 08/15/13 (a) 125,000 135,625
10.875% 10/15/09 215,000 243,487
---------------
1,011,931
---------------
MARINE SERVICES--0.5%
Ship Finance International Ltd.,
8.500% 12/15/13 375,000 350,464
Stena AB:
7.500% 11/01/13 230,000 227,125
9.625% 12/01/12 170,000 188,275
---------------
765,864
---------------
MARINE TRANSPORT--0.1%
Teekay Shipping Corp.,
8.875% 07/15/11 85,000 93,925
---------------
PIPELINES--1.0%
Coastal Corp.,
7.750% 06/15/10 380,000 344,375
Northwest Pipeline Corp.,
8.125% 03/01/10 85,000 92,225
Sonat, Inc.:
6.875% 06/01/05 135,000 135,337
7.625% 07/15/11 495,000 438,694
Southern Natural Gas Co.,
8.875% 03/15/10 130,000 141,700
Williams Companies, Inc.,
8.125% 03/15/12 410,000 436,650
---------------
1,588,981
---------------
RADIO & TELEPHONE COMMUNICATIONS--2.1%
AirGate PCS, Inc.,
9.375% 09/01/09 26,600 26,002
American Cellular Corp.,
Series B,
10.000% 08/01/11 180,000 156,600
American Towers, Inc.,
7.250% 12/01/11 130,000 130,325
Dobson Communications Corp.,
8.875% 10/01/13 290,000 220,400
Horizon PCS, Inc.,
13.750% 06/15/11 (e) 285,000 134,663
iPCS Escrow Co.,
11.500% 05/01/12 (a) 105,000 107,888
Nextel Communications, Inc.,
7.375% 08/01/15 485,000 488,638
Nextel Partners, Inc.,
8.125% 07/01/11 265,000 270,300
Rogers Cantel, Inc.,
9.750% 06/01/16 USD 380,000 $ 431,300
Rural Cellular Corp.,
8.250% 03/15/12 (a) 130,000 133,575
SBA Communications Corp.:
(b) 12/15/11
(9.750% 12/15/07) 160,000 120,000
10.250% 02/01/09 365,000 372,300
Spectrasite, Inc.,
8.250% 05/15/10 (a) 150,000 154,500
US Unwired, Inc.,
10.000% 06/15/12 (a) 230,000 232,875
Western Wireless Corp.,
9.250% 07/15/13 250,000 256,875
---------------
3,236,241
---------------
RAILROAD--0.2%
Kansas City Southern,
7.500% 06/15/09 40,000 40,100
TFM SA de CV,
12.500% 06/15/12 230,000 239,200
---------------
279,300
---------------
TELECOMMUNICATION SERVICES--1.5%
Axtel SA,
11.000% 12/15/13 (a) 270,000 255,150
Carrier1 International SA,
13.250% 02/15/09 (e) 500,000 45,000
Cincinnati Bell, Inc.,
8.375% 01/15/14 210,000 189,000
Fairpoint Communications,
11.875% 03/01/10 180,000 207,000
Level 3 Communications,
10.500% 12/01/08 200,000 159,000
Qwest Capital Funding:
7.250% 02/15/11 565,000 485,900
7.750% 02/15/31 265,000 212,000
Qwest Services Corp.,
13.500% 12/15/10 (a) 420,000 488,250
Time Warner Telecom LLC:
9.750% 07/15/08 100,000 95,500
10.125% 02/01/11 255,000 237,150
---------------
2,373,950
---------------
TRANSPORTATION SERVICES--0.2%
Allied Holdings, Inc.,
8.625% 10/01/07 155,000 137,950
QDI Capital Corp.,
9.000% 11/15/10 (a) 240,000 228,000
---------------
365,950
---------------
UTILITY--2.0%
INDEPENDENT POWER PRODUCERS--2.0%
AES Corp.:
9.000% 05/15/15 (a) 360,000 385,200
9.500% 06/01/09 182,000 194,740
</Table>
See Notes to Investment Portfolio.
23
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Caithness Coso Funding Corp.,
9.050% 12/15/09 USD 278,473 $ 303,535
Calpine Canada Energy Finance,
8.500% 05/01/08 130,000 88,400
Calpine Corp.,
8.500% 07/15/10 (a) 230,000 193,200
Calpine Generating Co.:
10.250% 04/01/11 (a)(h) 240,000 220,800
11.500% 04/01/11 (a) 265,000 233,200
Dynegy Holdings, Inc.:
6.875% 04/01/11 200,000 171,500
9.875% 07/15/10 (a) 110,000 117,975
Edison Mission Energy,
9.875% 04/15/11 250,000 259,375
MSW Energy Holdings Finance:
7.375% 09/01/10 (a) 90,000 90,000
8.500% 09/01/10 270,000 284,850
NRG Energy, Inc.,
8.000% 12/15/13 (a) 90,000 91,125
Orion Power Holdings, Inc.,
12.000% 05/01/10 195,000 237,900
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 275,000 296,313
---------------
3,168,113
---------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $58,716,534) 60,974,768
---------------
FOREIGN GOVERNMENT OBLIGATIONS--31.9%
European Investment Bank,
7.625% 12/07/07 GBP 455,000 883,070
Government of Australia,
7.500% 09/15/09 AUD 1,425,000 1,067,767
Government of Canada:
6.000% 06/01/11 CAD 875,000 704,131
10.000% 06/01/08 2,846,000 2,579,729
Government of New Zealand:
6.000% 11/15/11 NZD 3,470,000 2,153,637
6.500% 04/15/13 2,545,000 1,626,158
Government of Sweden:
5.000% 01/28/09 SEK 18,785,000 2,593,871
6.750% 05/05/14 11,070,000 1,705,133
Hungary Government Bond,
6.250% 06/12/07 HUF 90,000,000 390,044
Kingdom of Norway,
5.500% 05/15/09 NOK 5,200,000 799,096
Kingdom of Spain,
5.500% 07/30/17 EUR 1,580,000 2,097,807
Ministry Finance Russia,
12.750% 06/24/28 USD 955,000 1,389,525
Poland Government Bond,
8.500% 05/12/07 PLN 3,357,000 928,293
Republic of Brazil:
7.309% 06/29/09 (h) USD 550,000 549,945
9.250% 10/22/10 500,000 472,500
11.000% 08/17/40 USD 643,000 $ 598,312
11.500% 04/02/09 EUR 480,000 611,055
14.500% 10/15/09 USD 1,200,000 1,389,000
Republic of Bulgaria:
2.000% 07/28/24 (h) 1,135,000 1,136,135
8.250% 01/15/15 460,000 536,360
Republic of Colombia:
10.000% 01/23/12 782,000 805,460
10.750% 01/15/13 240,000 255,000
11.500% 05/31/11 EUR 335,000 459,634
11.750% 02/25/20 USD 580,000 632,200
Republic of Germany:
5.375% 01/04/10 EUR 1,225,000 1,609,347
6.000% 07/04/07 1,210,000 1,592,075
Republic of Greece,
5.350% 05/18/11 1,115,000 1,458,425
Republic of Italy,
5.000% 02/01/12 2,560,000 3,280,468
Republic of Panama:
8.125% 04/28/34 USD 440,000 397,100
8.875% 09/30/27 365,000 354,050
Republic of Peru,
9.875% 02/06/15 660,000 686,400
Republic of Philippines,
8.250% 01/15/14 400,000 377,000
Republic of South Africa:
5.250% 05/16/13 EUR 855,000 1,011,379
6.500% 06/02/14 USD 540,000 545,400
13.000% 08/31/10 ZAR 5,790,000 1,058,497
Republic of Venezuela,
9.250% 09/15/27 USD 868,000 733,894
Russian Federation:
5.000% 03/31/30 865,000 789,745
11.000% 07/24/18 655,000 825,955
United Kingdom Treasury:
5.000% 03/07/12 GBP 368,000 663,006
7.500% 12/07/06 1,020,000 1,957,417
9.000% 07/12/11 615,000 1,370,895
United Mexican States:
7.500% 03/08/10 EUR 605,000 817,943
7.500% 04/08/33 USD 1,618,000 1,561,370
11.375% 09/15/16 620,000 868,000
Western Australia
Treasury Group,
7.000% 04/15/11 AUD 2,000,000 1,463,021
---------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(cost of $46,393,593) 49,785,249
---------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS--24.5%
Federal Home Loan
Mortgage Corp.:
5.000% 08/25/10 USD 500,000 502,391
8.000% 10/01/26 234,489 256,435
---------------
758,826
---------------
</Table>
See Notes to Investment Portfolio.
24
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Federal National Mortgage
Association, To Be Announced,
6.500% 07/01/34 (f) USD 2,795,000 $ 2,909,422
---------------
Government National
Mortgage Association,
8.000% 04/15/17 15,707 17,346
---------------
U.S. Treasury Notes/Bonds:
5.625% 05/15/08 2,900,000 3,121,577
6.500% 10/15/06 2,550,000 2,752,705
7.500% 11/15/24 1,310,000 1,658,992
8.750% 05/15/17 4,911,000 6,656,708
10.375% 11/15/12 3,800,000 4,640,157
11.625% 11/15/04 2,900,000 3,007,164
12.500% 08/15/14 9,012,000 12,590,043
---------------
34,427,346
---------------
TOTAL U.S. GOVERNMENT AGENCIES &
OBLIGATIONS
(cost of $39,249,123) 38,112,940
---------------
CONVERTIBLE BONDS--0.7%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.7%
INDEPENDENT POWER PRODUCERS--0.1%
Mirant Corp.,
2.500% 06/15/21 (e) 185,000 102,544
---------------
RADIO & TELEPHONE COMMUNICATIONS--0.4%
Nortel Networks Corp.,
4.250% 09/01/08 620,000 591,294
---------------
TELECOMMUNICATIONS--0.2%
COLT Telecom Group PLC:
2.000% 03/29/06 (a) EUR 175,000 232,019
2.000% 12/16/06 (a) 80,000 109,959
---------------
341,978
---------------
TOTAL CONVERTIBLE BONDS
(cost of $887,646) 1,035,816
---------------
<Caption>
SHARES
---------------
COMMON STOCKS (i)0.1%
MATERIALS--0.1%
PRIMARY METAL--0.1%
Bayou Steel Corp. 7,736 148,918
---------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
CABLE--0.0%
Ono Finance PLC (a)(j) 500 --(k)
---------------
POLLUTION CONTROL--0.0%
Fairlane Management
Corp. (j) 2,000 --(k)
---------------
TOTAL COMMON STOCKS
(cost of $315,344) 148,918
---------------
<Caption>
UNITS VALUE
--------------- ---------------
WARRANTS (i)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
CABLE--0.0%
Cable Satisfaction
International, Inc.,
Expires 03/01/05 (j) 515 $ --(k)
Ono Finance PLC,
Expires 02/15/11 (a)(j) 150 --(k)
---------------
--
---------------
RADIO & TELEPHONE COMMUNICATIONS--0.0%
UbiquiTel, Inc.,
Expires 04/15/10 (a)(j) 225 --(k)
---------------
TELECOMMUNICATIONS--0.0%
Carrier1 International SA,
Expires 02/19/09 (a)(j) 235 --(k)
---------------
Horizon PCS, Inc.,
Expires 10/01/10 (a)(j) 315 --(k)
Jazztel PLC,
Expires 07/15/10 (a)(j) 95 --(k)
---------------
--
---------------
TRANSPORTATION SERVICES--0.0%
QDI LLC,
Expires 01/15/07 (a)(j) 1,020 6,151
---------------
TOTAL WARRANTS
(cost of $17,080) 6,151
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--3.3%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.170%, collateralized by a
U.S. Treasury Bond maturing
08/15/23, market value $5,248,973
(repurchase proceeds $5,142,167)
(cost of $5,142,000) $ 5,142,000 $ 5,142,000
---------------
TOTAL INVESTMENTS--99.6%
(cost of $150,721,320) (l) 155,205,842
---------------
OTHER ASSETS & LIABILITIES, NET--0.4% 548,376
---------------
NET ASSETS--100.0% $ 155,754,218
===============
</Table>
See Notes to Investment Portfolio.
25
<Page>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
June 30, 2004, these securities amounted to $19,471,586, which represents
12.5% of net assets.
(b) Step bond. Shown parenthetically is the next interest rate to be paid.
(c) Zero coupon bond.
(d) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants, however, under the issuer's plan of
reorganization, the issuer has guaranteed all interest due and therefore
income is still being accrued. As of June 30, 2004, the value of this
security represents 0.1% of net assets.
(e) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants. Income is not being accrued. As of June
30, 2004, the value of these securities amounted to $641,807, which
represents 0.4% of net assets.
(f) Security purchased on a delayed delivery basis.
(g) This issuer is in default of certain debt covenants. Income is not being
accrued. As of June 30, 2004, the value of this security represents 0.3% of
net assets.
(h) Variable rate security. The interest rate shown reflects the rate as of
June 30, 2004.
(i) Non-income producing security.
(j) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(k) Security has no value.
(l) Cost for federal income tax purposes is $152,265,086.
<Table>
<Caption>
ACRONYM NAME
------- ----
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro Currency
GBP British Pound
HUF Hungarian Forint
NOK Norwegian Krone
NZD New Zealand Dollar
PLN Polish Zloty
SEK Swedish Krona
USD United States Dollar
ZAR South African Rand
</Table>
As of June 30, 2004, the Fund had entered into the following forward currency
exchange contracts:
<Table>
<Caption>
FORWARD UNREALIZED
CURRENCY AGGEGATE SETTLEMENT APPRECIATION
CONTRACTS TO SELL VALUE FACE VALUE DATE (DEPRECIATION)
- ----------------- ----------- ----------- ---------- --------------
EUR $ 223,345 $ 224,665 07/12/04 $ 1,320
EUR 1,929,943 1,912,303 07/19/04 (17,640)
GBP 741,924 749,890 07/21/04 7,966
EUR 1,071,319 1,069,200 07/28/04 (2,119)
EUR 144,872 144,585 07/28/04 (287)
EUR 584,356 583,200 07/28/04 (1,156)
EUR 415,136 413,974 07/28/04 (1,162)
EUR 1,356,801 1,353,003 07/28/04 (3,798)
---------------
$ (16,876)
===============
</Table>
See Notes to Financial Statements.
26
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Strategic Income Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 150,721,320
---------------
Investments, at value $ 155,205,842
Cash 562,678
Foreign currency (cost of $24) 25
Net unrealized appreciation on forward currency exchange contracts 9,286
Receivable for:
Investments sold 582,562
Fund shares sold 916,630
Interest 2,935,916
Dollar roll fee income 9,280
Foreign tax reclaim 4,640
Expense reimbursement due from Investment Advisor 3,319
Deferred Trustees' compensation plan 7,541
Other assets 31
---------------
TOTAL ASSETS 160,237,750
---------------
LIABILITIES:
Net unrealized depreciation on forward currency exchange contracts 26,162
Payable for:
Investments purchased 1,134,901
Investments purchased on a delayed delivery basis 3,117,578
Fund shares repurchased 65,536
Investment advisory fee 79,641
Transfer agent fee 604
Audit fee 25,050
Custody fee 2,739
Distribution fee--Class B 11,981
Deferred Trustees' fees 7,541
Other liabilities 11,799
---------------
TOTAL LIABILITIES 4,483,532
---------------
NET ASSETS $ 155,754,218
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 172,280,293
Undistributed net investment income 2,426,313
Accumulated net realized loss (23,424,685)
Net unrealized appreciation (depreciation) on:
Investments 4,484,522
Foreign currency translations (12,225)
---------------
NET ASSETS $ 155,754,218
===============
CLASS A:
Net assets $ 101,090,292
Shares outstanding 10,318,587
===============
Net asset value per share $ 9.80
===============
CLASS B:
Net assets $ 54,663,926
Shares outstanding 5,589,434
===============
Net asset value per share $ 9.78
===============
</Table>
See Notes to Financial Statements.
27
<Page>
STATEMENT OF OPERATIONS
Colonial Strategic Income Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 5,573,106
Dollar roll fee income 35,778
---------------
Total Investment Income (net of foreign taxes withheld of $12,225) 5,608,884
---------------
EXPENSES:
Investment advisory fee 522,572
Distribution fee--Class B 68,765
Transfer agent fee 3,729
Pricing and bookkeeping fees 44,734
Trustees' fees 4,537
Custody fee 24,522
Non-recurring costs (See Note 6) 6,865
Other expenses 39,186
---------------
Total Expenses 714,910
Fees reimbursed by Distributor--Class B (12,307)
Non-recurring costs assumed by Investment Advisor (See Note 6) (6,865)
Custody earnings credit (367)
---------------
Net Expenses 695,371
---------------
Net Investment Income 4,913,513
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 4,592,502
Foreign currency transactions 25,449
---------------
Net realized gain 4,617,951
---------------
Net change in unrealized appreciation/depreciation on:
Investment (9,760,121)
Foreign currency translations 71,993
---------------
Net change in unrealized appreciation/depreciation (9,688,128)
---------------
Net Loss (5,070,177)
---------------
Net Decrease in Net Assets from Operations $ (156,664)
===============
</Table>
See Notes to Financial Statements.
28
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Strategic Income Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 4,913,513 $ 9,799,409
Net realized gain on investments and foreign currency transactions 4,617,951 1,918,158
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations (9,688,128) 14,289,472
--------------- ---------------
Net Increase (Decrease) from Operations (156,664) 26,007,039
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (7,812,669)
Class B -- (3,845,123)
--------------- ---------------
Total Distributions Declared to Shareholders -- (11,657,792)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,467,408 5,759,085
Distributions reinvested -- 7,812,669
Redemptions (11,212,164) (20,673,030)
--------------- ---------------
Net Decrease (8,744,756) (7,101,276)
--------------- ---------------
Class B:
Subscriptions 4,460,420 23,225,342
Distributions reinvested -- 3,845,123
Redemptions (5,524,500) (7,420,489)
--------------- ---------------
Net Increase (Decrease) (1,064,080) 19,649,976
--------------- ---------------
Net Increase (Decrease) from Share Transactions (9,808,836) 12,548,700
--------------- ---------------
Total Increase (Decrease) in Net Assets (9,965,500) 26,897,947
NET ASSETS:
Beginning of period 165,719,718 138,821,771
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income of
$2,426,313 and $(2,487,200), respectively) $ 155,754,218 $ 165,719,718
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 250,087 594,081
Issued for distributions reinvested -- 798,025
Redemptions (1,143,198) (2,137,164)
--------------- ---------------
Net Decrease (893,111) (745,058)
--------------- ---------------
Class B:
Subscriptions 452,454 2,427,732
Issued for distributions reinvested -- 393,162
Redemptions (562,397) (766,395)
--------------- ---------------
Net Increase (Decrease) (109,943) 2,054,499
--------------- ---------------
</Table>
See Notes to Financial Statements.
29
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Strategic Income Fund, Variable Series / June 30, 2004 (Unaudited)
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 Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--Forward foreign currency
exchange contracts are agreements to exchange one currency for another at a
future date at a specified price. These contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of
30
<Page>
purchases and sales of securities. The Fund may also enter into these contracts
to hedge certain other foreign currency denominated assets. Contracts to buy
generally are used to acquire exposure to foreign currencies, while contracts to
sell are used to hedge the Fund's investments against currency fluctuations.
Forward currency contracts are valued daily at the forward exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
MORTGAGE DOLLAR ROLL TRANSACTIONS--The Fund may enter into mortgage dollar
roll transactions. A mortgage dollar roll transaction involves a sale by the
Fund of 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
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings. Fee income
attributable to mortgage dollar roll transactions is recorded on the accrual
basis over the term of the transaction.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
31
<Page>
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested
in additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 11,657,792
Long-term capital gains --
</Table>
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 8,083,546
Unrealized depreciation (5,142,790)
------------
Net unrealized appreciation $ 2,940,756
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 5,670,014
2009 11,079,118
2010 11,028,566
------------
$ 27,777,698
============
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.65%
Next $1 billion 0.60%
Over $2 billion 0.55%
</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"). As a result,
Columbia pays the total fees received 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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.056%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) 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
32
<Page>
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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$768 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $71,645,632 and
$75,911,165, respectively of which $15,148,998 and $14,708,295, respectively,
were U.S. Government securities.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
HIGH-YIELD SECURITIES--Investing in high-yield securities may involve greater
credit risk and considerations not typically associated with investing in U.S.
Government bonds and other higher quality fixed income securities. These
securities are non-investment grade securities, often referred to as "junk
bonds." Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. Moreover, high-yield securities may be less liquid to the extent
there is no established secondary market.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--Columbia, the Distributor, and certain of their affiliates
(collectively, "The Columbia Group") have received information requests and
subpoenas from various regulatory and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
33
<Page>
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $6,865 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
34
<Page>
FINANCIAL HIGHLIGHTS
Colonial Strategic Income Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.80 $ 8.89 $ 8.91 $ 9.41 $ 10.24
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.29 0.60 0.63 0.79(c) 0.56
Net realized and unrealized gain (loss) on
investments and foreign currency (0.31) 1.04 0.09 (0.46)(c) (0.37)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations (0.02) 1.64 0.72 0.33 0.19
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.73) (0.72) (0.81) (0.99)
Return of capital -- -- (0.02) (0.02) (0.03)
------------ ------------ ------------ ------------ ------------
Total Distributions Declared to Shareholders -- (0.73) (0.74) (0.83) (1.02)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.78 $ 9.80 $ 8.89 $ 8.91 $ 9.41
============ ============ ============ ============ ============
Total return (d)(e)(f) (0.20)%(g) 18.43% 8.08% 3.54% 1.92%(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.00%(i) 1.00% 1.00% 1.00% 1.00%(i)
Net investment income (h) 5.97%(i) 6.17% 6.92% 8.27%(c) 9.39%(i)
Waiver/reimbursement 0.04%(i) 0.05% 0.01% 0.10% 0.03%(i)
Portfolio turnover rate 46%(g) 61% 62% 62% 31%
Net assets, end of period (000's) $ 54,664 $ 55,825 $ 32,407 $ 19,481 $ 3,579
</Table>
(a) For the period from commencement of operations on June 1, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) 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 8.55% to 8.27%. Per share data and ratios
for periods prior to December 31, 2001 have not been restated to reflect
this change in presentation.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
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.
35
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia High Yield Fund, Variable Series / June 30, 2004
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. During the
period from March 2004 to April 2004, Mr. Havnaer was on a leave of absence.
Although the fund achieved a modestly positive return during this six-month
reporting period, it underperformed the Merrill Lynch US High Yield, Cash Pay
Only Index because of the fund's emphasis on higher-quality companies in a
market that was led by lower-quality issuers. CCC-rated bonds accounted for
approximately 16% of the index, but they represented only 1.2% of the fund's
total assets.
The market's preference for B- and CCC-rated credits began in the fourth
quarter of 2002. These low-rated issuers benefited disproportionately from the
ongoing economic recovery, as evidenced by the dramatic decline in default rates
from approximately 11% in 2002 to just 3.3% in 2004. However, the yield
advantage of lower-quality securities came down significantly over the past
year.
SECURITY SELECTION AIDED RETURN
On balance, the fund's security selection was well-tailored to the current
environment. Good news about Westport Resources and XTO Energy (1.4% and 0.4% of
net assets, respectively) in the energy sector translated into gains for their
bonds. Westport was bought out by Kerr McGee, and XTO's bonds were upgraded to
investment grade.
The fund also benefited from security selection in the cable industry. And in
the telecom sector, the fund's only holding--Nextel Communications (2.0% of net
assets)-- increased its subscriber base and thereby increased investor
confidence in its business model.
Avoiding the electric utility and airlines industries also worked well. The
airline sector was the single worst-performing sector of the high-yield market,
as higher fuel prices, difficult labor negotiations, and increased competition
took a toll. However, the fund's performance was hurt by its
under-representation in automotives, consumer products, and textiles, all of
which were strong performers. The auto sector was aided by Goodyear, the
consumer products industry by Revlon and textiles by Levi's (none of which were
in the portfolio). All three issues made big upward moves.
NO SIGNIFICANT CHANGES TO INDUSTRY OR ASSET ALLOCATION
We did not make any significant changes to our industry or asset allocation
during the period. In terms of individual securities, we began building our
position in Royal Caribbean Cruises (1.0% of net assets) in February. The
company's capital spending budget has come down significantly now that it has
taken delivery of a number of new ships, which placed its BB rating on a surer
footing. The company's operational prospects have also improved now that the
travel business has emerged from its recent slump.
POSITIONING FOR THE FUTURE
If the economic recovery remains strong and inflation stays low, the investment
environment may remain favorable for CCC and other lower-rated credits. However,
if economic growth begins to slow and or inflation continues to accelerate,
higher-quality bonds that are well-represented in the portfolio may outperform.
With these possibilities in mind, we have maintained an average credit quality
of low BB and an average maturity slightly shorter than the market.
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
An investment in 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.
Holdings are disclosed as of June 30, 2004, and are subject to change.
36
<Page>
PERFORMANCE INFORMATION
Columbia High Yield Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- -----------------------------------------------------------------
Class B (4/14/03) 0.29 4.45 5.05 5.51
Merrill Lynch US
High Yield,
Cash Pay Index(1) 1.33 9.97 5.38 4.85
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 9.42 9.25
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98(2) - 6/30/04
Class B: $14,041
<Table>
<Caption>
CLASS B SHARES MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX
3/3/98 $ 10,000 $ 10,000
3/31/98 $ 10,146 $ 10,103
4/30/98 $ 10,173 $ 10,150
5/31/98 $ 10,223 $ 10,222
6/30/98 $ 10,307 $ 10,273
7/31/98 $ 10,442 $ 10,331
8/31/98 $ 10,319 $ 9,885
9/30/98 $ 10,586 $ 9,905
10/31/98 $ 10,543 $ 9,742
11/30/98 $ 10,901 $ 10,185
12/31/98 $ 10,959 $ 10,189
1/31/99 $ 11,063 $ 10,289
2/28/99 $ 11,011 $ 10,211
3/31/99 $ 11,030 $ 10,299
4/30/99 $ 11,152 $ 10,460
5/31/99 $ 11,007 $ 10,388
6/30/99 $ 10,974 $ 10,368
7/31/99 $ 10,961 $ 10,383
8/31/99 $ 10,845 $ 10,277
9/30/99 $ 10,785 $ 10,238
10/31/99 $ 10,806 $ 10,178
11/30/99 $ 10,947 $ 10,294
12/31/99 $ 11,022 $ 10,348
1/31/2000 $ 10,938 $ 10,296
2/29/2000 $ 10,930 $ 10,305
3/31/2000 $ 10,871 $ 10,161
4/30/2000 $ 10,891 $ 10,164
5/31/2000 $ 10,866 $ 10,052
6/30/2000 $ 11,119 $ 10,224
7/31/2000 $ 11,211 $ 10,298
8/31/2000 $ 11,386 $ 10,423
9/30/2000 $ 11,394 $ 10,363
10/31/2000 $ 11,223 $ 10,059
11/30/2000 $ 11,062 $ 9,744
12/31/2000 $ 11,426 $ 9,956
1/31/2001 $ 11,912 $ 10,549
2/28/2001 $ 12,027 $ 10,716
3/31/2001 $ 11,951 $ 10,574
4/30/2001 $ 11,942 $ 10,459
5/31/2001 $ 12,036 $ 10,660
6/30/2001 $ 11,838 $ 10,440
7/31/2001 $ 11,907 $ 10,602
8/31/2001 $ 12,049 $ 10,705
9/30/2001 $ 11,647 $ 10,019
10/31/2001 $ 11,992 $ 10,313
11/30/2001 $ 12,234 $ 10,648
12/31/2001 $ 12,132 $ 10,573
1/31/2002 $ 12,181 $ 10,632
2/28/2002 $ 12,122 $ 10,530
3/31/2002 $ 12,225 $ 10,781
4/30/2002 $ 12,354 $ 10,952
5/31/2002 $ 12,314 $ 10,893
6/30/2002 $ 12,067 $ 10,118
7/31/2002 $ 11,906 $ 9,716
8/31/2002 $ 12,078 $ 9,959
9/30/2002 $ 12,006 $ 9,799
10/31/2002 $ 12,031 $ 9,717
11/30/2002 $ 12,397 $ 10,296
12/31/2002 $ 12,464 $ 10,453
1/31/2003 $ 12,587 $ 10,754
2/28/2003 $ 12,704 $ 10,892
3/31/2003 $ 12,897 $ 11,174
4/30/2003 $ 13,234 $ 11,802
5/31/2003 $ 13,251 $ 11,930
6/30/2003 $ 13,442 $ 12,256
7/31/2003 $ 13,212 $ 12,080
8/31/2003 $ 13,240 $ 12,239
9/30/2003 $ 13,540 $ 12,565
10/31/2003 $ 13,704 $ 12,822
11/30/2003 $ 13,831 $ 12,999
12/31/2003 $ 14,000 $ 13,300
1/31/2004 $ 14,133 $ 13,508
2/29/2004 $ 14,195 $ 13,502
3/31/2004 $ 14,335 $ 13,597
4/30/2004 $ 14,193 $ 13,499
5/31/2004 $ 13,919 $ 13,283
6/30/2004 $ 14,041 $ 13,494
</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 Index is an unmanaged
index that tracks the performance of non-investment-grade corporate bonds.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from March 3, 1998.
(2) Inception date of class A shares (oldest existing share class).
37
<Page>
INVESTMENT PORTFOLIO
Columbia High Yield Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
PAR VALUE
--------------- ---------------
CORPORATE FIXED-INCOME
BONDS & NOTES--89.9%
CONSTRUCTION--3.3%
BUILDING CONSTRUCTION--3.3%
KB Home:
7.750% 02/01/10 $ 250,000 $ 258,125
8.625% 12/15/08 400,000 429,000
9.500% 02/15/11 150,000 166,125
Toll Corp.:
8.000% 05/01/09 50,000 51,500
8.250% 02/01/11 325,000 351,000
8.250% 12/01/11 425,000 461,125
---------------
1,716,875
---------------
FINANCE, INSURANCE & REAL ESTATE--1.4%
REAL ESTATE--1.4%
Health Care REIT, Inc.,
7.500% 08/15/07 200,000 217,100
iStar Financial, Inc.:
5.125% 04/01/11(a) 200,000 189,000
6.000% 12/15/10 30,000 29,550
7.000% 03/15/08 85,000 90,100
8.750% 08/15/08 176,000 192,720
---------------
718,470
---------------
MANUFACTURING--23.5%
AUTO PARTS & EQUIPMENT--1.2%
Lear Corp.,
8.110% 05/15/09 570,000 648,523
---------------
CHEMICALS & ALLIED PRODUCTS--3.5%
Acetex Corp.,
10.875% 08/01/09 210,000 229,425
Airgas, Inc.:
6.250% 07/15/14 (a) 200,000 192,000
9.125% 10/01/11 350,000 394,188
Equistar Chemical Funding LP,
10.125% 09/01/08 155,000 170,500
Ethyl Corp.,
8.875% 05/01/10 255,000 269,025
MacDermid, Inc.,
9.125% 07/15/11 300,000 334,500
Nalco Co.,
7.750% 11/15/11 (a) 225,000 235,125
---------------
1,824,763
---------------
CONSUMER PRODUCTS--2.4%
Hasbro, Inc.,
6.150% 07/15/08 825,000 851,813
K2, Inc.,
7.375% 07/01/14 (a)(b) 120,000 122,707
Scotts Co.,
6.625% 11/15/13 300,000 300,000
---------------
1,274,520
---------------
FABRICATED METAL PRODUCTS--1.0%
Kennametal, Inc.,
7.200% 06/15/12 $ 490,000 $ 519,831
---------------
FOOD & KINDRED PRODUCTS--3.7%
Constellation Brands, Inc.:
8.000% 02/15/08 275,000 296,313
8.125% 01/15/12 575,000 606,625
8.625% 08/01/06 25,000 26,875
Cott Beverages, Inc.,
8.000% 12/15/11 950,000 1,007,000
---------------
1,936,813
---------------
PACKAGING--4.2%
Ball Corp.:
6.875% 12/15/12 895,000 907,306
7.750% 08/01/06 100,000 106,750
Owens-Brockway Glass Container,
8.875% 02/15/09 290,000 313,200
Owens-Illinois, Inc.:
7.350% 05/15/08 50,000 49,875
7.500% 05/15/10 90,000 88,200
8.100% 05/15/07 50,000 51,500
Silgan Corp.,
6.750% 11/15/13 735,000 712,950
---------------
2,229,781
---------------
PAPER & FOREST PRODUCTS--1.1%
Smurfit-Stone Container Corp.:
8.250% 10/01/12 70,000 72,450
8.375% 07/01/12 125,000 130,938
9.750% 02/01/11 350,000 385,000
---------------
588,388
---------------
PRINTING & PUBLISHING--5.3%
Dex Media East LLC,
12.125% 11/15/12 345,000 402,788
Houghton Mifflin Co.,
9.875% 02/01/13 165,000 165,619
Lamar Media Corp.,
7.250% 01/01/13 950,000 969,000
R.H. Donnelley Finance Corp.:
10.875% 12/15/12 350,000 406,875
10.875% 12/15/12 (a) 510,000 592,875
Warner Music Group,
7.375% 04/15/14 (a) 240,000 231,000
---------------
2,768,157
---------------
TRANSPORTATION EQUIPMENT--1.1%
Wabtec Corp.,
6.875% 07/31/13 (a) 605,000 595,925
---------------
MINING & ENERGY--16.0%
OIL & GAS EXTRACTION--8.3%
Chesapeake Energy Corp.:
7.500% 09/15/13 25,000 25,875
7.750% 01/15/15 250,000 260,000
8.125% 04/01/11 200,000 216,000
9.000% 08/15/12 550,000 618,063
</Table>
See Notes to Investment Portfolio.
38
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Plains Exploration & Production Co.,
7.125% 06/15/14 (a) $ 380,000 $ 384,275
Pogo Producing Co.,
8.250% 04/15/11 455,000 498,225
Pride International, Inc.:
7.375% 07/15/14 (a)(b) 450,000 454,500
9.375% 05/01/07 335,000 340,025
10.000% 06/01/09 25,000 26,325
Vintage Petroleum, Inc.:
7.875% 05/15/11 300,000 308,250
8.250% 05/01/12 290,000 306,675
Westport Resources Corp.,
8.250% 11/01/11 650,000 736,125
XTO Energy, Inc.,
7.500% 04/15/12 190,000 213,676
---------------
4,388,014
---------------
METALS & MINING--3.6%
Arch Western Financial LLC,
6.750% 07/01/13 (a) 825,000 820,875
Peabody Energy Corp.:
5.875% 04/15/16 125,000 114,063
6.875% 03/15/13 695,000 705,425
Russel Metals, Inc.,
6.375% 03/01/14 250,000 235,000
---------------
1,875,363
---------------
OIL & GAS FIELD SERVICES--4.1%
Grant Prideco, Inc.:
9.000% 12/15/09 25,000 27,188
9.625% 12/01/07 700,000 770,000
Key Energy Services, Inc.,
6.375% 05/01/13 235,000 222,075
Offshore Logistics, Inc.,
6.125% 06/15/13 465,000 441,750
Suburban Propane Partners,
6.875% 12/15/13 215,000 209,088
Universal Compression, Inc.,
7.250% 05/15/10 500,000 515,000
---------------
2,185,101
---------------
RETAIL TRADE--3.3%
AUTOMOBILES--0.9%
AutoNation, Inc.,
9.000% 08/01/08 300,000 339,000
Group 1 Automotive, Inc.,
8.250% 08/15/13 125,000 131,875
---------------
470,875
---------------
MISCELLANEOUS RETAIL--1.0%
Couche-Tard,
7.500% 12/15/13 405,000 401,963
Finlay Fine Jewelry Corp.,
8.375% 06/01/12 (a) 130,000 135,200
---------------
537,163
---------------
RESTAURANTS--1.4%
Tricon Global Restaurants, Inc.:
8.500% 04/15/06 $ 50,000 $ 54,401
8.875% 04/15/11 575,000 692,967
---------------
747,368
---------------
SERVICES--25.1%
AMUSEMENT & RECREATION--11.0%
Cinemark USA, Inc.,
9.000% 02/01/13 485,000 528,650
Harrah's Operating Co., Inc.,
7.875% 12/15/05 800,000 846,000
MGM Mirage:
6.000% 10/01/09 500,000 490,000
9.750% 06/01/07 475,000 520,125
Park Place Entertainment:
7.875% 03/15/10 100,000 105,000
8.875% 09/15/08 150,000 163,500
9.375% 02/15/07 750,000 815,625
Royal Caribbean Cruises:
6.750% 03/15/08 145,000 150,075
6.875% 12/01/13 100,000 98,500
8.000% 05/15/10 35,000 37,713
8.750% 02/02/11 235,000 261,438
Speedway Motorsports, Inc.,
6.750% 06/01/13 450,000 453,375
Station Casinos, Inc.:
6.500% 02/01/14 570,000 545,775
6.875% 03/01/16 570,000 547,200
Sun International Hotels,
8.875% 08/15/11 215,000 229,513
---------------
5,792,489
---------------
BUSINESS SERVICES--2.1%
Iron Mountain, Inc.:
7.750% 01/15/15 175,000 174,125
8.625% 04/01/13 900,000 954,000
---------------
1,128,125
---------------
HEALTH SERVICES--8.2%
AmerisourceBergen Corp.:
7.250% 11/15/12 330,000 338,250
8.125% 09/01/08 200,000 216,500
Apogent Technologies, Inc.,
6.500% 05/15/13 495,000 503,663
HCA, Inc.,
6.950% 05/01/12 625,000 649,075
Omnicare, Inc.:
6.125% 06/01/13 400,000 378,000
8.125% 03/15/11 275,000 294,250
Province Healthcare Co.,
7.500% 06/01/13 550,000 528,000
Select Medical Corp.:
7.500% 08/01/13 200,000 197,000
9.500% 06/15/09 425,000 453,688
Triad Hospital, Inc.:
7.000% 05/15/12 525,000 526,313
7.000% 11/15/13 250,000 239,688
---------------
4,324,427
---------------
</Table>
See Notes to Investment Portfolio.
39
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
HOTELS, CAMPS & LODGING--1.1%
ITT Corp.,
6.750% 11/15/05 $ 35,000 $ 36,225
Starwood Hotels & Resorts
Worldwide, Inc.:
7.375% 05/01/07 200,000 212,500
7.875% 05/01/12 290,000 309,575
---------------
558,300
---------------
OTHER SERVICES--1.5%
Corrections Corp. of America:
7.500% 05/01/11 475,000 478,563
9.875% 05/01/09 275,000 304,563
---------------
783,126
---------------
RENTAL SERVICES--1.2%
United Rentals, Inc.:
7.000% 02/15/14 125,000 111,563
7.750% 11/15/13 555,000 523,088
---------------
634,651
---------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--17.3%
AEROSPACE--3.8%
K&F Industries,
9.625% 12/15/10 545,000 598,138
L-3 Communications Corp.,
7.625% 06/15/12 960,000 1,022,400
Transdigm, Inc.,
8.375% 07/15/11 375,000 386,250
---------------
2,006,788
---------------
BROADCASTING--2.0%
LIN Television Corp.,
6.500% 05/15/13 600,000 579,000
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 450,000 480,375
---------------
1,059,375
---------------
CABLE--5.3%
DirecTV Holdings Finance,
8.375% 03/15/13 590,000 653,425
EchoStar DBS Corp.,
5.750% 10/01/08 1,100,000 1,086,250
Rogers Cable, Inc.:
6.250% 06/15/13 1,075,000 1,024,335
7.875% 05/01/12 10,000 10,601
---------------
2,774,611
---------------
ENVIRONMENTAL SERVICES--2.3%
Allied Waste North America, Inc.:
6.375% 04/15/11 (a) 225,000 220,500
6.500% 11/15/10 (a) 350,000 344,750
7.375% 04/15/14 (a) 300,000 291,750
9.250% 09/01/12 150,000 167,625
Synagro Technologies, Inc.,
9.500% 04/01/09 175,000 182,875
---------------
1,207,500
---------------
MARINE TRANSPORTATION--1.9%
Teekay Shipping Corp.,
8.875% 07/15/11 $ 885,000 $ 977,925
---------------
TELECOMMUNICATIONS--2.0%
Nextel Communications, Inc.:
5.950% 03/15/14 375,000 344,051
7.375% 08/01/15 125,000 125,938
9.375% 11/15/09 500,000 536,250
9.500% 02/01/11 60,000 67,050
---------------
1,073,289
---------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $47,679,460) 47,346,536
---------------
<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 (e) 220 --(d)
Ono Finance PLC,
expires 03/16/11 (a)(e) 85 --(d)
---------------
--
---------------
COMMUNICATION SERVICES--0.0%
UbiquiTel, Inc.,
expires 04/15/10 (a)(e) 50 --(d)
---------------
MOTOR FREIGHT & WAREHOUSING--0.0%
QDI LLC,
expires 01/15/07 (a)(e) 153 923
---------------
TELECOMMUNICATIONS--0.0%
Carrier 1 International SA,
expires 02/19/09 (a)(e) 113 --(d)
Horizon PCS, Inc.,
expires 10/01/10 (a)(e) 145 --(d)
Jazztel PLC,
expires 07/15/10 (a)(e) 60 --(d)
---------------
--
---------------
TOTAL WARRANTS
(cost of $5,213) 923
---------------
<Caption>
SHARES
---------------
COMMON STOCK (c)--0.0%
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES--0.0%
POLLUTION CONTROL--0.0%
Fairlane Management Corp. (e)
(cost of $0) 1,200 --(d)
---------------
</Table>
See Notes to Investment Portfolio.
40
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
SHORT-TERM OBLIGATION--9.4%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.150%, collateralized by a
U.S. Treasury Note maturing
02/15/12, market value $5,032,891
(repurchase proceeds $4,932,158)
(cost of $4,932,000) $ 4,932,000 $ 4,932,000
---------------
TOTAL INVESTMENTS--99.3%
(cost of $52,616,673) (f) 52,279,459
---------------
OTHER ASSETS & LIABILITIES, NET--0.7% 390,011
---------------
NET ASSETS--100.0% $ 52,669,470
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
June 30, 2004, these securities amounted to $4,811,405, which represents
9.1% of net assets.
(b) Security purchased on a delayed delivery basis.
(c) Non-income producing security.
(d) Security has no value.
(e) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(f) Cost for federal income tax purposes is $52,824,444.
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
41
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia High Yield Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 52,616,673
---------------
Investments, at value $ 52,279,459
Cash 317
Receivable for:
Investments sold 117,575
Fund shares sold 138,883
Interest 798,393
Expense reimbursement due from Investment Advisor 10,910
Deferred Trustees' compensation plan 1,696
---------------
TOTAL ASSETS 53,347,233
---------------
LIABILITIES:
Payable for:
Investments purchased on a delayed delivery basis 572,061
Fund shares repurchased 51,966
Investment advisory fee 24,383
Transfer agent fee 403
Pricing and bookkeeping fees 1,973
Audit fee 15,178
Custody fee 884
Reports to shareholders 5,337
Distribution fee--Class B 2,220
Deferred Trustees' fees 1,696
Other liabilities 1,662
---------------
TOTAL LIABILITIES 677,763
---------------
NET ASSETS $ 52,669,470
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 62,085,060
Undistributed net investment income 281,204
Accumulated net realized loss (9,359,580)
Net unrealized depreciation on investments (337,214)
---------------
NET ASSETS $ 52,669,470
===============
CLASS A:
Net assets $ 10,560,768
Shares outstanding 1,141,500
===============
Net asset value per share $ 9.25
===============
CLASS B:
Net assets $ 42,108,702
Shares outstanding 4,551,230
===============
Net asset value per share $ 9.25
===============
</Table>
See Notes to Financial Statements.
42
<Page>
STATEMENT OF OPERATIONS
Columbia High Yield Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $432) $ 1,414,781
---------------
EXPENSES:
Investment advisory fee 132,195
Distribution fee--Class B 40,960
Transfer agent fee 2,486
Pricing and bookkeeping fees 12,469
Trustees' fees 3,422
Custody fee 3,219
Audit fee 14,177
Non-recurring costs (See Note 6) 2,042
Other expenses 9,972
---------------
Total Expenses 220,942
Fees and expenses waived or reimbursed by Investment Advisor (59,488)
Fees waived by Distributor--Class B (31,130)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,042)
Custody earnings credit (271)
---------------
Net Expenses 128,011
---------------
Net Investment Income 1,286,770
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 113,128
Foreign currency transactions 544
---------------
Net realized gain 113,672
---------------
Net change in unrealized appreciation/depreciation on:
Investments (1,308,815)
Foreign currency translations (66)
---------------
Net change in unrealized appreciation/depreciation (1,308,881)
---------------
Net Loss (1,195,209)
---------------
Net Increase in Net Assets from Operations $ 91,561
===============
</Table>
See Notes to Financial Statements.
43
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia High Yield Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 1,286,770 $ 1,658,060
Net realized gain (loss) on investments and foreign currency transactions 113,672 (856,112)
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations (1,308,881) 2,257,504
--------------- ---------------
Net Increase from Operations 91,561 3,059,452
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (250,282) (666,816)
Class B (641,908) (1,094,776)
From net realized gains:
Class A -- (20,678)
Class B -- (48,075)
--------------- ---------------
Total Distributions Declared to Shareholders (892,190) (1,830,345)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,831,807 8,243,839
Proceeds received in connection with merger -- 12,120,783
Distributions reinvested 250,282 687,494
Redemptions (4,479,223) (11,587,253)
--------------- ---------------
Net Increase (Decrease) (1,397,134) 9,464,863
--------------- ---------------
Class B:
Subscriptions 19,763,796 13,066,846
Proceeds received in connection with merger -- 17,750,911
Distributions reinvested 641,908 1,142,851
Redemptions (6,027,028) (4,362,756)
--------------- ---------------
Net Increase 14,378,676 27,597,852
--------------- ---------------
Net Increase from Share Transactions 12,981,542 37,062,715
--------------- ---------------
Total Increase in Net Assets 12,180,913 38,291,822
NET ASSETS:
Beginning of period 40,488,557 2,196,735
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income of
$281,204 and $(113,376), respectively) $ 52,669,470 $ 40,488,557
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 303,763 896,663
Issued in connection with merger -- 1,328,306
Issued for distributions reinvested 26,517 73,952
Redemptions (476,809) (1,256,145)
--------------- ---------------
Net Increase (Decrease) (146,529) 1,042,776
--------------- ---------------
Class B:
Subscriptions 2,118,369 1,411,911
Issued in connection with merger -- 1,946,759
Issued for distributions reinvested 68,026 122,973
Redemptions (645,749) (471,059)
--------------- ---------------
Net Increase 1,540,646 3,010,584
--------------- ---------------
</Table>
See Notes to Financial Statements.
44
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia High Yield Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Columbia High Yield Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks a high level of 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 Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by 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
45
<Page>
possible decline in the value of the underlying securities during the period
while the Fund seeks to assert its rights.
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.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses) are allocated to each class of the Fund on a daily
basis for purposes of determining the net asset value of each class. Income and
expenses are allocated to each class based on the settled shares method, while
realized and unrealized gains (losses) are allocated based on the relative net
assets of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 1,830,345
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 408,918
Unrealized depreciation (953,903)
-----------
Net unrealized depreciation $ (544,985)
===========
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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).
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
46
<Page>
acquisition 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 receives a monthly investment advisory fee
based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.60%
Next $500 million 0.55%
Over $1.5 billion 0.50%
</Table>
ADMINISTRATION FEE--Columbia provides administrative and other services to
the Fund. The Fund is not charged a fee for these services.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received 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 as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
Under $50 million $ 25,000
Over $50 million but less than $200 million $ 35,000
Over $200 million but less than $500 million $ 50,000
Over $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services based on the number of
securities held by the Fund. For the six months ended June 30, 2004, the Fund's
annualized effective pricing and bookkeeping fee rate was 0.056%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$5,000. For the six months ended June 30, 2004, the Fund's annualized effective
transfer agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia has agreed to reimburse certain fees of the Fund at the
annual rate of 0.27% of the Fund's average daily net assets. In addition, the
Distributor has agreed to waive Class B distribution fees at an annual rate of
0.19% of the Class B average daily net assets. Columbia and the Distributor had
contractually agreed to maintain this arrangement until April 13, 2004.
Subsequent to this date Columbia and 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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$672 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $19,492,702 and
$7,898,195, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
HIGH-YIELD SECURITIES--Investing in high-yield securities may involve greater
credit risk and considerations not typically associated with investing in U.S.
Government bonds and other higher quality fixed income securities. These
securities are non-investment grade securities, often referred to as "junk
bonds." Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. Moreover, high-yield securities may be less liquid to the extent
there is no established secondary market.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other
47
<Page>
foreign governmental laws or restrictions. In addition, the liquidity of foreign
securities may be more limited than that of domestic securities.
LEGAL PROCEEDINGS--Columbia, the Distributor, and certain of their affiliates
(collectively, "The Columbia Group") have received information requests and
subpoenas from various regulatory and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares as well as other industry wide issues.
Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil
complaint in New York Supreme Court, County of New York against Columbia and the
Distributor alleging that Columbia and the Distributor had violated certain New
York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful
in its defense of these proceedings, it could be barred from serving as an
investment advisor or distributor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could prevent Columbia, the Distributor or any company
that is an affiliated person of Columbia and the Distributor from serving as an
investment advisor or distributor for any registered investment company,
including your fund. Your fund has been informed by Columbia and the Distributor
that, if these results occur, they will seek exemptive relief from the SEC to
permit them to continue to serve as your fund's investment advisor and
distributor. There is no assurance that such exemptive relief will be granted.
On March 15, 2004, Columbia and the Distributor entered into agreements in
principle with the SEC Division of Enforcement and NYAG in settlement of the
charges. Under the agreements, Columbia and the Distributor agreed, among other
things, to the following conditions: payment of $70 million in disgorgement;
payment of $70 million in civil penalties; an order requiring Columbia and the
Distributor to cease and desist from violations of the antifraud provisions and
other provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made. For the six months ended June 30,
2004, Columbia has assumed $2,042 of legal, consulting services and Trustees'
fees incurred by the Fund in connection with these matters.
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
</Table>
<Table>
<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 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.
48
<Page>
FINANCIAL HIGHLIGHTS
Columbia High Yield Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED ENDED
JUNE 30, DECEMBER 31,
2004 2003 (a)
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.42 $ 9.12
--------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.27 0.41
Net realized and unrealized gain (loss) on investments and foreign currency (0.24) 0.34
--------------- ---------------
Total from Investment Operations 0.03 0.75
--------------- ---------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.20) (0.43)
From net realized gains -- (0.02)
--------------- ---------------
Total Distributions Declared to Shareholders (0.20) (0.45)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 9.25 $ 9.42
=============== ===============
Total return (c)(d)(e)(f) 0.29% 8.44%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g)(h) 0.60% 0.76%
Net investment income (g)(h) 5.82% 6.21%
Waiver/reimbursement (h) 0.46% 0.46%
Portfolio turnover rate 20%(f) 112%
Net assets, end of period (000's) $ 42,109 $ 28,356
</Table>
(a) For the period from commencement of operations on April 14, 2003 to
December 31, 2003.
(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 and/or Distributor 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.
49
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia International Fund, Variable Series / June 30, 2004
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, Penelope L. Burgess and Deborah F. Snee are the fund's
portfolio managers. Mr. McAlear has managed or co-managed the fund since
February 2003. He has been with the advisor since 1992. Ms. Burgess and Ms. Snee
have been co-managing the fund since July 2004. Ms. Burgess has been with the
advisor since 1993. Ms. Snee has been with the firm since 1999.
Generally speaking, international stock markets were stronger performers than
the US markets during the first six months of 2004. For example, markets in the
United Kingdom, France and Switzerland all rose between 3.0% and 4.0%. Japan,
however, was a standout. Its markets gained 10.8%. In this environment, the
portfolio enjoyed strong returns from its investments in Japan. However, fund
performance fell short of its benchmark, the MSCI All Country World ex US Index,
for the six-month period that ended June 30, 2004. The fund's underperformance
can be attributed to its significant commitments in the German and Thai markets.
The German market was weak, particularly in the first half of the period, as
investors reacted to increasing evidence that the 2003 profit recovery had begun
to falter. Business and consumer confidence also began to deteriorate during
this time. In the Thai market, one of the strongest performers in 2003, we began
the period with a relatively large weighting. However, Thai stocks declined
along with other Asian markets after China's growth showed signs of tapering
off. We sold our positions in Siam Cement and Land & Houses at a profit, which
significantly reduced our exposure to the Thai market.
An underweight position in the strong energy sector in the United Kingdom
also detracted from the portfolio's return. However, we added to our UK energy
holdings in the second half of the period by adding to our position in BP and
with the purchase of Shell Transport & Trading (2.5% and 0.7% of net assets,
respectively).
A SIZEABLE STAKE IN JAPAN AIDED PERFORMANCE
The fund benefited from its large exposure in Japanese stocks (25.1% of net
assets). Although Japanese stock prices pulled back somewhat in the second
quarter of 2004, we believe its economic prospects are the brightest in a decade
as domestic demand growth complements what began as an export-led recovery. We
continued to emphasize financial holdings, such as Millea Holdings, Japan's
largest insurance company; Mitsubishi Estate, a leading real estate group; and
UFJ Holdings, a leading bank (1.1%, 1.0% and 0.4% of net assets, respectively).
PORTFOLIO POSITIONED FOR AN INCREASE IN INTEREST RATES AND INFLATION
We are optimistic about the prospects for international markets in the second
half of 2004. In general, we believe earnings growth prospects are positive and
current valuations are at historically attractive levels for all major foreign
stock markets. However, central banks have begun to increase short-term interest
rates and there are clear signs that inflation has begun to warrant more
attention. As a result, we have slightly lowered the portfolio's risk exposure.
We reduced the fund's holdings in emerging markets as well as its exposure to
smaller companies, and we increased the fund's emphasis on financially strong
companies with attractive growth prospects. In the United Kingdom, we increased
our holdings in energy and consumer staples, adding positions in Unilever, one
of the world's largest producers of brand-name consumer goods, and William
Morrison Supermarkets, a leading supermarket chain (1.6% and 0.5% of net assets,
respectively). We also added to several pharmaceuticals positions, including
AstraZeneca and GlaxoSmithKline (1.2% and 1.5% of net assets, respectively).
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
An investment in 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 June 30, 2004 and are subject to change.
50
<Page>
PERFORMANCE INFORMATION
Columbia International Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------
Class B (6/1/00) 2.37 25.46 -0.90 2.07
MSCI All Country
World ex US Index 4.11 32.48 0.96 4.40
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 1.69 1.73
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/1/94(1) - 6/30/04
Class B: $12,279
<Table>
<Caption>
CLASS B SHARES MSCI ALL COUNTRY WORLD EX US INDEX
7/1/94 $ 10,000 $ 10,000
7/31/94 $ 10,258 $ 10,163
8/31/94 $ 10,568 $ 10,504
9/30/94 $ 10,258 $ 10,244
10/31/94 $ 10,309 $ 10,520
11/30/94 $ 9,846 $ 10,012
12/31/94 $ 9,691 $ 9,989
1/31/95 $ 9,124 $ 9,536
2/28/95 $ 8,970 $ 9,484
3/31/95 $ 9,124 $ 10,020
4/30/95 $ 9,381 $ 10,411
5/31/95 $ 9,381 $ 10,364
6/30/95 $ 9,330 $ 10,221
7/31/95 $ 9,845 $ 10,801
8/31/95 $ 9,845 $ 10,426
9/30/95 $ 9,999 $ 10,604
10/31/95 $ 9,844 $ 10,321
11/30/95 $ 9,999 $ 10,564
12/31/95 $ 10,257 $ 10,982
1/31/96 $ 10,205 $ 11,132
2/29/96 $ 10,205 $ 11,132
3/31/96 $ 10,413 $ 11,341
4/30/96 $ 10,985 $ 11,684
5/31/96 $ 10,881 $ 11,509
6/30/96 $ 10,933 $ 11,568
7/31/96 $ 10,517 $ 11,184
8/31/96 $ 10,674 $ 11,250
9/30/96 $ 10,778 $ 11,529
10/31/96 $ 10,517 $ 11,413
11/30/96 $ 10,934 $ 11,854
12/31/96 $ 10,833 $ 11,716
1/31/97 $ 10,888 $ 11,501
2/28/97 $ 10,999 $ 11,711
3/31/97 $ 10,999 $ 11,687
4/30/97 $ 10,944 $ 11,786
5/31/97 $ 11,774 $ 12,513
6/30/97 $ 12,382 $ 13,204
7/31/97 $ 12,437 $ 13,471
8/31/97 $ 11,573 $ 12,411
9/30/97 $ 12,016 $ 13,082
10/31/97 $ 10,964 $ 11,967
11/30/97 $ 10,631 $ 11,818
12/31/97 $ 10,479 $ 11,954
1/31/98 $ 10,832 $ 12,311
2/28/98 $ 11,362 $ 13,132
3/31/98 $ 12,069 $ 13,587
4/30/98 $ 12,304 $ 13,684
5/31/98 $ 12,304 $ 13,435
6/30/98 $ 12,010 $ 13,386
7/31/98 $ 12,363 $ 13,513
8/31/98 $ 10,555 $ 11,608
9/30/98 $ 10,083 $ 11,363
10/31/98 $ 10,849 $ 12,553
11/30/98 $ 11,438 $ 13,228
12/31/98 $ 11,836 $ 13,683
1/31/99 $ 11,836 $ 13,667
2/28/99 $ 11,599 $ 13,361
3/31/99 $ 12,014 $ 14,007
4/30/99 $ 12,724 $ 14,707
5/31/99 $ 12,132 $ 14,016
6/30/99 $ 12,842 $ 14,661
7/31/99 $ 13,316 $ 15,004
8/31/99 $ 13,434 $ 15,056
9/30/99 $ 13,493 $ 15,157
10/31/99 $ 13,848 $ 15,721
11/30/99 $ 14,736 $ 16,350
12/31/99 $ 16,638 $ 17,909
1/31/2000 $ 15,625 $ 16,937
2/29/2000 $ 16,222 $ 17,394
3/31/2000 $ 16,460 $ 18,048
4/30/2000 $ 15,207 $ 17,041
5/31/2000 $ 14,909 $ 16,605
6/30/2000 $ 14,969 $ 17,312
7/31/2000 $ 14,492 $ 16,628
8/31/2000 $ 14,670 $ 16,835
9/30/2000 $ 14,203 $ 15,900
10/31/2000 $ 13,659 $ 15,395
11/30/2000 $ 13,297 $ 14,705
12/31/2000 $ 13,566 $ 15,206
1/31/2001 $ 13,144 $ 15,435
2/28/2001 $ 12,160 $ 14,212
3/31/2001 $ 11,176 $ 13,207
4/30/2001 $ 11,738 $ 14,105
5/31/2001 $ 11,387 $ 13,716
6/30/2001 $ 11,176 $ 13,191
7/31/2001 $ 10,825 $ 12,897
8/31/2001 $ 10,755 $ 12,577
9/30/2001 $ 10,052 $ 11,242
10/31/2001 $ 10,052 $ 11,557
11/30/2001 $ 10,192 $ 12,085
12/31/2001 $ 10,263 $ 12,241
1/31/2002 $ 9,771 $ 11,717
2/28/2002 $ 9,841 $ 11,802
3/31/2002 $ 10,123 $ 12,428
4/30/2002 $ 10,264 $ 12,524
5/31/2002 $ 10,194 $ 12,661
6/30/2002 $ 10,053 $ 12,114
7/31/2002 $ 9,139 $ 10,933
8/31/2002 $ 9,210 $ 10,934
9/30/2002 $ 8,577 $ 9,775
10/31/2002 $ 8,788 $ 10,299
11/30/2002 $ 8,929 $ 10,794
12/31/2002 $ 8,872 $ 10,446
1/31/2003 $ 8,450 $ 10,080
2/28/2003 $ 8,520 $ 9,875
3/31/2003 $ 8,520 $ 9,684
4/30/2003 $ 9,083 $ 10,617
5/31/2003 $ 9,717 $ 11,293
6/30/2003 $ 9,787 $ 11,606
7/31/2003 $ 9,928 $ 11,915
8/31/2003 $ 10,069 $ 12,270
9/30/2003 $ 10,424 $ 12,613
10/31/2003 $ 11,057 $ 13,431
11/30/2003 $ 11,198 $ 13,724
12/31/2003 $ 11,995 $ 14,771
1/31/2004 $ 12,209 $ 15,009
2/29/2004 $ 12,421 $ 15,390
3/31/2004 $ 12,563 $ 15,485
4/30/2004 $ 12,137 $ 15,004
5/31/2004 $ 11,995 $ 15,052
6/30/2004 $ 12,279 $ 15,379
</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 Morgan Stanley Capital International (MSCI) All Country World
ex US Index is an unmanaged index of global stock market performance that
includes developed and emerging markets but excludes the United States. 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Inception date of class A shares (oldest existing share class) is May 2,
1994.
51
<Page>
INVESTMENT PORTFOLIO
Columbia International Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--98.3%
CONSUMER DISCRETIONARY--15.7%
AUTOMOBILES--2.6%
Renault SA 14,000 $ 1,068,777
Toyota Motor Corp. 23,700 961,451
---------------
2,030,228
---------------
HOTELS, RESTAURANTS & LEISURE--2.0%
Accor SA 14,440 610,839
Carnival Corp. 11,100 521,700
Compass Group PLC 61,922 379,103
---------------
1,511,642
---------------
HOUSEHOLD DURABLES--2.7%
Funai Electric Co., Ltd. 2,800 422,722
Koninklijke Philips Electronics NV 33,700 912,356
Matsushita Electric Industrial Co., Ltd. 55,000 783,685
---------------
2,118,763
---------------
MEDIA--4.2%
Dentsu, Inc. 118 304,989
JC Decaux SA (a) 30,100 645,734
News Corp., Ltd. 45,300 398,906
Reuters Group PLC 79,300 535,715
Pearson PLC 79,000 962,492
WPP Group PLC 37,400 380,945
---------------
3,228,781
---------------
PERSONAL PRODUCTS--0.3%
Oriflame Cosmetics SA, SDR (a) 6,900 246,811
---------------
MULTILINE RETAIL--2.7%
Aeon Co., Ltd. 9,300 375,161
Isetan Co., Ltd. 39,000 562,096
Seiyu Ltd. (a) 85,000 279,567
Takashimaya Co., Ltd. 43,000 497,826
Wal-Mart de Mexico SA de CV,
Series V 119,600 355,093
---------------
2,069,743
---------------
SPECIALTY RETAIL--1.2%
Aoyama Trading Co., Ltd. 20,300 549,861
Nitori Co., Ltd. 6,350 398,216
---------------
948,077
---------------
CONSUMER STAPLES--8.7%
BEVERAGES--1.0%
Diageo PLC 59,400 802,473
---------------
FOOD & STAPLES RETAILING--1.2%
Metro AG 12,152 577,933
William Morrison Supermarkets
PLC 87,325 367,943
---------------
945,876
---------------
FOOD PRODUCTS--3.6%
Nestle SA 5,811 1,550,813
Unilever PLC 121,640 1,197,034
---------------
2,747,847
---------------
HOUSEHOLD PRODUCTS--1.5%
Reckitt Benckiser PLC 40,534 1,148,857
---------------
TOBACCO--1.4%
Imperial Tobacco Group PLC 51,218 $ 1,106,226
---------------
ENERGY--9.0%
OIL & GAS--9.0%
BP PLC 220,020 1,945,393
EnCana Corp. 25,200 1,084,895
ENI-Ente Nazionale Idrocarburi SpA 82,000 1,631,447
Norsk Hydro ASA 5,660 367,813
PTT Public Co., Ltd., NVDR 147,000 560,072
Shell Transport & Trading Co., PLC 77,100 567,319
Total SA 3,900 745,546
---------------
6,902,485
---------------
FINANCIALS--22.8%
CAPITAL MARKETS--1.1%
Credit Suisse Group (a) 23,420 833,974
---------------
COMMERCIAL BANKS--13.8%
Alpha Bank AE 22,440 572,364
Anglo Irish Bank Corp., PLC 33,600 526,328
Banco Popolare di Verona e Novara 23,100 397,297
Banco Popular Espanol SA 8,170 462,005
Bank of Ireland 30,352 405,228
Barclays PLC 88,170 753,345
Credit Agricole SA 37,600 917,300
Danske Bank SA 16,400 388,832
Erste Bank der Oesterreichischen
Sparkassen AG 3,800 597,386
Hansabank Ltd. 38,400 322,284
HBOS PLC 29,780 369,591
Kookmin Bank, ADR (a) 10,300 323,214
Lloyds TSB Group PLC 49,650 389,865
Mitsubishi Tokyo Financial Group, Inc. 65 605,103
Mizuho Financial Group, Inc. 101 460,316
National Bank of Greece SA 17,355 376,441
Siam Commercial Bank Public
Co., Ltd., Foreign Registered Shares 255,900 289,689
Skandinaviska Enskilda Banken AB 27,000 391,220
Societe Generale 4,700 400,824
Sumitomo Mitsui Financial Group, Inc. 61 418,456
Royal Bank of Scotland Group PLC 33,420 964,957
UFJ Holdings, Inc. 68 302,415
---------------
10,634,460
---------------
DIVERSIFIED FINANCIAL SERVICES--1.9%
ING Groep NV 36,457 865,226
Nomura Holdings, Inc. 42,000 625,379
---------------
1,490,605
---------------
INSURANCE--4.3%
Allianz AG, Registered Shares 6,075 660,750
AXA 18,300 404,971
Irish Life & Permanent PLC 31,800 490,135
Millea Holdings, Inc. 55 817,056
Mitsui Sumitomo Insurance Co., Ltd. 42,000 397,132
T&D Holdings, Inc. 10,800 538,573
---------------
3,308,617
---------------
</Table>
See Notes to Investment Portfolio.
52
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
REAL ESTATE--1.7%
Mitsubishi Estate Co., Ltd. 63,000 $ 785,585
Sumitomo Realty & Development Co.,
Ltd. 43,000 534,126
---------------
1,319,711
---------------
HEALTH CARE--10.5%
HEALTH CARE EQUIPMENT & SUPPLIES--2.2%
Nobel Biocare Holding AG 3,000 470,142
Smith & Nephew PLC 115,697 1,248,476
---------------
1,718,618
---------------
PHARMACEUTICALS--8.3%
AstraZeneca PLC 20,200 908,618
Chugai Pharmaceutical Co., Ltd. 72,500 1,136,790
GlaxoSmithKline PLC 58,300 1,182,986
Novartis AG, Registered Shares 21,950 970,023
Sanofi-Synthelabo SA 14,600 926,515
Takeda Pharmaceutical Co., Ltd. 11,400 501,215
Teva Pharmaceutical Industries Ltd.,
ADR 11,800 794,022
---------------
6,420,169
---------------
INDUSTRIALS--10.7%
BUILDING PRODUCTS--0.8%
Wienerberger AG 17,200 600,046
---------------
COMMERCIAL SERVICES & SUPPLIES--1.7%
Capita Group PLC 152,270 880,993
Randstad Holding NV 14,900 409,755
---------------
1,290,748
---------------
CONSTRUCTION & ENGINEERING--2.2%
JGC Corp. 37,000 358,059
Shimizu Corp. 95,000 430,380
Taisei Corp. 111,000 419,298
Vinci SA 5,290 533,767
---------------
1,741,504
---------------
INDUSTRIAL CONGLOMERATES--1.8%
Aeon Mall Co., Ltd. 1,700 101,045
Burberry Group PLC 88,400 656,780
NIWS Co., Ltd. 66 197,923
Siemens AG, Registered Shares 5,549 401,323
---------------
1,357,071
---------------
MACHINERY--2.7%
Atlas Copco AB, Class B 22,900 783,718
Heidelberger Druckmaschinen AG 12,800 422,909
Linde AG 8,400 463,802
Volvo AB, Class B 11,100 387,330
---------------
2,057,759
---------------
ROAD & RAIL--1.0%
Canadian National Railway Co. 9,273 400,186
Tokyu Corp. 79,000 404,741
---------------
804,927
---------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
Mitsubishi Corp. 41,000 $ 398,445
---------------
INFORMATION TECHNOLOGY--6.9%
COMPUTERS & PERIPHERALS--0.9%
Fujitsu Ltd. 98,000 695,427
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.5%
Celestica, Inc. (a) 23,600 470,625
Keyence Corp. 1,700 389,501
Kyocera Corp. 4,800 409,981
Samsung Electronics Co., Ltd.,
GDR 3,143 650,192
Tandberg ASA 41,000 433,697
TDK Corp. 4,400 334,233
---------------
2,688,229
---------------
IT SERVICES--0.5%
TIS, Inc. 9,100 388,880
---------------
OFFICE ELECTRONICS--1.5%
Canon, Inc. 22,300 1,181,901
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--0.5%
ARM Holdings PLC 152,278 333,104
Taiwan Semiconductor
Manufacturing Co., Ltd., ADR 5,128 42,610
---------------
375,714
---------------
MATERIALS--4.8%
CHEMICALS--3.6%
BASF AG 15,600 837,967
L'Air Liquide SA 3,586 594,554
Mitsubishi Chemical Corp. 168,000 446,421
Syngenta AG 11,000 923,758
---------------
2,802,700
---------------
CONSTRUCTION MATERIALS--0.8%
Cemex SA de CV, ADR 19,600 570,360
---------------
PAPER & FOREST PRODUCTS--0.4%
UPM-Kymmene Oyj 17,600 335,317
---------------
TELECOMMUNICATION SERVICES--5.8%
DIVERSIFIED TELECOMMUNICATION SERVICES--3.0%
Bharti Tele-Ventures Ltd. (a) 103,400 306,904
France Telecom SA 15,049 393,814
Nippon Telegraph & Telephone Corp. 81 432,143
Telefonaktiebolaget LM Ericsson,
ADR (a) 39,700 1,187,824
---------------
2,320,685
---------------
WIRELESS TELECOMMUNICATION SERVICES--2.8%
Mobile Telesystems, ADR 3,100 378,200
NTT DoCoMo, Inc. 295 530,757
Vodafone Group PLC 557,900 1,225,897
---------------
2,134,854
---------------
</Table>
See Notes to Investment Portfolio.
53
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
UTILITIES--3.4%
ELECTRIC UTILITIES--2.9%
E.ON AG 16,474 $ 1,191,744
National Grid Transco PLC 79,850 620,454
Scottish Power PLC 53,502 387,607
---------------
2,199,805
---------------
GAS UTILITIES--0.5%
Enagas 36,300 394,437
---------------
TOTAL COMMON STOCKS
(cost of $65,394,727) 75,872,772
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--1.6%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.170%, collateralized by a
U.S. Treasury Note maturing
08/15/05, market value $1,306,925
(repurchase proceeds $1,277,042)
(cost of $1,277,000) $ 1,277,000 1,277,000
---------------
TOTAL INVESTMENTS--99.9%
(cost of $66,671,727) (b) 77,149,772
---------------
OTHER ASSETS & LIABILITIES, NET--0.1% 38,861
---------------
NET ASSETS--100.0% $ 77,188,633
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY VALUE INVESTMENTS
- --------------------- ------------- -----------
Japan $ 19,376,856 25.1%
United Kingdom 19,316,175 25.0
France 7,242,639 9.4
Switzerland 4,748,710 6.2
Germany 4,556,428 5.9
Sweden 2,750,093 3.6
Netherlands 2,187,337 2.8
Italy 2,028,743 2.6
Canada 1,955,706 2.5
Ireland 1,421,690 1.9
United States 1,277,000 1.7
Austria 1,197,432 1.6
Korea, Republic of 973,406 1.3
Greece 948,805 1.2
Mexico 925,453 1.2
Spain 856,442 1.1
Thailand 849,761 1.1
Norway 801,510 1.0
Israel 794,022 1.0
Panama 521,700 0.7
Australia 398,906 0.5
Denmark 388,832 0.5
Russian Federation 378,200 0.5
Finland 335,317 0.4
Estonia 322,284 0.4
India 306,904 0.4
Luxembourg 246,811 0.3
Taiwan 42,610 0.1
------------- -----
$ 77,149,772 100.0%
============= =====
</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
SDR Swedish Depositary Receipt
</Table>
See Notes to Financial Statements.
54
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia International Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 66,671,727
---------------
Investments, at value $ 77,149,772
Cash 406
Foreign currency (cost of $307,715) 308,172
Receivable for:
Fund shares sold 95,643
Interest 95
Dividends 101,769
Foreign tax reclaim 40,196
Expense reimbursement due from Investment Advisor 25,894
Deferred Trustees' compensation plan 4,762
Other assets 2,708
---------------
TOTAL ASSETS 77,729,417
---------------
LIABILITIES:
Payable for:
Investments purchased 398,585
Fund shares repurchased 49,912
Investment advisory fee 43,787
Transfer agent fee 530
Pricing and bookkeeping fees 3,846
Reports to shareholders 6,680
Distribution fee--Class B 1,767
Deferred Trustees' fees 4,762
Foreign capital gains tax 30,915
---------------
TOTAL LIABILITIES 540,784
---------------
NET ASSETS $ 77,188,633
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 80,451,754
Undistributed net investment income 749,729
Accumulated net realized loss (14,463,492)
Net unrealized appreciation (depreciation) on:
Investments 10,478,045
Foreign currency translations 3,512
Foreign capital gains tax (30,915)
---------------
NET ASSETS $ 77,188,633
===============
CLASS A:
Net assets $ 70,631,253
Shares outstanding 40,749,838
===============
Net asset value per share $ 1.73
===============
CLASS B:
Net assets $ 6,557,380
Shares outstanding 3,798,731
===============
Net asset value per share $ 1.73
===============
</Table>
See Notes to Financial Statements.
55
<Page>
STATEMENT OF OPERATIONS
Columbia International Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 1,012,573
Interest 3,519
---------------
Total Investment Income (net of foreign taxes withheld of $134,681) 1,016,092
---------------
EXPENSES:
Investment advisory fee 361,455
Distribution fee--Class B 8,427
Transfer agent fee 3,654
Pricing and bookkeeping fees 16,671
Trustees' fees 2,932
Custody fee 29,891
Non-recurring costs (See Note 7) 3,413
Other expenses 29,284
---------------
Total Expenses 455,727
Fees and expenses waived or reimbursed by Investment Advisor (84,340)
Non-recurring costs assumed by Investment Advisor (See Note 7) (3,413)
---------------
Net Expenses 367,974
---------------
Net Investment Income 648,118
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY AND
FOREIGN CAPITAL GAINS TAX:
Net realized gain (loss) on:
Investments 10,492,508
Foreign currency transactions (10,112)
Net realized loss on the disposal of investments purchased in error
(See Note 6) --
---------------
Net realized gain 10,482,396
---------------
Net change in unrealized appreciation/depreciation on:
Investments (9,280,510)
Foreign currency translations (44,284)
Foreign capital gains tax 72,852
---------------
Net change in unrealized appreciation/depreciation (9,251,942)
---------------
Net Gain 1,230,454
---------------
Net Increase in Net Assets from Operations $ 1,878,572
===============
</Table>
See Notes to Financial Statements.
56
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia International Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 648,118 $ 1,145,148
Net realized gain (loss) on investments and foreign currency transactions 10,482,396 (2,602,025)
Net change in unrealized appreciation/depreciation on investments, foreign
currency translations and foreign capital gains tax (9,251,942) 24,758,829
--------------- ---------------
Net Increase from Operations 1,878,572 23,301,952
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (780,341)
Class B -- (54,564)
--------------- ---------------
Total Distributions Declared to Shareholders -- (834,905)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,711,628 22,045,783
Proceeds received in connection with merger -- 35,910,049
Distributions reinvested -- 780,341
Redemptions (7,985,954) (33,015,574)
--------------- ---------------
Net Increase (Decrease) (6,274,326) 25,720,599
--------------- ---------------
Class B:
Subscriptions 302,295 261,779
Proceeds received in connection with merger -- 5,503,084
Distributions reinvested -- 54,564
Redemptions (719,716) (888,774)
--------------- ---------------
Net Increase (Decrease) (417,421) 4,930,653
--------------- ---------------
Net Increase (Decrease) from Share Transactions (6,691,747) 30,651,252
--------------- ---------------
Total Increase (Decrease) in Net Assets (4,813,175) 53,118,299
NET ASSETS:
Beginning of period 82,001,808 28,883,509
--------------- ---------------
End of period (including undistributed net investment income of $749,729 and
$101,611, respectively) $ 77,188,633 $ 82,001,808
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 981,880 15,774,129
Issued in connection with merger -- 28,728,067
Issued for distributions reinvested -- 468,404
Redemptions (4,624,240) (23,430,429)
--------------- ---------------
Net Increase (Decrease) (3,642,360) 21,540,171
--------------- ---------------
Class B:
Subscriptions 180,200 180,431
Issued in connection with merger -- 4,437,971
Issued for distributions reinvested -- 32,782
Redemptions (418,191) (614,950)
--------------- ---------------
Net Increase (Decrease) (237,991) 4,036,234
--------------- ---------------
</Table>
See Notes to Financial Statements.
57
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia International Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Columbia International Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a non-diversified portfolio. The
Trust is a Massachusetts business trust registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--Forward foreign currency
exchange contracts are agreements to exchange one currency for another at a
future date at a specified price. These contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the forward 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
58
<Page>
to risk if the counterparties of the contracts are unable to fulfill the terms
of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
FOREIGN CAPITAL GAINS TAXES--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 appropriate rate for each jurisdiction.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 834,905
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2004, 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 $ 11,756,944
Unrealized depreciation (1,278,899)
-------------
Net unrealized appreciation $ 10,478,045
=============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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
59
<Page>
Colonial International Horizons Fund, Variable Series, Colonial Global Equity
Fund, Variable Series and Stein Roe Global Utilities Fund, Variable Series (See
Note 8).
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.90%
Next $500 million 0.85%
Over $1.5 billion 0.80%
</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"). As a result,
Columbia pays the total fees received 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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.042%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six-months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia has agreed to reimburse certain fees of the Fund at the
annual rate of 0.21% of the Fund's average daily net assets. Columbia had
contractually agreed to maintain this arrangement until April 6, 2004.
Subsequent to this date Columbia, at its discretion, may revise or discontinue
this arrangement any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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. For the six months ended June 30, 2004, there were no such credits.
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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$702 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $54,091,853 and
$60,878,272, respectively.
NOTE 6. OTHER
During the six months ended June 30, 2004, the Fund purchased shares of Compass
Group PLC in error. This position was subsequently sold off at a loss of $25,637
and the Fund was reimbursed by Columbia.
60
<Page>
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
ISSUER FOCUS--As a non-diversified fund, the Fund may invest a greater
percentage of its total assets in the securities of fewer issuers than a
diversified fund. The Fund may, therefore, have a greater risk of loss from a
few issuers than a similar fund that invests more broadly.
LEGAL PROCEEDINGS--Columbia, the Distributor, and certain of their affiliates
(collectively, "The Columbia Group") have received information requests and
subpoenas from various regulatory and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $3,413 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
NOTE 8. 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
61
<Page>
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.
62
<Page>
FINANCIAL HIGHLIGHTS
Columbia International Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.69 $ 1.26 $ 1.46 $ 1.93 $ 2.50
------------ ------------ ------------ ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.01 0.03 0.01 --(c) (0.01)
Net realized and unrealized gain (loss)
on investments, foreign currency and
foreign capital gains tax 0.03 0.41 (0.21) (0.47) (0.22)
------------ ------------ ------------ ------------ -----------
Total from Investment Operations 0.04 0.44 (0.20) (0.47) (0.23)
------------ ------------ ------------ ------------ -----------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income -- (0.01) --(c) -- (0.04)
In excess of net investment income -- -- -- -- --(c)
From net realized gains -- -- -- -- (0.30)
In excess of net realized gains -- -- -- -- --(c)
------------ ------------ ------------ ------------ -----------
Total Distributions Declared
to Shareholders -- (0.01) -- -- (0.34)
------------ ------------ ------------ ------------ -----------
NET ASSET VALUE, END OF PERIOD $ 1.73 $ 1.69 $ 1.26 $ 1.46 $ 1.93
============ ============ ============ ============ ===========
Total return (d)(e) 2.37%(f)(g) 35.21%(f) (13.56)% (24.35)% (9.01)%(g)
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.15%(i) 1.22% 1.38% 1.48% 1.33%(i)
Net investment income (loss) (h) 1.39%(i) 1.71% 0.37% 0.16% (0.43)%(i)
Waiver/reimbursement 0.21%(i) 0.18% -- -- --
Portfolio turnover rate 68%(g) 104% 39% 34% 76%
Net assets, end of period (000's) $ 6,557 $ 6,817 $ 1 $ 1 $ 1
</Table>
(a) For the period from commencement of operations on June 1, 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.
63
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Columbia Real Estate Equity Fund, Variable Series / June 30, 2004
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) reversed abruptly during
the six-month period ended June 30, 2004. Following a strong jobs report on
April 2, which sparked a rise in interest rates, REIT prices declined along with
those of other yield-driven securities. The fund's benchmark, the NAREIT Index,
lost about 21% of its value at the beginning of the second quarter. However, it
experienced a modest bounce late in the period and outperformed the S&P 500
Index through the end of June. The fund succeeded in outperforming both the
NAREIT Index and the S&P 500 Index for the year-to-date period. An overweight
allocation to securities in the forest products sector helped the fund, as did a
double weight allocation to lodging stocks, one of the better performing sectors
during the second quarter.
ECONOMIC RECOVERY BOOSTS RESULTS
Because we believe REIT stocks remain expensive compared to other securities and
relative to the value of their underlying real estate assets, we have maintained
the fund's defensive positioning. During the first half of 2004, we continued to
add to our investments in non-real estate related companies, including paper and
forest products companies which represented 9.7% of net 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 have begun to see positive results from
this group, which we believe stands to benefit from an improving economy and
healthy cash flow growth. We also increased our allocation to non-REIT lodging
stocks, which benefited from a rise in business travel.
EMPHASIS ON BUSINESS PROSPECTS AIDS PERFORMANCE
We continued to maintain an underweight position in office and residential REITs
because of poor business prospects in both sectors. Office vacancy rates
remained high. Also, large unused blocks of space, which were leased prior to
the 2001 recession, have put a crimp on demand. We raised our exposure to
residential REITs somewhat as demand for apartments improved. However, an
oversupply of units--the result of overbuilding--has kept us cautious about the
sector.
We began the period with an overweight allocation in retail and industrial
REITs, which benefited from positive prospects linked to an improving economy.
We have since reduced our exposure to both sectors. We moved to an underweight
relative to our index in shopping mall REITs because we believed business growth
rates had peaked. Our move was well timed because these stocks performed poorly
during the second quarter of 2004. We also trimmed our position in industrial
REITs because we believed the securities were priced at full value.
REIT STOCKS REMAIN EXPENSIVE
Because the April downturn in the REIT market was not long-lived, valuations
remain high. The sector also faces the additional challenges of slow property
cash flow growth and higher relative dividend tax rates. Therefore, we plan to
continue to position the portfolio away from REIT stocks and towards other
real-estate related issues, particularly in sectors that are linked to a
recovering economy. We also continue to carefully monitor the sectors of the
REIT market for positive and negative changes in light of the improving economic
situation. We believe our invest-ment portfolio should benefit from the improved
economic conditions we expect going forward.
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 June 30, 2004, and are subject to change.
64
<Page>
PERFORMANCE INFORMATION
Columbia Real Estate Equity Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- ----------------------------------------------------------------
Class B (4/14/03) 5.93 26.58 12.39 8.68
NAREIT Index(1) 5.51 27.06 14.51 9.14
S&P 500 Index(2) 3.44 19.11 -2.20 2.78
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- ---------------------------------------------------------------
Class B 10.99 11.61
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98(3) - 6/30/04
Class B: $16,932
<Table>
<Caption>
CLASS B SHARES NAREIT INDEX S&P 500 Index
3/3/98 $ 10,000 $ 10,000 $ 10,000
3/31/98 $ 10,350 $ 10,179 $ 10,485
4/30/98 $ 9,981 $ 9,847 $ 10,591
5/31/98 $ 9,931 $ 9,778 $ 10,409
6/30/98 $ 9,908 $ 9,712 $ 10,831
7/31/98 $ 9,356 $ 9,081 $ 10,717
8/31/98 $ 8,664 $ 8,224 $ 9,167
9/30/98 $ 9,079 $ 8,690 $ 9,755
10/31/98 $ 8,917 $ 8,529 $ 10,548
11/30/98 $ 9,079 $ 8,654 $ 11,187
12/31/98 $ 9,044 $ 8,436 $ 11,831
1/31/99 $ 8,889 $ 8,260 $ 12,326
2/28/99 $ 8,827 $ 8,066 $ 11,942
3/31/99 $ 8,753 $ 8,029 $ 12,420
4/30/99 $ 9,406 $ 8,791 $ 12,901
5/31/99 $ 9,675 $ 8,985 $ 12,596
6/30/99 $ 9,443 $ 8,839 $ 13,295
7/31/99 $ 9,077 $ 8,558 $ 12,880
8/31/99 $ 9,066 $ 8,450 $ 12,817
9/30/99 $ 8,645 $ 8,128 $ 12,466
10/31/99 $ 8,454 $ 7,928 $ 13,255
11/30/99 $ 8,370 $ 7,799 $ 13,524
12/31/99 $ 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 $ 13,377 $ 13,694 $ 9,989
7/31/2003 $ 14,051 $ 14,427 $ 10,165
8/31/2003 $ 14,288 $ 14,505 $ 10,363
9/30/2003 $ 14,633 $ 14,998 $ 10,253
10/31/2003 $ 14,820 $ 15,270 $ 10,834
11/30/2003 $ 15,397 $ 15,935 $ 10,929
12/31/2003 $ 15,985 $ 16,493 $ 11,502
1/31/2004 $ 16,479 $ 17,206 $ 11,713
2/29/2004 $ 16,871 $ 17,507 $ 11,876
3/31/2004 $ 17,603 $ 18,475 $ 11,697
4/30/2004 $ 15,503 $ 15,781 $ 11,513
5/31/2004 $ 16,393 $ 16,906 $ 11,671
6/30/2004 $ 16,932 $ 17,404 $ 11,894
</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 National Association of Real Estate Investment Trusts
(NAREIT) Index is an unmanaged index that reflects performance of all publicly
traded equity REITs. The Standard & Poor's (S&P) 500 Index is an unmanaged index
that tracks the performance of 500 widely held, large-capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from February 28, 1998.
(2) Index performance for the life of the fund is from March 3, 1998.
(3) Inception date of class A shares (oldest existing share class). Index
performance for the NAREIT Index is from February 28, 1998, and index
performance for the S&P 500 Index is from March 3, 1998.
65
<Page>
INVESTMENT PORTFOLIO
Columbia Real Estate Equity Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--94.4%
CONSUMER DISCRETIONARY--10.2%
HOTELS, RESTAURANTS & LEISURE--10.2%
Hilton Hotels Corp. 8,625 $ 160,943
La Quinta Corp. (a) 7,610 63,924
Marriott International, Inc. 1,940 96,767
Starwood Hotels & Resorts
Worldwide, Inc. 1,885 84,542
---------------
406,176
---------------
FINANCIALS--71.5%
REAL ESTATE--71.5%
Alexandria Real Estate Equities, Inc.,
REIT 2,530 143,653
American Financial Realty Trust,
REIT 2,050 29,295
Apartment Investment &
Management Co., Class A, REIT 1,270 39,535
Archstone-Smith Trust, REIT 2,540 74,498
AvalonBay Communities, Inc., REIT 1,400 79,128
Boston Properties, Inc., REIT 985 49,329
Brookfield Properties Corp. 1,800 51,750
CenterPoint Properties Corp., REIT 975 74,831
Chelsea Property Group, Inc., REIT 820 53,480
Corporate Office Properties Trust,
REIT 1,600 39,760
Cousins Properties, Inc., REIT 5,300 174,635
Duke Realty Corp., REIT 2,900 92,249
Equity Office Properties Trust, REIT 3,836 104,339
Equity Residential, REIT 5,740 170,650
Essex Property Trust, Inc., REIT 400 27,340
General Growth Properties, Inc.,
REIT 5,300 156,721
iStar Financial, Inc., REIT 5,100 204,000
Kimco Realty Corp., REIT 1,817 82,674
Liberty Property Trust, REIT 2,960 119,022
Newcastle Investment Corp., REIT 2,655 79,517
Pan Pacific Retail Properties, Inc.,
REIT 1,240 62,645
ProLogis Trust, REIT 4,380 144,190
Public Storage, Inc., REIT 2,530 116,405
Regency Centers Corp., REIT 2,960 126,984
Rouse Co., REIT 2,660 126,350
Simon Property Group, Inc., REIT 3,800 195,396
SL Green Realty Corp., REIT 1,060 49,608
St. Joe Co. 1,960 77,812
United Dominion Realty Trust, Inc.,
REIT 2,200 43,516
Vornado Realty Trust, REIT 1,180 67,390
---------------
2,856,702
---------------
MATERIALS--12.7%
CONTAINERS & PACKAGING--3.0%
Smurfit-Stone Container Corp. (a) 4,000 $ 79,800
Temple-Inland, Inc. 560 38,780
---------------
118,580
---------------
PAPER & FOREST PRODUCTS--9.7%
Bowater, Inc. 3,555 147,852
International Paper Co. 2,960 132,312
MeadWestvaco Corp. 2,205 64,805
Weyerhaeuser Co. 670 42,290
---------------
387,259
---------------
TOTAL COMMON STOCKS
(cost of $3,092,114) 3,768,717
---------------
INCOME DEPOSIT SECURITY--0.9%
CONSUMER DISCRETIONARY--0.9%
HOTELS, RESTAURANTS & LEISURE--0.9%
Volume Services America Holdings, Inc.
(cost of $40,971) 2,700 36,531
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--4.7%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.150%, collateralized by a
U.S. Treasury Note maturing
02/15/12, market value $193,573
(repurchase proceeds $186,006)
(cost of $186,000) $ 186,000 186,000
TOTAL INVESTMENTS--100.0%
(cost of $3,319,085) (b) 3,991,248
---------------
OTHER ASSETS & LIABILITIES, NET--0.0% (55)
---------------
NET ASSETS--100.0% $ 3,991,193
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $3,340,660.
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
66
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia Real Estate Equity Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 3,319,085
---------------
Investments, at value $ 3,991,248
Cash 5
Receivable for:
Fund shares sold 10,473
Interest 6
Dividends 11,906
Expense reimbursement due from Investment Advisor 2,879
Deferred Trustees' compensation plan 1,094
---------------
TOTAL ASSETS 4,017,611
---------------
LIABILITIES:
Payable for:
Fund shares repurchased 552
Investment advisory fee 2,383
Administration fee 268
Transfer agent fee 403
Pricing and bookkeeping fees 2,016
Audit fee 16,837
Custody fee 189
Distribution fee--Class B 573
Deferred Trustees' fees 1,094
Other liabilities 2,103
---------------
TOTAL LIABILITIES 26,418
---------------
NET ASSETS $ 3,991,193
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 3,099,718
Undistributed net investment income 12,023
Accumulated net realized gain 207,289
Net unrealized appreciation on investments 672,163
---------------
NET ASSETS $ 3,991,193
===============
CLASS A:
Net assets $ 1,246,193
Shares outstanding 107,597
===============
Net asset value per share $ 11.58
===============
CLASS B:
Net assets $ 2,745,000
Shares outstanding 236,482
===============
Net asset value and per share $ 11.61
===============
</Table>
See Notes to Financial Statements.
67
<Page>
STATEMENT OF OPERATIONS
Columbia Real Estate Equity Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 57,645
Interest 952
---------------
Total Investment Income (net of foreign taxes withheld of $73) 58,597
---------------
EXPENSES:
Investment advisory fee 14,077
Administration fee 1,595
Distribution fee--Class B 3,289
Transfer agent fee 2,486
Pricing and bookkeeping fees 12,432
Trustees' fees 2,951
Custody fee 2,033
Audit fee 8,125
Non-recurring costs (See Note 6) 168
Other expenses 4,330
---------------
Total Expenses 51,486
Fees and expenses waived or reimbursed by Investment Advisor (16,893)
Non-recurring costs assumed by Investment Advisor (See Note 6) (168)
Custody earnings credit (16)
---------------
Net Expenses 34,409
---------------
Net Investment Income 24,188
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 158,489
Net change in unrealized appreciation/depreciation on investments 17,880
---------------
Net Gain 176,369
---------------
Net Increase in Net Assets from Operations $ 200,557
===============
</Table>
See Notes to Financial Statements.
68
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia Real Estate Equity Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 24,188 $ 20,974
Net realized gain on investments 158,489 540,776
Net change in unrealized appreciation/depreciation on investments 17,880 323,613
--------------- ---------------
Net Increase from Operations 200,557 885,363
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (3,815) (6,669)
Class B (7,565) (12,646)
From net realized gains:
Class A -- (127,579)
Class B -- (344,419)
--------------- ---------------
Total Distributions Declared to Shareholders (11,380) (491,313)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 372,832 689,817
Proceeds received in connection with merger -- 1,269
Distributions reinvested 3,815 137,660
Redemptions (107,600) (1,058,627)
--------------- ---------------
Net Increase (Decrease) 269,047 (229,881)
--------------- ---------------
Class B:
Subscriptions 506,050 429,718
Proceeds received in connection with merger -- 1,868,312
Distributions reinvested 7,565 353,653
Redemptions (335,483) (440,174)
--------------- ---------------
Net Increase 178,132 2,211,509
--------------- ---------------
Net Increase from Share Transactions 447,179 1,981,628
--------------- ---------------
Total Increase in Net Assets 636,356 2,375,678
NET ASSETS:
Beginning of period 3,354,837 979,159
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income
of $12,023 and $(785), respectively) $ 3,991,193 $ 3,354,837
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 33,354 50,234
Issued in connection with merger -- 129
Issued for distributions reinvested 331 12,550
Redemptions (9,512) (81,080)
--------------- ---------------
Net Increase (Decrease) 24,173 (18,167)
--------------- ---------------
Class B:
Subscriptions 43,948 38,575
Issued in connection with merger -- 190,256
Issued for distributions reinvested 655 32,073
Redemptions (30,210) (38,815)
--------------- ---------------
Net Increase 14,393 222,089
--------------- ---------------
</Table>
See Notes to Financial Statements.
69
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia Real Estate Equity Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Columbia Real Estate 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 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 on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 165,123
Long-term capital gains 326,190
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
70
<Page>
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 683,458
Unrealized depreciation (32,870)
----------
Net unrealized appreciation $ 650,588
==========
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 receives a monthly investment advisory fee
based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.75%
Next $500 million 0.70%
Over $1 billion 0.65%
</Table>
ADMINISTRATION FEE--Columbia provides administrative and other services to
the Fund for a monthly administration fee based on the Fund's average daily net
assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.085%
Next $1.5 billion 0.078%
Over $2.5 billion 0.073%
</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"). As a result,
Columbia pays the total fees received 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 as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
Under $50 million $ 25,000
Over $50 million but less than $200 million $ 35,000
Over $200 million but less than $500 million $ 50,000
Over $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services based on the number of
securities held by the Fund. For the six months ended June 30, 2004, the Fund's
annualized effective pricing and bookkeeping fee rate was 0.662%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$5,000.
For the six-months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.13%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia has agreed to reimburse certain fees of the Fund at the
annual rate of 0.90% of the Fund's average daily net assets. Columbia had
contractually agreed to maintain this arrangement until April 13, 2004.
Subsequent to this date Columbia, at its discretion, may revise or discontinue
this arrangement any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$646 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $1,088,228 and
$742,031, respectively.
71
<Page>
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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $168 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
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>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED APPRECIATION(1)
------- ----------- ---------------
190,385 $ 1,869,581 $ 243,393
</Table>
<Table>
<Caption>
NET ASSETS
OF GALAXY VIP NET ASSETS NET ASSETS OF
COLUMBIA OF CRABBE HUSON GALAXY VIP COLUMBIA
REAL ESTATE REAL ESTATE REAL ESTATE
EQUITY INVESTMENT EQUITY FUND II
FUND II FUND, VARIABLE IMMEDIATELY
PRIOR TO SERIES PRIOR TO AFTER
COMBINATION COMBINATION 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 changes in net assets and financial highlights for
the Fund represent the historical operations of the Galaxy VIP Columbia Real
Estate Equity Fund II for periods prior to April 14, 2003.
72
<Page>
FINANCIAL HIGHLIGHTS
Columbia Real Estate Equity Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED ENDED
JUNE 30, DECEMBER 31,
2004 2003 (a)
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.99 $ 9.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.07 0.05
Net realized and unrealized gain on investments 0.58 2.97
--------------- ---------------
Total from Investment Operations 0.65 3.02
--------------- ---------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.03) (0.05)
From net realized gains -- (1.80)
--------------- ---------------
Total Distributions Declared to Shareholders (0.03) (1.85)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 11.61 $ 10.99
=============== ===============
Total return (c)(d)(e)(f) 5.93% 30.75%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g)(h) 1.91% 3.13%
Net investment income (g)(h) 1.20% 0.64%
Waiver/reimbursement (h) 0.90% 0.90%
Portfolio turnover rate 20%(f) 152%
Net assets, end of period (000's) $ 2,745 $ 2,441
</Table>
(a) For the period from commencement of operations on April 14, 2003 to
December 31, 2003.
(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) 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.
73
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Equity Fund, Variable Series / June 30, 2004
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. He joined the advisor in October 2003. Mr. Hickey has been with
the advisor since 1998.
Stocks made modest gains during the first half of 2004. Concerns about
inflation, rising interest rates and geopolitical issues overshadowed corporate
earnings growth that exceeded analysts' expectations. In this environment, stock
selection generally contributed to the portfolio's performance, but sector
allocation was a slight negative. The portfolio's emphasis on cyclical
companies, which tend to benefit from an economic recovery, also held back total
return. A relatively light exposure to stable growth companies, compared to the
S&P 500 Index, also detracted from the fund's return. Stable growth stocks
performed better than the US stock market as a whole.
MATURING ECONOMIC RECOVERY SPARKED A MOVE TO QUALITY
During the period, investors shifted their focus away from lower-quality stocks
to higher-quality names. This change in emphasis is typical during the later
stage of an economic rebound. As economic recoveries mature, corporate earnings
tend to grow at a slower and steadier pace. Investors generally gravitate to the
highest quality companies with proven records of earnings and long-term positive
performance. When data began to indicate that the rapid acceleration phase of
the current economic rebound could be coming to an end, we sought to improve the
quality of our holdings. We emphasized established companies with solid
competitive positions, consistent earnings, good balance sheets and strong
management teams.
SEEKING GROWTH IN INFORMATION TECHNOLOGY, HEALTH CARE AND CONSUMER STAPLES
Information technology was the largest sector weight in the portfolio. After
producing strong gains for more than a year, information technology stocks took
a breather and their presence in the portfolio detracted from total return.
However, we maintained an overweight position in this sector because we believe
the companies in the portfolio should benefit if capital spending picks up later
in the year.
Stock selection in the health care sector was the biggest positive
contributor to performance.
In this area, we sought companies that are likely to increase their market
share and enhance their growth and valuations by developing new products or
services that are more effective than existing products. Examples included Teva
Pharmaceutical Industries, a generic pharmaceutical company; Alcon, a producer
of eye-care products; and Caremark Rx, a mail-order prescription drug company
(2.1%, 2.0% and 1.6% of net assets, respectively). All of these companies
generated double-digit returns during the period.
In the consumer staples area, good performance came from companies whose
growth prospects were greater than what was perceived by the market. We favored
leading companies with new products and/or business initiatives that should
enable them to accelerate their existing growth rates. Such companies included
Costco Wholesale, Hershey Foods and Alberto-Culver (1.7%, 0.5% and 0.6% of net
assets, respectively).
A POSITIVE OUTLOOK DESPITE SOME UNCERTAINTY
As we look ahead, we expect the economy to continue to expand at a respectable
pace. We also believe that earnings have the potential to grow, but at a slower
rate than over the past few quarters. We believe that interest rates will
continue to rise slowly. While these factors are positive for the stock market,
concerns exist. The threat of global terrorism and the uncertainty about the
outcome of the US presidential election are tied to economic growth. In weighing
all of these factors, we determined that the best approach is to maintain a more
defensive portfolio, one that emphasizes diversification among leading growth
companies in the most attractive economic sectors.
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 June 30, 2004, and are subject to change.
74
<Page>
PERFORMANCE INFORMATION
Liberty Equity Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------
Class B (4/14/03) 3.21 14.47 -3.49 9.14
S&P 500 Index 3.44 19.11 -2.20 11.83
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 14.33 14.79
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/1/94(1) - 6/30/04
Class B: $23,974
<Table>
<Caption>
CLASS B SHARES S&P 500 INDEX
7/1/94 $ 10,000 $ 10,000
7/31/94 $ 10,208 $ 10,328
8/31/94 $ 10,565 $ 10,751
9/30/94 $ 10,360 $ 10,488
10/31/94 $ 10,600 $ 10,724
11/30/94 $ 10,341 $ 10,334
12/31/94 $ 10,419 $ 10,487
1/31/95 $ 10,659 $ 10,758
2/28/95 $ 10,980 $ 11,178
3/31/95 $ 11,288 $ 11,508
4/30/95 $ 11,539 $ 11,846
5/31/95 $ 11,881 $ 12,320
6/30/95 $ 12,102 $ 12,605
7/31/95 $ 12,444 $ 13,024
8/31/95 $ 12,304 $ 13,057
9/30/95 $ 12,545 $ 13,608
10/31/95 $ 12,626 $ 13,559
11/30/95 $ 13,123 $ 14,154
12/31/95 $ 13,208 $ 14,427
1/31/96 $ 13,563 $ 14,917
2/29/96 $ 13,593 $ 15,056
3/31/96 $ 13,844 $ 15,201
4/30/96 $ 14,008 $ 15,424
5/31/96 $ 14,365 $ 15,822
6/30/96 $ 14,339 $ 15,882
7/31/96 $ 13,920 $ 15,180
8/31/96 $ 14,238 $ 15,501
9/30/96 $ 14,881 $ 16,373
10/31/96 $ 15,148 $ 16,825
11/30/96 $ 16,205 $ 18,097
12/31/96 $ 16,045 $ 17,739
1/31/97 $ 16,868 $ 18,847
2/28/97 $ 16,775 $ 18,994
3/31/97 $ 16,455 $ 18,214
4/30/97 $ 17,600 $ 19,301
5/31/97 $ 18,313 $ 20,477
6/30/97 $ 18,900 $ 21,394
7/31/97 $ 20,318 $ 23,097
8/31/97 $ 19,489 $ 21,803
9/30/97 $ 20,222 $ 22,998
10/31/97 $ 19,662 $ 22,230
11/30/97 $ 20,222 $ 23,259
12/31/97 $ 20,495 $ 23,660
1/31/98 $ 20,630 $ 23,922
2/28/98 $ 21,816 $ 25,647
3/31/98 $ 22,584 $ 26,960
4/30/98 $ 22,803 $ 27,232
5/31/98 $ 22,270 $ 26,764
6/30/98 $ 22,787 $ 27,851
7/31/98 $ 22,440 $ 27,555
8/31/98 $ 18,690 $ 23,571
9/30/98 $ 20,139 $ 25,082
10/31/98 $ 22,163 $ 27,121
11/30/98 $ 23,369 $ 28,764
12/31/98 $ 25,310 $ 30,421
1/31/99 $ 26,485 $ 31,693
2/28/99 $ 25,312 $ 30,707
3/31/99 $ 26,673 $ 31,935
4/30/99 $ 27,242 $ 33,171
5/31/99 $ 26,503 $ 32,389
6/30/99 $ 28,645 $ 34,186
7/31/99 $ 27,711 $ 33,119
8/31/99 $ 27,431 $ 32,957
9/30/99 $ 27,165 $ 32,054
10/31/99 $ 28,607 $ 34,083
11/30/99 $ 29,849 $ 34,775
12/31/99 $ 32,195 $ 36,823
1/31/2000 $ 30,920 $ 34,975
2/29/2000 $ 31,820 $ 34,314
3/31/2000 $ 35,037 $ 37,670
4/30/2000 $ 34,385 $ 36,536
5/31/2000 $ 32,993 $ 35,787
6/30/2000 $ 34,052 $ 36,671
7/31/2000 $ 33,561 $ 36,099
8/31/2000 $ 36,122 $ 38,340
9/30/2000 $ 34,435 $ 36,316
10/31/2000 $ 33,874 $ 36,164
11/30/2000 $ 30,541 $ 33,314
12/31/2000 $ 31,610 $ 33,477
1/31/2001 $ 32,390 $ 34,666
2/28/2001 $ 29,025 $ 31,504
3/31/2001 $ 26,552 $ 29,507
4/30/2001 $ 28,562 $ 31,799
5/31/2001 $ 28,851 $ 32,012
6/30/2001 $ 27,483 $ 31,234
7/31/2001 $ 27,096 $ 30,928
8/31/2001 $ 25,351 $ 28,992
9/30/2001 $ 22,897 $ 26,650
10/31/2001 $ 23,689 $ 27,159
11/30/2001 $ 25,482 $ 29,242
12/31/2001 $ 25,869 $ 29,499
1/31/2002 $ 24,868 $ 29,068
2/28/2002 $ 24,092 $ 28,507
3/31/2002 $ 25,757 $ 29,579
4/30/2002 $ 24,142 $ 27,787
5/31/2002 $ 23,560 $ 27,581
6/30/2002 $ 21,398 $ 25,617
7/31/2002 $ 19,686 $ 23,622
8/31/2002 $ 19,816 $ 23,775
9/30/2002 $ 17,507 $ 21,191
10/31/2002 $ 19,058 $ 23,056
11/30/2002 $ 20,206 $ 24,414
12/31/2002 $ 18,723 $ 22,981
1/31/2003 $ 18,204 $ 22,379
2/28/2003 $ 18,042 $ 22,043
3/31/2003 $ 18,260 $ 22,257
4/30/2003 $ 19,703 $ 24,091
5/31/2003 $ 20,806 $ 25,360
6/30/2003 $ 20,952 $ 25,685
7/31/2003 $ 21,212 $ 26,137
8/31/2003 $ 21,634 $ 26,647
9/30/2003 $ 21,179 $ 26,364
10/31/2003 $ 22,185 $ 27,856
11/30/2003 $ 22,460 $ 28,101
12/31/2003 $ 23,240 $ 29,574
1/31/2004 $ 23,614 $ 30,118
2/29/2004 $ 23,921 $ 30,537
3/31/2004 $ 23,646 $ 30,076
4/30/2004 $ 23,225 $ 29,603
5/31/2004 $ 23,518 $ 30,009
6/30/2004 $ 23,974 $ 30,582
</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 Standard & Poor's (S&P) 500 Index is an unmanaged index that
tracks the performance of 500 widely held, large-capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Inception date of class A shares (oldest existing share class) is
January 11, 1993.
75
<Page>
INVESTMENT PORTFOLIO
Liberty Equity Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--100.0%
CONSUMER DISCRETIONARY--12.2%
HOTELS, RESTAURANTS & LEISURE--0.9%
Wendy's International, Inc. 9,700 $ 337,948
---------------
INTERNET & CATALOG RETAIL--0.7%
eBay, Inc. (a) 3,000 275,850
---------------
MEDIA--2.9%
News Corp., Ltd., ADR 14,650 481,692
Viacom, Inc., Class B 18,530 661,892
---------------
1,143,584
---------------
MULTILINE RETAIL--3.2%
Target Corp. 18,770 797,162
Wal-Mart Stores, Inc. 8,660 456,902
---------------
1,254,064
---------------
SPECIALTY RETAIL--4.5%
Bed Bath & Beyond, Inc. (a) 8,900 342,205
Home Depot, Inc. 17,210 605,792
Lowe's Companies, Inc. 15,480 813,474
---------------
1,761,471
---------------
CONSUMER STAPLES--11.1%
BEVERAGES--3.5%
Coca-Cola Co. 13,040 658,259
PepsiCo, Inc. 12,870 693,436
---------------
1,351,695
---------------
FOOD & STAPLES RETAILING--3.3%
Costco Wholesale Corp. 15,690 644,388
Walgreen Co. 17,710 641,279
---------------
1,285,667
---------------
FOOD PRODUCTS--1.3%
Bunge Ltd. 7,670 298,670
Hershey Foods Corp. 4,480 207,290
---------------
505,960
---------------
HOUSEHOLD PRODUCTS--2.5%
Procter & Gamble Co. 18,000 979,920
---------------
PERSONAL PRODUCTS--0.5%
Alberto-Culver Co. 4,240 212,593
---------------
ENERGY--6.1%
ENERGY EQUIPMENT & SERVICES--2.4%
Baker Hughes, Inc. 12,500 470,625
National-Oilwell, Inc. (a) 14,700 462,903
---------------
933,528
---------------
OIL & GAS--3.7%
BP PLC, ADR 18,800 1,007,116
EOG Resources, Inc. 7,500 447,825
---------------
1,454,941
---------------
FINANCIALS--19.4%
COMMERCIAL BANKS--4.7%
Bank of New York Co., Inc. 20,000 $ 589,600
Wachovia Corp. 8,900 396,050
Wells Fargo & Co. 14,800 847,004
---------------
1,832,654
---------------
DIVERSIFIED FINANCIAL SERVICES--9.9%
Citigroup, Inc. 29,700 1,381,050
Fannie Mae 5,950 424,592
Goldman Sachs Group, Inc. 10,000 941,600
J.P. Morgan Chase & Co. 18,100 701,737
Merrill Lynch & Co., Inc. 7,360 397,293
---------------
3,846,272
---------------
INSURANCE--4.8%
American International Group, Inc. 12,500 891,000
Marsh & McLennan Companies, Inc. 12,500 567,250
Willis Group Holdings Ltd. 11,100 415,695
---------------
1,873,945
---------------
HEALTH CARE--15.2%
BIOTECHNOLOGY--1.4%
Amgen, Inc. (a) 10,200 556,614
---------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.6%
Alcon, Inc. 10,000 786,500
Boston Scientific Corp. (a) 8,940 382,632
Medtronic, Inc. 12,670 617,282
---------------
1,786,414
---------------
HEALTH CARE PROVIDERS & SERVICES--3.0%
Caremark Rx, Inc. (a) 19,020 626,519
WellPoint Health Networks, Inc. (a) 5,000 560,050
---------------
1,186,569
---------------
PHARMACEUTICALS--6.2%
Johnson & Johnson 9,000 501,300
Pfizer, Inc. 31,460 1,078,449
Teva Pharmaceutical Industries Ltd.,
ADR 12,390 833,723
---------------
2,413,472
---------------
INDUSTRIALS--13.0%
AEROSPACE & DEFENSE--4.2%
Boeing Co. 10,300 526,227
United Technologies Corp. 12,100 1,106,908
---------------
1,633,135
---------------
COMMERCIAL SERVICES & SUPPLIES--1.5%
Cendant Corp. 24,100 589,968
---------------
</Table>
See Notes to Investment Portfolio.
76
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
INDUSTRIAL CONGLOMERATES--4.8%
3M Co. 3,880 $ 349,239
General Electric Co. 46,680 1,512,432
---------------
1,861,671
---------------
MACHINERY--2.5%
Illinois Tool Works, Inc. 10,140 972,325
---------------
INFORMATION TECHNOLOGY--21.8%
COMMUNICATIONS EQUIPMENT--3.5%
Cisco Systems, Inc. (a) 57,800 1,369,860
---------------
COMPUTERS & PERIPHERALS--4.4%
Dell, Inc. (a) 24,300 870,426
International Business Machines
Corp. 3,800 334,970
Lexmark International, Inc.,
Class A (a) 5,180 500,025
---------------
1,705,421
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.5%
Agilent Technologies, Inc. (a) 6,350 185,928
Flextronics International Ltd. (a) 24,730 394,443
---------------
580,371
---------------
IT SERVICES--0.3%
Accenture Ltd., Class A (a) 5,000 137,400
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--5.3%
Analog Devices, Inc. 6,010 282,951
Intel Corp. 34,230 944,748
Marvell Technology Group Ltd. (a) 11,660 311,322
Maxim Integrated Products, Inc. 10,000 524,200
---------------
2,063,221
---------------
SOFTWARE--6.8%
Electronic Arts, Inc. (a) 4,640 253,112
Microsoft Corp. 52,790 1,507,682
Oracle Corp. (a) 35,480 423,276
SAP AG, ADR 5,460 228,283
VERITAS Software Corp. (a) 8,000 221,600
---------------
2,633,953
---------------
MATERIALS--1.2%
METALS & MINING--1.2%
Phelps Dodge Corp. 5,700 441,807
---------------
TOTAL INVESTMENTS--100.0%
(cost of $32,664,409)(b) 38,982,293
---------------
OTHER ASSETS & LIABILITIES, NET--0.0% 18,371
---------------
NET ASSETS--100.0% $ 39,000,664
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Notes to Financial Statements.
77
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Equity Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 32,664,409
---------------
Investments, at value $ 38,982,293
Receivable for:
Investments sold 399,876
Fund shares sold 172
Dividends 19,284
Foreign tax reclaim 1,196
Expense reimbursement due from Investment Advisor 648
Deferred Trustees' compensation plan 3,636
---------------
TOTAL ASSETS 39,407,105
---------------
LIABILITIES:
Payable to custodian bank 333,641
Payable for:
Fund shares repurchased 5,323
Investment advisory fee 24,234
Administration fee 2,147
Transfer agent fee 402
Pricing and bookkeeping fees 2,016
Trustees' fees 33
Audit fee 13,226
Custody fee 360
Legal fee 7,288
Reports to shareholders 10,435
Deferred Trustees' fees 3,636
Other liabilities 3,700
---------------
TOTAL LIABILITIES 406,441
---------------
NET ASSETS $ 39,000,664
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 45,526,813
Undistributed net investment income 42,682
Accumulated net realized loss (12,886,715)
Net unrealized appreciation on investments 6,317,884
---------------
NET ASSETS $ 39,000,664
===============
CLASS A:
Net assets $ 38,999,392
Shares outstanding 2,639,065
===============
Net asset value per share $ 14.78
===============
CLASS B:
Net assets $ 1,272
Shares outstanding 86
===============
Net asset value per share $ 14.79
===============
</Table>
See Notes to Financial Statements.
78
<Page>
STATEMENT OF OPERATIONS
Liberty Equity Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 235,336
Interest 455
---------------
Total Investment Income (net of foreign taxes withheld of $3,779) 235,791
---------------
EXPENSES:
Investment advisory fee 155,621
Administration fee 13,902
Distribution fee--Class B 2
Transfer agent fee 2,486
Pricing and bookkeeping fees 12,432
Trustees' fees 1,690
Custody fee 2,927
Non-recurring costs (See Note 6) 1,748
Other expenses 6,303
---------------
Total Expenses 197,111
Fees and expenses waived or reimbursed by Investment Advisor (4,150)
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,748)
---------------
Net Expenses 191,213
---------------
Net Investment Income 44,578
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (35,034)
Net change in unrealized appreciation/depreciation on investments 1,361,958
---------------
Net Gain 1,326,924
---------------
Net Increase in Net Assets from Operations $ 1,371,502
===============
</Table>
See Notes to Financial Statements.
79
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Equity Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 44,578 $ 146,742
Net realized loss on investments (35,034) (4,782,702)
Net change in unrealized appreciation/depreciation on investments 1,361,958 14,341,706
--------------- ---------------
Net Increase from Operations 1,371,502 9,705,746
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- Class A -- (147,146)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 121,043 2,333,191
Proceeds received in connection with merger -- 4,822,551
Distributions reinvested -- 147,146
Redemptions (6,541,854) (16,415,799)
--------------- ---------------
Net Decrease (6,420,811) (9,112,911)
--------------- ---------------
Class B:
Subscriptions -- 1,000
--------------- ---------------
Net Decrease from Share Transactions (6,420,811) (9,111,911)
--------------- ---------------
Total Increase (Decrease) in Net Assets (5,049,309) 446,689
NET ASSETS:
Beginning of period 44,049,973 43,603,284
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income
of $42,682 and $(1,896), respectively) $ 39,000,664 $ 44,049,973
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 8,400 177,747
Issued in connection with merger -- 416,815
Issued for distributions reinvested -- 11,315
Redemptions (449,253) (1,296,537)
--------------- ---------------
Net Decrease (440,853) (690,660)
--------------- ---------------
Class B:
Subscriptions -- 86
--------------- ---------------
</Table>
See Notes to Financial Statements.
80
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Equity Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Liberty 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 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 on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 147,146
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
81
<Page>
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 7,747,705
Unrealized depreciation (1,429,821)
-------------
Net unrealized appreciation $ 6,317,884
=============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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 Growth & Income Fund (See Note 7).
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 receives a monthly investment advisory fee
based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL 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>
ADMINISTRATION FEE--Columbia provides administrative and other services to
the Fund for a monthly administration fee based on the Fund's average daily net
assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.067%
Next $1.5 billion 0.060%
Over $2.5 billion 0.055%
</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"). As a result,
Columbia pays the total fees received 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 as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
Under $50 million $ 25,000
Over $50 million but less than $200 million $ 35,000
Over $200 million but less than $500 million $ 50,000
Over $500 million but less than $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services based on the number of
securities held by the Fund. For the six months ended June 30, 2004, the Fund's
annualized effective pricing and bookkeeping fee rate was 0.060%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$5,000.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia has agreed to reimburse certain fees of the Fund at the
annual rate of 0.02% of the Fund's average daily net assets. Columbia had
contractually agreed to maintain this arrangement until April 13, 2004.
Subsequent to this date, Columbia, at its discretion, may revise or discontinue
this arrangement any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. 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.
82
<Page>
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$679 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $6,647,168 and
$12,598,181, 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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $1,748 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
83
<Page>
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 ("the predecessor 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
OF GALAXY VIP NET ASSETS
NET ASSETS GROWTH & OF GALAXY VIP
OF GALAXY VIP INCOME FUND EQUITY FUND
EQUITY FUND IMMEDIATELY IMMEDIATELY
PRIOR TO PRIOR TO AFTER
COMBINATION COMBINATION COMBINATION
------------- -------------- -------------
$ 39,395,832 $ 4,822,551 $ 44,218,383
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount
above.
Also on April 14, 2003, subsequent to the merger described above, the Galaxy VIP
Equity Fund was renamed as the Liberty Equity Fund, Variable Series.
The accompanying 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.
84
<Page>
FINANCIAL HIGHLIGHTS
Liberty Equity Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED ENDED
JUNE 30, DECEMBER 31,
2004 2003 (a)
--------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.33 $ 11.57
--------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) --(c) 0.02
Net realized and unrealized gain on investments 0.46 2.74
--------------- ---------------
Total from Investment Operations 0.46 2.76
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 14.79 $ 14.33
=============== ===============
Total return (d)(e)(f)(g) 3.21% 23.85%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h)(i) 1.17% 1.18%
Net investment income (loss) (h)(i) (0.03)% 0.16%
Waiver/reimbursement (i) 0.02% 0.04%
Portfolio turnover rate 16%(g) 46%
Net assets, end of period (000's) $ 1 $ 1
</Table>
(a) For the period from commencement of operations on April 14, 2003 to
December 31, 2003.
(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) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
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.
85
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Growth & Income Fund, Variable Series / June 30, 2004
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 October 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 the Columbia large-cap value team, has co-managed
the fund since October 2003. He joined the firm in September 2003.
In a period that began on a fairly strong note for stocks, the fund's
performance was slightly better than that of its benchmark. An above-index
weighting in the energy and industrial sectors helped boost the portfolio's
return. Lackluster returns from financial and technology holdings detracted from
performance.
Excellent stock market performance in 2003 provided a strong tailwind early
in the period, supported by reports of higher corporate profits in the first
quarter, continuing low interest rates, and strong consumer spending. But by
late spring, oil and other commodity prices had soared and inflation seemed a
possibility. When employment numbers improved, the Federal Reserve Board made it
clear that it was prepared to begin to raise short-term interest rates in an
effort to steer the economy clear of inflation. The stock market gave back some
of its earlier gains, and indeed, on the last day of the period, the Fed raised
a key short-term interest rate from 1.00% to 1.25%.
POSITIONED FOR AN IMPROVING ECONOMY
Throughout the period the fund was positioned to benefit from a modestly
improving economy, which generally worked in its favor. Utilities, which
occupied a relatively small position in the portfolio, provided a solid return,
primarily on the strength of a single holding--TXU (1.9% of net assets). The
company's new management team embarked on an aggressive restructuring and asset
sales program that worked out better than expected. Our exposure to industrials
was higher than that of our benchmark, and that also helped performance. These
companies typically have high fixed-cost business models, so even relatively
modest increases in volume from an improving economy can result in impressive
profits.
HIGH OIL PRICES HELPED AND HURT
Oil and gas prices moved up sharply during the period. This benefited our energy
holdings, a sector where we had greater exposure than the index. ConocoPhillips
(2.6% of net assets) rose more than 16.0%. But rising oil prices had the
opposite effect on consumer discretionary companies such as fast food
restaurants. Wendy's International (1.4% of net assets) declined 11.0% during
the period after strong growth in 2003.
DISAPPOINTING RETURNS FROM FINANCIALS, TECHNOLOGY
Financial stocks, the largest sector in the benchmark index, also hurt the
fund's performance despite our relative underweight position. Citigroup and Bank
of New York (4.5% and 1.3% of net assets, respectively) were affected by the
steady slowdown in capital markets activity, particularly toward the end of the
period. In technology, we lost ground with Finnish cell phone manufacturer Nokia
(1.0% of net assets). The company's market share declined during the period, but
we believe its plans to introduce a wide range of new phones with varying price
points could help its share price over the next six to nine months.
MAINTAINING OUR STRATEGY
Valuations within the market appear compressed today. Until more disparities
appear, offering opportunities for us to capitalize on, we plan to maintain the
fund's broad diversification in relation to the Russell 1000 Value Index. As
quality-oriented value investors, we take a company-by-company approach to stock
selection, choosing fund holdings that we believe have the potential to do well
in many different market environments.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in 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 June 30, 2004, and are subject to change.
86
<Page>
PERFORMANCE INFORMATION
Liberty Growth & Income Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- ----------------------------------------------------------------
Class B (6/1/00) 4.10 15.57 0.47 11.36
S&P 500 Index(1) 3.44 19.11 -2.20 11.79
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 14.14 14.72
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 7/5/94(2) - 6/30/04
Class B: $29,287
<Table>
<Caption>
CLASS B SHARES S&P 500 INDEX
7/5/94 $ 10,000 $ 10,000
7/31/94 $ 10,260 $ 10,275
8/31/94 $ 10,670 $ 10,696
9/30/94 $ 10,460 $ 10,434
10/31/94 $ 10,631 $ 10,669
11/30/94 $ 10,251 $ 10,281
12/31/94 $ 10,441 $ 10,433
1/31/95 $ 10,705 $ 10,703
2/28/95 $ 11,132 $ 11,120
3/31/95 $ 11,427 $ 11,448
4/30/95 $ 11,661 $ 11,785
5/31/95 $ 12,078 $ 12,256
6/30/95 $ 12,342 $ 12,541
7/31/95 $ 12,769 $ 12,957
8/31/95 $ 12,718 $ 12,990
9/30/95 $ 13,145 $ 13,538
10/31/95 $ 13,094 $ 13,489
11/30/95 $ 13,592 $ 14,081
12/31/95 $ 13,541 $ 14,353
1/31/96 $ 13,903 $ 14,841
2/29/96 $ 14,177 $ 14,979
3/31/96 $ 14,253 $ 15,123
4/30/96 $ 14,779 $ 15,345
5/31/96 $ 15,130 $ 15,741
6/30/96 $ 14,801 $ 15,801
7/31/96 $ 14,089 $ 15,102
8/31/96 $ 14,560 $ 15,421
9/30/96 $ 15,272 $ 16,289
10/31/96 $ 15,655 $ 16,739
11/30/96 $ 16,773 $ 18,004
12/31/96 $ 16,498 $ 17,648
1/31/97 $ 17,704 $ 18,751
2/28/97 $ 17,692 $ 18,897
3/31/97 $ 16,984 $ 18,120
4/30/97 $ 17,889 $ 19,202
5/31/97 $ 18,911 $ 20,372
6/30/97 $ 19,629 $ 21,284
7/31/97 $ 21,196 $ 22,978
8/31/97 $ 20,465 $ 21,692
9/30/97 $ 21,520 $ 22,880
10/31/97 $ 20,535 $ 22,116
11/30/97 $ 21,371 $ 23,140
12/31/97 $ 21,815 $ 23,538
1/31/98 $ 22,055 $ 23,799
2/28/98 $ 23,581 $ 25,515
3/31/98 $ 24,772 $ 26,822
4/30/98 $ 24,760 $ 27,093
5/31/98 $ 24,143 $ 26,627
6/30/98 $ 25,068 $ 27,708
7/31/98 $ 24,572 $ 27,414
8/31/98 $ 20,569 $ 23,450
9/30/98 $ 21,519 $ 24,953
10/31/98 $ 23,355 $ 26,982
11/30/98 $ 24,775 $ 28,617
12/31/98 $ 26,209 $ 30,265
1/31/99 $ 26,893 $ 31,530
2/28/99 $ 25,820 $ 30,550
3/31/99 $ 26,657 $ 31,772
4/30/99 $ 27,395 $ 33,001
5/31/99 $ 27,034 $ 32,222
6/30/99 $ 28,610 $ 34,011
7/31/99 $ 27,897 $ 32,950
8/31/99 $ 27,590 $ 32,788
9/30/99 $ 26,641 $ 31,890
10/31/99 $ 27,702 $ 33,908
11/30/99 $ 28,064 $ 34,597
12/31/99 $ 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 $ 28,884 $ 36,483
7/31/2000 $ 29,092 $ 35,913
8/31/2000 $ 30,954 $ 38,144
9/30/2000 $ 30,233 $ 36,130
10/31/2000 $ 30,447 $ 35,978
11/30/2000 $ 28,962 $ 33,143
12/31/2000 $ 30,366 $ 33,305
1/31/2001 $ 30,166 $ 34,488
2/28/2001 $ 29,949 $ 31,342
3/31/2001 $ 28,802 $ 29,355
4/30/2001 $ 29,300 $ 31,636
5/31/2001 $ 29,848 $ 31,848
6/30/2001 $ 29,149 $ 31,074
7/31/2001 $ 29,997 $ 30,770
8/31/2001 $ 29,815 $ 28,843
9/30/2001 $ 28,616 $ 26,513
10/31/2001 $ 28,762 $ 27,019
11/30/2001 $ 29,921 $ 29,092
12/31/2001 $ 30,169 $ 29,348
1/31/2002 $ 29,666 $ 28,919
2/28/2002 $ 29,354 $ 28,361
3/31/2002 $ 30,696 $ 29,427
4/30/2002 $ 29,587 $ 27,644
5/31/2002 $ 29,549 $ 27,440
6/30/2002 $ 26,402 $ 25,486
7/31/2002 $ 24,226 $ 23,501
8/31/2002 $ 24,537 $ 23,653
9/30/2002 $ 21,020 $ 21,082
10/31/2002 $ 22,807 $ 22,937
11/30/2002 $ 24,557 $ 24,288
12/31/2002 $ 23,515 $ 22,863
1/31/2003 $ 22,669 $ 22,264
2/28/2003 $ 21,390 $ 21,930
3/31/2003 $ 21,330 $ 22,142
4/30/2003 $ 22,885 $ 23,967
5/31/2003 $ 24,773 $ 25,230
6/30/2003 $ 25,343 $ 25,553
7/31/2003 $ 25,244 $ 26,003
8/31/2003 $ 25,658 $ 26,510
9/30/2003 $ 25,166 $ 26,229
10/31/2003 $ 26,072 $ 27,713
11/30/2003 $ 26,327 $ 27,957
12/31/2003 $ 28,136 $ 29,422
1/31/2004 $ 28,533 $ 29,964
2/29/2004 $ 29,309 $ 30,380
3/31/2004 $ 29,188 $ 29,921
4/30/2004 $ 28,491 $ 29,452
5/31/2004 $ 28,511 $ 29,855
6/30/2004 $ 29,287 $ 30,423
</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 Standard & Poor's (S&P) 500 Index is an unmanaged index that
tracks the performance of 500 widely held, large-capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from July 5, 1994.
(2) Inception date of class A shares (oldest existing share class).
87
<Page>
INVESTMENT PORTFOLIO
Liberty Growth & Income Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--99.5%
CONSUMER DISCRETIONARY--7.8%
AUTOMOBILES--0.8%
General Motors Corp. 45,037 $ 2,098,274
---------------
HOTELS, RESTAURANTS & LEISURE--1.7%
Harrah's Entertainment, Inc. 13,313 720,233
Wendy's International, Inc. 103,846 3,617,995
---------------
4,338,228
---------------
LEISURE EQUIPMENT & PRODUCTS--0.5%
Mattel, Inc. 63,415 1,157,324
---------------
MEDIA--3.8%
Clear Channel Communications, Inc. 49,048 1,812,324
Gannett Co., Inc. 15,253 1,294,217
McGraw-Hill Companies, Inc. 33,134 2,537,070
Time Warner, Inc. (a) 171,021 3,006,549
Viacom, Inc., Class A 29,879 1,086,102
---------------
9,736,262
---------------
SPECIALTY RETAIL--1.0%
Office Depot, Inc. (a) 143,363 2,567,631
---------------
CONSUMER STAPLES--9.4%
BEVERAGES--1.8%
PepsiCo, Inc. 86,607 4,666,385
---------------
FOOD & STAPLES RETAILING--0.6%
Costco Wholesale Corp. 37,094 1,523,451
---------------
FOOD PRODUCTS--2.2%
ConAgra Foods, Inc. 108,338 2,933,793
Kraft Foods, Inc., Class A 83,160 2,634,509
---------------
5,568,302
---------------
HOUSEHOLD PRODUCTS--3.8%
Clorox Co. 55,997 3,011,519
Kimberly-Clark Corp. 50,669 3,338,074
Procter & Gamble Co. 59,586 3,243,862
---------------
9,593,455
---------------
TOBACCO--1.0%
Altria Group, Inc. 49,809 2,492,940
---------------
ENERGY--12.9%
ENERGY EQUIPMENT & SERVICES--1.8%
Halliburton Co. 150,962 4,568,110
---------------
OIL & GAS--11.1%
BP PLC, ADR 113,247 6,066,642
ConocoPhillips 85,845 6,549,115
Exxon Mobil Corp. 183,944 8,168,953
Marathon Oil Corp. 126,620 4,791,301
Royal Dutch Petroleum Co.,
NY Shares 54,012 2,790,800
---------------
28,366,811
---------------
FINANCIALS--31.9%
CAPITAL MARKETS--5.2%
Bank of New York Co., Inc. 116,487 3,434,037
Goldman Sachs Group, Inc. 19,646 1,849,867
Merrill Lynch & Co., Inc. 58,780 $ 3,172,944
Morgan Stanley 56,882 3,001,663
State Street Corp. 35,938 1,762,400
---------------
13,220,911
---------------
COMMERCIAL BANKS--7.8%
Bank One Corp. 85,147 4,342,497
National City Corp. 53,801 1,883,573
U.S. Bancorp 197,348 5,438,911
Wachovia Corp. 56,390 2,509,355
Wells Fargo & Co. 97,218 5,563,786
---------------
19,738,122
---------------
CONSUMER FINANCE--1.0%
MBNA Corp. 100,638 2,595,454
---------------
DIVERSIFIED FINANCIAL SERVICES--6.1%
Citigroup, Inc. 245,848 11,431,932
J.P. Morgan Chase & Co. 104,072 4,034,871
---------------
15,466,803
---------------
INSURANCE--8.5%
AFLAC, Inc. 36,252 1,479,444
Ambac Financial Group, Inc. 35,938 2,639,287
American International Group, Inc. 77,837 5,548,221
Lincoln National Corp. 49,664 2,346,624
Marsh & McLennan Companies,
Inc. 28,437 1,290,471
St. Paul Travelers Companies, Inc. 68,279 2,768,031
Willis Group Holdings Ltd. 73,958 2,769,727
XL Capital Ltd., Class A 36,630 2,764,100
---------------
21,605,905
---------------
REAL ESTATE--1.6%
Archstone-Smith Trust 44,087 1,293,072
Kimco Realty Corp. 30,003 1,365,135
Vornado Realty Trust 24,349 1,390,571
---------------
4,048,778
---------------
THRIFTS & MORTGAGE FINANCE--1.7%
Countrywide Financial Corp. 23,325 1,638,581
Freddie Mac 44,106 2,791,910
---------------
4,430,491
---------------
HEALTH CARE--4.5%
HEALTH CARE PROVIDERS & SERVICES--1.8%
Aetna, Inc. 55,812 4,744,020
---------------
PHARMACEUTICALS--2.7%
Bristol-Myers Squibb Co. 45,635 1,118,057
Johnson & Johnson 23,820 1,326,774
Merck & Co., Inc. 28,949 1,375,077
Pfizer, Inc. 86,607 2,968,888
---------------
6,788,796
---------------
INDUSTRIALS--11.7%
AEROSPACE & DEFENSE--4.3%
General Dynamics Corp. 30,715 3,049,999
Honeywell International, Inc. 89,637 3,283,403
Raytheon Co. 36,867 1,318,733
United Technologies Corp. 35,185 3,218,724
---------------
10,870,859
---------------
</Table>
See Notes to Investment Portfolio.
88
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMERCIAL SERVICES & SUPPLIES--1.7%
Avery Dennison Corp. 6,810 $ 435,908
Waste Management, Inc. 128,600 3,941,590
---------------
4,377,498
---------------
INDUSTRIAL CONGLOMERATES--3.5%
General Electric Co. 156,857 5,082,167
Textron, Inc. 63,546 3,771,455
---------------
8,853,622
---------------
MACHINERY--2.2%
Deere & Co. 42,297 2,966,712
Dover Corp. 62,175 2,617,568
---------------
5,584,280
---------------
INFORMATION TECHNOLOGY--7.1%
COMMUNICATIONS EQUIPMENT--1.0%
Nokia Oyj, ADR 174,155 2,532,214
---------------
COMPUTERS & PERIPHERALS--2.1%
International Business Machines
Corp. 27,894 2,458,856
Lexmark International, Inc.,
Class A (a) 29,993 2,895,224
---------------
5,354,080
---------------
IT SERVICES--1.3%
Accenture Ltd., Class A (a) 119,749 3,290,703
---------------
OFFICE ELECTRONICS--1.2%
Xerox Corp. (a) 205,140 2,974,530
---------------
SOFTWARE--1.5%
Electronic Arts, Inc. (a) 50,218 2,739,392
Microsoft Corp. 41,162 1,175,587
---------------
3,914,979
---------------
MATERIALS--3.5%
CHEMICALS--1.5%
Air Products & Chemicals, Inc. 74,769 3,921,634
---------------
PAPER & FOREST PRODUCTS--2.0%
MeadWestvaco Corp. 98,726 2,901,557
Weyerhaeuser Co. 32,377 2,043,636
---------------
4,945,193
---------------
TELECOMMUNICATION SERVICES--4.7%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.7%
BellSouth Corp. 151,066 $ 3,960,951
SBC Communications, Inc. 162,350 3,936,988
Verizon Communications, Inc. 113,144 4,094,681
---------------
11,992,620
---------------
UTILITIES--6.0%
ELECTRIC UTILITIES--6.0%
American Electric Power Co., Inc. 82,637 2,644,384
Consolidated Edison, Inc. 93,398 3,713,504
Entergy Corp. 36,005 2,016,640
Southern Co. 67,725 1,974,184
TXU Corp. 120,456 4,879,674
---------------
15,228,386
---------------
TOTAL COMMON STOCKS
(cost of $215,137,661) 253,157,051
---------------
INVESTMENT MANAGEMENT COMPANY--0.2%
iShares Russell 1000 Value Index Fund
(cost of $491,766) 8,368 502,582
---------------
TOTAL INVESTMENTS--99.7%
(cost of $215,629,427) (b) 253,659,633
---------------
OTHER ASSETS & LIABILITIES, NET--0.3% 834,836
NET ASSETS--100.0% $ 254,494,469
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Notes to Financial Statements.
89
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Growth & Income Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 215,629,427
---------------
Investments, at value $ 253,659,633
Receivable for:
Investments sold 2,134,789
Dividends 296,181
Expense reimbursement due from Investment Advisor / Distributor 26,894
Deferred Trustees' compensation plan 15,700
---------------
TOTAL ASSETS 256,133,197
---------------
LIABILITIES:
Payable to custodian bank 696,679
Payable for:
Fund shares repurchased 685,138
Investment advisory fee 168,103
Transfer agent fee 605
Pricing and bookkeeping fees 7,676
Audit fee 23,257
Reports to shareholders 26,521
Distribution fee--Class B 10,058
Deferred Trustees' fees 15,700
Other liabilities 4,991
---------------
TOTAL LIABILITIES 1,638,728
---------------
NET ASSETS $ 254,494,469
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 280,691,232
Undistributed net investment income 2,024,851
Accumulated net realized loss (66,251,820)
Net unrealized appreciation on investments 38,030,206
---------------
NET ASSETS $ 254,494,469
===============
CLASS A:
Net assets $ 209,063,400
Shares outstanding 14,174,381
===============
Net asset value per share $ 14.75
===============
CLASS B:
Net assets $ 45,431,069
Shares outstanding 3,086,417
===============
Net asset value per share $ 14.72
===============
</Table>
See Notes to Financial Statements.
90
<Page>
STATEMENT OF OPERATIONS
Liberty Growth & Income Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 2,950,669
Interest 12,765
---------------
Total Investment Income (net of foreign taxes withheld of $29,001) 2,963,434
---------------
EXPENSES:
Investment advisory fee 1,035,939
Distribution fee--Class B 56,158
Transfer agent fee 3,729
Pricing and bookkeeping fees 36,952
Trustees' fees 4,686
Custody fee 5,663
Non-recurring costs (See Note 6) 11,138
Other expenses 45,975
---------------
Total Expenses 1,200,240
Fees and expenses waived or reimbursed by Investment Advisor (142,441)
Fees waived by Distributor--Class B (4,493)
Non-recurring costs assumed by Investment Advisor (See Note 6) (11,138)
Custody earnings credit (1)
---------------
Net Expenses 1,042,167
---------------
Net Investment Income 1,921,267
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment 8,531,354
Net change in unrealized appreciation/depreciation on investments 286,651
---------------
Net Gain 8,818,005
---------------
Net Increase in Net Assets from Operations $ 10,739,272
===============
</Table>
See Notes to Financial Statements.
91
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Growth & Income Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 1,921,267 $ 3,475,469
Net realized gain (loss) on investments 8,531,354 (27,529,590)
Net change in unrealized appreciation/depreciation on investments 286,651 74,661,609
--------------- ---------------
Net Increase from Operations 10,739,272 50,607,488
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (2,859,733)
Class B -- (497,712)
--------------- ---------------
Total Distributions Declared to Shareholders -- (3,357,445)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 3,633,491 7,840,182
Proceeds received in connection with merger -- 88,842,502
Distributions reinvested -- 2,859,733
Redemptions (20,402,626) (35,938,840)
--------------- ---------------
Net Increase (Decrease) (16,769,135) 63,603,577
--------------- ---------------
Class B:
Subscriptions 1,598,231 14,226,069
Proceeds received in connection with merger -- 7,935,880
Distributions reinvested -- 497,712
Redemptions (2,590,848) (13,087,318)
--------------- ---------------
Net Increase (Decrease) (992,617) 9,572,343
--------------- ---------------
Net Increase (Decrease) from Share Transactions (17,761,752) 73,175,920
--------------- ---------------
Total Increase (Decrease) in Net Assets (7,022,480) 120,425,963
NET ASSETS:
Beginning of period 261,516,949 141,090,986
--------------- ---------------
End of period (including undistributed net investment income of $2,024,851 and
$103,584, respectively) $ 254,494,469 $ 261,516,949
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 251,465 613,478
Issued in connection with merger -- 7,939,987
Issued for distributions reinvested -- 202,962
Redemptions (1,408,970) (2,893,899)
--------------- ---------------
Net Increase (Decrease) (1,157,505) 5,862,528
--------------- ---------------
Class B:
Subscriptions 110,901 1,213,974
Issued in connection with merger -- 710,257
Issued for distributions reinvested -- 35,349
Redemptions (179,048) (1,128,428)
--------------- ---------------
Net Increase (Decrease) (68,147) 831,152
--------------- ---------------
</Table>
See Notes to Financial Statements.
92
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Growth & Income Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Liberty Growth & Income Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth and income.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities and exchange traded funds are valued at
the last sale price on the principal exchange on which they trade, except for
securities traded on the NASDAQ, which are valued at the NASDAQ official close
price. Unlisted securities or listed securities for which there were no sales
during the day are valued at the closing bid price on such exchanges or
over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 3,357,445
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
93
<Page>
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 42,415,094
Unrealized depreciation (4,384,888)
------------
Net unrealized appreciation $ 38,030,206
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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).
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.80%
Next $500 million 0.75%
Over $1 billion 0.70%
</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"). As a result,
Columbia pays the total fees received 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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.029%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was less than 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia has agreed to reimburse certain fees of the Fund at the
annual rate of 0.11% of the Fund's average daily net assets. In addition, the
Distributor has agreed to waive Class B distribution fees at the annual rate of
0.02% of the Class B average daily net assets. Columbia and the Distributor have
contractually agreed to maintain this arrangement until April 6, 2004.
Subsequent to this date Columbia and 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.
94
<Page>
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$839 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $52,041,892 and
$68,129,269, 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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $11,138 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
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
95
<Page>
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
</Table>
<Table>
<Caption>
NET ASSETS
NET ASSETS NET ASSETS OF COLONIAL
OF COLONIAL OF LIBERTY U.S. GROWTH &
U.S. GROWTH & VALUE FUND, INCOME FUND,
INCOME FUND, VARIABLE SERIES VARIABLE SERIES
VARIABLE SERIES IMMEDIATELY IMMEDIATELY
PRIOR TO PRIOR TO AFTER
COMBINATION 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.
96
<Page>
FINANCIAL HIGHLIGHTS
Liberty Growth & Income Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.14 $ 11.95 $ 15.53 $ 18.26 $ 19.82
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.09 0.18 0.13 0.15 0.08
Net realized and unrealized gain (loss) on
investments 0.49 2.17 (3.56) (0.35) 0.65
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.58 2.35 (3.43) (0.20) 0.73
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.16) (0.15) (0.15) (0.17)
In excess of net investment income -- -- -- -- --(c)
From net realized gains -- -- -- (2.34) (2.12)
Return of capital -- -- -- (0.04) --
------------ ------------ ------------ ------------ ------------
Total Distributions Declared to Shareholders -- (0.16) (0.15) (2.53) (2.29)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.72 $ 14.14 $ 11.95 $ 15.53 $ 18.26
============ ============ ============ ============ ============
Total return (d)(e)(f) 4.10%(g) 19.66% (22.06)% (0.65)% 3.64%(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.00%(i) 1.00% 1.00% 1.00% 1.00%(i)
Net investment income (h) 1.29%(i) 1.46% 0.96% 0.88% 0.71%(i)
Waiver/reimbursement 0.13%(i) 0.14% 0.13% 0.21% 0.13%(i)
Portfolio turnover rate 20%(g) 73% 69% 53% 120%
Net assets, end of period (000's) $ 45,431 $ 44,594 $ 27,756 $ 25,742 $ 4,318
</Table>
(a) For the period from commencement of operations on June 1, 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) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
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.
97
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Liberty S&P 500 Index Fund, Variable Series / June 30, 2004
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.
Investors were cautious as a result of instability in Iraq, higher oil prices
and the prospect of higher short-term interest rates. Despite a rocky stretch in
April and early May, US stocks made a comeback as the economy's outlook
brightened. The S&P 500 Index rose 3.44% for the six-month period ended June 30,
2004 and the fund's performance was comparable to the index for the period.
Small-cap stocks outperformed both large- and mid-cap stocks during the first
half of the year. During this six-month period, the S&P SmallCap 600 Index rose
10.05%, outpacing the S&P 500 Index by almost seven percentage points. As
measured by the Russell indices, value stocks outperformed growth stocks.
However, growth stocks gained ground relative to value as the six-month period
wore on.
ALL SECTORS IN POSITIVE TERRITORY
All ten economic sectors represented in the index posted positive results during
this reporting period. Energy was a top performer as a result of rising oil
prices. Exxon Mobil (2.7% of net assets) was one of the top contributors to the
index's return for the period. Industrials, led by General Electric (3.2% of net
assets), also performed well. General Electric's share price rose as a result of
an acquisition it made in April.
Information technology was one of the weakest performing sectors for the
six-month period. Within the sector, Intel was one of the largest detractors
from the fund's performance (1.7% of net assets). However, technology was also
home to one of the index's strongest performers, Yahoo! (0.5% of net assets).
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. The
approach means that the fund generally holds each of the 500 securities included
in the S&P 500 Index in approximately the same weight as the company's
representation in the index. Since the fund incurs expenses in seeking to
maintain the appropriate weight of each security in the index, the fund's return
is typically lower 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 June 30, 2004, and are subject to change.
98
<Page>
PERFORMANCE INFORMATION
Liberty S&P 500 Index Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR LIFE
- --------------------------------------------------------------
Class B (5/30/00) 3.13 18.24 -3.98
S&P 500 Index 3.44 19.11 -3.04
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- -------------------------------------------------------
Class B 9.59 9.89
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 6/30/04
Class B: $8,470
<Table>
<Caption>
CLASS B 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 $ 10,784 $ 11,048
9/30/2000 $ 10,225 $ 10,465
10/31/2000 $ 10,201 $ 10,421
11/30/2000 $ 9,417 $ 9,599
12/31/2000 $ 9,471 $ 9,646
1/31/2001 $ 9,806 $ 9,989
2/28/2001 $ 8,935 $ 9,078
3/31/2001 $ 8,357 $ 8,502
4/30/2001 $ 8,994 $ 9,163
5/31/2001 $ 9,053 $ 9,224
6/30/2001 $ 8,826 $ 9,000
7/31/2001 $ 8,742 $ 8,912
8/31/2001 $ 8,190 $ 8,354
9/30/2001 $ 7,536 $ 7,679
10/31/2001 $ 7,679 $ 7,826
11/30/2001 $ 8,265 $ 8,426
12/31/2001 $ 8,327 $ 8,500
1/31/2002 $ 8,201 $ 8,376
2/28/2002 $ 8,041 $ 8,214
3/31/2002 $ 8,335 $ 8,523
4/30/2002 $ 7,822 $ 8,007
5/31/2002 $ 7,763 $ 7,948
6/30/2002 $ 7,207 $ 7,382
7/31/2002 $ 6,643 $ 6,807
8/31/2002 $ 6,677 $ 6,851
9/30/2002 $ 5,953 $ 6,106
10/31/2002 $ 6,467 $ 6,644
11/30/2002 $ 6,846 $ 7,035
12/31/2002 $ 6,434 $ 6,622
1/31/2003 $ 6,264 $ 6,448
2/28/2003 $ 6,170 $ 6,352
3/31/2003 $ 6,222 $ 6,413
4/30/2003 $ 6,732 $ 6,942
5/31/2003 $ 7,081 $ 7,308
6/30/2003 $ 7,166 $ 7,401
7/31/2003 $ 7,293 $ 7,531
8/31/2003 $ 7,429 $ 7,678
9/30/2003 $ 7,344 $ 7,597
10/31/2003 $ 7,752 $ 8,027
11/30/2003 $ 7,812 $ 8,097
12/31/2003 $ 8,216 $ 8,522
1/31/2004 $ 8,361 $ 8,679
2/29/2004 $ 8,473 $ 8,799
3/31/2004 $ 8,344 $ 8,666
4/30/2004 $ 8,207 $ 8,530
5/31/2004 $ 8,310 $ 8,647
6/30/2004 $ 8,470 $ 8,813
</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 Standard & Poor's (S&P) 500 Index is an unmanaged index that
tracks the performance of 500 widely held, large-capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
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.
Index performance for the life of the fund is from May 30, 2000.
99
<Page>
INVESTMENT PORTFOLIO
Liberty S&P 500 Index Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--98.8%
CONSUMER DISCRETIONARY--12.8%
AUTO COMPONENTS--0.2%
Cooper Tire & Rubber Co. 300 $ 6,900
Dana Corp. 657 12,877
Delphi Corp. 2,741 29,274
Goodyear Tire & Rubber Co. 731 6,645
Johnson Controls, Inc. 932 49,750
Visteon Corp. 746 8,706
---------------
114,152
---------------
AUTOMOBILES--0.7%
Ford Motor Co. 8,850 138,502
General Motors Corp. 2,729 127,144
Harley-Davidson, Inc. 1,396 86,468
---------------
352,114
---------------
HOTELS, RESTAURANTS & LEISURE--1.4%
Carnival Corp. 3,024 142,128
Darden Restaurants, Inc. 771 15,844
Harrah's Entertainment, Inc. 519 28,078
Hilton Hotels Corp. 1,761 32,860
International Game Technology, Inc. 1,697 65,504
Marriott International, Inc., Class A 1,126 56,165
McDonald's Corp. 6,091 158,366
Starbucks Corp. (a) 1,913 83,177
Starwood Hotels & Resorts
Worldwide, Inc. 1,031 46,240
Wendy's International, Inc. 540 18,814
Yum! Brands, Inc. 1,463 54,453
---------------
701,629
---------------
HOUSEHOLD DURABLES--0.5%
Black & Decker Corp. 378 23,485
Centex Corp. 584 26,718
Fortune Brands, Inc. 693 52,273
KB Home Corp. 190 13,040
Leggett & Platt, Inc. 916 24,466
Maytag Corp. 351 8,603
Newell Rubbermaid, Inc. 1,350 31,725
Pulte Homes, Inc. 640 33,299
Snap-On, Inc. 238 7,985
Stanley Works 381 17,366
Whirlpool Corp. 295 20,237
---------------
259,197
---------------
INTERNET & CATALOG RETAIL--0.6%
eBay, Inc. (a) 3,190 293,320
---------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Brunswick Corp. 491 20,033
Eastman Kodak Co. 1,357 36,612
Hasbro, Inc. 772 14,668
Mattel, Inc. 2,025 36,956
---------------
108,269
---------------
MEDIA--3.5%
Clear Channel Communications, Inc. 2,966 $ 109,594
Comcast Corp., Class A (a) 10,894 305,359
Dow Jones & Co., Inc. 447 20,160
Gannett Co., Inc. 1,265 107,335
Interpublic Group of Companies, Inc. 1,972 27,076
Knight-Ridder, Inc. 412 29,664
McGraw-Hill Companies, Inc. 861 65,927
Meredith Corp. 257 14,125
New York Times Co., Class A 707 31,610
Omnicom Group, Inc. 915 69,439
Time Warner, Inc. (a) 22,138 389,186
Tribune Co. 1,551 70,633
Univision Communications, Inc.,
Class A (a) 1,545 49,332
Viacom, Inc., Class B 8,375 299,155
Walt Disney Co. 9,985 254,518
---------------
1,843,113
---------------
MULTILINE RETAIL--3.1%
Big Lots, Inc. (a) 501 7,244
Dillard's, Inc., Class A 422 9,411
Dollar General Corp. 1,564 30,592
Family Dollar Stores, Inc. 812 24,701
Federated Department Stores, Inc. 924 45,368
JC Penney Co., Inc. 1,376 51,958
Kohl's Corp. (a) 1,671 70,650
May Department Stores Co. 1,391 38,239
Nordstrom, Inc. 720 30,679
Sears Roebuck and Co. 1,101 41,574
Target Corp. 4,385 186,231
Wal-Mart Stores, Inc. 20,735 1,093,979
---------------
1,630,626
---------------
SPECIALTY RETAIL--2.3%
Autonation, Inc. (a) 1,304 22,298
AutoZone, Inc. (a) 388 31,079
Bed Bath & Beyond, Inc. (a) 1,477 56,791
Best Buy Co., Inc. 1,561 79,205
Circuit City Stores, Inc. 972 12,587
Gap, Inc. 4,336 105,148
Home Depot, Inc. 10,819 380,829
Lowe's Companies, Inc. 3,807 200,058
Limited Brands 2,376 44,431
Office Depot, Inc. (a) 1,476 26,435
RadioShack Corp. 806 23,076
Sherwin-Williams Co. 718 29,833
Staples, Inc. 2,361 69,201
Tiffany & Co. 689 25,390
TJX Companies, Inc. 2,406 58,081
Toys "R" US, Inc. (a) 1,046 16,663
---------------
1,181,105
---------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Jones Apparel Group, Inc. 631 24,912
Liz Claiborne, Inc. 506 18,206
Nike, Inc. 1,281 97,036
Reebok International Ltd. 285 10,254
VF Corp. 553 26,931
---------------
177,339
---------------
</Table>
See Notes to Investment Portfolio.
100
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
CONSUMER STAPLES--8.9%
BEVERAGES--2.7%
Adolph Coors Co. 129 $ 9,332
Anheuser-Busch Companies, Inc. 3,871 209,034
Brown-Forman Corp. 662 31,955
Coca-Cola Co. 11,771 594,200
Coca-Cola Enterprises, Inc. 2,305 66,822
Pepsi Bottling Group, Inc. 1,232 37,625
PepsiCo, Inc. 8,277 445,965
---------------
1,394,933
---------------
FOOD & STAPLES RETAILING--1.3%
Albertson's, Inc. 1,814 48,144
Costco Wholesale Corp. 2,272 93,311
CVS Corp. 1,895 79,628
Kroger Co. (a) 3,600 65,520
Safeway, Inc. (a) 2,172 55,038
Supervalu, Inc. 629 19,254
Sysco Corp. 3,131 112,309
Walgreen Co. 4,961 179,638
Winn-Dixie Stores, Inc. 658 4,738
---------------
657,580
---------------
FOOD PRODUCTS--1.2%
Archer-Daniels-Midland Co. 3,128 52,488
Campbell Soup Co. 1,941 52,174
ConAgra Foods, Inc. 2,606 70,570
General Mills, Inc. 1,791 85,126
Hershey Foods Corp. 1,256 58,115
HJ Heinz Co. 1,714 67,189
Kellogg Co. 1,979 82,821
McCormick & Co., Inc. 613 20,842
Sara Lee Corp. 3,846 88,420
WM Wrigley Jr Co. 1,084 68,346
---------------
646,091
---------------
HOUSEHOLD PRODUCTS--2.0%
Clorox Co. 1,026 55,178
Colgate-Palmolive Co. 2,574 150,450
Kimberly-Clark Corp. 2,436 160,484
Procter & Gamble Co. 12,410 675,600
---------------
1,041,712
---------------
PERSONAL PRODUCTS--0.6%
Alberto-Culver Co., Class B 478 23,967
Avon Products, Inc. 2,296 105,937
Gillette Co. 4,821 204,410
---------------
334,314
---------------
TOBACCO--1.1%
Altria Group, Inc. 9,957 498,348
RJ Reynolds Tobacco Holdings, Inc. 400 27,036
UST, Inc. 824 29,664
---------------
555,048
---------------
ENERGY--6.3%
ENERGY EQUIPMENT & SERVICES--0.9%
Baker Hughes, Inc. 1,662 $ 62,574
BJ Services Co. (a) 756 34,655
Halliburton Co. 2,111 63,879
Nabors Industries Ltd. (a) 734 33,191
Noble Corp. (a) 617 23,378
Rowan Companies, Inc. (a) 540 13,138
Schlumberger Ltd. 2,846 180,749
Transocean, Inc. (a) 1,537 44,481
---------------
456,045
---------------
OIL & GAS--5.4%
Amerada Hess Corp. 442 35,002
Anadarko Petroleum Corp. 1,255 73,543
Apache Corp. 1,544 67,241
Ashland, Inc. 376 19,857
Burlington Resources, Inc. 1,962 70,985
ChevronTexaco Corp. 5,149 484,572
ConocoPhillips 3,305 252,138
Devon Energy Corp. 1,143 75,438
EOG Resources, Inc. 545 32,542
Exxon Mobil Corp. 31,580 1,402,468
Kerr-McGee Corp. 488 26,240
Marathon Oil Corp. 1,720 65,085
Occidental Petroleum Corp. 1,875 90,769
Sunoco, Inc. 339 21,567
Unocal Corp. 1,314 49,932
Valero Energy Corp. 600 44,256
---------------
2,811,635
---------------
FINANCIALS--20.2%
CAPITAL MARKETS--2.7%
Bank of New York Co., Inc. 3,757 110,756
Bear Stearns Companies, Inc. 537 45,274
Charles Schwab Corp. 6,530 62,753
E*Trade Financial Corp. (a) 1,700 18,955
Federated Investors, Inc. 528 16,020
Franklin Resources, Inc. 1,233 61,749
Goldman Sachs Group, Inc. 2,352 221,464
Janus Capital Group, Inc. 1,108 18,271
Lehman Brothers Holdings, Inc. 1,291 97,148
Mellon Financial Corp. 2,086 61,182
Merrill Lynch & Co., Inc. 4,656 251,331
Morgan Stanley 5,278 278,520
Northern Trust Corp. 1,072 45,324
State Street Corp. 1,616 79,249
T Rowe Price Group, Inc. 631 31,803
---------------
1,399,799
---------------
COMMERCIAL BANKS--6.2%
AmSouth Bancorp 1,645 41,898
Bank of America Corp. (b) 9,836 832,322
Bank One Corp. 5,431 276,981
BB&T Corp. 2,720 100,558
Charter One Financial, Inc. 1,126 49,758
Comerica, Inc. 888 48,733
</Table>
See Notes to Investment Portfolio.
101
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Fifth Third Bancorp 2,687 $ 144,507
First Horizon National Corp. 567 25,782
Huntington Bancshares, Inc. 1,061 24,297
KeyCorp 1,990 59,481
M&T Bank Corp. 600 52,380
Marshall & Ilsley Corp. 1,130 44,172
National City Corp. 3,249 113,747
North Fork Bancorporation, Inc. 812 30,897
PNC Financial Services Group, Inc. 1,406 74,631
Regions Financial Corp. 1,074 39,255
SouthTrust Corp. 1,597 61,980
SunTrust Banks, Inc. 1,342 87,217
Synovus Financial Corp. 1,416 35,853
Union Planters Corp. 902 26,889
US Bancorp 9,072 250,024
Wachovia Corp. 6,326 281,507
Wells Fargo & Co. 8,201 469,343
Zions Bancorporation 440 27,038
---------------
3,199,250
---------------
CONSUMER FINANCE--1.3%
American Express Co. 6,232 320,200
Capital One Financial Corp. 1,121 76,654
MBNA Corp. 6,217 160,336
Providian Financial Corp. (a) 1,446 21,213
SLM Corp. 2,167 87,655
---------------
666,058
---------------
DIVERSIFIED FINANCIAL SERVICES--3.2%
Citigroup, Inc. 24,966 1,160,919
JP Morgan Chase & Co. 10,087 391,073
Moody's Corp. 706 45,650
Principal Financial Group 1,548 53,839
---------------
1,651,481
---------------
INSURANCE--4.6%
ACE Ltd. 1,333 56,359
AFLAC, Inc. 2,515 102,637
Allstate Corp. 3,408 158,642
Ambac Financial Group, Inc. 536 39,364
American International Group, Inc. 12,586 897,130
AON Corp. 1,531 43,588
Chubb Corp. 866 59,044
Cincinnati Financial Corp. 802 34,903
Hartford Financial Services Group,
Inc. 1,395 95,892
Jefferson-Pilot Corp. 645 32,766
Lincoln National Corp. 917 43,328
Loews Corp. 863 51,746
Marsh & McLennan Companies, Inc. 2,533 114,948
MBIA, Inc. 746 42,612
MetLife, Inc. 3,640 130,494
Progressive Corp. 1,040 88,712
Prudential Financial, Inc. 2,594 120,543
SAFECO Corp. 655 28,820
St. Paul Travelers Companies, Inc. 3,239 131,309
Torchmark Corp. 587 31,581
UnumProvident Corp. 1,414 22,483
XL Capital Ltd., Class A 678 51,162
---------------
2,378,063
---------------
REAL ESTATE--0.4%
Apartment Investment &
Management Co., REIT 500 $ 15,565
Equity Office Properties Trust, REIT 1,962 53,366
Equity Residential, REIT 1,381 41,057
Plum Creek Timber Co., Inc., REIT 881 28,703
Prologis, REIT 900 29,628
Simon Property Group, Inc., REIT 1,000 51,420
---------------
219,739
---------------
THRIFTS & MORTGAGE FINANCE--1.8%
Countrywide Financial Corp. 1,367 96,032
Fannie Mae 4,712 336,248
Freddie Mac 3,336 211,169
Golden West Financial Corp. 743 79,018
MGIC Investment Corp. 513 38,916
Sovereign Bancorp, Inc. 1,400 30,940
Washington Mutual, Inc. 4,194 162,056
---------------
954,379
---------------
HEALTH CARE--13.2%
BIOTECHNOLOGY--1.2%
Amgen, Inc. (a) 6,109 333,368
Biogen Idec, Inc. (a) 1,616 102,212
Chiron Corp. (a) 940 41,962
Genzyme Corp. (a) 1,142 54,051
Gilead Sciences, Inc. (a) 1,000 67,000
Medimmune, Inc. (a) 1,206 28,220
---------------
626,813
---------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.2%
Applera Corp - Applied Biosystems
Group 1,004 21,837
Bausch & Lomb, Inc. 279 18,155
Baxter International, Inc. 3,018 104,151
Becton Dickinson & Co. 1,199 62,108
Biomet, Inc. 1,217 54,083
Boston Scientific Corp. (a) 4,054 173,511
CR Bard, Inc. 526 29,798
Guidant Corp. 1,526 85,273
IMS Health, Inc. 1,167 27,355
Hospira, Inc. (a) 745 20,562
Medtronic, Inc. 5,898 287,351
Millipore Corp. (a) 201 11,330
St. Jude Medical, Inc. (a) 796 60,217
Stryker Corp. 1,930 106,150
Zimmer Holdings, Inc. (a) 1,169 103,106
---------------
1,164,987
---------------
HEALTH CARE PROVIDERS & SERVICES--2.0%
Aetna, Inc. 706 60,010
AmerisourceBergen Corp. 551 32,939
Anthem, Inc. (a) 703 62,961
Cardinal Health, Inc. 2,085 146,054
Caremark Rx, Inc. (a) 2,193 72,237
CIGNA Corp. 665 45,759
Express Scripts, Inc. (a) 400 31,692
HCA, Inc. 2,387 99,275
Health Management Associates, Inc. 1,226 27,487
</Table>
See Notes to Investment Portfolio.
102
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Humana, Inc. (a) 717 $ 12,117
Manor Care, Inc. 458 14,967
McKesson Corp. 1,449 49,744
Medco Health Solutions, Inc. (a) 1,330 49,875
Quest Diagnostics, Inc. 471 40,011
Tenet Healthcare Corp. (a) 2,180 29,234
UnitedHealth Group, Inc. 2,982 185,630
WellPoint Health Networks (a) 778 87,144
---------------
1,047,136
---------------
PHARMACEUTICALS--7.8%
Abbott Laboratories 7,551 307,779
Allergan, Inc. 652 58,367
Bristol-Myers Squibb Co. 9,470 232,015
Eli Lilly & Co. 5,486 383,526
Forest Laboratories, Inc. (a) 1,824 103,293
Johnson & Johnson 14,317 797,457
King Pharmaceuticals, Inc. (a) 1,127 12,904
Merck & Co., Inc. 10,778 511,955
Mylan Laboratories 1,300 26,325
Pfizer, Inc. 36,769 1,260,441
Schering-Plough Corp. 7,057 130,413
Watson Pharmaceuticals, Inc. (a) 562 15,118
Wyeth 6,439 232,834
---------------
4,072,427
---------------
INDUSTRIALS--12.1%
AEROSPACE & DEFENSE--1.7%
Boeing Co. 4,128 210,900
General Dynamics Corp. 995 98,804
Goodrich Corp. 585 18,913
Lockheed Martin Corp. 2,133 111,087
Northrop Grumman Corp. 1,780 95,586
Raytheon Co. 2,165 77,442
Rockwell Collins, Inc. 873 29,088
United Technologies Corp. 2,500 228,700
---------------
870,520
---------------
AIR FREIGHT & LOGISTICS--1.0%
FedEx Corp. 1,395 113,958
Ryder System, Inc. 364 14,585
United Parcel Service, Inc. 5,393 405,392
---------------
533,935
---------------
AIRLINES--0.1%
Delta Air Lines, Inc. (a) 600 4,272
Southwest Airlines Co. 3,739 62,703
---------------
66,975
---------------
BUILDING PRODUCTS--0.2%
American Standard
Companies, Inc. (a) 1,020 41,116
Crane Co. 250 7,848
Masco Corp. 2,160 67,349
---------------
116,313
---------------
COMMERCIAL SERVICES & SUPPLIES--2.0%
Allied Waste Industries, Inc. (a) 1,470 19,375
Apollo Group, Inc. (a) 868 76,636
Automatic Data Processing, Inc. 2,900 121,452
Avery Dennison Corp. 481 $ 30,789
Cendant Corp. 4,951 121,200
Cintas Corp. 882 42,045
Convergys Corp. (a) 680 10,472
Deluxe Corp. 237 10,310
Equifax, Inc. 696 17,226
First Data Corp. 4,279 190,501
Fiserv, Inc. (a) 964 37,490
H&R Block, Inc. 832 39,670
Monster Worldwide, Inc. (a) 500 12,860
Paychex, Inc. 1,859 62,983
Pitney Bowes, Inc. 1,152 50,976
Robert Half International, Inc. 800 23,816
R.R. Donnelley & Sons Co. 1,081 35,695
Sabre Holdings Corp. 708 19,619
Waste Management, Inc. 2,815 86,280
---------------
1,009,395
---------------
CONSTRUCTION & ENGINEERING--0.0%
Fluor Corp. 409 19,497
---------------
ELECTRICAL EQUIPMENT--0.4%
American Power Conversion Corp. 893 17,547
Cooper Industries Ltd. 399 23,705
Emerson Electric Co. 2,084 132,438
Power-One, Inc. (a) 467 5,128
Rockwell Automation, Inc. 909 34,097
Thomas & Betts Corp. 250 6,808
---------------
219,723
---------------
INDUSTRIAL CONGLOMERATES--4.8%
3M Co. 3,734 336,097
General Electric Co. 50,939 1,650,424
Honeywell International, Inc. 4,214 154,359
Textron, Inc. 665 39,468
Tyco International Ltd. 9,729 322,419
---------------
2,502,767
---------------
MACHINERY--1.4%
Caterpillar, Inc. 1,592 126,468
Cummins, Inc. 180 11,250
Danaher Corp. 1,492 77,360
Deere & Co. 1,197 83,958
Dover Corp. 940 39,574
Eaton Corp. 766 49,591
Illinois Tool Works, Inc. 1,433 137,410
Ingersoll-Rand Co. 878 59,976
ITT Industries, Inc. 481 39,923
Navistar International Corp. (a) 371 14,380
Paccar, Inc. 819 47,494
Pall Corp. 600 15,714
Parker Hannifin Corp. 556 33,060
---------------
736,158
---------------
ROAD & RAIL--0.4%
Burlington Northern Santa Fe Corp. 1,803 63,231
CSX Corp. 1,063 34,835
Norfolk Southern Corp. 1,862 49,380
Union Pacific Corp. 1,239 73,659
---------------
221,105
---------------
</Table>
See Notes to Investment Portfolio.
103
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
Genuine Parts Co. 845 $ 33,530
WW Grainger, Inc. 425 24,438
---------------
57,968
---------------
INFORMATION TECHNOLOGY--16.2%
COMMUNICATIONS EQUIPMENT--3.1%
ADC Telecommunications, Inc. (a) 3,764 10,690
Andrew Corp. (a) 787 15,748
Avaya, Inc. (a) 2,098 33,127
CIENA Corp. (a) 2,719 10,115
Cisco Systems, Inc. (a) 32,635 773,450
Comverse Technology, Inc. (a) 921 18,365
Corning, Inc. (a) 6,609 86,314
JDS Uniphase Corp. (a) 6,993 26,503
Lucent Technologies, Inc. (a) 20,798 78,616
Motorola, Inc. 11,308 206,371
QUALCOMM, Inc. 3,945 287,906
Scientific-Atlanta, Inc. 705 24,322
Tellabs, Inc. (a) 1,991 17,401
---------------
1,588,928
---------------
COMPUTERS & PERIPHERALS--3.5%
Apple Computer, Inc. (a) 1,836 59,743
Dell, Inc. (a) 12,179 436,252
EMC Corp. (a) 11,792 134,429
Gateway, Inc. (a) 1,545 6,952
Hewlett-Packard Co. 14,809 312,470
International Business Machines
Corp 8,110 714,896
Lexmark International, Inc. (a) 595 57,435
NCR Corp. (a) 480 23,803
Network Appliance, Inc. (a) 1,684 36,257
Sun Microsystems, Inc. (a) 15,975 69,332
---------------
1,851,569
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.5%
Agilent Technologies, Inc. (a) 2,273 66,553
Jabil Circuit, Inc. (a) 915 23,040
Molex, Inc. 915 29,353
PerkinElmer, Inc. 537 10,762
Sanmina Corp. (a) 2,403 21,867
Solectron Corp. (a) 4,886 31,612
Symbol Technologies, Inc. 1,094 16,126
Tektronix, Inc. 387 13,166
Thermo Electron Corp. (a) 777 23,885
Waters Corp. (a) 539 25,753
---------------
262,117
---------------
INTERNET SOFTWARE & SERVICES--0.5%
Yahoo!, Inc. (a) 6,588 239,342
---------------
IT SERVICES--0.4%
Affiliated Computer Services, Inc.,
Class A (a) 700 37,058
Computer Sciences Corp. (a) 941 43,691
Electronic Data Systems Corp. 2,291 43,873
Sungard Data Systems, Inc. (a) 1,423 36,998
Unisys Corp. (a) 1,537 21,334
---------------
182,954
---------------
OFFICE ELECTRONICS--0.1%
Xerox Corp. (a) 3,809 $ 55,230
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.6%
Advanced Micro Devices, Inc. (a) 1,637 26,028
Altera Corp. (a) 1,817 40,374
Analog Devices, Inc. 1,808 85,121
Applied Materials, Inc. (a) 8,130 159,511
Applied Micro Circuits Corp. (a) 1,304 6,937
Broadcom Corp. (a) 1,541 72,073
Intel Corp. 31,209 861,368
KLA-Tencor Corp. (a) 913 45,084
Linear Technology Corp. 1,523 60,113
LSI Logic Corp. (a) 1,791 13,647
Maxim Integrated Products 1,587 83,191
Micron Technology, Inc. (a) 2,915 44,629
National Semiconductor Corp. (a) 1,790 39,362
Novellus Systems, Inc. (a) 742 23,329
NVIDIA Corp. (a) 780 15,990
PMC-Sierra, Inc. (a) 798 11,451
QLogic Corp. (a) 455 12,098
Teradyne, Inc. (a) 876 19,885
Texas Instruments, Inc. 8,363 202,217
Xilinx, Inc. 1,726 57,493
---------------
1,879,901
---------------
SOFTWARE--4.5%
Adobe Systems, Inc. 1,193 55,474
Autodesk, Inc. 600 25,686
BMC Software, Inc. (a) 1,062 19,647
Citrix Systems, Inc. (a) 793 16,145
Computer Associates International,
Inc. 2,839 79,662
Compuware Corp. (a) 1,836 12,118
Electronic Arts, Inc. (a) 1,428 77,897
Intuit, Inc. (a) 913 35,224
Mercury Interactive Corp. (a) 407 20,281
Microsoft Corp. 52,039 1,486,234
Novell, Inc. (a) 1,736 14,565
Oracle Corp. (a) 25,142 299,944
Parametric Technology Corp. (a) 1,191 5,955
PeopleSoft, Inc. (a) 1,781 32,948
Siebel Systems, Inc. (a) 2,348 25,077
Symantec Corp. (a) 1,516 66,370
Veritas Software Corp. (a) 2,094 58,004
---------------
2,331,231
---------------
MATERIALS--3.0%
CHEMICALS--1.5%
Air Products & Chemicals, Inc. 1,092 57,275
Dow Chemical Co. 4,510 183,557
Du Pont EI de Nemours & Co. 4,824 214,282
Eastman Chemical Co. 367 16,966
Ecolab, Inc. 1,220 38,674
Engelhard Corp. 584 18,869
Great Lakes Chemical Corp. 255 6,900
Hercules, Inc. (a) 483 5,888
International Flavors & Fragrances,
Inc. 416 15,558
</Table>
See Notes to Investment Portfolio.
104
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Monsanto Co. 1,255 $ 48,318
PPG Industries, Inc. 821 51,304
Praxair, Inc. 1,540 61,461
Rohm & Haas Co. 1,081 44,948
Sigma-Aldrich Corp. 301 17,943
---------------
781,943
---------------
CONSTRUCTION MATERIALS--0.1%
Vulcan Materials Co. 522 24,821
---------------
CONTAINERS & PACKAGING--0.2%
Ball Corp. 290 20,894
Bemis Co. 496 14,012
Pactiv Corp. (a) 772 19,254
Sealed Air Corp. (a) 390 20,775
Temple-Inland, Inc. 213 14,750
---------------
89,685
---------------
METALS & MINING--0.7%
Alcoa, Inc. 4,182 138,131
Allegheny Technologies, Inc. 382 6,895
Freeport-McMoRan Copper &
Gold, Inc., Class B 880 29,172
Newmont Mining Corp. 2,189 84,846
Nucor Corp. 394 30,243
Phelps Dodge Corp. 414 32,089
United States Steel Corp. 509 17,876
Worthington Industries, Inc. 401 8,233
---------------
347,485
---------------
PAPER & FOREST PRODUCTS--0.5%
Boise Cascade Corp. 450 16,938
Georgia-Pacific Corp. 1,245 46,040
International Paper Co. 2,320 103,704
Louisiana-Pacific Corp. 570 13,480
MeadWestvaco Corp. 1,011 29,713
Weyerhaeuser Co. 1,157 73,030
---------------
282,905
---------------
TELECOMMUNICATION SERVICES--3.3%
DIVERSIFIED TELECOMMUNICATION SERVICES--2.7%
Alltel Corp. 1,543 78,107
AT&T Corp. 3,820 55,887
BellSouth Corp. 8,882 232,886
CenturyTel, Inc. 689 20,698
Citizens Communications Co. 1,279 15,476
Qwest Communications
International (a) 8,256 29,639
SBC Communications, Inc. 15,951 386,812
Sprint Corp-FON Group 6,918 121,757
Verizon Communications, Inc. 13,305 481,508
---------------
1,422,770
---------------
WIRELESS TELECOMMUNICATION SERVICES--0.6%
AT&T Wireless Services, Inc. (a) 13,140 188,165
Nextel Communications, Inc. (a) 5,409 144,204
---------------
332,369
---------------
UTILITIES--2.8%
ELECTRIC UTILITIES--2.2%
AES Corp. (a) 2,926 $ 29,055
Allegheny Energy, Inc. (a) 567 8,737
Ameren Corp. 864 37,117
American Electric Power Co., Inc. 1,932 61,824
CenterPoint Energy, Inc. 1,393 16,020
Cinergy Corp. 878 33,364
CMS Energy Corp. (a) 800 7,304
Consolidated Edison, Inc. 1,160 46,122
Constellation Energy Group, Inc. 787 29,827
Dominion Resources, Inc. 1,545 97,459
DTE Energy Co. 804 32,594
Edison International 1,606 41,065
Entergy Corp. 1,128 63,179
Exelon Corp. 3,198 106,461
FirstEnergy Corp. 1,632 61,053
FPL Group, Inc. 875 55,956
PG&E Corp. (a) 2,022 56,495
Pinnacle West Capital Corp. 412 16,641
PPL Corp. 857 39,336
Progress Energy, Inc. 1,229 54,137
Public Service Enterprise Group, Inc. 1,200 48,036
Southern Co. 3,559 103,744
TECO Energy, Inc. 800 9,592
TXU Corp. 1,528 61,899
Xcel Energy, Inc. 1,857 31,030
---------------
1,148,047
---------------
GAS UTILITIES--0.3%
El Paso Corp. 3,064 24,144
KeySpan Corp. 769 28,222
Kinder Morgan, Inc. 646 38,301
Nicor, Inc. 245 8,323
NiSource, Inc. 1,209 24,930
Peoples Energy Corp. 152 6,407
Sempra Energy 1,080 37,184
---------------
167,511
---------------
MULTI-UTILITIES & UNREGULATED POWER--0.3%
Calpine Corp. 1,926 8,320
Duke Energy Corp. 4,386 88,992
Dynegy, Inc. 1,600 6,816
Williams Companies, Inc. 2,458 29,250
---------------
133,378
---------------
TOTAL COMMON STOCKS
(cost of $48,472,579) 51,414,896
---------------
</Table>
See Notes to Investment Portfolio.
105
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
SHORT TERM OBLIGATIONS--1.3%
U.S. GOVERNMENT OBLIGATION--0.2%
U.S. Treasury Bill,
1.220% 09/09/04 (c) $ 80,000 $ 79,810
REPURCHASE AGREEMENT--1.1%
Repurchase agreement with State Street
Bank & Trust Co., dated 06/30/04,
due 07/01/04 at 1.170%, collateralized
by a U.S. Treasury Bond maturing
08/15/29, market value $563,743
(repurchase proceeds $551,018) 551,000 551,000
---------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $630,810) 630,810
---------------
TOTAL INVESTMENTS--100.1%
(cost of $49,103,389) (d) 52,045,706
---------------
OTHER ASSETS & LIABILITIES, NET--(0.1)% (29,471)
---------------
NET ASSETS--100.0% $ 52,016,235
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Investments in Affiliates during the six months ended June 30, 2004:
Security Name: FleetBoston Financial Corp., the parent company of the
Investment Advisor prior to April 1, 2004.
<Table>
Shares as of 12/31/03: 4,858
Shares purchased: 200
Shares disposed of through
acquisition: (5,058)
Shares as of 06/30/04: --
Net realized gain (loss): $ --
Dividend income earned: $ 1,770
Value at end of period: $ --
</Table>
Security Name: Bank of America Corp. (As a result of the acquisition of
FleetBoston Financial Corp. effective April 1, 2004, Bank of America Corp.
became the parent company of the Investment Advisor.)
<Table>
Shares as of 12/31/03: 6,928
Shares purchased: 500
Shares sold: (401)
Share acquired through
acquisition: 2,809
Shares as of 12/31/04: 9,836
Net realized gain*: $ 23
Dividend income earned*: $ 7,869
Value at end of period: $ 832,322
</Table>
* Represents activity for the period April 1, 2004 through June 30, 2004.
(c) Security pledged as collateral for open futures contracts.
(d) Cost for both financial statement and federal income tax purposes is the
same.
At June 30, 2004, the Fund held the following open long futures contracts:
<Table>
<Caption>
AGGREGATE EXPIRATION UNREALIZED
TYPE VALUE FACE VALUE DATE APPRECIATION
---- --------- ---------- ---------- ------------
S&P Mini 500 $ 912,400 $ 904,799 Sep-2004 $ 7,601
=======
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Notes to Financial Statements.
106
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty S&P 500 Index Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Unaffiliated investments, at cost $ 48,495,829
Affiliated investments, at cost 607,560
---------------
Unaffiliated investments, at value $ 51,213,384
Affiliated investments, at value 832,322
Cash 52
Receivable for:
Investments sold 327,000
Fund shares sold 595
Interest 18
Dividends 58,341
Futures variation margin 3,878
Expense reimbursement due from Distributor 3,953
Deferred Trustees' compensation plan 2,440
---------------
TOTAL ASSETS 52,441,983
---------------
LIABILITIES:
Payable for:
Investments purchased 104,901
Fund shares repurchased 252,460
Investment advisory fee 16,911
Transfer agent fee 605
Pricing and bookkeeping fees 7,218
Audit fee 16,984
Custody fee 7,356
Distribution fee--Class B 11,413
Deferred Trustees' fees 2,440
Other liabilities 5,460
---------------
TOTAL LIABILITIES 425,748
---------------
NET ASSETS $ 52,016,235
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 52,265,766
Undistributed net investment income 222,432
Accumulated net realized loss (3,421,881)
Net unrealized appreciation on:
Investments 2,942,317
Futures contracts 7,601
---------------
NET ASSETS $ 52,016,235
===============
CLASS A:
Net assets $ 85,049
Shares outstanding 8,576
===============
Net asset value per share $ 9.92
===============
CLASS B:
Net assets $ 51,931,186
Shares outstanding 5,252,879
===============
Net asset value per share $ 9.89
===============
</Table>
See Notes to Financial Statements.
107
<Page>
STATEMENT OF OPERATIONS
Liberty S&P 500 Index Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 400,700
Dividends from affiliates 7,869
Interest 4,476
---------------
Total Investment Income 413,045
---------------
EXPENSES:
Investment advisory fee 100,938
Distribution fee--Class B 62,982
Transfer agent fee 3,729
Pricing and bookkeeping fees 18,584
Trustees' fee 3,520
Custody fee 14,180
Audit fee 13,093
Non-recurring costs (See Note 6) 2,208
Other expenses 7,451
---------------
Total Expenses 226,685
Fees reimbursed by Distributor--Class B (34,756)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,208)
Custody earnings credit (42)
---------------
Net Expenses 189,679
---------------
Net Investment Income 223,366
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Unaffiliated investments (110,024)
Affiliated investments 23
Futures contracts 60,697
---------------
Net realized loss (49,304)
---------------
Net change in unrealized appreciation/depreciation on:
Investments 1,381,218
Futures contracts (32,565)
---------------
Net change in unrealized appreciation/depreciation 1,348,653
---------------
Net Gain 1,299,349
---------------
Net Increase in Net Assets from Operations $ 1,522,715
===============
</Table>
See Notes to Financial Statements.
108
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty S&P 500 Index Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 223,366 $ 377,448
Net realized loss on investments and futures contracts (49,304) (371,434)
Net change in unrealized appreciation/depreciation on investments and
futures contracts 1,348,653 9,268,500
--------------- ---------------
Net Increase from Operations 1,522,715 9,274,514
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (680)
Class B -- (377,651)
--------------- ---------------
Total Distributions Declared to Shareholders -- (378,331)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Distributions reinvested -- 680
--------------- ---------------
Class B:
Subscriptions 4,023,518 13,560,308
Distributions reinvested -- 377,651
Redemptions (2,054,225) (3,136,822)
--------------- ---------------
Net Increase 1,969,293 10,801,137
--------------- ---------------
Net Increase from Share Transactions 1,969,293 10,801,817
--------------- ---------------
Total Increase in Net Assets 3,492,008 19,698,000
NET ASSETS:
Beginning of period 48,524,227 28,826,227
--------------- ---------------
End of period (including undistributed (overdistributed) net investment
income of $222,432 and $(934), respectively) $ 52,016,235 $ 48,524,227
=============== ===============
CHANGES IN SHARES:
Class A:
Issued for distributions reinvested -- 71
--------------- ---------------
Class B:
Subscriptions 413,207 1,585,888
Issued for distributions reinvested -- 39,462
Redemptions (209,677) (374,208)
--------------- ---------------
Net Increase 203,530 1,251,142
--------------- ---------------
</Table>
See Notes to Financial Statements.
109
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty S&P 500 Index Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Liberty S&P 500 Index Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks capital appreciation by matching the
performance of a benchmark index that measures the investment returns of stocks
of large U.S. companies.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
FUTURES CONTRACTS--The Fund may invest in municipal and U.S. Treasury futures
contracts. The Fund may 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.
110
<Page>
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, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 378,331
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 7,926,489
Unrealized depreciation (4,984,172)
------------
Net unrealized appreciation $ 2,942,317
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee at the annual rate of 0.40% of the Fund's
average daily net assets.
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 investment
advisory fee it receives, pays SSgA a monthly sub-advisory fee at the following
annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL 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"). As a result,
Columbia pays the total fees received 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
111
<Page>
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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.074%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) 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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$676 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $3,383,968 and
$1,079,064, 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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief
112
<Page>
from the SEC to permit them to continue to serve as your fund's investment
advisor and distributor. There is no assurance that such exemptive relief will
be granted. On March 15, 2004, Columbia and the Distributor entered into
agreements in principle with the SEC Division of Enforcement and NYAG in
settlement of the charges. Under the agreements, Columbia and the Distributor
agreed, among other things, to the following conditions: payment of $70 million
in disgorgement; payment of $70 million in civil penalties; an order requiring
Columbia and the Distributor to cease and desist from violations of the
antifraud provisions and other provisions of the federal securities laws;
governance changes designed to maintain the independence of the mutual fund
boards of trustees and ensure compliance with securities laws and their
fiduciary duties; and retention of an independent consultant to review
Columbia's and the Distributor's compliance policies and procedures. The
agreement requires the final approval of the SEC. In a separate agreement with
the NYAG, the Columbia Group has agreed to reduce mutual fund fees by $80
million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $2,208 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
113
<Page>
FINANCIAL HIGHLIGHTS
Liberty S&P 500 Index Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.59 $ 7.57 $ 9.89 $ 11.31 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.04 0.09 0.08 0.07 0.07
Net realized and unrealized gain (loss) on
investments and futures contracts 0.26 2.01 (2.33) (1.43) (0.70)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.30 2.10 (2.25) (1.36) (0.63)
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net realized gains -- (0.08) (0.06) (0.06) (0.06)
Return of capital -- -- (0.01) -- --
------------ ------------ ------------ ------------ ------------
Total Distributions Declared to
Shareholders -- (0.08) (0.07) (0.06) (0.06)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.89 $ 9.59 $ 7.57 $ 9.89 $ 11.31
============ ============ ============ ============ ============
Total return (c)(d)(e) 3.13%(f) 27.68% (22.75)% (12.07)% (5.29)%(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 0.75%(h) 0.75% 0.75% 0.75% 0.75%(h)
Net investment income (g) 0.88%(h) 1.05% 0.88% 0.72% 0.89%(h)
Waiver/reimbursement 0.14%(h) 0.22% 0.14% 0.53% 0.61%(h)
Portfolio turnover rate 2%(f) 3% 17% 7% 2%(f)
Net assets, end of period (000's) $ 51,931 $ 48,442 $ 28,762 $ 28,835 $ 12,098
</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) Total return at net asset value assuming all distributions reinvested.
(d) Had the Investment Advisor and/or Distributor 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) 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.
114
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Select Value Fund, Variable Series / June 30, 2004
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 since 1991.
The fund provided a competitive return for the six-month period, outpacing its
benchmark, the Russell Midcap Value Index. Strong performance from energy and
technology holdings offset disappointing returns in the consumer discretionary
sector. Mid-cap stocks advanced solidly in the first half of the year as strong
corporate profits outweighed concerns about higher interest rates and a spike in
raw material costs, including energy and steel. Corporate profits benefited as
companies enjoyed robust volume growth and increased prices, which helped offset
higher input costs.
POWERFUL BOOST FROM ENERGY AND TECHNOLOGY
The fund's overweight in energy stocks relative to its benchmark was the single
largest positive contributor to performance. Rising oil and natural gas prices
helped XTO Energy and Amerada Hess (3.2% and 1.4% of net assets, respectively)
post significant gains during the period. Our technology holdings also aided
performance, although we had a modest underweight in the sector. Andrew, which
sells wireless infrastructure equipment, rose sharply, as did electronics
components manufacturer Littelfuse (1.5% and 1.0% of net assets, respectively).
We sold our position in Zebra Technologies, which specializes in bar code
scanning devices. The stock performed well for several years, and it no longer
fit our value criteria.
DISAPPOINTING RETURNS FROM CONSUMER DISCRETIONARY AND SELECT INDUSTRIAL STOCKS
Rising energy prices and interest rates may have contributed to poor performance
in the consumer discretionary sector, as investors became concerned that these
factors would have a negative impact on consumer spending. The fund had an
overweight in the sector relative to its benchmark. Disappointments included
auto parts supplier Superior Industries International (0.7% of net assets),
which suffered from pricing pressures and manufacturing problems in its core
aluminum wheels business. In the industrial area, we lost ground with Navistar
International (1.3% of net assets), which had difficulty meeting surging demand
for truck orders because of parts shortages. Rising steel costs further
pressured profit margins.
FINE-TUNING OUR HOLDINGS
During the period, we trimmed positions that had risen in price and added to
names that were attractively valued. For example, we took profits in medical
device manufacturer Biomet and Gentex, which makes automatic-dimming car mirrors
(1.0% and 0.7% of net assets, respectively). We added to our holdings of Pactiv
and Dean Foods (0.7% and 2.6% of net assets, respectively) when their stock
prices retreated. We also established a new position in Willis Group Holdings
(0.2% of net assets), an insurance broker with the number three position in the
industry. A relatively new management team has rejuvenated the company, leading
to market share gains against the top two players, as well as smaller firms. In
addition, we believe several specific investor concerns that have been weighing
on the stock could be resolved favorably in the near term.
MIXED SIGNALS AHEAD
The outlook for profit growth in the second half of 2004 has been clouded by
mixed economic signals late in the second quarter. For instance, strong jobs
reports in April and May were followed by a relatively weak report in June.
Further, there were indications that both consumer and business spending
moderated in June. In addition to raw material costs, several other wild cards
add uncertainty to the near-term direction of the market, such as the upcoming
presidential election and the ongoing risk of terrorism. As always, we will
continue to seek to identify well-managed companies in good or improving
businesses that we believe have the potential to prosper under a variety of
market conditions.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in 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 June 30, 2004, and are subject to change.
115
<Page>
PERFORMANCE INFORMATION
Liberty Select Value Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR LIFE
- -------------------------------------------------------------
Class B (5/30/00) 7.72 27.69 8.67
Russell Midcap Value Index 7.17 30.81 11.89
S&P MidCap 400 Index 6.09 27.99 7.42
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
Net asset value per share ($) 12/31/03 6/30/04
- -------------------------------------------------------------
Class B 15.41 16.60
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 6/30/04
CLASS B: $14,048
<Table>
<Caption>
CLASS B SHARES RUSSELL MIDCAP VALUE INDEX S&P MIDCAP 400 INDEX
5/30/2000 $ 10,000 $ 10,000 $ 10,000
5/31/2000 $ 10,200 $ 10,011 $ 10,014
6/30/2000 $ 10,066 $ 9,649 $ 10,175
7/31/2000 $ 10,333 $ 9,874 $ 10,336
8/31/2000 $ 11,184 $ 10,480 $ 11,491
9/30/2000 $ 10,983 $ 10,580 $ 11,412
10/31/2000 $ 11,034 $ 10,781 $ 11,026
11/30/2000 $ 10,309 $ 10,641 $ 10,193
12/31/2000 $ 11,139 $ 11,580 $ 10,973
1/31/2001 $ 11,551 $ 11,538 $ 11,218
2/28/2001 $ 11,206 $ 11,490 $ 10,577
3/31/2001 $ 10,961 $ 11,171 $ 9,791
4/30/2001 $ 11,769 $ 11,786 $ 10,871
5/31/2001 $ 12,098 $ 12,120 $ 11,124
6/30/2001 $ 11,862 $ 11,959 $ 11,080
7/31/2001 $ 11,962 $ 11,911 $ 10,915
8/31/2001 $ 11,660 $ 11,693 $ 10,558
9/30/2001 $ 10,221 $ 10,578 $ 9,245
10/31/2001 $ 10,423 $ 10,634 $ 9,653
11/30/2001 $ 11,062 $ 11,378 $ 10,371
12/31/2001 $ 11,525 $ 11,850 $ 10,908
1/31/2002 $ 11,618 $ 11,970 $ 10,851
2/28/2002 $ 11,812 $ 12,164 $ 10,864
3/31/2002 $ 12,361 $ 12,786 $ 11,641
4/30/2002 $ 12,395 $ 12,777 $ 11,586
5/31/2002 $ 12,437 $ 12,758 $ 11,390
6/30/2002 $ 11,744 $ 12,189 $ 10,556
7/31/2002 $ 10,908 $ 10,995 $ 9,532
8/31/2002 $ 10,984 $ 11,123 $ 9,581
9/30/2002 $ 9,819 $ 9,999 $ 8,809
10/31/2002 $ 10,021 $ 10,317 $ 9,190
11/30/2002 $ 10,603 $ 10,967 $ 9,722
12/31/2002 $ 10,232 $ 10,706 $ 9,323
1/31/2003 $ 9,970 $ 10,410 $ 9,050
2/28/2003 $ 9,742 $ 10,237 $ 8,835
3/31/2003 $ 9,717 $ 10,272 $ 8,909
4/30/2003 $ 10,334 $ 11,053 $ 9,556
5/31/2003 $ 10,925 $ 12,025 $ 10,348
6/30/2003 $ 11,001 $ 12,109 $ 10,480
7/31/2003 $ 11,322 $ 12,486 $ 10,852
8/31/2003 $ 11,686 $ 12,929 $ 11,344
9/30/2003 $ 11,466 $ 12,828 $ 11,171
10/31/2003 $ 12,236 $ 13,770 $ 12,015
11/30/2003 $ 12,506 $ 14,169 $ 12,433
12/31/2003 $ 13,041 $ 14,781 $ 12,644
1/31/2004 $ 13,269 $ 15,172 $ 12,918
2/29/2004 $ 13,693 $ 15,546 $ 13,228
3/31/2004 $ 13,701 $ 15,571 $ 13,284
4/30/2004 $ 13,430 $ 14,913 $ 12,848
5/31/2004 $ 13,642 $ 15,294 $ 13,114
6/30/2004 $ 14,048 $ 15,823 $ 13,395
</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. As reported in the annual report dated December 31, 2003, the
Russell Midcap Value Index is the fund's new benchmark. The Standard & Poor's
(S&P) MidCap 400 Index was the fund's previous benchmark. The Russell Midcap
Value Index is an unmanaged index that measures the performance of those Russell
Midcap Index companies with lower price-to-book ratios and lower forecasted
growth values. The S&P MidCap 400 Index is an unmanaged market value-weighted
index that tracks the performance of 400 mid-cap US companies. 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.
Index performance for the life of the fund is from May 30, 2000.
116
<Page>
INVESTMENT PORTFOLIO
Liberty Select Value Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--95.6%
CONSUMER DISCRETIONARY--16.1%
AUTO COMPONENTS--3.8%
BorgWarner, Inc. 4,000 $ 175,080
Gentex Corp. 7,700 305,536
Johnson Controls, Inc. 6,600 352,308
Lear Corp. 7,900 466,021
Superior Industries International 8,400 280,980
---------------
1,579,925
---------------
HOTELS, RESTAURANTS & LEISURE--3.1%
Brinker International, Inc. (a) 14,000 477,680
Darden Restaurants, Inc. 8,700 178,785
Harrah's Entertainment, Inc. 6,300 340,830
Six Flags, Inc. (a) 38,000 275,880
---------------
1,273,175
---------------
HOUSEHOLD DURABLES--0.7%
Newell Rubbermaid, Inc. 12,600 296,100
---------------
LEISURE EQUIPMENT & PRODUCTS--0.6%
Mattel, Inc. 14,600 266,450
---------------
MEDIA--2.0%
Knight-Ridder, Inc. 4,100 295,200
Mediacom Communications Corp. (a) 18,800 147,016
New York Times Co., Class A 8,000 357,680
---------------
799,896
---------------
MULTILINE RETAIL--2.3%
Federated Department Stores, Inc. 19,000 932,900
---------------
SPECIALTY RETAIL--3.1%
Borders Group, Inc. 16,100 377,384
Ross Stores, Inc. 10,800 289,008
TJX Companies, Inc. 26,000 627,640
---------------
1,294,032
---------------
TEXTILES, APPAREL & LUXURY GOODS--0.5%
Wolverine World Wide, Inc. 7,100 186,375
---------------
CONSUMER STAPLES--5.2%
BEVERAGES--0.9%
Pepsi Bottling Group, Inc. 12,000 366,480
---------------
FOOD PRODUCTS--3.1%
Dean Foods Co. (a) 28,300 1,055,873
Hormel Foods Corp. 6,900 214,590
---------------
1,270,463
---------------
PERSONAL PRODUCTS--1.2%
Avon Products, Inc. 10,800 498,312
---------------
ENERGY--7.4%
ENERGY EQUIPMENT & SERVICES--2.5%
BJ Services Co. (a) 5,400 247,536
Noble Corp. (a) 8,200 310,698
Transocean, Inc. (a) 9,650 279,271
Weatherford International Ltd. (a) 4,400 197,912
---------------
1,035,417
---------------
OIL & GAS--4.9%
Amerada Hess Corp. 7,100 $ 562,249
Occidental Petroleum Corp. 3,000 145,230
XTO Energy, Inc. 44,791 1,334,324
---------------
2,041,803
---------------
FINANCIALS--21.3%
CAPITAL MARKETS--2.9%
Bear Stearns Companies, Inc. 4,200 354,102
Janus Capital Group, Inc. 34,700 572,203
Lehman Brothers Holdings, Inc. 3,500 263,375
---------------
1,189,680
---------------
COMMERCIAL BANKS--4.9%
Banknorth Group, Inc. 12,800 415,744
Charter One Financial, Inc. 10,895 481,450
City National Corp. 6,300 413,910
Cullen/Frost Bankers, Inc. 3,800 170,050
North Fork Bancorporation, Inc. 13,900 528,895
---------------
2,010,049
---------------
DIVERSIFIED FINANCIAL SERVICES--0.4%
Citigroup, Inc. 3,831 178,142
---------------
INSURANCE--4.4%
Ambac Financial Group, Inc. 7,250 532,440
Cincinnati Financial Corp. 5,565 242,189
Loews Corp. 4,300 257,828
Nationwide Financial Services, Class A 7,400 278,314
Old Republic International Corp. 4,500 106,740
St. Paul Travelers Companies, Inc. 7,900 320,266
Willis Group Holdings Ltd. 2,600 97,370
---------------
1,835,147
---------------
THRIFTS & MORTGAGE FINANCE--8.7%
Golden West Financial Corp. 9,600 1,020,960
Greenpoint Financial Corp. 13,500 535,950
PMI Group, Inc. 12,300 535,296
Radian Group, Inc. 9,900 474,210
Sovereign Bancorp, Inc. 26,500 585,650
Webster Financial Corp. 9,100 427,882
---------------
3,579,948
---------------
HEALTH CARE--4.6%
HEALTH CARE EQUIPMENT & SUPPLIES--1.9%
Biomet, Inc. 9,000 399,960
Millipore Corp. (a) 6,900 388,953
---------------
788,913
---------------
HEALTH CARE PROVIDERS & SERVICES--2.7%
Anthem, Inc. (a) 2,700 241,812
First Health Group Corp. (a) 15,800 246,638
HCA, Inc. 6,800 282,812
WellPoint Health Networks, Inc. (a) 3,200 358,432
---------------
1,129,694
---------------
INDUSTRIALS--13.1%
AEROSPACE & DEFENSE--1.0%
Alliant Techsystems, Inc. (a) 4,300 272,362
Northrop Grumman Corp. 2,400 128,880
---------------
401,242
---------------
</Table>
See Notes to Investment Portfolio.
117
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
AIR FREIGHT & LOGISTICS--0.7%
CNF, Inc. 6,500 $ 270,140
---------------
AIRLINES--0.5%
AMR Corp. (a) 18,600 225,246
---------------
COMMERCIAL SERVICES & SUPPLIES--4.7%
Brink's Co. 20,000 685,000
Cendant Corp. 24,400 597,312
DST Systems, Inc. (a) 6,500 312,585
Manpower, Inc. 6,700 340,159
---------------
1,935,056
---------------
ELECTRICAL EQUIPMENT--1.0%
Ametek, Inc. 8,000 247,200
Hubbell, Inc., Class B 3,900 182,169
---------------
429,369
---------------
INDUSTRIAL CONGLOMERATES--1.4%
Carlisle Companies, Inc. 8,900 554,025
---------------
MACHINERY--3.8%
AGCO Corp. (a) 6,000 122,220
Dover Corp. 5,800 244,180
Ingersoll-Rand Co., Class A 6,200 423,522
Navistar International Corp. (a) 14,300 554,268
Parker Hannifin Corp. 4,000 237,840
---------------
1,582,030
---------------
INFORMATION TECHNOLOGY--8.1%
COMMUNICATIONS EQUIPMENT--1.5%
Andrew Corp. (a) 31,900 638,319
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--4.9%
Amphenol Corp., Class A (a) 20,000 666,400
Arrow Electronics, Inc. (a) 10,400 278,928
AVX Corp. 13,600 196,520
Littelfuse, Inc. (a) 10,000 424,100
Varian, Inc. (a) 6,700 282,405
Vishay Intertechnology, Inc. (a) 9,450 175,581
---------------
2,023,934
---------------
IT SERVICES--0.9%
Affiliated Computer Services, Inc.,
Class A (a) 6,900 365,286
---------------
SOFTWARE--0.8%
Reynolds & Reynolds Co., Class A 14,100 326,133
---------------
MATERIALS--12.9%
CHEMICALS--7.2%
Air Products & Chemicals, Inc. 6,800 356,660
Eastman Chemical Co. 9,100 420,693
Engelhard Corp. 11,200 361,872
International Flavors &
Fragrances, Inc. 14,900 557,260
Lubrizol Corp. 7,900 289,298
OM Group, Inc. (a) 4,700 155,147
PPG Industries, Inc. 6,700 418,683
Praxair, Inc. 10,600 423,046
---------------
2,982,659
---------------
CONTAINERS & PACKAGING--2.3%
Crown Holdings, Inc. (a) 25,000 $ 249,250
Packaging Corp. of America 17,300 413,470
Pactiv Corp. (a) 11,000 274,340
---------------
937,060
---------------
PAPER & FOREST PRODUCTS--3.4%
Boise Cascade Corp. 8,500 319,940
Georgia-Pacific Corp. 18,100 669,338
MeadWestvaco Corp. 13,634 400,703
---------------
1,389,981
---------------
TELECOMMUNICATION SERVICES--1.5%
WIRELESS TELECOMMUNICATION SERVICES--1.5%
Telephone & Data Systems, Inc. 8,500 605,200
---------------
UTILITIES--5.4%
ELECTRIC UTILITIES--4.7%
Allete, Inc. 6,700 223,110
Entergy Corp. 5,400 302,454
Exelon Corp. 15,700 522,653
PPL Corp. 5,700 261,630
Progress Energy, Inc. 10,800 475,740
Reliant Energy, Inc. (a) 14,900 161,367
---------------
1,946,954
---------------
MULTI-UTILITIES & UNREGULATED POWER--0.7%
Energy East Corp. 11,300 274,025
---------------
TOTAL COMMON STOCKS
(cost of $30,732,298) 39,439,560
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--5.0%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04
at 1.170%, collateralized by a
U.S. Treasury Bond maturing
08/15/28, market value $2,101,403
(repurchase proceeds $2,059,067)
(cost of $2,059,000) $ 2,059,000 2,059,000
---------------
TOTAL INVESTMENTS--100.6%
(cost of $32,791,298) (b) 41,498,560
---------------
OTHER ASSETS & LIABILITIES, NET--(0.6)% (250,708)
---------------
NET ASSETS--100.0% $ 41,247,852
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
See Notes to Financial Statements.
118
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Select Value Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 32,791,298
---------------
Investments, at value $ 41,498,560
Cash 751
Receivable for:
Investments sold 44,479
Fund shares sold 789
Interest 67
Dividends 24,467
Expense reimbursement due from Distributor 2,581
Deferred Trustees' compensation plan 2,296
---------------
TOTAL ASSETS 41,573,990
---------------
LIABILITIES:
Payable for:
Fund shares repurchased 271,622
Investment advisory fee 22,781
Transfer agent fee 604
Pricing and bookkeeping fees 296
Audit fee 16,462
Custody fee 653
Distribution fee--Class B 8,184
Deferred Trustees' fees 2,296
Other liabilities 3,240
---------------
TOTAL LIABILITIES 326,138
---------------
NET ASSETS $ 41,247,852
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 32,931,344
Undistributed net investment income 24,485
Accumulated net realized loss (415,239)
Net unrealized appreciation on Investments 8,707,262
---------------
NET ASSETS $ 41,247,852
===============
CLASS A:
Net assets $ 1,485,632
Shares outstanding 89,331
===============
Net asset value per share $ 16.63
===============
CLASS B:
Net assets $ 39,762,220
Shares outstanding 2,395,781
===============
Net asset value per share $ 16.60
===============
</Table>
See Notes to Financial Statements.
119
<Page>
STATEMENT OF OPERATIONS
Liberty Select Value Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 233,898
Interest 8,040
---------------
Total Investment Income 241,938
---------------
EXPENSES:
Investment advisory fee 138,452
Distribution fee--Class B 47,712
Transfer agent fee 3,729
Pricing and bookkeeping fees 5,195
Trustees' fee 3,529
Custody fee 2,559
Audit fee 12,571
Non-recurring costs (See Note 6) 1,736
Other expenses 8,256
---------------
Total Expenses 223,739
Fees reimbursed by Distributor--Class B (5,951)
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,736)
Custody earnings credit (2)
---------------
Net Expenses 216,050
---------------
Net Investment Income 25,888
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 359,522
Net change in unrealized appreciation/depreciation on investments 2,575,351
---------------
Net Gain 2,934,873
---------------
Net Increase in Net Assets from Operations $ 2,960,761
===============
</Table>
See Notes to Financial Statements.
120
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Select Value Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 25,888 $ 59,485
Net realized gain (loss) on investments 359,522 (705,613)
Net change in unrealized appreciation/depreciation on investments 2,575,351 8,564,493
--------------- ---------------
Net Increase from Operations 2,960,761 7,918,365
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (4,195)
Class B -- (55,597)
--------------- ---------------
Total Distributions Declared to Shareholders -- (59,792)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 202,354 578,918
Distributions reinvested -- 4,195
Redemptions (241,185) (93,140)
--------------- ---------------
Net Increase (Decrease) (38,831) 489,973
--------------- ---------------
Class B:
Subscriptions 1,900,653 7,832,430
Distributions reinvested -- 55,597
Redemptions (1,775,129) (3,283,568)
--------------- ---------------
Net Increase 125,524 4,604,459
--------------- ---------------
Net Increase from Share Transactions 86,693 5,094,432
--------------- ---------------
Total Increase in Net Assets 3,047,454 12,953,005
NET ASSETS:
Beginning of period 38,200,398 25,247,393
--------------- ---------------
End of period (including undistributed (overdistributed) net investment
income of $24,485 and $(1,403), respectively) $ 41,247,852 $ 38,200,398
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 12,570 46,620
Issued for distributions reinvested -- 272
Redemptions (15,188) (7,103)
--------------- ---------------
Net Increase (Decrease) (2,618) 39,789
--------------- ---------------
Class B:
Subscriptions 119,135 601,441
Issued for distributions reinvested -- 3,606
Redemptions (110,404) (251,382)
--------------- ---------------
Net Increase 8,731 353,665
--------------- ---------------
</Table>
See Notes to Financial Statements.
121
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Select Value Fund, Variable Series / June 30, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Liberty Select Value Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 59,792
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
122
<Page>
Unrealized appreciation and depreciation at June 30, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 10,019,627
Unrealized depreciation (1,312,365)
------------
Net unrealized appreciation $ 8,707,262
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2010 $ 20,614
2011 705,613
------------
$ 726,227
============
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.70%
Next $500 million 0.65%
Over $1 billion 0.60%
</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"). As a result,
Columbia pays the total fees received 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 based on the number of securities held by
the Fund. For the six months ended June 30, 2004, the Fund's annualized
effective pricing and bookkeeping fee rate was 0.026%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.02%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) 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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months
123
<Page>
ended June 30, 2004, the Fund paid $669 to Columbia for such services. This
amount is included in "Other expenses" on the Statement of Operations
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $893,480 and
$1,118,174, 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 and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $1,736 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
124
<Page>
FINANCIAL HIGHLIGHTS
Liberty Select Value Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.41 $ 12.11 $ 13.65 $ 13.24 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.01 0.03 0.01 0.05 0.09
Net realized and unrealized gain (loss) on
investments 1.18 3.29 (1.54) 0.41 1.28
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 1.19 3.32 (1.53) 0.46 1.37
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.02) (0.01) (0.03) (0.07)
From net realized gains -- -- -- (0.02) --(c)
Return of capital -- -- -- -- (0.06)
------------ ------------ ------------ ------------ ------------
Total Distributions Declared to Shareholders -- (0.02) (0.01) (0.05) (0.13)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 16.60 $ 15.41 $ 12.11 $ 13.65 $ 13.24
============ ============ ============ ============ ============
Total return (d)(e)(f) 7.72%(g) 27.44% (11.21)% 3.47% 11.38%(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.10%(i) 1.10% 1.10% 1.10% 1.10%(i)
Net investment income (h) 0.12%(i) 0.20% 0.09% 0.34% 1.13%(i)
Waiver/reimbursement 0.03%(i) 0.10% 0.08% 0.73% 1.56%(i)
Portfolio turnover rate 2%(g) 12% 21% 15% 26%(g)
Net assets, end of period (000's) $ 39,762 $ 36,782 $ 24,615 $ 16,886 $ 3,762
</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) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
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.
125
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Newport Tiger Fund, Variable Series / June 30, 2004
Newport Tiger Fund, Variable Series seeks capital appreciation.
Eric Sandlund has managed or co-managed the fund since August 2002.
Asian markets made little headway during the first half of 2004, as concerns
about rising interest rates and a slowdown in earnings growth contributed to an
uncertain investment environment. Markets in India and Thailand posted
disappointing returns during the period. The fund's overweight position in each
of these markets was the main reason it underperformed its benchmark, the MSCI
All Country Asia ex Japan Index. An emphasis on high-quality stocks also held
back total return, as investors tended to favor lower-quality names during the
period. An underweight in China also detracted from performance because the
Chinese stocks were strong early in the year.
By contrast, our decision to maintain an underweight position in South Korean
stocks aided performance. South Korea was affected by a slowdown in trade with
China and by political problems that resulted in the impeachment of its
president. The South Korean market fell sharply, as widely anticipated growth in
consumer spending failed to materialize.
INFRASTRUCTURE DEVELOPMENT AND DOMESTIC CONSUMPTION WERE THEMES
We made relatively few changes to the portfolio during this six-month reporting
period. Going into 2004, the fund was positioned to take advantage of companies
whose products and services are used in infrastructure development or in the
growing trend toward increased domestic consumption. Many of these companies
were in India and Thailand. Although the fund's India and Thailand positions
declined, we maintained our commitment to both markets because we believed their
near-term poor performance was the result of profit-taking after their strong
run-up in 2003. We also think that investors overreacted to the slowdown in
earnings growth from the rapid pace of the past several quarters. In our view,
earnings growth has the potential to remain reasonably strong going forward.
FOCUSING ON FINANCIALS, TECHNOLOGY AND CONSUMER SECTORS
The portfolio's largest sector weight was in financials--an area that suffered
because of concerns about higher interest rates. However, we think that
financial stocks are poised for improvement. Capital spending among Asian
corporations has been at depressed levels since the financial crisis of the late
1990s. Over the past year, however, we saw a pickup in expenditures for capital
equipment. We have also witnessed an upturn in the demand and cost of real
estate. We believe this emphasis on acquiring hard assets should boost loan
demand throughout Asia and that it should be positive for the banks, insurance
companies and real estate businesses in the portfolio.
Within information technology, which was the fund's second largest sector
position, we added Media-Tek and Acer and maintained a position in long-time
holding Taiwan Semiconductor Manufacturing (0.6%, 1.0% and 4.7% of net assets,
respectively.) While Taiwan Semiconductor declined significantly because of a
general pullback in the semiconductor industry, we believe its long-term
prospects are favorable and have kept it in the portfolio.
Consumer discretionary stocks were the third largest sector position, with
newspaper company Singapore Press Holdings (2.5% of net assets) being one of the
best performers. Singapore Press Holdings benefited from higher subscription and
advertising rates and from increased advertising lineage. The company has been
selling some of its property holdings and returning the proceeds to shareholders
in the form of special dividends.
POSITIONED TO CAPITALIZE ON DOMESTIC AND GLOBAL ECONOMIC EXPANSION
We believe that Asia has the potential to benefit from improving domestic and
global economic growth. Our emphasis on the financial, information technology
and consumer discretionary sectors reflects our view that the strong consumer
and business trends that are emerging throughout Asia could lead to long-term
growth opportunities for the portfolio.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in 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 June 30, 2004, and are subject to change.
126
<Page>
PERFORMANCE INFORMATION
Newport Tiger Fund, Variable Series / June 30, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2004 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- ---------------------------------------------------------------------
Class B (6/1/00) -4.72 27.90 0.88 1.23
MSCI All Country
Asia ex Japan Index(1) -2.35 30.66 -1.37 -1.29
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 6/30/04
- ------------------------------------------------------
Class B 2.12 2.02
</Table>
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/1/95(2) - 6/30/04
CLASS B: $14,048
<Table>
<Caption>
MSCI ALL COUNTRY
CLASS B SHARES ASIA EX JAPAN INDEX
5/1/95 $ 10,000 $ 10,000
5/31/95 $ 11,100 $ 11,125
6/30/95 $ 10,900 $ 10,951
7/31/95 $ 11,200 $ 11,157
8/31/95 $ 10,851 $ 10,643
9/30/95 $ 11,050 $ 10,770
10/31/95 $ 11,000 $ 10,584
11/30/95 $ 11,050 $ 10,344
12/31/95 $ 11,501 $ 10,855
1/31/96 $ 12,661 $ 11,699
2/29/96 $ 12,560 $ 11,826
3/31/96 $ 12,560 $ 11,912
4/30/96 $ 12,510 $ 12,341
5/31/96 $ 12,460 $ 12,203
6/30/96 $ 12,208 $ 12,021
7/31/96 $ 11,552 $ 11,134
8/31/96 $ 11,956 $ 11,470
9/30/96 $ 12,308 $ 11,668
10/31/96 $ 12,207 $ 11,446
11/30/96 $ 12,813 $ 11,986
12/31/96 $ 12,851 $ 11,944
1/31/97 $ 12,750 $ 12,191
2/28/97 $ 12,750 $ 12,295
3/31/97 $ 11,985 $ 11,600
4/30/97 $ 11,781 $ 11,428
5/31/97 $ 12,852 $ 11,944
6/30/97 $ 13,464 $ 12,381
7/31/97 $ 13,668 $ 12,485
8/31/97 $ 11,324 $ 10,272
9/30/97 $ 11,681 $ 10,225
10/31/97 $ 9,028 $ 7,952
11/30/97 $ 8,876 $ 7,407
12/31/97 $ 8,850 $ 7,130
1/31/98 $ 7,556 $ 6,514
2/28/98 $ 9,212 $ 7,895
3/31/98 $ 9,161 $ 7,779
4/30/98 $ 8,385 $ 7,097
5/31/98 $ 7,246 $ 6,014
6/30/98 $ 6,522 $ 5,339
7/31/98 $ 6,004 $ 5,204
8/31/98 $ 5,124 $ 4,454
9/30/98 $ 6,003 $ 4,896
10/31/98 $ 7,763 $ 5,961
11/30/98 $ 8,281 $ 6,442
12/31/98 $ 8,281 $ 6,576
1/31/99 $ 7,806 $ 6,471
2/28/99 $ 7,806 $ 6,345
3/31/99 $ 8,492 $ 7,106
4/30/99 $ 10,338 $ 8,405
5/31/99 $ 9,652 $ 8,223
6/30/99 $ 10,707 $ 9,508
7/31/99 $ 10,707 $ 9,299
8/31/99 $ 10,760 $ 9,529
9/30/99 $ 10,338 $ 8,862
10/31/99 $ 11,023 $ 9,147
11/30/99 $ 12,342 $ 10,017
12/31/99 $ 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 $ 13,864 $ 9,428
7/31/2000 $ 13,811 $ 9,024
8/31/2000 $ 13,757 $ 8,957
9/30/2000 $ 12,851 $ 7,931
10/31/2000 $ 12,211 $ 7,307
11/30/2000 $ 11,571 $ 7,024
12/31/2000 $ 11,786 $ 7,013
1/31/2001 $ 12,701 $ 7,916
2/28/2001 $ 11,947 $ 7,542
3/31/2001 $ 10,548 $ 6,688
4/30/2001 $ 11,140 $ 6,698
5/31/2001 $ 10,817 $ 6,688
6/30/2001 $ 10,494 $ 6,528
7/31/2001 $ 10,279 $ 6,281
8/31/2001 $ 9,633 $ 6,183
9/30/2001 $ 8,126 $ 5,211
10/31/2001 $ 8,395 $ 5,492
11/30/2001 $ 9,364 $ 6,226
12/31/2001 $ 9,823 $ 6,744
1/31/2002 $ 9,823 $ 7,013
2/28/2002 $ 9,606 $ 7,065
3/31/2002 $ 9,985 $ 7,538
4/30/2002 $ 9,985 $ 7,616
5/31/2002 $ 9,660 $ 7,444
6/30/2002 $ 9,171 $ 7,074
7/31/2002 $ 8,682 $ 6,806
8/31/2002 $ 8,465 $ 6,685
9/30/2002 $ 7,760 $ 5,949
10/31/2002 $ 8,086 $ 6,251
11/30/2002 $ 8,520 $ 6,583
12/31/2002 $ 8,084 $ 6,182
1/31/2003 $ 8,084 $ 6,233
2/28/2003 $ 7,809 $ 5,981
3/31/2003 $ 7,479 $ 5,701
4/30/2003 $ 7,644 $ 5,881
5/31/2003 $ 8,194 $ 6,389
6/30/2003 $ 8,744 $ 6,791
7/31/2003 $ 9,459 $ 7,370
8/31/2003 $ 10,174 $ 7,936
9/30/2003 $ 10,394 $ 7,996
10/31/2003 $ 11,164 $ 8,682
11/30/2003 $ 10,999 $ 8,575
12/31/2003 $ 11,738 $ 9,088
1/31/2004 $ 12,236 $ 9,641
2/29/2004 $ 12,458 $ 9,967
3/31/2004 $ 12,125 $ 9,801
4/30/2004 $ 11,627 $ 9,263
5/31/2004 $ 11,406 $ 8,952
6/30/2004 $ 11,183 $ 8,875
</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 Morgan Stanley Capital International (MSCI) All Country 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from April 30, 1995.
(2) Inception date of class A shares (oldest existing share class).
127
<Page>
INVESTMENT PORTFOLIO
Newport Tiger Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--96.9%
CONSUMER DISCRETIONARY--12.7%
AUTOMOBILES--4.6%
Bajaj Auto Ltd. 4,000 $ 76,993
Hyundai Motor Co., Ltd. 14,120 545,426
Maruti Udyog Ltd. 33,944 297,338
PT Astra International, Inc. 489,500 287,443
---------------
1,207,200
---------------
HOTELS, RESTAURANTS & LEISURE--1.2%
Genting Bherhad 79,800 321,807
---------------
MEDIA--3.2%
Singapore Press Holdings Ltd. 264,197 639,400
Television Broadcasts Ltd. 43,000 185,579
---------------
824,979
---------------
SPECIALTY RETAIL--1.2%
Esprit Holdings Ltd. 67,500 303,502
---------------
TEXTILES, APPAREL & LUXURY GOODS--2.5%
Li & Fung Ltd. 454,000 665,506
---------------
CONSUMER STAPLES--1.1%
FOOD PRODUCTS--1.1%
People's Food Holdings Ltd. 195,000 128,311
Thai Union Frozen
Products Public Co., Ltd. 320,100 160,436
---------------
288,747
---------------
FINANCIALS--38.5%
COMMERCIAL BANKS--17.9%
Bangkok Bank Public Co., Ltd. (a) 333,800 766,232
Bank Rakyat Indonesia (a) 1,701,500 304,588
Chinatrust Financial
Holding Co., Ltd. 506,000 566,088
Dah Sing Banking, Reserved Shares 4,080 --(b)
Dah Sing Financial Group 20,400 120,485
Hong Leong Bank Berhad 307,300 391,283
Kasikornbank
Public Co., Ltd., NVDR 406,300 501,054
Kookmin Bank (a) 20,283 633,377
Oversea-Chinese Banking Corp., Ltd. 39,000 274,810
Standard Chartered Public Co., Ltd. 22,530 367,940
United Overseas Bank Ltd. 96,000 748,703
---------------
4,674,560
---------------
DIVERSIFIED FINANCIAL SERVICES--5.3%
Hong Leong Credit Berhad 68,000 72,776
Housing Development
Finance Corp., Ltd. 72,872 820,058
Public Bank Berhad 287,494 500,389
---------------
1,393,223
---------------
INSURANCE--2.9%
Cathay Financial Holding Co., Ltd. 173,000 312,516
Samsung Fire & Marine
Insurance Co., Ltd. 6,840 438,474
---------------
750,990
---------------
REAL ESTATE--12.4%
City Developments Ltd. 150,000 $ 472,588
Henderson Land +
Development Co., Ltd. 127,000 548,467
Land & House
Public Co., Ltd., NVDR 1,738,700 380,009
SM Prime Holdings, Inc. 2,464,000 267,770
Sun Hung Kai Properties Ltd. 151,000 1,242,993
Swire Pacific Ltd., Series A 47,500 309,095
---------------
3,220,922
---------------
HEALTH CARE--2.6%
HEALTH CARE EQUIPMENT & SUPPLIES--0.3%
Pihsiang Machinery
Manufacturing Co., Ltd. 30,150 63,344
---------------
PHARMACEUTICALS--2.3%
Dr. Reddy's Laboratories Ltd., ADR 18,700 325,006
Ranbaxy Laboratories Ltd. 13,991 276,861
---------------
601,867
---------------
INDUSTRIALS--3.2%
INDUSTRIAL CONGLOMERATES--2.1%
China Merchants Holdings
International Co., Ltd. 207,000 280,294
Hutchison Whampoa Ltd. 39,500 270,372
---------------
550,666
---------------
MACHINERY--0.3%
Bharat Forge Ltd. 6,200 82,547
---------------
TRANSPORTATION INFRASTRUCTURE--0.8%
Zhejiang Expressway Co., Ltd. 284,000 203,043
---------------
INFORMATION TECHNOLOGY--24.7%
COMPUTERS & PERIPHERALS--2.4%
Acer, Inc. 187,000 264,124
Lite-On Technology Corp. 357,000 378,439
---------------
642,563
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--4.1%
Hon Hai Precision Industry Co., Ltd. 151,433 564,977
MFS Technology Ltd. 175,000 111,341
Synnex Technology
International Corp. 120,000 196,116
Venture Corp., Ltd. 18,000 189,226
---------------
1,061,660
---------------
INTERNET SOFTWARE & SERVICES--1.5%
NCSoft Corp. (a) 4,680 389,655
---------------
IT SERVICES--3.2%
Infosys Technologies Ltd. 6,934 833,373
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--13.5%
MediaTek, Inc. 18,000 144,161
Samsung Electronics Co., Ltd. 5,190 2,158,359
Taiwan Semiconductor
Manufacturing Co., Ltd. (a) 838,108 1,213,061
---------------
3,515,581
---------------
</Table>
See Notes to Investment Portfolio.
128
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
MATERIALS--2.4%
CONSTRUCTION MATERIALS--2.4%
Siam Cement Public Co., Ltd., NVDR 108,450 $ 614,418
---------------
TELECOMMUNICATION SERVICES--7.6%
DIVERSIFIED TELECOMMUNICATION SERVICES--1.1%
PT Telekomunikasi Indonesia 376,600 295,216
---------------
WIRELESS TELECOMMUNICATION SERVICES--6.5%
China Mobile Hong Kong Ltd. 366,000 1,110,822
Taiwan Cellular Corp. (a) 609,000 580,901
---------------
1,691,723
---------------
UTILITIES--4.1%
ELECTRIC UTILITIES--2.2%
Datang International Power
Generation Co., Ltd., Class H 254,000 200,385
Huaneng Power International, Inc. 432,000 386,477
---------------
586,862
---------------
GAS UTILITIES--1.9%
Hong Kong & China Gas Co., Ltd. 295,002 484,405
Xinao Gas Holdings Ltd. (a) 8,000 3,580
---------------
487,985
---------------
TOTAL COMMON STOCKS
(cost of $19,753,838) 25,271,939
---------------
<Caption>
UNITS
---------------
WARRANTS--0.1%
FINANCIALS--0.1%
REAL ESTATE--0.1%
City Developments Ltd. (a)
(cost of $0) 15,600 26,653
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--2.4%
Repurchase agreement with
State Street Bank & Trust Co.,
dated 06/30/04, due 07/01/04 at
1.170%, collateralized by a
U.S. Treasury Note maturing
08/15/05, market value $632,038
(repurchase proceeds $616,020)
(cost of $616,000) $ 616,000 616,000
---------------
TOTAL INVESTMENTS--99.4%
(cost of $20,369,838) (c) 25,914,592
---------------
OTHER ASSETS & LIABILITIES, NET--0.6% 146,652
---------------
NET ASSETS--100.0% $ 26,061,244
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Amount rounds to less than $1.
(c) Cost for both financial statement and federal income tax purposes is the
same.
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY VALUE INVESTMENTS
- --------------------- ------------ -----------
Hong Kong $ 4,552,513 17.6%
Taiwan 4,283,727 16.5
Korea, Republic of 4,165,291 16.1
India 2,712,175 10.5
Singapore 2,462,721 9.5
Thailand 2,422,149 9.3
Malasia 1,286,255 5.0
Bermuda 1,097,319 4.2
Indonesia 887,247 3.4
China 789,905 3.1
United States 616,000 2.4
United Kingdom 367,940 1.4
Philippines 267,770 1.0
Cayman Islands 3,580 0.0
------------ -----------
$ 25,914,592 100.0%
============ ===========
</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.
129
<Page>
STATEMENT OF ASSETS & LIABILITIES
Newport Tiger Fund, Variable Series / June 30, 2004 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 20,369,838
---------------
Investments, at value $ 25,914,592
Cash 847
Foreign currency (cost of $241,244) 237,495
Receivable for:
Investments sold 60,954
Fund shares sold 78,100
Interest 20
Dividends 34,801
Deferred Trustees' compensation plan 4,985
---------------
TOTAL ASSETS 26,331,794
---------------
LIABILITIES:
Payable for:
Investments purchased 3,551
Fund shares repurchased 9,457
Investment advisory fee 18,906
Transfer agent fee 604
Pricing and bookkeeping fees 1,521
Audit fee 30,253
Distribution fee--Class B 677
Deferred Trustees' fees 4,985
Foreign capital gains tax 200,542
Other liabilities 54
---------------
TOTAL LIABILITIES 270,550
---------------
NET ASSETS $ 26,061,244
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 29,783,065
Undistributed net investment income 215,590
Accumulated net realized loss (9,277,763)
Net unrealized appreciation (depreciation) on:
Investments 5,544,754
Foreign currency translations (3,860)
Foreign capital gains tax (200,542)
---------------
NET ASSETS $ 26,061,244
===============
CLASS A:
Net assets $ 22,971,397
Shares outstanding 11,562,653
===============
Net asset value per share $ 1.99
===============
CLASS B:
Net assets $ 3,089,847
Shares outstanding 1,529,716
===============
Net asset value per share $ 2.02
===============
</Table>
See Notes to Financial Statements.
130
<Page>
STATEMENT OF OPERATIONS
Newport Tiger Fund, Variable Series
For the Six Months Ended June 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 418,498
Interest 2,510
---------------
Total Investment Income (net of foreign taxes withheld of $41,137) 421,008
---------------
EXPENSES:
Investment advisory fee 128,388
Distribution fee--Class B 3,998
Transfer agent fee 3,730
Pricing and bookkeeping fees 5,995
Trustees' fees 2,871
Custody fee 31,415
Audit fee 18,245
Non-recurring costs (See Note 6) 1,188
Other expenses 5,435
---------------
Total Expenses 201,265
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,188)
Custody earnings credit (2)
---------------
Net Expenses 200,075
---------------
Net Investment Income 220,933
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY
AND FOREIGN CAPITAL GAINS TAX:
Net realized gain (loss) on:
Investments 2,763,503
Foreign currency transactions (6,905)
---------------
Net realized gain 2,756,598
---------------
Net change in unrealized appreciation/depreciation on:
Investments (4,448,752)
Foreign currency translations (4,033)
Foreign capital gains tax 226,240
---------------
Net change in unrealized appreciation/depreciation (4,226,545)
---------------
Net Loss (1,469,947)
---------------
Net Decrease in Net Assets from Operations $ (1,249,014)
===============
</Table>
See Notes to Financial Statements.
131
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Newport Tiger Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 220,933 $ 242,310
Net realized gain on investments and foreign currency transactions 2,756,598 38,348
Net change in unrealized appreciation/depreciation on investments, foreign
currency translations and forgein capital gains tax (4,226,545) 8,428,501
--------------- ---------------
Net Increase (Decrease) from Operations (1,249,014) 8,709,159
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (238,610)
Class B -- (19,194)
--------------- ---------------
Total Distributions Declared to Shareholders -- (257,804)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,450,751 4,595,945
Distributions reinvested -- 238,610
Redemptions (3,075,940) (9,993,129)
--------------- ---------------
Net Decrease (1,625,189) (5,158,574)
--------------- ---------------
Class B:
Subscriptions 478,262 1,441,440
Distributions reinvested -- 19,194
Redemptions (226,432) (242,928)
--------------- ---------------
Net Increase 251,830 1,217,706
--------------- ---------------
Net Decrease from Share Transactions (1,373,359) (3,940,868)
--------------- ---------------
Total Increase (Decrease) in Net Assets (2,622,373) 4,510,487
NET ASSETS:
Beginning of period 28,683,617 24,173,130
--------------- ---------------
End of period (including undistributed (overdistributed) net investment
income of $215,590 and $(5,343), respectively) $ 26,061,244 $ 28,683,617
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 683,462 2,997,732
Issued for distributions reinvested -- 115,267
Redemptions (1,461,258) (6,743,620)
--------------- ---------------
Net Decrease (777,796) (3,630,621)
--------------- ---------------
Class B:
Subscriptions 221,802 802,770
Issued for distributions reinvested -- 9,140
Redemptions (107,917) (134,468)
--------------- ---------------
Net Increase 113,885 677,442
--------------- ---------------
</Table>
See Notes to Financial Statements.
132
<Page>
NOTES TO FINANCIAL STATEMENTS
Newport Tiger Fund, Variable Series / June 30, 2004 (Unaudited)
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 on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by 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 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.
133
<Page>
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
FOREIGN CAPITAL GAINS TAXES--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 appropriate rate for each jurisdiction.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2003
was as follows:
<Table>
Distributions paid from:
Ordinary income* $ 257,804
Long-term capital gains --
</Table>
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2004, 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 $ 6,878,415
Unrealized depreciation (1,333,661)
------------
Net unrealized appreciation $ 5,544,754
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
<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>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to
the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned
subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April
1, 2004, FleetBoston, including the Fund's investment advisor, transfer agent
and distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition 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 provides administrative and other services
to the Fund in addition to investment advisory services. Columbia receives a
monthly investment advisory fee based on the Fund's average daily net assets as
follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.90%
Next $500 million 0.85%
Over $1.5 billion 0.80%
</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"). As a result,
Columbia pays the total fees received 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
134
<Page>
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
based on the number of securities held by the Fund. For the six months ended
June 30, 2004, the Fund's annualized effective pricing and bookkeeping fee rate
was 0.042%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund. For such
services, the Transfer Agent receives a monthly fee, at the annual rate of
$7,500.
For the six months ended June 30, 2004, the Fund's annualized effective transfer
agent fee rate was 0.03%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. 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 the average daily net assets
attributable to Class B shares.
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.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2004, the Fund paid
$663 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $6,136,460 and
$8,055,426, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--Columbia, the Distributor, and certain of their affiliates
(collectively, "The Columbia Group") have received information requests and
subpoenas from various regulatory and law enforcement authorities in connection
with their investigations of late trading and market timing in mutual funds, as
well as other industry wide issues. The Columbia Group has not uncovered any
instances where Columbia or the Distributor were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's
135
<Page>
investment advisor and distributor. There is no assurance that such exemptive
relief will be granted. On March 15, 2004, Columbia and the Distributor entered
into agreements in principle with the SEC Division of Enforcement and NYAG in
settlement of the charges. Under the agreements, Columbia and the Distributor
agreed, among other things, to the following conditions: payment of $70 million
in disgorgement; payment of $70 million in civil penalties; an order requiring
Columbia and the Distributor to cease and desist from violations of the
antifraud provisions and other provisions of the federal securities laws;
governance changes designed to maintain the independence of the mutual fund
boards of trustees and ensure compliance with securities laws and their
fiduciary duties; and retention of an independent consultant to review
Columbia's and the Distributor's compliance policies and procedures. The
agreement requires the final approval of the SEC. In a separate agreement with
the NYAG, the Columbia Group has agreed to reduce mutual fund fees by $80
million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the six months ended June 30, 2004, Columbia has assumed $1,188 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
136
<Page>
FINANCIAL HIGHLIGHTS
Newport Tiger Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, -------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000 (a)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.12 $ 1.47 $ 1.81 $ 2.19 $ 2.35
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.01 0.01 0.01 0.01 --(c)
Net realized and unrealized gain (loss)
on investments, foreign currency and
foreign capital gains tax (0.11) 0.65 (0.33) (0.37) (0.14)
------------ ------------ ------------ ------------ ------------
Total from Investment Operations (0.10) 0.66 (0.32) (0.36) (0.14)
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.01) (0.02) (0.02) (0.02)
Return of capital -- -- --(c) -- --
------------ ------------ ------------ ------------ ------------
Total Distributions Declared to
Shareholders -- (0.01) (0.02) (0.02) (0.02)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 2.02 $ 2.12 $ 1.47 $ 1.81 $ 2.19
============ ============ ============ ============ ============
Total return (d)(e) (4.72)%(f) 45.19% (17.70)% (16.66)% (5.94)%(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 1.62%(h) 1.77% 1.52% 1.56% 1.47%(h)
Net investment income (g) 1.32%(h) 0.53% 0.71% 0.74% 0.11%(h)
Portfolio turnover rate 22%(f) 28% 28% 24% 22%
Net assets, end of period (000's) $ 3,090 $ 3,000 $ 1,086 $ 2,232 $ 644
</Table>
(a) For the period from commencement of operations on June 1, 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) 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.
137
<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
IMPORTANT INFORMATION
A description of the policies and procedures that the funds use to
determine how to vote proxies relating to their portfolio securities and a
copy of the fund's voting record are available (i) at
www.columbiamanagement.com; and (ii) on the Securities and Exchange
Commission's website at www.sec.gov.
138
<Page>
[KEYPORT LOGO]
P.O. Box 9133
Wellesley Hills, MA 02481
ANN-03/222S-0604 (08/04) 04/1822
2004 SEMIANNUAL REPORT - CLASS B SHARES
LIBERTY VARIABLE INVESTMENT TRUST
<Page>
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
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.
The registrant has not filed Schedule 14A subsequent to the effective date of
that Schedule's Item 7(d)(2)(ii)(G). However, it is the registrant's policy to
consider candidates for the Board of Trustees/Directors who are recommended by
shareholders. A Fund shareholder who wishes to nominate a candidate to the Board
may send information regarding prospective candidates to the Fund's Governance
Committee, care of the
<Page>
Fund's Secretary. The information should include evidence of the shareholder's
Fund ownership, a full listing of the proposed candidate's education,
experience, current employment, date of birth, names and addresses of at least
three professional references, information as to whether the candidate is not an
"interested person" under the 1940 Act and "independent" under NYSE Listing
Standards in relation to the Fund, and such other information as may be helpful
to the independent trustees/directors in evaluating the candidate. All
satisfactorily completed information packages regarding a candidate will be
forwarded to an independent trustee/director for consideration.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer, based on his evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, has concluded that such controls and procedures are
adequately designed to ensure that information required to be disclosed
by the registrant in Form N-CSR is accumulated and communicated to the
registrant's management, including the principal executive officer and
principal financial officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's 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: Not
applicable at this time.
(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.
<Page>
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
--------------------------------------------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
--------------------------------------------------------
J. Kevin Connaughton, President and Treasurer
Date September 2, 2004
----------------------------------------------------------------------------
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 September 2, 2004
----------------------------------------------------------------------------