<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
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Liberty Variable Investment Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
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Date of fiscal year end: 12/31/04
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Date of reporting period: 12/31/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT
DECEMBER 31, 2004
[GRAPHIC]
LIBERTY VARIABLE INVESTMENT TRUST
2004 ANNUAL REPORT
<Page>
PRESIDENT'S MESSAGE
Liberty Variable Investment Trust
Dear Shareholder:
As a direct result of the merger of our former parent company, FleetBoston
Financial and Bank of America, changes are in the works that we believe offer
significant potential benefits for our shareholders. We plan to bring the funds
of our respective organizations together in a single family that covers a wide
range of markets, sectors and asset classes. As a result, some funds in your
variable annuity may be merged in order to eliminate redundancies and fund
management teams will be aligned to maximize performance potential. You will
receive more detailed information about these proposed mergers and you may be
asked to vote on certain changes, if they affect your investment. In this
matter, your timely response will enable us to implement the changes in 2005.
12-MONTH ECONOMIC AND MARKET REVIEW
As the economy continued to grow at a healthy pace, stock and bond markets
delivered positive returns. The S&P 500 Index, a broad measure of US stock
market performance, gained 10.88% for the 12-month period through December 31,
2004. Most of that gain came in the last 10 weeks of the year. Corporate profit
growth was strong, interest rates remained relatively low and both consumer and
business spending was robust. Value stocks outpaced growth stocks and small-cap
stocks did better than large-cap stocks for the fifth consecutive year. Real
estate investment trusts were the strongest-performing asset class with a 31.58%
gain, as measured by the NAREIT Index. Foreign stock markets also performed
well. The MSCI EAFE Index, which measures stock market performance in developed
countries, returned 17.60%. Volatile, emerging market stocks gained 22.40%.
The US bond market surprised investors with solid returns despite five
short-term increases by the Federal Reserve Board, which heralded the end of an
extended period of low borrowing rates. Long-term bond yields ended the period
almost where they started. However, they experienced considerable volatility
during the period, as the job market disappointed before it strengthened and
economic growth faltered before it picked up in the second half. In this
environment, the Lehman Brothers Aggregate Bond Index returned 4.34%. This index
measures the performance of government, corporate, mortgage- and asset-backed
fixed income securities. High-yield bonds turned in a second year of outstanding
performance. The JPMorgan Global High Yield Index returned 11.55%.
ABOUT YOUR FUND'S PERFORMANCE
In the reports that follow, fund managers discuss the reasons for performance
and strategies that aided or hindered performance during the 12-month period
ended December 31, 2004. We encourage you to read the reports of the funds you
own and to discuss any questions you may have with your financial professional.
As always, thank you for your business. We look forward to helping you achieve
your long-term financial goals, and we will continue to work hard to earn your
confidence.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Not FDIC May Lose Value
Insured No Bank Guarantee
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
<Page>
PERFORMANCE AT A GLANCE
Liberty Variable Investment Trust
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/04 (%)
INCEPTION 1-YEAR 5-YEAR 10-YEAR LIFE
- --------------------------------------------------------------------------------------------------------------------------------
LIBERTY VARIABLE INVESTMENT TRUST
Colonial Small Cap Value Fund, Variable Series -- Class A 5/19/98 22.70 15.83 -- 10.39
Colonial Strategic Income Fund, Variable Series -- Class A 7/5/94 10.16 8.01 8.44 --
Columbia High Yield Fund, Variable Series -- Class A 3/3/98 7.07 6.35 -- 6.11
Columbia International Fund, Variable Series -- Class A 5/2/94 13.73 -3.80 3.53 --
Columbia Real Estate Equity Fund, Variable Series -- Class A 3/3/98 30.65 19.25 -- 11.40
Liberty Equity Fund, Variable Series -- Class A 1/11/93 7.53 -4.94 9.14 --
Liberty Growth & Income Fund, Variable Series -- Class A 7/5/94 13.76 1.84 11.91 --
Liberty S&P 500 Index Fund, Variable Series -- Class A 5/30/00 10.13 -- -- -2.07
Liberty Select Value Fund, Variable Series -- Class A 5/30/00 15.59 -- -- 9.43
Newport Tiger Fund, Variable Series -- Class A 5/1/95 16.30 -0.78 -- 3.05
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT 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 20
Columbia High Yield Fund, Variable Series 43
Columbia International Fund, Variable Series 61
Columbia Real Estate Equity Fund, Variable Series 78
Liberty Equity Fund, Variable Series 92
Liberty Growth & Income Fund, Variable Series 107
Liberty S&P 500 Index Fund, Variable Series 122
Liberty Select Value Fund, Variable Series 142
Newport Tiger Fund, Variable Series 158
FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series 5
Colonial Strategic Income Fund, Variable Series 23
Columbia High Yield Fund, Variable Series 46
Columbia International Fund, Variable Series 64
Columbia Real Estate Equity Fund, Variable Series 81
Liberty Equity Fund, Variable Series 95
Liberty Growth & Income Fund, Variable Series 110
Liberty S&P 500 Index Fund, Variable Series 125
Liberty Select Value Fund, Variable Series 145
Newport Tiger Fund, Variable Series 161
</Table>
Must be preceded or accompanied by a prospectus.
Columbia Funds Distributor, Inc. 02/2005
<Page>
LIBERTY VARIABLE INVESTMENT TRUST
LIBERTY VARIABLE INVESTMENT TRUST
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
Colonial Small Cap Value Fund, Variable Series seeks long-term growth by
investing primarily in smaller capitalization equities.
Stephen D. Barbaro has managed the fund since June 2002.
Small-cap stocks led the US stock market in 2004, benefiting from relatively
cheap valuations compared to large-cap stocks, an improving economy and
relatively low interest rates. Within the sector, value stocks outpaced their
growth counterparts. The fund did well, keeping pace with the strong returns
posted by both the S&P SmallCap 600/Barra Value Index and the Russell 2000 Value
Index, which replaced the S&P/Barra Index as the fund's benchmark in 2004.
STRONG STOCK SELECTION
Successful stock picking was the key to the fund's performance in 2004. We
focused on companies with strong competitive and financial positions, good
earnings growth prospects and reasonable stock valuations. We also favored
economically sensitive sectors with above-average stakes in industrials and
technology.
BIGGEST GAINS FROM SMALLER SECTORS
Stock selection was particularly strong in health care and telecommunications,
two of the smaller sectors in the fund. In health care, the fund benefited from
investing in facilities-based stocks, such as nursing and funeral homes, with
attractive stock valuations and good balance sheets. As these stocks gained
investor recognition, they rallied nicely. The fund also owned three health care
stocks that were bought out at a nice premium during the period. They included
an oncology practice, a contact lens manufacturer and a hospital.
Telecommunications stocks declined in 2004, making them one of the worst
performing sectors in the small-cap value universe. However, they were one of
the best contributors to the fund's returns. The fund benefited from investing
in selected telecom stocks that generated exceptionally strong gains for the
year, while avoiding companies that took sharp downturns.
ADDED STRENGTH FROM FINANCIALS
Financials, the fund's biggest sector, also posted strong returns. Among the
best performers were consumer finance investments, including a credit card
company and a pawnshop. The fund benefited by largely avoiding thrift
institutions, where returns overall were weak. Thrifts are financial
organizations, such as savings and loans, formed primarily as depositories of
consumer savings. Despite issues in the thrift market as a whole, the fund's
only thrift investment posted strong gains. Performance from financials would
have been even better if the fund had invested more heavily in real estate
investment trusts (REITs). We took a cautious approach to REITs because their
valuations seemed expensive and they typically do poorly when interest rates
rise. REITs, however, did well when intermediate- and long-term interest rates
remained relatively stable and investors continued to search for yield. At the
period's end, we remained comfortable with the fund's significant underweight
relative to the benchmark in REITs, believing that they remain vulnerable to
further interest rate hikes.
MODEST DISAPPOINTMENT FROM TECH
Technology stocks moved higher during 2004, but trailed other sectors when they
did not live up to investors' expectations. Although the fund's returns were in
line with the sector average, the size of the fund's tech stake somewhat
dampened returns. We continued to focus on a mix of tech companies that included
software, semiconductor, technology distribution and telecommunications
equipment stocks. We avoided Internet-based names because their valuations
seemed expensive.
Industrials, which is another economically-sensitive sector, fared much
better in 2004. The fund was well positioned with an above-average stake and
strong returns overall from the sector. During the second half of the year,
however, our focus on higher quality industrial companies modestly hampered
performance as lower quality companies gained favor with investors.
CAUTIOUSLY OPTIMISTIC
We remain moderately optimistic about the potential for the US economy, the
stock market and small-cap value stocks. We expect the economy to continue to
grow at a measured pace. As long as economic expansion continues and stock
valuations remain reasonable, we plan to keep the fund's bias toward
economically sensitive sectors. Although small-cap stocks are no longer cheap
compared to large-cap stocks, we still expect them to provide attractive
investment opportunities in 2005.
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.
Holdings are disclosed as of December 31, 2004, and are subject to change.
2
<Page>
PERFORMANCE INFORMATION
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- -----------------------------------------------------------------
Class A (5/19/98) 22.70 15.83 10.39
Russell 2000 Value Index(1) 22.25 17.23 10.21
S&P SmallCap 600/
Barra Value Index(2) 23.26 15.08 9.71
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/19/98 - 12/31/04
Class A: $19,235
<Table>
<Caption>
CLASS A SHARES S&P SMALLCAP 600/BARRA VALUE INDEX RUSSELL 2000 VALUE INDEX
5/19/1998 $ 10,000 $ 10,000
5/31/1998 $ 10,020 $ 10,000 $ 9,794
6/30/1998 $ 10,050 $ 9,995 $ 9,739
7/31/1998 $ 9,120 $ 9,070 $ 8,977
8/31/1998 $ 7,201 $ 7,434 $ 7,571
9/30/1998 $ 7,461 $ 7,829 $ 7,999
10/31/1998 $ 7,881 $ 8,171 $ 8,236
11/30/1998 $ 8,401 $ 8,520 $ 8,459
12/31/1998 $ 8,675 $ 8,855 $ 8,725
1/31/1999 $ 8,464 $ 8,753 $ 8,527
2/28/1999 $ 7,626 $ 8,040 $ 7,945
3/31/1999 $ 7,525 $ 8,009 $ 7,879
4/30/1999 $ 8,030 $ 8,707 $ 8,599
5/31/1999 $ 8,354 $ 9,055 $ 8,863
6/30/1999 $ 8,788 $ 9,604 $ 9,184
7/31/1999 $ 8,778 $ 9,454 $ 8,966
8/31/1999 $ 8,324 $ 9,057 $ 8,638
9/30/1999 $ 8,273 $ 8,891 $ 8,465
10/31/1999 $ 8,313 $ 8,685 $ 8,296
11/30/1999 $ 8,545 $ 8,879 $ 8,339
12/31/1999 $ 9,226 $ 9,123 $ 8,595
1/31/2000 $ 8,640 $ 8,656 $ 8,370
2/29/2000 $ 9,216 $ 9,047 $ 8,881
3/31/2000 $ 9,358 $ 9,381 $ 8,923
4/30/2000 $ 9,459 $ 9,446 $ 8,975
5/31/2000 $ 9,317 $ 9,292 $ 8,838
6/30/2000 $ 9,702 $ 9,559 $ 9,096
7/31/2000 $ 9,793 $ 9,747 $ 9,399
8/31/2000 $ 10,582 $ 10,317 $ 9,819
9/30/2000 $ 10,582 $ 10,296 $ 9,763
10/31/2000 $ 10,633 $ 10,346 $ 9,728
11/30/2000 $9,874 $9,662 $ 9,530
12/31/2000 $ 10,969 $ 11,026 $ 10,553
1/31/2001 $ 11,071 $ 11,899 $ 10,844
2/28/2001 $ 10,744 $ 11,397 $ 10,829
3/31/2001 $ 10,570 $ 10,923 $ 10,656
4/30/2001 $ 11,358 $ 11,581 $ 11,149
5/31/2001 $ 11,695 $ 11,877 $ 11,436
6/30/2001 $ 11,777 $ 12,332 $ 11,896
7/31/2001 $ 11,849 $ 12,216 $ 11,629
8/31/2001 $ 11,614 $ 12,019 $ 11,588
9/30/2001 $ 10,226 $ 10,298 $ 10,309
10/31/2001 $ 10,462 $ 10,769 $ 10,578
11/30/2001 $ 11,167 $ 11,630 $ 11,339
12/31/2001 $ 11,990 $ 12,470 $ 12,033
1/31/2002 $ 12,083 $ 12,703 $ 12,193
2/28/2002 $ 12,321 $ 12,648 $ 12,267
3/31/2002 $ 13,182 $ 13,747 $ 13,185
4/30/2002 $ 13,421 $ 14,310 $ 13,649
5/31/2002 $ 13,006 $ 13,767 $ 13,197
6/30/2002 $ 12,591 $ 13,152 $ 12,905
7/31/2002 $ 11,056 $ 11,013 $ 10,988
8/31/2002 $ 11,305 $ 10,999 $ 10,939
9/30/2002 $ 10,531 $ 10,190 $ 10,158
10/31/2002 $ 10,749 $ 10,394 $ 10,311
11/30/2002 $ 11,581 $ 10,956 $ 11,133
12/31/2002 $ 11,255 $ 10,665 $ 10,658
1/31/2003 $ 10,912 $ 10,225 $ 10,357
2/28/2003 $ 10,353 $ 9,847 $ 10,009
3/31/2003 $ 10,385 $ 9,816 $ 10,116
4/30/2003 $ 11,202 $ 10,704 $ 11,078
5/31/2003 $ 12,126 $ 11,702 $ 12,209
6/30/2003 $ 12,384 $ 12,050 $ 12,415
7/31/2003 $ 13,039 $ 12,639 $ 13,034
8/31/2003 $ 13,630 $ 13,247 $ 13,530
9/30/2003 $ 13,509 $ 12,812 $ 13,374
10/31/2003 $ 14,598 $ 13,954 $ 14,464
11/30/2003 $ 15,174 $ 14,530 $ 15,020
12/31/2003 $ 15,681 $ 14,937 $ 15,563
1/31/2004 $ 16,242 $ 15,294 $ 16,102
2/29/2004 $ 16,507 $ 15,656 $ 16,414
3/31/2004 $ 16,837 $ 15,930 $ 16,641
4/30/2004 $ 16,144 $ 15,344 $ 15,780
5/31/2004 $ 16,242 $ 15,536 $ 15,971
6/30/2004 $ 17,124 $ 16,387 $ 16,783
7/31/2004 $ 16,331 $ 15,609 $ 16,011
8/31/2004 $ 16,266 $ 15,659 $ 16,167
9/30/2004 $ 16,921 $ 16,431 $ 16,808
10/31/2004 $ 17,165 $ 16,572 $ 17,068
11/30/2004 $ 18,729 $ 18,080 $ 18,582
12/31/2004 $ 19,235 $ 18,414 $ 19,030
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- -----------------------------------------------------------
Class A 14.23 16.94
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
Total return performance includes changes in share price and reinvestment of all
distributions. Beginning in 2004, the fund's benchmark was changed to the
Russell 2000 Value Index, an unmanaged index that measures the performance of
those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values. The 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. The advisor believes
that the Russell Index offers shareholders a more useful comparison of the
fund's relative performance than the S&P SmallCap 600/Barra Value Index. Indices
are not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in an index. Securities in the
fund may not match those in an index.
(1) Index performance for the life of the fund is from May 19, 1998.
(2) Index performance for the life of the fund is from May 31, 1998.
3
<Page>
UNDERSTANDING YOUR EXPENSES
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,123.62 1,020.11 5.34 5.08 1.00
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
4
<Page>
INVESTMENT PORTFOLIO
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--99.5%
CONSUMER DISCRETIONARY--12.9%
AUTO COMPONENTS--1.2%
BorgWarner, Inc. 31,000 $ 1,679,270
Modine Manufacturing Co. 22,950 775,021
Standard Motor Products, Inc. 52,400 827,920
---------------
3,282,211
---------------
HOTELS, RESTAURANTS & LEISURE--3.8%
Bally Total Fitness Holding
Corp. (a) 69,700 295,528
Bob Evans Farms, Inc. 28,390 742,115
Buca, Inc. (a) 115,600 804,576
Dave & Buster's, Inc. (a) 61,500 1,242,300
Landry's Restaurants, Inc. 50,550 1,468,983
Lone Star Steakhouse & Saloon 67,350 1,885,800
Marcus Corp. 63,000 1,583,820
Scientific Games Corp.,
Class A (a) 91,600 2,183,744
Total Entertainment Restaurant
Corp. (a) 6,000 71,520
Vail Resorts, Inc. (a) 19,500 437,190
---------------
10,715,576
---------------
HOUSEHOLD DURABLES--1.2%
American Greetings Corp.,
Class A 37,400 948,090
CSS Industries, Inc. 31,400 997,264
Kimball International, Inc.,
Class B 67,400 998,194
Russ Berrie & Co., Inc. 21,600 493,344
---------------
3,436,892
---------------
LEISURE EQUIPMENT & PRODUCTS--0.3%
Action Performance
Companies, Inc. 75,900 834,141
Travis Boats & Motors, Inc. (a) 18,536 7,229
---------------
841,370
---------------
MEDIA--1.6%
4Kids Entertainment, Inc. (a) 60,100 1,263,302
Journal Communications, Inc.,
Class A 40,600 733,642
Liberty Corp. 28,600 1,257,256
Media General, Inc., Class A 18,200 1,179,542
---------------
4,433,742
---------------
MULTILINE RETAIL--0.3%
ShopKo Stores, Inc. (a) 45,350 847,138
---------------
SPECIALTY RETAIL--2.6%
Building Material Holding Corp. 30,300 1,160,187
GameStop Corp., Class A (a) 73,100 1,634,516
Goody's Family Clothing, Inc. 86,400 789,696
Monro Muffler, Inc. (a) 66,075 1,671,698
Movie Gallery, Inc. 21,600 411,912
Pier 1 Imports, Inc. 49,300 971,210
Rent-Way, Inc. (a) 100 801
TBC Corp. (a) 19,350 537,930
---------------
7,177,950
---------------
TEXTILES, APPAREL & LUXURY GOODS--1.9%
Culp, Inc. (a) 21,400 $ 145,092
Delta Apparel, Inc. 18,650 452,263
Hampshire Group Ltd. (a) 35,200 1,108,870
Kellwood Co. 45,450 1,568,025
Russell Corp. 49,900 972,052
Stride Rite Corp. 62,300 695,891
Tandy Brands Accessories, Inc. 15,000 222,300
---------------
5,164,493
---------------
CONSUMER STAPLES--2.4%
FOOD & STAPLES RETAILING--0.6%
BJ's Wholesale Club, Inc. (a) 27,300 795,249
Chronimed, Inc. (a) 72,400 472,772
Winn-Dixie Stores, Inc. 70,700 321,685
---------------
1,589,706
---------------
FOOD PRODUCTS--1.8%
Central Garden & Pet Co. (a) 14,600 609,404
Corn Products International, Inc. 50,000 2,678,000
John B. Sanfilippo & Son, Inc. (a) 16,300 420,214
M&F Worldwide Corp. (a) 52,300 712,326
Omega Protein Corp. (a) 70,400 605,440
---------------
5,025,384
---------------
ENERGY--6.8%
ENERGY EQUIPMENT & SERVICES--1.9%
Gulf Island Fabrication, Inc. 6,900 150,627
Lufkin Industries, Inc. 40,650 1,622,260
Universal Compression Holdings,
Inc. (a) 35,650 1,244,542
Willbros Group, Inc. (a) 107,040 2,467,272
---------------
5,484,701
---------------
OIL & GAS--4.9%
Bill Barrett Corp. (a) 12,200 390,278
Brigham Exploration Co. (a) 73,300 659,700
Carrizo Oil & Gas, Inc. (a) 110,200 1,245,260
Cimarex Energy Co. (a) 33,400 1,265,860
Energy Partners Ltd. (a) 60,100 1,218,227
Harvest Natural Resources,
Inc. (a) 87,250 1,506,807
InterOil Corp. (a) 24,300 919,512
Magnum Hunter Resources,
Inc. (a) 98,000 1,264,200
Range Resources Corp. 61,300 1,254,198
Stone Energy Corp. (a) 35,200 1,587,168
Western Gas Resources, Inc. 50,800 1,485,900
Whiting Petroleum Corp. (a) 26,900 813,725
---------------
13,610,835
---------------
</Table>
See Accompanying Notes to Financial Statements.
5
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
FINANCIALS--27.4%
CAPITAL MARKETS--0.2%
LaBranche & Co., Inc. (a) 57,700 $ 516,992
---------------
COMMERCIAL BANKS--11.4%
BancFirst Corp. 5,500 434,390
BancorpSouth, Inc. 46,800 1,140,516
BancTrust Financial Group, Inc. 31,900 785,059
Bank of Granite Corp. 45,300 946,770
Bryn Mawr Bank Corp. 55,700 1,224,843
Capitol Bancorp Ltd. 47,600 1,676,472
Chemical Financial Corp. 44,767 1,921,400
Chittenden Corp. 63,775 1,832,256
Columbia Banking System, Inc. 34,200 854,658
Community Bancorp (a) 1,000 30,600
Community Trust Bancorp, Inc. 30,542 988,352
Corus Bankshares, Inc. 42,000 2,016,420
First Citizens BancShares, Inc.,
Class A 6,300 933,975
First Financial Bankshares, Inc. 22,775 1,020,548
Greater Bay Bancorp 36,600 1,020,408
Hancock Holding Co. 21,100 706,006
ITLA Capital Corp. (a) 21,800 1,281,622
MASSBANK Corp. 16,300 610,435
Merchants Bancshares, Inc. 36,500 1,058,500
Mid-State Bancshares 64,450 1,846,492
Northrim BanCorp, Inc. 33,400 784,900
Riggs National Corp. 28,980 616,115
S.Y. Bancorp, Inc. 6,300 151,830
Sterling Bancshares, Inc. 107,800 1,538,306
TriCo Bancshares 91,500 2,141,100
UMB Financial Corp. 28,500 1,614,810
Whitney Holding Corp. 32,600 1,466,674
Wintrust Financial Corp. 19,000 1,082,240
---------------
31,725,697
---------------
CONSUMER FINANCE--0.9%
Cash America International, Inc. 83,840 2,492,563
---------------
DIVERSIFIED FINANCIAL SERVICES--1.7%
Advance America Cash Advance
Centers, Inc. (a) 13,400 306,860
Metris Companies, Inc. (a) 135,700 1,730,175
MFC Bancorp Ltd. (a) 110,200 2,204,000
QC Holdings, Inc. (a) 31,600 605,456
---------------
4,846,491
---------------
INSURANCE--5.7%
AmerUs Group Co. 19,300 874,290
Baldwin & Lyons, Inc., Class B 23,100 618,849
CNA Surety Corp. (a) 70,700 943,845
Commerce Group, Inc. 12,500 763,000
Delphi Financial Group, Inc.,
Class A 40,786 1,882,274
Harleysville Group, Inc. 55,600 1,327,172
Horace Mann Educators Corp. 54,200 1,034,136
Kansas City Life Insurance Co. 5,000 236,500
Navigators Group, Inc. (a) 41,800 1,258,598
Phoenix Companies, Inc. 113,250 1,415,625
ProCentury Corp. 76,800 952,320
Quanta Capital Holdings Ltd. (a) 89,600 $ 826,112
RLI Corp. 33,500 1,392,595
UICI 18,200 616,980
United National Group Ltd.,
Class A (a) 59,600 1,109,752
Universal American Financial
Corp. (a) 46,800 723,996
---------------
15,976,044
---------------
REAL ESTATE--7.5%
Alexandria Real Estate
Equities, Inc., REIT 23,300 1,733,986
American Financial Realty
Trust, REIT 53,300 862,394
BioMed Realty Trust, Inc. 81,000 1,799,010
Boykin Lodging Co., REIT (a) 91,400 837,224
Brandywine Realty Trust, REIT 34,100 1,002,199
EastGroup Properties, Inc.,
REIT 40,250 1,542,380
Equity One, Inc., REIT 54,000 1,281,420
First Potomac Realty Trust,
REIT 47,400 1,080,720
Getty Realty Corp., REIT 36,350 1,044,335
Gladstone Commercial Corp.,
REIT 43,300 740,430
Mid-America Apartment
Communities, Inc., REIT 41,750 1,720,935
Nationwide Health
Properties, Inc., REIT 68,950 1,637,563
PS Business Parks, Inc., REIT 48,700 2,196,370
Tanger Factory Outlet Centers,
Inc., REIT 48,800 1,291,248
U-Store-It Trust, REIT 32,000 555,200
Universal Health Realty Income
Trust, REIT 24,500 787,185
Urstadt Biddle Properties, Inc.,
Class A, REIT 52,700 898,535
---------------
21,011,134
---------------
HEALTH CARE--4.6%
HEALTH CARE PROVIDERS & SERVICES--3.9%
Capital Senior Living Corp. (a) 25,000 141,500
Cross Country Healthcare, Inc. (a) 51,900 938,352
Genesis HealthCare Corp. (a) 28,100 984,343
Gentiva Health Services, Inc. (a) 52,600 879,472
Hooper Holmes, Inc. 130,000 769,600
Kindred Healthcare, Inc. (a) 60,400 1,808,980
OCA, Inc. (a) 106,300 675,005
PAREXEL International Corp. (a) 66,500 1,349,950
Pediatrix Medical Group, Inc. (a) 26,100 1,671,705
Province Healthcare Co. (a) 28,200 630,270
Stewart Enterprises, Inc., Class A (a) 168,500 1,177,815
---------------
11,026,992
---------------
</Table>
See Accompanying Notes to Financial Statements.
6
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
PHARMACEUTICALS--0.7%
Bradley Pharmaceuticals, Inc. (a) 48,200 $ 935,080
Perrigo Co. 53,400 922,218
---------------
1,857,298
---------------
INDUSTRIAL--19.3%
AEROSPACE & DEFENSE--2.6%
AAR Corp. (a) 76,023 1,035,433
Esterline Technologies Corp. (a) 52,400 1,710,860
Herley Industries, Inc. (a) 38,200 776,988
Kaman Corp., Class A 64,000 809,600
Ladish Co., Inc. (a) 80,250 922,073
Precision Castparts Corp. 31,000 2,036,080
---------------
7,291,034
---------------
AIR FREIGHT & LOGISTICS--1.1%
HUB Group, Inc., Class A (a) 38,803 2,026,292
Ryder System, Inc. 24,000 1,146,480
---------------
3,172,772
---------------
AIRLINES - 0.5%
MAIR Holdings, Inc. (a) 40,050 368,460
Skywest, Inc. 57,300 1,149,438
---------------
1,517,898
---------------
BUILDING PRODUCTS--0.6%
NCI Building Systems, Inc. (a) 41,800 1,567,500
---------------
COMMERCIAL SERVICES & SUPPLIES--4.6%
ABM Industries, Inc. 54,500 1,074,740
Angelica Corp. 29,200 789,860
Casella Waste Systems, Inc.,
Class A (a) 113,600 1,663,104
Century Business Services,
Inc. (a) 72,474 315,987
Consolidated Graphics, Inc. (a) 53,450 2,453,355
Danka Business Systems PLC,
ADR (a) 75,400 238,264
Electro Rent Corp. (a) 23,650 336,539
Healthcare Services Group, Inc. 68,200 1,421,288
Imagistics International, Inc. (a) 59,250 1,994,355
NCO Group, Inc. (a) 36,500 943,525
SOURCECORP, Inc. (a) 35,600 680,316
TeleTech Holdings, Inc. (a) 84,700 820,743
---------------
12,732,076
---------------
CONSTRUCTION & ENGINEERING--1.9%
Comfort Systems USA, Inc. (a) 120,550 925,824
Dycom Industries, Inc. (a) 52,100 1,590,092
EMCOR Group, Inc. (a) 18,600 840,348
MasTec, Inc. (a) 21,800 220,398
Quanta Services, Inc. (a) 36,700 293,600
Washington Group International,
Inc. (a) 34,000 1,402,500
---------------
5,272,762
---------------
ELECTRICAL EQUIPMENT--1.6%
C&D Technologies, Inc. 52,000 $ 886,080
Genlyte Group, Inc. (a) 20,600 1,765,008
Powell Industries, Inc. (a) 15,100 279,199
Woodward Governor Co. 20,400 1,460,844
---------------
4,391,131
---------------
MACHINERY--3.5%
Alamo Group, Inc. 25,600 695,296
Briggs & Stratton 39,000 1,621,620
EnPro Industries, Inc. (a) 55,100 1,629,307
Harsco Corp. 41,200 2,296,488
Kadant, Inc. (a) 53,100 1,088,550
Robbins & Myers, Inc. 49,287 1,174,509
Tecumseh Products Co., Class A 25,000 1,195,000
---------------
9,700,770
---------------
ROAD & RAIL--1.5%
Covenant Transport, Inc.,
Class A (a) 41,650 867,153
Dollar Thrifty Automotive
Group, Inc. (a) 36,300 1,096,260
U.S. Xpress Enterprises, Inc.,
Class A (a) 25,000 732,500
Werner Enterprises, Inc. 60,700 1,374,248
---------------
4,070,161
---------------
TRADING COMPANIES & DISTRIBUTORS--1.4%
Hughes Supply, Inc. 56,622 1,831,722
Watsco, Inc. 62,750 2,210,055
---------------
4,041,777
---------------
INFORMATION TECHNOLOGY--11.6%
COMMUNICATIONS EQUIPMENT--1.2%
Anaren, Inc. (a) 72,500 939,600
Belden CDT, Inc. 34,500 800,400
Black Box Corp. 22,000 1,056,440
Tollgrade Communications,
Inc. (a) 55,550 679,932
---------------
3,476,372
---------------
COMPUTERS & PERIPHERALS--1.1%
ActivCard Corp. (a) 87,900 782,310
Advanced Digital Information
Corp. (a) 16,900 169,338
Electronics for Imaging,
Inc. (a) 18,800 327,308
Hypercom Corp. (a) 102,000 603,840
Imation Corp. 9,800 311,934
Innovex, Inc. (a) 68,800 374,960
Intergraph Corp. (a) 21,466 578,079
---------------
3,147,769
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.5%
Agilysys, Inc. 44,550 763,587
Anixter International, Inc. 22,250 800,777
Benchmark Electronics, Inc. (a) 29,200 995,720
Brightpoint, Inc. (a) 79,600 1,555,384
Checkpoint Systems, Inc. (a) 55,600 1,003,580
</Table>
See Accompanying Notes to Financial Statements.
7
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Identix, Inc. (a) 106,700 $ 787,446
MTS Systems Corp. 40,150 1,357,472
NU Horizons Electronics
Corp. (a) 92,300 736,554
OSI Systems, Inc. (a) 36,500 828,915
Planar Systems, Inc. (a) 43,000 482,890
Vishay Intertechnology, Inc. (a) 34,600 519,692
---------------
9,832,017
---------------
INTERNET SOFTWARE & SERVICES--0.6%
Digitas, Inc. (a) 45,490 434,430
Keynote Systems, Inc. (a) 69,500 967,440
Stellent, Inc. (a) 17,100 150,822
---------------
1,552,692
---------------
IT SERVICES--2.1%
Acxiom Corp. 53,500 1,407,050
Computer Horizons Corp. (a) 99,900 380,619
Inforte Corp. (a) 69,300 546,084
Lightbridge, Inc. (a) 84,400 509,776
MAXIMUS, Inc. (a) 19,300 600,616
MPS Group, Inc. (a) 197,100 2,416,446
---------------
5,860,591
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--0.5%
Exar Corp. (a) 56,400 800,316
Pericom Semiconductor Corp. (a) 56,100 529,023
---------------
1,329,339
---------------
SOFTWARE--2.6%
Ascential Software Corp. (a) 66,100 1,078,091
Captaris, Inc. (a) 139,200 718,272
Internet Security Systems,
Inc. (a) 51,700 1,202,025
Lawson Software, Inc. (a) 68,800 472,656
MSC.Software Corp. (a) 90,100 943,347
PLATO Learning, Inc. (a) 81,262 605,402
SeaChange International, Inc. (a) 3,400 59,296
Sybase, Inc. (a) 42,900 855,855
Transaction Systems Architects,
Inc., Class A (a) 65,600 1,302,160
---------------
7,237,104
---------------
MATERIALS--9.8%
CHEMICALS--2.6%
Cytec Industries, Inc. 27,200 1,398,624
HB Fuller Co. 31,400 895,214
LESCO, Inc. 4,000 51,560
Lubrizol Corp. 19,400 715,084
Minerals Technologies, Inc. 20,700 1,380,690
Schulman (A.), Inc. 41,750 893,867
Sensient Technologies Corp. 41,200 988,388
Stepan Co. 34,200 833,112
---------------
7,156,539
---------------
CONSTRUCTION MATERIALS--0.8%
Eagle Materials, Inc. 26,300 2,271,005
---------------
CONTAINERS & PACKAGING--1.3%
Aptargroup, Inc. 24,600 $ 1,298,388
Greif, Inc., Class A 40,250 2,254,000
---------------
3,552,388
---------------
METALS & MINING--4.3%
AMCOL International Corp. 37,200 747,348
Carpenter Technology Corp. 57,300 3,349,758
Coeur d'Alene Mines Corp. (a) 208,200 818,226
Metal Management, Inc. 78,800 2,117,356
Peabody Energy Corp. 23,350 1,889,249
RTI International Metals,
Inc. (a) 71,750 1,473,745
Steel Technologies, Inc. 58,400 1,606,584
---------------
12,002,266
---------------
PAPER & FOREST PRODUCTS--0.8%
Glatfelter 84,900 1,297,272
Mercer International, Inc. (a) 93,300 993,645
---------------
2,290,917
---------------
TELECOMMUNICATION SERVICES--0.8%
DIVERSIFIED TELECOMMUNICATION SERVICES--0.4%
North Pittsburgh Systems, Inc. 43,000 1,063,390
---------------
WIRELESS TELECOMMUNICATION SERVICES--0.4%
Price Communications
Corp. (a) 55,075 1,023,844
---------------
UTILITIES--3.9%
ELECTRIC UTILITIES--3.2%
ALLETE, Inc. 24,200 889,350
Central Vermont Public
Service Corp. 60,300 1,402,578
CH Energy Group, Inc. 40,600 1,950,830
El Paso Electric Co. (a) 67,800 1,284,132
Maine & Maritimes Corp. 13,900 366,265
MGE Energy, Inc. 24,200 871,926
Otter Tail Corp. 34,200 873,126
Puget Energy, Inc. 58,800 1,452,360
---------------
9,090,567
---------------
GAS UTILITIES--0.7%
Cascade Natural Gas Corp. 25,900 549,080
Northwest Natural Gas Co. 19,800 668,052
WGL Holdings, Inc. 20,900 644,556
---------------
1,861,688
---------------
TOTAL COMMON STOCKS
(cost of $236,129,241) 277,569,578
---------------
</Table>
See Accompanying Notes to Financial Statements.
8
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
SHORT-TERM OBLIGATION--2.8%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/04, due 01/03/05
at 1.500%, collateralized by a
U.S. Treasury Bond maturing
11/15/27, market value of
$8,015,933 (repurchase
proceeds $7,855,982) $ 7,855,000 $ 7,855,000
---------------
TOTAL SHORT-TERM OBLIGATION
(cost of $7,855,000) 7,855,000
---------------
TOTAL INVESTMENTS--102.3%
(cost of $243,984,241)(b) 285,424,578
---------------
OTHER ASSETS & LIABILITIES, NET--(2.3)% (6,380,053)
---------------
NET ASSETS--100.0% $ 279,044,525
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $243,995,460.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 27.4%
Industrial 19.3
Consumer Discretionary 12.9
Information Technology 11.6
Materials 9.8
Energy 6.8
Health Care 4.6
Utilities 3.9
Consumer Staples 2.4
Telecommunication Services 0.8
Short-Term Obligation 2.8
Other Assets & Liabilities, Net (2.3)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
9
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 243,984,241
---------------
Investments, at value $ 285,424,578
Cash 22,466
Receivable for:
Fund shares sold 30,586
Interest 327
Dividends 260,833
Expense reimbursement due from Distributor 28,982
Deferred Trustees' compensation plan 5,122
---------------
TOTAL ASSETS 285,772,894
---------------
LIABILITIES:
Payable for:
Investments purchased 4,874,211
Fund shares repurchased 1,554,853
Investment advisory fee 178,304
Transfer agent fee 625
Pricing and bookkeeping fees 7,105
Custody fee 12,969
Distribution fee--Class B 52,673
Deferred Trustees' fees 5,122
Other liabilities 42,507
---------------
TOTAL LIABILITIES 6,728,369
---------------
NET ASSETS $ 279,044,525
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 237,056,366
Overdistributed net investment income (191,969)
Accumulated net realized gain 739,791
Net unrealized appreciation on investments 41,440,337
---------------
NET ASSETS $ 279,044,525
===============
CLASS A:
Net assets $ 14,557,437
Shares outstanding 859,289
===============
Net asset value per share $ 16.94
===============
CLASS B:
Net assets $ 264,487,088
Shares outstanding 15,627,679
===============
Net asset value per share $ 16.92
===============
</Table>
See Accompanying Notes to Financial Statements.
10
<Page>
STATEMENT OF OPERATIONS
Colonial Small Cap Value Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 2,454,005
Interest 44,288
---------------
Total Investment Income (net of foreign taxes withheld of $26) 2,498,293
---------------
EXPENSES:
Investment advisory fee 1,306,990
Distribution fee--Class B 378,114
Transfer agent fee 7,500
Pricing and bookkeeping fees 54,220
Trustees' fees 8,177
Custody fee 141,144
Non-recurring costs (See Note 6) 7,353
Other expenses 68,684
---------------
Total Expenses 1,972,182
Fees reimbursed by Distributor--Class B (183,342)
Non-recurring costs assumed by Investment Advisor (See Note 6) (7,353)
Custody earnings credit (347)
---------------
Net Expenses 1,781,140
---------------
Net Investment Income 717,153
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 6,089,363
Foreign currency transactions 3
---------------
Net realized gain 6,089,366
---------------
Net change in unrealized appreciation/depreciation on investments 32,496,427
---------------
Net Gain 38,585,793
---------------
Net Increase in Net Assets from Operations $ 39,302,946
===============
</Table>
See Accompanying Notes to Financial Statements.
11
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Small Cap Value Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 717,153 $ 168,931
Net realized gain on investments and foreign currency transactions 6,089,366 2,017,004
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations 32,496,427 9,341,998
--------------- ---------------
Net Increase from Operations 39,302,946 11,527,933
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (59,647) (22,479)
Class B (777,348) (119,531)
From net realized gains:
Class A (363,580) (238,640)
Class B (6,319,347) (908,385)
--------------- ---------------
Total Distributions Declared to Shareholders (7,519,922) (1,289,035)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 3,893,180 2,010,453
Distributions reinvested 423,227 259,626
Redemptions (2,651,167) (2,180,602)
--------------- ---------------
Net Increase 1,665,240 89,477
--------------- ---------------
Class B:
Subscriptions 175,158,904 40,839,812
Distributions reinvested 7,096,695 1,029,409
Redemptions (6,127,471) (2,701,725)
--------------- ---------------
Net Increase 176,128,128 39,167,496
--------------- ---------------
Net Increase from Share Transactions 177,793,368 39,256,973
--------------- ---------------
Total Increase in Net Assets 209,576,392 49,495,871
NET ASSETS:
Beginning of period 69,468,133 19,972,262
--------------- ---------------
End of period (including undistributed (overdistributed) net investment
income of $(191,969) and $26,748, respectively) $ 279,044,525 $ 69,468,133
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 254,063 173,870
Issued for distributions reinvested 25,530 19,197
Redemptions (174,777) (191,845)
--------------- ---------------
Net Increase 104,816 1,222
--------------- ---------------
Class B:
Subscriptions 11,470,781 3,132,027
Issued for distributions reinvested 427,336 74,615
Redemptions (399,816) (230,723)
--------------- ---------------
Net Increase 11,498,301 2,975,919
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
12
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series / December 31, 2004
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. 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. If the Fund no longer owns the
applicable securities, any distributions received in excess of income are
recorded as realized gains.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
13
<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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for foreign currency transactions,
distribution reclassifications, partnership adjustments and REIT adjustments
were identified and reclassified among the components of the Fund's net assets
as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED GAIN CAPITAL
--------------------- ----------------- -------
$ (35,415) $ 35,423 $ (8)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income* $ 5,382,821 $ 977,202
Long-term capital gains 2,137,101 311,833
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ 701,734 $ 49,277 $ 41,429,118
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales and
REIT adjustments.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 47,006,164
Unrealized depreciation (5,577,046)
------------
Net unrealized appreciation $ 41,429,118
============
</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 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
14
<Page>
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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.033%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's 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 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. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,344 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $220,123,072 and
$48,082,341, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds,
15
<Page>
Nations Funds and other mutual fund management fees collectively by $32 million
per year for five years, for a projected total of $160 million in management fee
reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $7,353 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
16
<Page>
FINANCIAL HIGHLIGHTS
Colonial Small Cap Value Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- --------- --------- --------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.23 $ 10.48 $ 11.56 $ 10.73 $ 9.12
---------- --------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.09 0.07 0.02 0.02 0.07
Net realized and unrealized gain (loss) on investments
and foreign currency 3.13 4.03 (0.73) 0.98 1.65
---------- --------- --------- --------- ----------
Total from Investment Operations 3.22 4.10 (0.71) 1.00 1.72
---------- --------- --------- --------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.07) (0.03) (0.01) (0.02) (0.05)
From net realized gains (0.44) (0.32) (0.36) (0.15) (0.06)
---------- --------- --------- --------- ----------
Total Distributions Declared to Shareholders (0.51) (0.35) (0.37) (0.17) (0.11)
---------- --------- --------- --------- ----------
NET ASSET VALUE, END OF PERIOD $ 16.94 $ 14.23 $ 10.48 $ 11.56 $ 10.73
========== ========= ========= ========= ==========
Total return (b)(c) 22.70% 39.30%(d) (6.12)%(d) 9.30%(d) 18.88%(d)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (e) 0.97% 1.10% 1.10% 1.10% 1.07%
Net investment income (e) 0.57% 0.59% 0.18% 0.22% 0.76%
Waiver/reimbursement -- 0.11% 0.04% 0.22% 0.82%
Portfolio turnover rate 30% 55% 125% 56% 54%
Net assets, end of period (000's) $ 14,557 $ 10,738 $ 7,893 $ 9,361 $ 7,616
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(d) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
17
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Colonial Small Cap Value Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Colonial Small Cap Value Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
18
<Page>
UNAUDITED INFORMATION
Colonial Small Cap Value Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
For the fiscal year ended December 31, 2004, the Fund designates long-term
capital gains of $1,920,100.
41.84% of the ordinary income distributed by the Fund for the year ended
December 31, 2004, qualifies for the corporate dividends received deduction.
19
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Strategic Income Fund, Variable Series / December 31, 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.
The fund delivered a solid return in 2004, outpacing the US Treasury market and
the average return of competing funds in its peer group, the Lipper Variable
Series General Bond Category(1). The fund's high-yield securities and
investments in foreign debt were instrumental in producing an above-average
return.
HIGH YIELD CONTINUES TO OUTPERFORM
Lower quality corporate bonds outperformed US Treasury obligations during this
reporting period, continuing a pattern that has been in place for most of the
last two years. With approximately 39% of assets invested in the US high-yield
marketplace, the fund has been positioned to take advantage of this positive
environment for credit which rewarded holders of bonds with lower credit
quality.
The fund's high-yield holdings carry an average credit quality of single B,
compared to a weighted average of BBB+ for the fund as a whole. An overweight
position in B and CCC-rated bonds in this sector paid off handsomely, especially
during the stock market rally that followed the US election in early November.
By contrast, the fund's position in Treasury securities was limited to just 23%
of the fund's assets during the period.
Specific holdings that helped the fund included Levi Strauss & Co., the
casual clothing maker, and chemicals manufacturer Huntsman ICI Holdings LLC
(0.3% and 0.4% of net assets, respectively). Levi Strauss stabilized its
operations as it investigated a possible sale of its Dockers brand. (In October,
the company announced plans to retain the brand.) Huntsman ICI benefited from
the upward trend in commodity chemical prices and from anticipation of a
proposed transaction that would retire the bonds at a premium. Poor performers
included Delta Air Lines, Inc. which faced high fuel prices and high labor
costs, and Merisant Co., manufacturer of Equal, a popular sugar substitute (0.1%
and 0.1% of net assets, respectively). Equal lost market share to Johnson &
Johnson's Splenda.
FOREIGN BONDS OUTPERFORMED DOMESTIC HOLDINGS
Throughout the period, approximately 35% of the fund's total assets were
invested outside the United States. The fund's exposure to the non-dollar
denominated bonds of developed countries was of particular value because of the
ongoing decline in the US dollar. The euro and the British pound made
significant gains versus the dollar, as did the South African rand. Toward the
end of the period we took some profits in rand-denominated positions.
Bonds from emerging markets accounted for approximately 14-15% of the assets.
Emerging market bonds performed well during the period as the global interest
rate environment remained favorable and the demand for commodities remained
strong. In particular, oil producing countries such as Russia, Venezuela and
Mexico benefited from the sustained strength in oil prices. Overall, the fund
has been positioned so that high oil prices are a net positive, even though they
tend to hurt the economies of developed oil importers, notably in Europe. The
credit quality of many emerging market countries has improved over the past two
years, adding to the strong performance of emerging market debt.
PREPARING FOR HIGHER RATES AND A LOWER DOLLAR
We have structured the fund to benefit from continued stable economic growth in
the United States and abroad. As long as the US economy continues to grow at a
reasonable rate, we expect the Federal Reserve Board to continue to raise
short-term rates, a course that it set in motion with five increases during this
reporting period. We continue to maintain substantial allocations to the
high-yield and foreign government sectors, including exposure to foreign
currency. Although the dollar has been weak for some time now, investors are
paying increasing attention to the United States' fiscal, current account and
trade deficits. If the financial markets bid the dollar down even further to
adjust these imbalances, the fund is positioned to benefit.
We also believe that the fixed-income markets are likely to become more
discriminating in the year ahead. Whereas overweighting higher-yielding bonds as
a group was a successful strategy in 2004, we believe that investors are likely
to become more discerning in judging which lower quality issues merited their
swift run-ups and which did not. We believe this environment calls for a more
defensive approach, so we plan to look for opportunities to reduce the fund's
risk exposure where appropriate.
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. The value of
fixed-income securities generally move inversely with changes in interest rates
such that when interest rates rise, bond values fall and vice versa.
Holdings are disclosed as of December 31, 2004, and are subject to change.
(1) Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the fund.
20
<Page>
PERFORMANCE INFORMATION
Colonial Strategic Income Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------
Class A (7/5/94) 10.16 8.01 8.44
Lehman Brothers
Government/Credit
Bond Index 4.19 8.00 7.80
JP Morgan Global
High Yield Index 11.55 7.61 8.62
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 1/1/95 - 12/31/04
Class A: $22,490
<Table>
<Caption>
CLASS A SHARES LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX JP MORGAN GLOBAL HIGH YIELD INDEX
1/1/1995 $ 10,000 $ 10,000 $ 10,000
1/31/1995 $ 10,133 $ 10,192 $ 10,128
2/28/1995 $ 10,378 $ 10,428 $ 10,489
3/31/1995 $ 10,562 $ 10,498 $ 10,594
4/30/1995 $ 10,756 $ 10,645 $ 10,868
5/31/1995 $ 11,052 $ 11,091 $ 11,178
6/30/1995 $ 11,103 $ 11,180 $ 11,222
7/31/1995 $ 11,205 $ 11,136 $ 11,397
8/31/1995 $ 11,205 $ 11,279 $ 11,442
9/30/1995 $ 11,399 $ 11,394 $ 11,578
10/31/1995 $ 11,552 $ 11,562 $ 11,686
11/30/1995 $ 11,664 $ 11,752 $ 11,762
12/31/1995 $ 11,829 $ 11,925 $ 11,952
1/31/1996 $ 12,002 $ 11,999 $ 12,179
2/29/1996 $ 11,905 $ 11,745 $ 12,252
3/31/1996 $ 11,851 $ 11,646 $ 12,212
4/30/1996 $ 11,905 $ 11,566 $ 12,288
5/31/1996 $ 11,915 $ 11,546 $ 12,381
6/30/1996 $ 11,990 $ 11,700 $ 12,434
7/31/1996 $ 12,087 $ 11,726 $ 12,517
8/31/1996 $ 12,228 $ 11,697 $ 12,703
9/30/1996 $ 12,475 $ 11,905 $ 13,004
10/31/1996 $ 12,668 $ 12,183 $ 13,123
11/30/1996 $ 12,970 $ 12,407 $ 13,365
12/31/1996 $ 12,992 $ 12,269 $ 13,508
1/31/1997 $ 12,956 $ 12,284 $ 13,615
2/28/1997 $ 13,051 $ 12,310 $ 13,849
3/31/1997 $ 12,863 $ 12,163 $ 13,623
4/30/1997 $ 13,028 $ 12,341 $ 13,751
5/31/1997 $ 13,240 $ 12,456 $ 14,069
6/30/1997 $ 13,428 $ 12,605 $ 14,254
7/31/1997 $ 13,746 $ 12,991 $ 14,634
8/31/1997 $ 13,653 $ 12,845 $ 14,642
9/30/1997 $ 13,948 $ 13,047 $ 14,934
10/31/1997 $ 13,972 $ 13,256 $ 14,913
11/30/1997 $ 14,043 $ 13,326 $ 15,047
12/31/1997 $ 14,179 $ 13,466 $ 15,183
1/31/1998 $ 14,407 $ 13,656 $ 15,418
2/28/1998 $ 14,445 $ 13,628 $ 15,537
3/31/1998 $ 14,546 $ 13,671 $ 15,694
4/30/1998 $ 14,610 $ 13,739 $ 15,772
5/31/1998 $ 14,674 $ 13,886 $ 15,794
6/30/1998 $ 14,699 $ 14,028 $ 15,827
7/31/1998 $ 14,827 $ 14,039 $ 15,960
8/31/1998 $ 14,278 $ 14,313 $ 14,926
9/30/1998 $ 14,597 $ 14,722 $ 14,911
10/31/1998 $ 14,622 $ 14,617 $ 14,590
11/30/1998 $ 15,041 $ 14,705 $ 15,394
12/31/1998 $ 15,032 $ 14,742 $ 15,331
1/31/1999 $ 15,154 $ 14,847 $ 15,515
2/28/1999 $ 14,978 $ 14,493 $ 15,436
3/31/1999 $ 15,182 $ 14,566 $ 15,626
4/30/1999 $ 15,385 $ 14,602 $ 16,023
5/31/1999 $ 15,073 $ 14,452 $ 13,203
6/30/1999 $ 15,087 $ 14,407 $ 15,795
7/31/1999 $ 15,073 $ 14,367 $ 15,799
8/31/1999 $ 15,019 $ 14,355 $ 15,641
9/30/1999 $ 15,100 $ 14,484 $ 15,529
10/31/1999 $ 15,100 $ 14,522 $ 15,443
11/30/1999 $ 15,195 $ 14,513 $ 15,695
12/31/1999 $ 15,300 $ 14,425 $ 15,849
1/31/2000 $ 15,153 $ 14,420 $ 15,789
2/29/2000 $ 15,344 $ 14,601 $ 15,852
3/31/2000 $ 15,286 $ 14,812 $ 15,582
4/30/2000 $ 15,154 $ 14,740 $ 15,579
5/31/2000 $ 15,022 $ 14,726 $ 15,358
6/30/2000 $ 15,300 $ 15,027 $ 15,660
7/31/2000 $ 15,418 $ 15,186 $ 15,798
8/31/2000 $ 15,580 $ 15,400 $ 15,920
9/30/2000 $ 15,396 $ 15,459 $ 15,711
10/31/2000 $ 15,117 $ 15,556 $ 15,251
11/30/2000 $ 14,853 $ 15,822 $ 14,668
12/31/2000 $ 15,325 $ 16,134 $ 14,927
1/31/2001 $ 15,960 $ 16,405 $ 15,831
2/28/2001 $ 16,009 $ 16,574 $ 16,015
3/31/2001 $ 15,668 $ 16,650 $ 15,701
4/30/2001 $ 15,538 $ 16,525 $ 15,536
5/31/2001 $ 15,603 $ 16,621 $ 15,841
6/30/2001 $ 15,424 $ 16,701 $ 15,567
7/31/2001 $ 15,489 $ 17,117 $ 15,724
8/31/2001 $ 15,764 $ 17,336 $ 15,928
9/30/2001 $ 15,309 $ 17,495 $ 14,877
10/31/2001 $ 15,748 $ 17,940 $ 15,247
11/30/2001 $ 15,959 $ 17,646 $ 15,766
12/31/2001 $ 15,889 $ 17,506 $ 15,745
1/31/2002 $ 15,960 $ 17,634 $ 15,860
2/28/2002 $ 15,996 $ 17,784 $ 15,741
3/31/2002 $ 16,048 $ 17,423 $ 16,097
4/30/2002 $ 16,352 $ 17,761 $ 16,342
5/31/2002 $ 16,424 $ 17,924 $ 16,286
6/30/2002 $ 16,210 $ 18,077 $ 15,700
7/31/2002 $ 16,032 $ 18,293 $ 15,263
8/31/2002 $ 16,317 $ 18,703 $ 15,404
9/30/2002 $ 16,407 $ 19,105 $ 15,224
10/31/2002 $ 16,461 $ 18,922 $ 15,114
11/30/2002 $ 16,817 $ 18,933 $ 15,897
12/31/2002 $ 17,227 $ 19,435 $ 16,081
1/31/2003 $ 17,440 $ 19,435 $ 16,499
2/28/2003 $ 17,808 $ 19,781 $ 16,740
3/31/2003 $ 17,963 $ 19,755 $ 17,144
4/30/2003 $ 18,621 $ 19,967 $ 17,994
5/31/2003 $ 19,124 $ 20,534 $ 18,244
6/30/2003 $ 19,259 $ 20,452 $ 18,777
7/31/2003 $ 18,815 $ 19,595 $ 18,659
8/31/2003 $ 18,892 $ 19,724 $ 18,843
9/30/2003 $ 19,530 $ 20,349 $ 19,365
10/31/2003 $ 19,589 $ 20,091 $ 19,725
11/30/2003 $ 19,898 $ 20,145 $ 20,002
12/31/2003 $ 20,420 $ 20,344 $ 20,508
1/31/2004 $ 20,565 $ 20,530 $ 20,883
2/29/2004 $ 20,690 $ 20,780 $ 20,900
3/31/2004 $ 20,858 $ 20,971 $ 21,063
4/30/2004 $ 20,336 $ 20,327 $ 20,985
5/31/2004 $ 20,212 $ 20,224 $ 20,659
6/30/2004 $ 20,420 $ 20,307 $ 20,973
7/31/2004 $ 20,649 $ 20,522 $ 21,238
8/31/2004 $ 21,087 $ 20,957 $ 21,595
9/30/2004 $ 21,378 $ 21,030 $ 21,906
10/31/2004 $ 21,773 $ 21,213 $ 22,274
11/30/2004 $ 22,148 $ 20,978 $ 22,523
12/31/2004 $ 22,490 $ 21,202 $ 22,865
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- ----------------------------------------------------------
Class A 9.80 9.96
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
Total return performance includes changes in share price and reinvestment of all
distributions. The Lehman Brothers Government/Credit Bond Index is an unmanaged
index that tracks the performance of a selection of US government and investment
grade US corporate bonds. The JP Morgan Global High Yield Index is designed to
mirror the investable universe of the US dollar global high yield corporate debt
market, including domestic and international issues. Indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in an index. Securities in the fund may
not match those in an index.
21
<Page>
UNDERSTANDING YOUR EXPENSES
Colonial Strategic Income Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,101.60 1,021.11 4.23 4.06 0.80
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
22
<Page>
INVESTMENT PORTFOLIO
Colonial Strategic Income Fund, Variable Series / December 31, 2004
<Table>
<Caption>
PAR VALUE
--------------- ---------------
CORPORATE FIXED-INCOME
BONDS & NOTES--41.0%
BASIC MATERIALS--3.9%
CHEMICALS--2.1%
AGRICULTURAL CHEMICALS--0.6%
IMC Global, Inc.
10.875% 08/01/13 $ 205,000 $ 256,250
Terra Capital, Inc.
12.875% 10/15/08 310,000 379,750
UAP Holding Corp.
(a) 07/15/12
(10.750% 01/15/08) (b) 190,000 147,250
United Agri Products
8.750% 12/15/11 (b) 162,000 173,745
---------------
956,995
---------------
CHEMICALS - DIVERSIFIED--1.3%
BCP Caylux Holding
Luxembourg SCA
9.625% 06/15/14 (b) 140,000 157,325
Equistar Chemicals LP
10.625% 05/01/11 310,000 359,212
HMP Equity Holdings Corp.
(c) 05/15/08 560,000 369,600
Huntsman ICI Holdings LLC
(c) 12/31/09 1,090,000 611,763
Huntsman International LLC
7.375% 01/01/15 (b) 115,000 115,575
Lyondell Chemical Co.
9.625% 05/01/07 350,000 385,000
NOVA Chemicals Corp.
6.500% 01/15/12 110,000 117,361
Westlake Chemical Corp.
8.750% 07/15/11 85,000 95,838
---------------
2,211,674
---------------
CHEMICALS - SPECIALTY--0.2%
Crompton Corp.
7.670% 08/01/10 (b)(d) 115,000 123,912
Rhodia SA
8.875% 06/01/11 195,000 197,925
---------------
321,837
---------------
FOREST PRODUCTS & PAPER--0.8%
FORESTRY--0.2%
Millar Western Forest Products Ltd.
7.750% 11/15/13 145,000 155,150
Tembec Industries, Inc.
8.500% 02/01/11 120,000 120,600
---------------
275,750
---------------
PAPER & RELATED PRODUCTS--0.6%
Boise Cascade LLC
5.005% 10/15/12 (b)(d) 105,000 108,937
7.125% 10/15/14 (b) 120,000 126,900
Buckeye Technologies, Inc.
8.500% 10/01/13 40,000 43,900
Caraustar Industries, Inc.
9.875% 04/01/11 190,000 206,625
Georgia-Pacific Corp.
8.000% 01/15/24 125,000 146,250
Neenah Paper, Inc.
7.375% 11/15/14 (b) $ 85,000 $ 86,063
Newark Group, Inc.
9.750% 03/15/14 (b) 180,000 191,700
Norske Skog Canada Ltd.
7.375% 03/01/14 65,000 67,600
8.625% 06/15/11 90,000 96,525
---------------
1,074,500
---------------
IRON/STEEL--0.6%
METAL - IRON--0.2%
Wise Metals Group LLC
10.250% 05/15/12 (b) 270,000 272,700
---------------
STEEL - PRODUCERS--0.1%
Bayou Steel Corp.
9.000% 03/31/11 125,000 117,500
Steel Dynamics, Inc.
9.500% 03/15/09 105,000 115,763
---------------
233,263
---------------
STEEL - SPECIALTY--0.3%
Oregon Steel Mills, Inc.
10.000% 07/15/09 130,000 144,950
UCAR Finance, Inc.
10.250% 02/15/12 250,000 287,500
---------------
432,450
---------------
MINING--0.4%
METAL - ALUMINUM--0.1%
Kaiser Aluminum &
Chemical Corp.
10.875% 10/15/06 (e) 240,000 212,400
---------------
METAL - DIVERSIFIED--0.2%
Earle M. Jorgensen & Co.
9.750% 06/01/12 240,000 270,000
---------------
METAL SERVICES--0.1%
HudBay Mining and
Smelting Co. Ltd.
9.625% 01/15/12 (b) 155,000 151,900
---------------
COMMUNICATIONS--9.3%
ADVERTISING--0.1%
ADVERTISING SERVICES--0.1%
WDAC Subsidiary Corp.
8.375% 12/01/14 (b)(f) 180,000 178,200
---------------
MEDIA--4.5%
BROADCAST SERVICES/PROGRAMS--0.2%
Fisher Communications, Inc.
8.625% 09/15/14 (b) 180,000 194,625
XM Satellite Radio Holdings, Inc.
7.660% 05/01/09 (d) 160,000 163,200
---------------
357,825
---------------
CABLE TV--1.9%
Atlantic Broadband Finance LLC
9.375% 01/15/14 (b) 235,000 227,950
Cablevision Systems Corp.
6.669% 04/01/09 (b)(d) 185,000 197,025
</Table>
See Accompanying Notes to Financial Statements.
23
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
CCO Holdings LLC/Capital Corp.
6.615% 12/15/10 (b)(d) $ 140,000 $ 139,650
Charter Communications
Holding LLC
9.920% 04/01/11 975,000 829,969
10.250% 09/15/10 160,000 169,600
CSC Holdings, Inc.
6.750% 04/15/12 (b) 205,000 210,637
7.625% 04/01/11 25,000 26,937
DirecTV Holdings LLC
8.375% 03/15/13 115,000 128,944
EchoStar DBS Corp.
6.375% 10/01/11 290,000 297,250
Insight Communications
(a) 02/15/11
(12.250% 02/15/06) 105,000 102,900
Insight Midwest LP
9.750% 10/01/09 115,000 120,606
Northland Cable Television, Inc.
10.250% 11/15/07 305,000 302,713
Pegasus Satellite
Communications, Inc.
11.250% 01/15/10 (b)(e) 270,000 174,150
Telenet Group Holding NV
(a) 06/15/14
(11.500% 12/15/08) (b) 260,000 200,200
---------------
3,128,531
---------------
MULTIMEDIA--0.7%
Advanstar Communications, Inc.
(a) 10/15/11
(15.000% 10/15/05) 185,000 156,325
12.000% 02/15/11 195,000 209,625
Haights Cross
Communications, Inc.
(a) 08/15/11
(12.500% 02/01/09) 205,000 134,275
Haights Cross Operating Co.
11.750% 08/15/11 (b) 85,000 96,050
11.750% 08/15/11 195,000 220,350
Quebecor Media, Inc.
11.125% 07/15/11 205,000 234,725
---------------
1,051,350
---------------
PUBLISHING - NEWSPAPERS--0.1%
Hollinger, Inc.
11.875% 03/01/11 (b)(g) 81,000 88,137
12.875% 03/01/11 (b) 127,000 137,319
---------------
225,456
---------------
PUBLISHING - PERIODICALS--0.8%
CBD Media Holdings &
Finance, Inc.
9.250% 07/15/12 (b) 145,000 149,350
Dex Media East LLC
12.125% 11/15/12 240,000 292,800
Dex Media, Inc.
(a) 11/15/13
(9.000% 11/15/08) 160,000 125,200
8.000% 11/15/13 220,000 237,600
Dex Media West LLC
9.875% 08/15/13 $ 176,000 $ 202,840
Primedia, Inc.
8.875% 05/15/11 315,000 333,900
---------------
1,341,690
---------------
RADIO--0.2%
Spanish Broadcasting System
9.625% 11/01/09 295,000 309,750
---------------
TELEVISION--0.6%
Granite Broadcasting Corp.
9.750% 12/01/10 365,000 349,487
Paxson Communications
10.750% 07/15/08 355,000 371,863
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 250,000 272,500
---------------
993,850
---------------
TELECOMMUNICATIONS--4.7%
CELLULAR TELECOMMUNICATIONS--2.0%
American Cellular Corp.
Series B
10.000% 08/01/11 180,000 154,350
Dobson Cellular Systems
8.375% 11/01/11 (b) 55,000 57,131
Dobson Communications Corp.
8.875% 10/01/13 345,000 242,362
Horizon PCS, Inc.
11.375% 07/15/12 (b) 145,000 163,125
iPCS Escrow Co.
11.500% 05/01/12 (b) 105,000 119,437
Nextel Communications, Inc.
7.375% 08/01/15 390,000 431,438
Nextel Partners, Inc.
8.125% 07/01/11 255,000 283,050
Rogers Cantel, Inc.
9.750% 06/01/16 400,000 479,000
Rogers Wireless, Inc.
8.000% 12/15/12 (b) 140,000 148,050
Rural Cellular Corp.
8.250% 03/15/12 150,000 158,250
UbiquiTel Operating Co.
9.875% 03/01/11 150,000 168,000
9.875% 03/01/11 (b) 110,000 123,200
US Unwired, Inc.
10.000% 06/15/12 300,000 338,250
Western Wireless Corp.
9.250% 07/15/13 270,000 293,625
---------------
3,159,268
---------------
SATELLITE TELECOMMUNICATIONS--0.3%
Inmarsat Finance II PLC
(a) 11/15/12
(10.375% 11/15/08) (b) 140,000 100,800
New Skies Satellites NV
9.125% 11/01/12 (b) 125,000 126,250
PanAmSat Corp.
9.000% 08/15/14 (b) 120,000 133,800
</Table>
See Accompanying Notes to Financial Statements.
24
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
PanAmSat Holding Corp.
(a) 11/01/14
(10.375% 11/01/09) (b) $ 275,000 $ 188,375
---------------
549,225
---------------
TELECOMMUNICATION EQUIPMENT--0.1%
Lucent Technologies, Inc.
6.450% 03/15/29 220,000 200,200
---------------
TELECOMMUNICATION SERVICES--0.7%
Axtel SA
11.000% 12/15/13 270,000 290,250
Carrier1 International SA
13.250% 02/15/09 (e)(l) 500,000 45,000
FairPoint Communications, Inc.
11.875% 03/01/10 180,000 210,600
Securus Technologies, Inc.
11.000% 09/01/11 (b) 225,000 225,000
Time Warner Telecom LLC
9.750% 07/15/08 100,000 101,250
10.125% 02/01/11 255,000 250,538
---------------
1,122,638
---------------
TELEPHONE - INTEGRATED--1.3%
Cincinnati Bell, Inc.
8.375% 01/15/14 300,000 304,500
Qwest Capital Funding, Inc.
7.250% 02/15/11 665,000 650,038
7.750% 02/15/31 265,000 231,875
Qwest Services Corp.
14.000% 12/15/10 (b) 680,000 817,700
US LEC Corp.
10.670% 10/01/09 (b)(d) 115,000 114,750
---------------
2,118,863
---------------
WIRELESS EQUIPMENT--0.3%
American Towers, Inc.
7.250% 12/01/11 130,000 137,800
SBA Communications Corp.
(a) 12/15/11
(9.750% 12/15/07) 220,000 185,350
Spectrasite Inc.
8.250% 05/15/10 150,000 160,125
---------------
483,275
---------------
CONSUMER CYCLICAL--8.2%
AIRLINES--0.5%
AIRLINES--0.5%
Continental Airlines, Inc.
7.568% 12/01/06 275,000 220,000
Delta Air Lines, Inc.
7.900% 12/15/09 135,000 84,375
Northwest Airlines, Inc.
9.875% 03/15/07 400,000 360,000
United Air Lines Inc.
2.020% 03/02/04 (d)(h) 198,207 170,458
---------------
834,833
---------------
APPAREL--0.6%
APPAREL MANUFACTURERS--0.6%
Broder Brothers Co.
11.250% 10/15/10 $ 170,000 $ 177,650
11.250% 10/15/10 (b) 85,000 88,825
Levi Strauss & Co.
12.250% 12/15/12 420,000 466,200
Phillips-Van Heusen Corp.
7.250% 02/15/11 95,000 99,750
8.125% 05/01/13 115,000 124,775
---------------
957,200
---------------
AUTO MANUFACTURERS--0.1%
AUTO--MEDIUM & HEAVY DUTY TRUCKS--0.1%
Navistar International Corp.
7.500% 06/15/11 175,000 187,687
---------------
AUTO PARTS & EQUIPMENT--0.7%
AUTO/TRUCK PARTS & EQUIPMENT--ORIGINAL--0.3%
Accuride Corp.
Series B
9.250% 02/01/08 100,000 101,500
Delco Remy International, Inc.
11.000% 05/01/09 200,000 212,250
Dura Operating Corp.
8.625% 04/15/12 225,000 234,562
---------------
548,312
---------------
AUTO/TRUCK PARTS & EQUIPMENT--
REPLACEMENT--0.1%
Rexnord Corp.
10.125% 12/15/12 150,000 169,688
---------------
RUBBER--TIRES--0.3%
Cooper Standard Auto
8.375% 12/15/14 (b) 125,000 125,000
Goodyear Tire & Rubber Co.
7.857% 08/15/11 310,000 311,550
---------------
436,550
---------------
ENTERTAINMENT--1.3%
GAMBLING (NON-HOTEL)--0.2%
Global Cash Access LLC
8.750% 03/15/12 265,000 285,537
---------------
MUSIC--0.3%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 155,000 168,175
Warner Music Group
7.375% 04/15/14 (b) 240,000 246,000
---------------
414,175
---------------
RESORTS/THEME PARKS--0.4%
Six Flags, Inc.
9.625% 06/01/14 485,000 491,063
Universal City Florida Holding Co.
7.200% 05/01/10 (b)(d) 80,000 83,400
8.375% 05/01/10 (b) 30,000 31,275
---------------
605,738
---------------
THEATERS--0.4%
LCE Acquisition Corp.
9.000% 08/01/14 (b) 290,000 314,650
</Table>
See Accompanying Notes to Financial Statements.
25
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Marquee Holdings, Inc.
(a) 08/15/14
(12.000% 08/15/09) (b) $ 595,000 $ 398,650
---------------
713,300
---------------
HOME BUILDERS--0.8%
BUILDINGS--RESIDENTIAL/COMMERCIAL--0.8%
D.R. Horton, Inc.
9.750% 09/15/10 575,000 697,187
K. Hovnanian Enterprises, Inc.
8.875% 04/01/12 45,000 49,725
10.500% 10/01/07 250,000 287,813
Standard Pacific Corp.
9.250% 04/15/12 185,000 215,063
---------------
1,249,788
---------------
HOME FURNISHINGS--0.3%
HOME FURNISHINGS--0.3%
Norcraft Companies
9.000% 11/01/11 90,000 97,200
WII Components, Inc.
10.000% 02/15/12 375,000 378,750
---------------
475,950
---------------
LEISURE TIME--0.6%
CRUISE LINES--0.0%
NCL Corp.
10.625% 07/15/14 (b) 80,000 79,400
---------------
LEISURE & RECREATIONAL PRODUCTS--0.2%
Bombardier Recreational Products, Inc.
8.375% 12/15/13 155,000 165,850
K2, Inc.
7.375% 07/01/14 (b) 120,000 131,700
---------------
297,550
---------------
RECREATIONAL CENTERS--0.4%
AMF Bowling Worldwide, Inc.
10.000% 03/01/10 225,000 240,750
Equinox Holdings, Inc.
9.000% 12/15/09 240,000 255,600
Town Sports International, Inc.
(a) 02/01/14
(11.000% 02/01/09) 280,000 158,200
---------------
654,550
---------------
LODGING--2.0%
CASINO HOTELS--2.0%
Circus & Eldorado/Silver
Legacy Capital Corp.
10.125% 03/01/12 125,000 135,937
Hard Rock Hotel, Inc.
8.875% 06/01/13 225,000 246,937
Hollywood Casino Shreveport
13.000% 08/01/06 (i) 600,000 510,000
Inn of the Mountain Gods
Resort & Casino
12.000% 11/15/10 205,000 240,363
MGM Mirage
6.750% 09/01/12 255,000 269,025
Mohegan Tribal
Gaming Authority
7.125% 08/15/14 (b) $ 45,000 $ 47,531
Pinnacle Entertainment, Inc.
8.250% 03/15/12 490,000 520,625
8.750% 10/01/13 165,000 178,200
Premier Entertainment
Biloxi Financial LLC
10.750% 02/01/12 130,000 142,350
River Rock Entertainment
9.750% 11/01/11 275,000 308,000
Seneca Gaming Corp.
7.250% 05/01/12 215,000 227,363
Station Casinos, Inc.
6.875% 03/01/16 65,000 67,925
Virgin River Casino Corp.
(a) 01/15/13
(12.750% 01/15/09) (b) 150,000 93,750
9.000% 01/15/12 (b) 83,000 86,320
Wynn Las Vegas LLC
6.625% 12/01/14 (b) 230,000 227,700
---------------
3,302,026
---------------
RETAIL--1.1%
RETAIL--AUTOMOBILES--0.1%
Asbury Automotive Group, Inc.
8.000% 03/15/14 200,000 199,000
---------------
RETAIL--DRUG STORES--0.3%
Jean Coutu Group (PJC), Inc.,
8.500% 08/01/14 (b) 145,000 148,987
Rite Aid Corp.
9.250% 06/01/13 295,000 300,900
---------------
449,887
---------------
RETAIL--HOME FURNISHINGS--0.2%
Levitz Home Furnishings, Inc.
12.000% 11/01/11 (b) 140,000 142,800
Tempur-Pedic, Inc.
10.250% 08/15/10 173,000 199,815
---------------
342,615
---------------
RETAIL--JEWELRY--0.1%
Finlay Fine Jewelry Corp.
8.375% 06/01/12 185,000 199,800
---------------
RETAIL--MAJOR DEPARTMENT STORES--0.1%
Saks, Inc.
7.000% 12/01/13 55,000 56,169
---------------
RETAIL--PROPANE DISTRIBUTORS--0.1%
Ferrellgas Partners LP
8.750% 06/15/12 180,000 195,300
---------------
RETAIL--RESTAURANTS--0.2%
Denny's Holdings, Inc.
10.000% 10/01/12 (b) 170,000 183,600
Landry's Restaurants, Inc.
7.500% 12/15/14 (b) 130,000 129,025
---------------
312,625
---------------
</Table>
See Accompanying Notes to Financial Statements.
26
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
TEXTILES--0.2%
TEXTILE--PRODUCTS--0.2%
Collins & Aikman
Floor Covering, Inc.
9.750% 02/15/10 $ 170,000 $ 182,750
INVISTA
9.250% 05/01/12 (b) 135,000 150,356
---------------
333,106
---------------
CONSUMER NON-CYCLICAL--5.2%
AGRICULTURE--0.3%
AGRICULTURAL OPERATIONS--0.2%
Seminis Vegetable Seeds, Inc.
10.250% 10/01/13 303,000 340,875
---------------
TOBACCO--0.1%
North Atlantic Trading Co., Inc.
9.250% 03/01/12 155,000 130,975
---------------
BEVERAGES--0.1%
BEVERAGES--WINE/SPIRITS--0.1%
Constellation Brands, Inc.
8.125% 01/15/12 175,000 191,187
---------------
BIOTECHNOLOGY--0.2%
MEDICAL--BIOMEDICAL/GENE--0.2%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 220,000 241,175
---------------
COMMERCIAL SERVICES--1.4%
COMMERCIAL SERVICES--0.2%
Iron Mountain, Inc.
7.750% 01/15/15 55,000 55,550
Language Line Holdings, Inc.
11.125% 06/15/12 (b) 310,000 328,600
---------------
384,150
---------------
COMMERCIAL SERVICES--FINANCE--0.3%
Dollar Financial Group, Inc.
9.750% 11/15/11 400,000 435,000
---------------
FUNERAL SERVICES & RELATED ITEMS--0.2%
Service Corp. International
7.700% 04/15/09 275,000 299,063
---------------
PRINTING--COMMERCIAL--0.3%
American Color Graphics, Inc.
10.000% 06/15/10 115,000 97,031
Sheridan Group
10.250% 08/15/11 (b) 155,000 169,337
Vertis, Inc.
13.500% 12/07/09 (b) 245,000 259,700
---------------
526,068
---------------
PRIVATE CORRECTIONS--0.1%
GEO Group, Inc.
8.250% 07/15/13 120,000 128,400
---------------
RENTAL AUTO/EQUIPMENT--0.3%
NationsRent, Inc.
9.500% 10/15/10 335,000 374,362
Williams Scotsman, Inc.
9.875% 06/01/07 155,000 155,000
---------------
529,362
---------------
COSMETICS/PERSONAL CARE--0.1%
COSMETICS & TOILETRIES--0.1%
Elizabeth Arden, Inc.
7.750% 01/15/14 $ 175,000 $ 185,500
---------------
FOOD--1.2%
FOOD--CONFECTIONERY--0.2%
Merisant Co.
9.750% 07/15/13 (b) 160,000 142,400
Tabletop Holdings, Inc.
(a) 05/15/14
(12.250% 11/15/08) (b) 480,000 204,000
---------------
346,400
---------------
FOOD--MISCELLANEOUS/DIVERSIFIED--0.8%
Del Monte Corp.
9.250% 05/15/11 420,000 458,850
Dole Food Co., Inc.
8.625% 05/01/09 285,000 309,225
Pinnacle Foods Holding Corp.
8.250% 12/01/13 (b) 365,000 346,750
Reddy Ice Holdings, Inc.
(a) 11/01/12
(10.500% 11/01/08) (b) 160,000 110,000
---------------
1,224,825
---------------
FOOD--RETAIL--0.2%
Stater Brothers Holdings
8.125% 06/15/12 295,000 311,962
---------------
HEALTHCARE--SERVICES--1.4%
MEDICAL--HMO--0.1%
Coventry Health Care, Inc.
8.125% 02/15/12 220,000 240,900
---------------
MEDICAL--HOSPITALS--0.5%
Tenet Healthcare Corp.
9.875% 07/01/14 (b) 475,000 515,375
United Surgical Partners
International, Inc.
10.000% 12/15/11 250,000 285,000
---------------
800,375
---------------
MRI/MEDICAL DIAGNOSTIC IMAGING--0.6%
InSight Health Services Corp.
9.875% 11/01/11 305,000 308,050
MedQuest, Inc.
11.875% 08/15/12 280,000 329,000
MQ Associates, Inc.
(a) 08/15/12
(12.250% 08/15/08) 480,000 362,400
---------------
999,450
---------------
PHYSICIAN PRACTICE MANAGEMENT--0.2%
US Oncology, Inc.
9.000% 08/15/12 (b) 235,000 262,613
---------------
HOUSEHOLD PRODUCTS/WARES--0.5%
CONSUMER PRODUCTS - MISCELLANEOUS--0.5%
AAC Group Holdings Corp.
(a) 10/01/12
(10.250% 10/01/08) (b) 60,000 40,200
</Table>
See Accompanying Notes to Financial Statements.
27
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Amscan Holdings, Inc.
8.750% 05/01/14 $ 270,000 $ 270,675
Jostens IH Corp.
7.625% 10/01/12 (b) 145,000 151,163
Playtex Products, Inc.
9.375% 06/01/11 380,000 406,600
---------------
868,638
---------------
ENERGY--3.5%
OIL & GAS--1.9%
OIL COMPANIES--EXPLORATION & PRODUCTION--1.6%
Chesapeake Energy Corp.
6.375% 06/15/15 (b) 55,000 56,787
7.500% 06/15/14 110,000 120,175
Compton Petroleum Corp.
9.900% 05/15/09 275,000 303,875
Encore Acquisition Co.
8.375% 06/15/12 195,000 217,425
Energy Partners Ltd.
8.750% 08/01/10 125,000 136,250
Gazprom
9.625% 03/01/13 630,000 746,991
Magnum Hunter Resources, Inc.
9.600% 03/15/12 101,000 114,635
Pemex Finance Ltd.
9.150% 11/15/18 310,000 388,548
10.610% 08/15/17 215,000 290,007
Whiting Petroleum Corp.
7.250% 05/01/12 215,000 225,213
---------------
2,599,906
---------------
OIL & GAS DRILLING--0.2%
Ocean Rig Norway AS
10.250% 06/01/08 195,000 200,850
Pride International, Inc.
7.375% 07/15/14 (b) 130,000 142,025
---------------
342,875
---------------
OIL REFINING & MARKETING--0.1%
Premcor Refining Group, Inc.
7.500% 06/15/15 165,000 178,612
---------------
OIL & GAS SERVICES--0.1%
OIL--FIELD SERVICES--0.1%
Newpark Resources, Inc.
8.625% 12/15/07 185,000 186,850
---------------
PIPELINES--1.5%
PIPELINES--1.5%
Coastal Corp.
7.750% 06/15/10 460,000 483,000
Dynegy Holdings, Inc.
6.875% 04/01/11 300,000 288,375
9.875% 07/15/10 (b) 110,000 122,925
Northwest Pipeline Corp.
8.125% 03/01/10 85,000 94,137
Sonat, Inc.
6.875% 06/01/05 135,000 137,363
7.625% 07/15/11 525,000 546,000
Southern Natural Gas Co.
8.875% 03/15/10 $ 130,000 $ 146,413
Williams Companies, Inc.
8.125% 03/15/12 430,000 497,725
---------------
2,315,938
---------------
FINANCIALS--2.0%
DIVERSIFIED FINANCIAL SERVICES--0.7%
FINANCE--COMMERCIAL--0.1%
FINOVA Group, Inc.
7.500% 11/15/09 (j) 284,700 139,859
---------------
FINANCE INVESTMENT BANKER/BROKER--0.4%
E*Trade Financial Corp.
8.000% 06/15/11 (b) 180,000 193,050
LaBranche & Co., Inc.
11.000% 05/15/12 440,000 471,900
---------------
664,950
---------------
FINANCE--OTHER SERVICES--0.2%
Aries Vermogensverwaltng
7.750% 10/25/09 (b) EUR 250,000 386,354
---------------
REITS--0.2%
REITS--HOTELS--0.1%
La Quinta Properties, Inc.
7.000% 08/15/12 (b) USD 60,000 63,300
---------------
REITS--MORTGAGES--0.1%
Thornburg Mortgage, Inc.
8.000% 05/15/13 160,000 169,200
---------------
SAVINGS & LOANS--1.1%
SAVINGS & LOANS/THRIFT--WESTERN US--0.1%
Western Financial Bank
9.625% 05/15/12 USD 90,000 102,600
---------------
SUPRANATIONAL BANKS--1.0%
Corp. Andina de Fomento
6.375% 06/18/09 USD 510,000 771,649
European Investment Bank
7.625% 12/07/07 GBP 455,000 938,161
---------------
1,709,810
---------------
INDUSTRIAL--6.3%
AEROSPACE/DEFENSE--0.6%
AEROSPACE/DEFENSE--EQUIPMENT--0.6%
Argo-Tech Corp.
9.250% 06/01/11 USD 140,000 154,000
BE Aerospace, Inc.
8.875% 05/01/11 270,000 284,175
Sequa Corp.
8.875% 04/01/08 145,000 158,775
Standard Aero Holdings, Inc.
8.250% 09/01/14 (b) 175,000 189,000
TransDigm, Inc.
8.375% 07/15/11 155,000 165,850
---------------
951,800
---------------
</Table>
See Accompanying Notes to Financial Statements.
28
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
BUILDING MATERIALS--0.6%
BUILDING & CONSTRUCTION PRODUCTS--MISCELLANEOUS--0.2%
Associated Materials, Inc.
(a) 03/01/14
(11.250% 03/01/09) $ 130,000 $ 93,600
Congoleum Corp.
8.625% 08/01/08 (e) 140,000 140,700
Nortek Holdings, Inc.
8.500% 09/01/14 (b) 85,000 88,825
---------------
323,125
---------------
BUILDING PRODUCTS--CEMENT/AGGREGATION--0.3%
RMCC Acquisition Co.
9.500% 11/01/12 (b) 225,000 224,437
US Concrete, Inc.
8.375% 04/01/14 195,000 210,113
---------------
434,550
---------------
BUILDING PRODUCTS--DOORS & WINDOWS--0.1%
ACIH, Inc.
(a) 12/15/12
(11.500% 12/15/07) (b) 260,000 188,500
---------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.2%
WIRE & CABLE PRODUCTS--0.2%
Coleman Cable, Inc.
9.875% 10/01/12 (b) 260,000 275,600
---------------
ELECTRONICS--0.0%
ELECTRONIC COMPONENTS--MISCELLANEOUS--0.0
Flextronics International Ltd.
6.250% 11/15/14 (b) 85,000 84,362
---------------
ENGINEERING & CONSTRUCTION--0.2%
BUILDING & CONSTRUCTION--MISCELLANEOUS--0.2%
J. Ray McDermott SA
11.000% 12/15/13 (b) 260,000 287,300
---------------
ENVIRONMENTAL CONTROL--0.6%
NON--HAZARDOUS WASTE DISPOSAL--0.5%
Allied Waste North America, Inc.
7.875% 04/15/13 390,000 400,238
8.500% 12/01/08 150,000 159,375
Waste Services, Inc.
9.500% 04/15/14 (b) 340,000 338,300
---------------
897,913
---------------
RECYCLING--0.1%
Aventine Renewable Energy
Holdings, Inc.
8.501% 12/15/11 (b)(d) 40,000 40,400
IMCO Recycling Escrow
9.000% 11/15/14 (b) 70,000 72,975
---------------
113,375
---------------
MACHINERY--CONSTRUCTION & MINING--0.1%
MACHINERY--CONSTRUCTION & MINING--0.1%
Terex Corp.
Series 2001 B
10.375% 04/01/11 215,000 241,606
---------------
MACHINERY DIVERSIFIED--0.1%
MACHINERY - GENERAL INDUSTRIAL--0.1%
Douglas Dynamics LLC
7.750% 01/15/12 (b) 110,000 111,925
---------------
METAL FABRICATE/HARDWARE--0.9%
METAL PROCESSORS & FABRICATION--0.6%
Altra Industrial Motion, Inc.
9.000% 12/01/11 (b) $ 110,000 $ 111,925
Hawk Corp.
8.750% 11/01/14 (b) 45,000 46,350
Mueller Group, Inc.
10.000% 05/01/12 200,000 212,000
Mueller Holdings, Inc.
(a) 04/15/14
(14.750% 04/15/09) 255,000 170,850
TriMas Corp.
9.875% 06/15/12 455,000 482,300
---------------
1,023,425
---------------
METAL PRODUCTS--FASTENERS--0.3%
FastenTech, Inc.
12.500% 05/01/11 (b) 340,000 391,850
---------------
MISCELLANEOUS MANUFACTURERS--0.5%
DIVERSIFIED MANUFACTURER OPERATIONS--0.3%
J.B. Poindexter & Co.
8.750% 03/15/14 (b) 215,000 230,050
Koppers Industries, Inc.
9.875% 10/15/13 210,000 239,400
Trinity Industries, Inc.
6.500% 03/15/14 105,000 105,394
---------------
574,844
---------------
FILTERATION/SEPARATION PRODUCTS--0.1%
Polypore, Inc.
(a) 10/01/12
(10.500% 10/01/08) (b) 295,000 189,537
---------------
MISCELLANEOUS MANUFACTURERS--0.1%
MAAX Corp.
9.750% 06/15/12 (b) 100,000 108,000
---------------
PACKAGING & CONTAINERS--1.2%
CONTAINERS--METAL/GLASS--0.6%
Crown European Holdings SA
10.875% 03/01/13 190,000 224,675
Owens-Brockway Glass Container
8.250% 05/15/13 370,000 406,075
Owens-Illinois, Inc.
7.350% 05/15/08 240,000 252,000
7.500% 05/15/10 45,000 47,700
---------------
930,450
---------------
CONTAINERS--PAPER/PLASTIC--0.6%
Consolidated Container Co. LLC
(a) 06/15/09
(10.750% 06/15/07) 175,000 147,000
JSG Funding PLC
9.625% 10/01/12 340,000 379,100
Portola Packaging, Inc.
8.250% 02/01/12 190,000 146,775
Smurfit-Stone Container Corp.
8.250% 10/01/12 165,000 180,262
Tekni-Plex, Inc.
12.750% 06/15/10 205,000 194,238
---------------
1,047,375
---------------
</Table>
See Accompanying Notes to Financial Statements.
29
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
TRANSPORTATION--1.3%
TRANSPORTATION--MARINE--0.6%
Ship Finance International Ltd.
8.500% 12/15/13 $ 445,000 $ 460,575
Stena AB
7.500% 11/01/13 260,000 272,350
9.625% 12/01/12 170,000 192,100
Teekay Shipping Corp.
8.875% 07/15/11 60,000 69,450
---------------
994,475
---------------
TRANSPORTATION--RAIL--0.2%
TFM SA de CV
12.500% 06/15/12 230,000 266,800
---------------
TRANSPORTATION--SERVICES -- 0.3%
CHC Helicopter Corp.
7.375% 05/01/14 175,000 184,188
Petroleum Helicopters, Inc.
9.375% 05/01/09 325,000 352,625
---------------
536,813
---------------
TRANSPORTATION--TRUCK -- 0.2%
Allied Holdings, Inc.
8.625% 10/01/07 155,000 124,000
QDI Capital Corp.
9.000% 11/15/10(b) 240,000 239,400
---------------
363,400
---------------
TECHNOLOGY--0.2%
SEMICONDUCTORS--0.2%
ELECTONIC COMPONENTS--SEMICONDUCTORS--0.2%
Amkor Technology, Inc.
9.250% 02/15/08 310,000 316,975
---------------
UTILITIES--2.4%
ELECTRIC--2.4%
ELECTRIC--GENERATION--0.6%
AES Corp.
9.000% 05/15/15 (b) 70,000 80,062
9.500% 06/01/09 182,000 206,797
Edison Mission Energy
9.875% 04/15/11 290,000 342,925
Mission Energy Holding
13.500% 07/15/08 85,000 106,037
Texas Genco LLC
6.875% 12/15/14 (b) 150,000 155,063
---------------
890,884
---------------
ELECTRIC--INTEGRATED--0.7%
CMS Energy Corp.
8.900% 07/15/08 265,000 292,494
Nevada Power Co.
9.000% 08/15/13 125,000 146,250
10.875% 10/15/09 215,000 248,325
PSE&G Energy Holdings, Inc.
8.625% 02/15/08 275,000 301,813
TNP Enterprises, Inc.
10.250% 04/01/10 195,000 208,163
---------------
1,197,045
---------------
INDEPENDENT POWER PRODUCERS--1.1%
Caithness Coso Funding Corp.
9.050% 12/15/09 $ 256,758 $ 282,434
Calpine Corp.
8.500% 07/15/10 (b) 305,000 262,300
Calpine Generating Co. LLC
11.169% 04/01/11 (b)(d) 360,000 351,900
11.500% 04/01/11 (b) 205,000 195,775
MSW Energy Holdings LLC
7.375% 09/01/10 90,000 94,500
8.500% 09/01/10 270,000 294,975
Orion Power Holdings, Inc.
12.000% 05/01/10 250,000 317,500
---------------
1,799,384
---------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $61,628,689) 66,782,861
---------------
MUNICIPAL BOND (TAXABLE)--0.2%
CONSUMER CYCLICAL--0.2%
LODGING--0.2%
CASINO HOTELS--0.2%
Cabazon Band Mission Indians
13.000% 10/01/11 (g) 350,000 348,744
---------------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $350,000) 348,744
---------------
FOREIGN GOVERNMENT OBLIGATIONS--33.8%
SOVEREIGN--33.8%
Commonwealth of Australia
8.750% 08/15/08 AUD 1,425,000 1,243,482
Federal Republic of Brazil
3.063% 04/15/24 (d) USD 965,000 887,800
8.250% 01/20/34 795,000 773,535
11.500% 04/02/09 EUR 480,000 788,319
14.500% 10/15/09 USD 1,200,000 1,597,500
Government of Canada
5.250% 06/01/13 CAD 920,000 822,178
10.000% 06/01/08 2,846,000 2,873,674
Government of New Zealand
6.000% 11/15/11 NZD 3,470,000 2,492,813
6.500% 04/15/13 2,545,000 1,888,546
Government of Norway
5.500% 05/15/09 NOK 5,200,000 934,613
Government of Spain
5.500% 07/30/17 EUR 1,580,000 2,486,424
Government of Sweden
5.000% 01/28/09 SEK 18,785,000 3,018,655
6.750% 05/05/14 11,070,000 2,026,918
Poland Government Bond
8.500% 05/12/07 PLZ 3,357,000 1,167,276
Republic of Bulgaria
2.750% 07/28/11 (d) USD 1,028,300 1,027,683
8.250% 01/15/15 460,000 578,404
</Table>
See Accompanying Notes to Financial Statements.
30
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
Republic of Colombia
9.750% 04/09/11 USD 225,432 $ 258,120
10.000% 01/23/12 782,000 901,255
11.500% 05/31/11 EUR 335,000 572,869
11.750% 02/25/20 USD 580,000 739,500
Republic of France
4.000% 04/25/14 EUR 945,000 1,316,811
Republic of Germany
4.250% 07/04/14 1,450,000 2,059,739
6.000% 07/04/07 1,210,000 1,770,611
Republic of Greece
5.350% 05/18/11 555,000 835,581
Republic of Italy
5.000% 02/01/12 2,030,000 3,018,458
Republic of Panama
8.875% 09/30/27 USD 795,000 874,500
Republic of Peru
7.500% 10/14/14 EUR 315,000 471,468
9.875% 02/06/15 USD 660,000 805,200
Republic of Philippines
10.625% 03/16/25 375,000 400,313
Republic of South Africa
5.250% 05/16/13 EUR 1,320,000 1,895,216
13.000% 08/31/10 ZAR 2,895,000 632,233
Republic of Venezuela
9.250% 09/15/27 USD 868,000 915,740
Russian Federation
5.000% 03/31/30 865,000 894,756
11.000% 07/24/18 655,000 915,821
12.750% 06/24/28 955,000 1,566,487
United Kingdom Treasury
5.000% 03/07/12 GBP 368,000 725,904
7.500% 12/07/06 1,020,000 2,064,018
9.000% 07/12/11 615,000 1,474,913
United Mexican States
7.500% 03/08/10 EUR 605,000 954,415
7.500% 04/08/33 USD 1,210,000 1,297,725
11.375% 09/15/16 930,000 1,367,100
Western Australia Treasury
7.500% 10/15/09 AUD 2,045,000 1,733,401
---------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(cost of $46,189,641) 55,069,974
---------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS--21.4%
AGENCY--0.3%
Federal Farm Credit Bank
5.000% 08/25/10 USD 500,000 505,678
---------------
MORTGAGE-BACKED SECURITIES--2.0%
Federal Home Loan Mortgage
Corp.
8.000% 10/01/26 231,828 252,396
Federal National Mortgage
Association
To Be Announced
6.500% 12/13/34 (f) 2,795,000 2,930,384
---------------
3,182,780
---------------
U.S. TREASURY BONDS & NOTES--19.1%
U.S. Treasury Bonds
7.500% 11/15/24 $ 1,310,000 $ 1,750,896
8.750% 05/15/17 4,911,000 6,881,347
10.375% 11/15/12 3,800,000 4,530,611
12.500% 08/15/14 9,012,000 12,399,593
---------------
25,562,447
---------------
U.S. Treasury Notes
5.625% 05/15/08 2,900,000 3,110,476
6.500% 10/15/06 2,350,000 2,490,817
---------------
5,601,293
---------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(cost of $35,410,812) 34,852,198
---------------
ASSET-BACKED SECURITIES--0.7%
Equity One ABS, Inc.
4.205% 04/25/34 625,000 612,181
GMAC Mortgage Corp.
4.865% 09/25/34 (d) 520,000 524,763
---------------
TOTAL ASSET-BACKED SECURITIES
(cost of $1,140,508) 1,136,944
---------------
CONVERTIBLE BONDS - 0.3%
COMMUNICATIONS--0.2%
TELECOMMUNICATIONS--0.2%
TELECOMMUNICATIONS EQUIPMENT--0.2%
Nortel Networks Corp.
4.250% 09/01/08 385,000 371,336
---------------
UTILITIES--0.1%
ELECTRIC--0.1%
INDEPENDENT POWER PRODUCERS--0.1%
Mirant Corp.
2.500% 06/15/21 (e) 185,000 131,350
---------------
TOTAL CONVERTIBLE BONDS
(cost of $469,094) 502,686
---------------
<Caption>
SHARES
---------------
COMMON STOCKS (k)--0.2%
BASIC MATERIALS--0.1%
IRON/STEEL--0.1%
STEEL-PRODUCERS--0.1%
Bayou Steel Corp. 2,871 100,485
---------------
COMMUNICATIONS--0.1%
TELECOMMUNICATIONS--0.1%
CELLULAR TELECOMMUNICATIONS--0.1%
Horizon PCS, Inc., Class A 6,357 157,336
---------------
INDUSTRIAL--0.0%
ENVIRONMENTAL CONTROL--0.0%
NON - HAZARDOUS WASTE DISPOSAL--0.0%
Fairlane Management
Corp. (m)(l) 2,000 --
---------------
TOTAL COMMON STOCKS
(cost of $209,571) 257,821
---------------
</Table>
See Accompanying Notes to Financial Statements.
31
<Page>
<Table>
<Caption>
UNITS VALUE
--------------- ---------------
WARRANTS (k)--0.0%
COMMUNICATIONS--0.0%
MEDIA--0.0%
CABLE TV--0.0%
Cable Satisfaction
International, Inc.
Expires 03/01/05 (b)(l)(m) 515 $ --
Ono Finance PLC
Expires 03/16/11 (b)(l)(m) 150 --
Expires 05/31/09 (b)(l)(m) 500 --
---------------
--
---------------
TELECOMMUNICATIONS--0.0%
CELLULAR TELECOMMUNICATIONS--0.0%
Horizon PCS, Inc.
Expires 10/01/10 (b)(l)(m) 315 --
UbiquiTel, Inc.
Expires 04/15/10 (b)(l)(m) 225 --
---------------
--
---------------
TELECOMMUNICATION SERVICES--0.0%
Carrier1 International SA
Expires 02/19/09 (b)(l)(m) 235 --
Jazztel PLC
Expires 07/15/10 (b)(l)(m) 95 --
--
---------------
--
---------------
INDUSTRIAL--0.0%
TRANSPORTATION--0.0%
TRANSPORTATION--TRUCKS--0.0%
QDI LLC
Expires 01/15/07 (b)(l) 1,020 3,519
---------------
TOTAL WARRANTS
(cost of $63,205) 3,519
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--2.4%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/04, due 01/03/05
at 1.500%, collateralized by a
U.S. Treasury Bond maturing
08/15/25, market value of
$4,048,750 (repurchase
proceeds $3,968,496) $ 3,968,000 3,968,000
---------------
TOTAL SHORT-TERM OBLIGATION
(cost of $3,968,000) 3,968,000
---------------
TOTAL INVESTMENTS--100.0%
(cost of $149,429,520) (n) 162,922,747
---------------
OTHER ASSETS & LIABILITIES, NET--(0.0)% (100,388)
---------------
NET ASSETS--100.0% $ 162,822,359
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Step bond. These securities are currently not paying coupons. Shown
parenthetically is the next interest rate to be paid and the date the Fund
will begin accruing at this rate.
(b) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
December 31, 2004, these securities amounted to $16,437,821, which
represents 10.1% of net assets.
(c) Zero coupon bond.
(d) Floating rate note. The interest rate shown reflects the rate as of
December 31, 2004.
(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
December 31, 2004, the value of these securities amounted to $703,600,
which represents 0.4% of net assets.
(f) Security purchased on a delayed delivery basis.
(g) Illiquid security.
(h) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants. Income is being accrued. As of December
31, 2004, the value of this security represents 0.1% of net assets.
(i) The issuer is in default of certain debt covenants. Income is not being
accrued. As of December 31, 2004, the value of this security represents
0.3% of net assets.
(j) Issued as part of bankruptcy reorganization.
(k) Non-income producing security.
(l) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(m) Security has no value.
(n) Cost for federal income tax purposes is $151,079,459.
As of December 31, 2004, the Fund had entered into the following forward
currency exchange contracts:
<Table>
<Caption>
FORWARD UNREALIZED
CURRENCY AGGREGATE SETTLEMENT APPRECIATION
CONTRACTS TO SELL VALUE FACE VALUE DATE (DEPRECIATION)
- ----------------- ------------ ------------ ---------- --------------
EUR 1,585,000 $ 2,122,680 $ 2,145,961 01/24/05 $ (23,281)
EUR 119,000 155,619 161,119 01/26/05 (5,500)
EUR 468,250 612,537 633,981 01/26/05 (21,444)
EUR 880,000 1,151,726 1,191,504 01/31/05 (39,778)
EUR 1,050,000 1,390,609 1,421,681 01/31/05 (31,072)
GBP 892,000 1,710,856 1,707,380 01/13/05 3,476
GBP 410,000 763,420 784,068 01/26/05 (20,648)
--------------
$ (138,247)
==============
</Table>
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
HOLDINGS BY REVENUE SOURCE (UNAUDITED) % OF NET ASSETS
- -------------------------------------- ---------------
Corporate Fixed-Income Bonds & Notes 41.0
Foreign Government Obligations 33.8
U.S. Government Agencies & Obligations 21.4
Asset-Backed Securities 0.7
Convertible Bonds 0.3
Municipal Bond 0.2
Common Stocks 0.2
Short-Term Obligation 2.4
Other Assets & Liabilities, Net (0.0)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro
GBP British Pound
NOK Norwegian Krone
NZD New Zealand Dollar
PLZ Polish Zloty
REIT Real Estate Investment Trust
SEK Swedish Krona
USD United States Dollar
ZAR South African Rand
</Table>
See Accompanying Notes to Financial Statements.
32
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Strategic Income Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 149,429,520
---------------
Investments, at value $ 162,922,747
Cash 11,161
Net unrealized appreciation on foreign forward currency contracts 3,476
Receivable for:
Investments sold 46,950
Fund shares sold 229,062
Interest 3,134,865
Dollar roll fee income 2,833
Expense reimbursement due from Distributor 1,226
Deferred Trustees' compensation plan 8,988
---------------
TOTAL ASSETS 166,361,308
---------------
LIABILITIES:
Net unrealized depreciation on foreign forward currency contracts 141,723
Payable for:
Investments purchased 56,732
Investments purchased on a delayed delivery basis 2,937,370
Fund shares repurchased 230,641
Investment advisory fee 86,055
Transfer agent fee 625
Pricing and bookkeeping fees 13,082
Trustees' fees 1,277
Audit fee 28,380
Custody fee 5,669
Distribution fee--Class B 13,521
Deferred Trustees' fees 8,988
Other liabilities 14,886
---------------
TOTAL LIABILITIES 3,538,949
---------------
NET ASSETS $ 162,822,359
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 176,549,177
Overdistributed net investment income (1,431,078)
Accumulated net realized loss (25,722,731)
Net unrealized appreciation (depreciation) on:
Investments 13,493,227
Foreign currency translations (66,236)
---------------
NET ASSETS $ 162,822,359
===============
CLASS A:
Net assets $ 102,612,303
Shares outstanding 10,306,913
===============
Net asset value per share $ 9.96
===============
CLASS B:
Net assets $ 60,210,056
Shares outstanding 6,053,597
===============
Net asset value per share $ 9.95
===============
</Table>
See Accompanying Notes to Financial Statements.
33
<Page>
STATEMENT OF OPERATIONS
Colonial Strategic Income Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $ 10,958,522
Dollar roll fee income 76,261
---------------
Total Investment Income (net of foreign taxes withheld of $16,877) 11,034,783
---------------
EXPENSES:
Investment advisory fee 1,042,328
Distribution fee--Class B 141,240
Transfer agent fee 7,500
Pricing and bookkeeping fees 106,577
Trustees' fees 10,460
Custody fee 48,375
Non-recurring costs (See Note 6) 7,929
Other expenses 64,204
---------------
Total Expenses 1,428,613
Fees reimbursed by Distributor--Class B (26,709)
Non-recurring costs assumed by Investment Advisor (See Note 6) (7,929)
Custody earnings credit (1,203)
---------------
Net Expenses 1,392,772
---------------
Net Investment Income 9,642,011
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 6,795,889
Foreign currency transactions (548,457)
---------------
Net realized gain 6,247,432
---------------
Net change in unrealized appreciation/depreciation on:
Investments (751,416)
Foreign currency translations 17,982
---------------
Net change in unrealized appreciation/depreciation (733,434)
---------------
Net Gain 5,513,998
---------------
Net Increase in Net Assets from Operations $ 15,156,009
===============
</Table>
See Accompanying Notes to Financial Statements.
34
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Strategic Income Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 9,642,011 $ 9,799,409
Net realized gain on investments and foreign currency
transactions 6,247,432 1,918,158
Net change in unrealized appreciation/depreciation on
investments and foreign currency translations (733,434) 14,289,472
--------------- ---------------
Net Increase from Operations 15,156,009 26,007,039
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (7,965,743) (7,812,669)
Class B (4,548,504) (3,845,123)
--------------- ---------------
Total Distributions Declared to Shareholders (12,514,247) (11,657,792)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 4,779,974 5,759,085
Distributions reinvested 7,965,743 7,812,669
Redemptions (21,801,483) (20,673,030)
--------------- ---------------
Net Decrease (9,055,766) (7,101,276)
--------------- ---------------
Class B:
Subscriptions 8,617,658 23,225,342
Distributions reinvested 4,548,504 3,845,123
Redemptions (9,649,517) (7,420,489)
--------------- ---------------
Net Increase 3,516,645 19,649,976
--------------- ---------------
Net Increase (Decrease) from Share Transactions (5,539,121) 12,548,700
--------------- ---------------
Total Increase (Decrease) in Net Assets (2,897,359) 26,897,947
NET ASSETS:
Beginning of period 165,719,718 138,821,771
--------------- ---------------
End of period (including overdistributed net investment
income of $(1,431,078) and $(2,487,200), respectively) $ 162,822,359 $ 165,719,718
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 471,285 594,081
Issued for distributions reinvested 799,774 798,025
Redemptions (2,175,844) (2,137,164)
--------------- ---------------
Net Decrease (904,785) (745,058)
--------------- ---------------
Class B:
Subscriptions 862,989 2,427,732
Issued for distributions reinvested 457,136 393,162
Redemptions (965,905) (766,395)
--------------- ---------------
Net Increase 354,220 2,054,499
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
35
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Strategic Income Fund, Variable Series / December 31, 2004
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 pricing services
approved by the Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 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
36
<Page>
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the Fund's investments against currency fluctuations. Forward currency
contracts are valued daily at the current exchange rate of the underlying
currency, resulting in unrealized gains (losses) which become realized at the
time the foreign currency contracts are closed or mature. Realized and
unrealized gains (losses) arising from such transactions are included in net
realized and unrealized gains (losses) on foreign currency transactions. The use
of forward currency contracts does not eliminate fluctuations in the prices of
the Fund's portfolio securities. While the maximum potential loss from such
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened, exposure is typically limited to the change in value of the contract
(in U.S. dollars) over the period it remains open. The Fund could also be
exposed to risk if the counterparties of the contracts are unable to fulfill the
terms of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
MORTGAGE DOLLAR ROLL TRANSACTIONS--The Fund may enter into mortgage dollar
roll transactions. A mortgage dollar roll transaction involves a sale by the
Fund of investments from its portfolio with an agreement by the Fund to
repurchase similar, but not identical, securities at an agreed upon price and
date. During the period between the sale and repurchase, the Fund will not be
entitled to accrue interest and receive principal payment on the securities
sold. Mortgage dollar 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 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 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.
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
37
<Page>
least annually. All dividends and distributions are reinvested in additional
shares of the Fund at net asset value as of the record date of the distribution.
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for foreign currency transactions,
discount accretion/premium amortization on debt securities, distributions in
excess, market discount reclassifications and paydown reclassifications were
identified and reclassified among the components of the Fund's net assets as
follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 3,928,358 $ (3,927,527) $ (831)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 12,514,247 $ 11,657,792
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 11,915,299
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales and
discount accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 14,658,756
Unrealized depreciation (2,815,468)
--------------
Net unrealized appreciation $ 11,843,288
==============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 3,347,414
2009 11,079,118
2010 11,028,566
-------------
$ 25,455,098
=============
</Table>
Capital loss carryforwards of $2,322,600 were utilized during the year ended
December 31, 2004 for the Fund.
Under current tax rules, certain currency and capital losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. As of December 31, 2004, post-October currency losses of
$141,868 and capital losses of $10,470 attributed to security transactions were
deferred to January 1, 2005.
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 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 0.60%
Next $500 million 0.55%
Next $500 million 0.52%
Over $1.5 billion 0.49%
</Table>
Prior to November 1, 2004, Columbia received 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
38
<Page>
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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.066%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's effective transfer agent 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 and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) would not exceed 1.00% annually of the Fund's average daily net assets.
The Distributor will first reimburse the Class B distribution fee up to 0.25%
annually to reach the 1.00% limit on Class B expenses. If additional
reimbursement is needed to meet the limit for each class, Columbia will then
reimburse other expenses to the extent necessary. If additional reimbursement is
still needed in order to reach the expense limit, Columbia will then waive a
portion of its investment advisory fee to the extent necessary. Columbia or the
Distributor, at their discretion, may revise or discontinue this arrangement any
time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,535 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $156,807,902 and
$163,063,648 respectively of which $19,647,248 and $19,415,928 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
39
<Page>
referred to as "junk bonds." Economic downturns may disrupt the high yield
market and impair the ability of issuers to repay principal and interest. Also,
an increase in interest rates would likely have an adverse impact on the value
of such obligations. Moreover, high-yield securities may be less liquid to the
extent that there is no established secondary market.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $7,929 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
40
<Page>
FINANCIAL HIGHLIGHTS
Colonial Strategic Income Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.80 $ 8.90 $ 8.92 $ 9.43 $ 10.44
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.61 0.62 0.65 0.81(b) 0.97
Net realized and unrealized gain (loss) on
investments and foreign currency 0.39 1.03 0.10 (0.46)(b) (0.96)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.00 1.65 0.75 0.35 0.01
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.84) (0.75) (0.75) (0.84) (0.99)
Return of capital -- -- (0.02) (0.02) (0.03)
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.84) (0.75) (0.77) (0.86) (1.02)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.96 $ 9.80 $ 8.90 $ 8.92 $ 9.43
========== ========== ========== ========== ==========
Total return (c)(d) 10.16% 18.54% 8.41% 3.68% 0.16%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (e) 0.80% 0.80% 0.76% 0.85% 0.76%
Net investment income (e) 6.08% 6.42% 7.16% 8.42%(b) 9.36%
Portfolio turnover rate 103% 61% 62% 62% 31%
Net assets, end of period (000's) $ 102,612 $ 109,894 $ 106,415 $ 123,041 $ 143,629
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.03, increase net realized and unrealized gain/loss
per share by $0.03 and decrease the ratio of net investment income to
average net assets from 8.70% to 8.42%. Per share data and ratios for
periods prior to December 31, 2001 have not been restated to reflect this
change in presentation.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
41
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust
and the Class A Shareholders of Colonial Strategic Income Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Colonial Strategic Income Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
42
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia High Yield Fund, Variable Series / December 31, 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 predecessors since 1998. Mr.
Havnaer has co-managed the fund and its predecessor since 2000. Mr. Havnaer was
on a leave of absence for the period of March 2004 to April 2004.
The high-yield market had another good year in 2004, buoyed by a surprisingly
strong fourth-quarter rally. As a result, the fund delivered a solid return.
However, it underperformed both its benchmark and peer group, Lipper Variable
Series High Current Yield Category(1), because it was under represented in lower
quality credits, which led the rally.
A FAVORABLE ENVIRONMENT FOR HIGH-YIELD
A strengthening economy enabled companies in the high-yield universe to improve
their cash flows and to pay down debt. As balance sheets improved, corporate
default rates continued to decline. The Moody's trailing 12-month issuer-based
default rate--a widely monitored indicator of corporate credit quality--finished
2004 at just 2.1%, down from 5% at the beginning of the year and nearly 11% two
years ago. The health of the high-yield sector was confirmed by a record level
of new issue activity, which totaled $158.2 billion for the year.
Although the Federal Reserve Board pushed short-term rates higher, long-term
interest rates ended the year very near where they began. This favorable
development surprised many market observers, which helped explain the strength
of the late-year rally. The fund participated in this rally, but the fund's
relatively high average credit quality placed it at a competitive disadvantage
during this reporting period. The fund holds almost no securities with credit
ratings as low as CCC, and the CCC index was up 9.5% for the fourth quarter, far
above the 3% gain posted by the higher-quality BB index. Our high-quality focus
is an essential part of the fund's strategy, and it has helped the fund to solid
long-term performance.
PORTFOLIO ACTIVITY DURING 2004
The energy and utility industries were strong performers over the past 12
months, and the fund added to its holdings in each category. We purchased bonds
issued by the Williams Companies (1.6% of net assets), a well-known high-yield
issuer. Williams is traditionally a natural gas and pipeline company, but
suffered a severe setback beginning three years ago because of its involvement
in the ill-fated power trading business. We are optimistic that these bonds will
someday return to investment-grade quality. We also purchased AES Corp. (1.1% of
net assets), an independent power producer that has improved its financial
position by selling off non-performing assets.
Chemical companies rebounded with the economy in 2004, benefiting fund
holdings such as Ethyl Corp. and Equistar Chemical (0.3% and 0.5% of net assets,
respectively). The fund also owned several companies that were acquisition
candidates during the year, including health care companies Apogent and Province
Healthcare (0.8% of net assets), and wireless communications company Nextel
Communications (2.2% of net assets), which was targeted by Sprint. While the
acquisition of Apogent has been completed, the acquisitions of Province and
Nextel have been announced but not completed.
One specific disappointment during the past year was Allied Waste North
America (1.6% of net assets), a non-hazardous solid waste management company.
Allied had difficulty controlling its expenses and produced several quarters of
substandard earnings. It was downgraded during the year. We sold a portion of
the fund's holding, but the company remains in the portfolio because of our
expectation that it can generate the free cash flow necessary to reduce its debt
burden.
POSITIONING FOR THE YEAR AHEAD
As we look ahead to 2005, we believe that the fund is well-positioned with its
emphasis on higher quality high-yield bonds. We continue to seek companies that
are experiencing improving credit fundamentals. As the yield spread between
lower quality and higher quality bonds has narrowed, we believe these types of
companies have the potential to do well for the fund.
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
An investment in the Columbia High Yield Fund, Variable Series offers the
potential for high income and attractive total returns, but also involves
certain risks, including credit risks associated with lower-rated bonds, and
interest rate risks. The value of fixed-income securities generally move
inversely with changes in interest rates such that when interest rates rise,
bond values fall and vice versa.
Holdings are disclosed as of December 31, 2004, and are subject to change.
(1) Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the fund.
43
<Page>
PERFORMANCE INFORMATION
Columbia High Yield Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- ----------------------------------------------------------------
Class A (3/3/98) 7.07 6.35 6.11
Merrill Lynch US
High Yield, Cash
Pay Index(1) 10.76 7.32 5.85
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98 - 12/31/04
Class A: $14,996
<Table>
<Caption>
CLASS A SHARES MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX
3/3/1998 $ 10,000 $ 10,000
3/31/1998 $ 10,146 $ 10,115
4/30/1998 $ 10,173 $ 10,163
5/31/1998 $ 10,223 $ 10,234
6/30/1998 $ 10,307 $ 10,285
7/31/1998 $ 10,442 $ 10,343
8/31/1998 $ 10,319 $ 9,897
9/30/1998 $ 10,586 $ 9,916
10/31/1998 $ 10,543 $ 9,754
11/30/1998 $ 10,901 $ 10,198
12/31/1998 $ 10,959 $ 10,201
1/31/1999 $ 11,063 $ 10,302
2/28/1999 $ 11,011 $ 10,223
3/31/1999 $ 11,030 $ 10,311
4/30/1999 $ 11,152 $ 10,472
5/31/1999 $ 11,007 $ 10,400
6/30/1999 $ 10,974 $ 10,380
7/31/1999 $ 10,961 $ 10,396
8/31/1999 $ 10,845 $ 10,290
9/30/1999 $ 10,785 $ 10,251
10/31/1999 $ 10,806 $ 10,190
11/30/1999 $ 10,947 $ 10,306
12/31/1999 $ 11,022 $ 10,360
1/31/2000 $ 10,938 $ 10,308
2/29/2000 $ 10,930 $ 10,317
3/31/2000 $ 10,871 $ 10,173
4/30/2000 $ 10,891 $ 10,176
5/31/2000 $ 10,866 $ 10,064
6/30/2000 $ 11,119 $ 10,236
7/31/2000 $ 11,211 $ 10,310
8/31/2000 $ 11,386 $ 10,436
9/30/2000 $ 11,394 $ 10,375
10/31/2000 $ 11,223 $ 10,071
11/30/2000 $ 11,062 $ 9,756
12/31/2000 $ 11,426 $ 9,968
1/31/2001 $ 11,912 $ 10,562
2/28/2001 $ 12,027 $ 10,728
3/31/2001 $ 11,951 $ 10,587
4/30/2001 $ 11,942 $ 10,471
5/31/2001 $ 12,036 $ 10,672
6/30/2001 $ 11,838 $ 10,453
7/31/2001 $ 11,907 $ 10,615
8/31/2001 $ 12,049 $ 10,718
9/30/2001 $ 11,647 $ 10,031
10/31/2001 $ 11,992 $ 10,326
11/30/2001 $ 12,234 $ 10,661
12/31/2001 $ 12,132 $ 10,585
1/31/2002 $ 12,181 $ 10,645
2/28/2002 $ 12,122 $ 10,542
3/31/2002 $ 12,225 $ 10,793
4/30/2002 $ 12,354 $ 10,965
5/31/2002 $ 12,314 $ 10,906
6/30/2002 $ 12,067 $ 10,130
7/31/2002 $ 11,906 $ 9,727
8/31/2002 $ 12,078 $ 9,970
9/30/2002 $ 12,006 $ 9,811
10/31/2002 $ 12,031 $ 9,728
11/30/2002 $ 12,397 $ 10,308
12/31/2002 $ 12,464 $ 10,465
1/31/2003 $ 12,587 $ 10,766
2/28/2003 $ 12,704 $ 10,905
3/31/2003 $ 12,897 $ 11,188
4/30/2003 $ 13,234 $ 11,816
5/31/2003 $ 13,251 $ 11,944
6/30/2003 $ 13,443 $ 12,270
7/31/2003 $ 13,215 $ 12,095
8/31/2003 $ 13,244 $ 12,253
9/30/2003 $ 13,544 $ 12,580
10/31/2003 $ 13,708 $ 12,837
11/30/2003 $ 13,836 $ 13,014
12/31/2003 $ 14,006 $ 13,316
1/31/2004 $ 14,140 $ 13,524
2/29/2004 $ 14,202 $ 13,518
3/31/2004 $ 14,342 $ 13,613
4/30/2004 $ 14,201 $ 13,515
5/31/2004 $ 13,927 $ 13,299
6/30/2004 $ 14,048 $ 13,493
7/31/2004 $ 14,215 $ 13,678
8/31/2004 $ 14,488 $ 13,925
9/30/2004 $ 14,703 $ 14,119
10/31/2004 $ 14,931 $ 14,387
11/30/2004 $ 14,946 $ 14,532
12/31/2004 $ 14,996 $ 14,750
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- -----------------------------------------------------------------
Class A 9.42 9.55
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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.
(1) Index performance for the life of the fund is from March 3, 1998.
44
<Page>
UNDERSTANDING YOUR EXPENSES
Columbia High Yield Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,067.42 1,021.92 3.33 3.25 0.64
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
Had the investment advisor not waived/reimbursed a portion of expenses, account
values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
45
<Page>
INVESTMENT PORTFOLIO
Columbia High Yield Fund, Variable Series / December 31, 2004
<Table>
<Caption>
PAR VALUE
--------------- ---------------
CORPORATE FIXED-INCOME
BONDS & NOTES--91.9%
BASIC MATERIALS--4.2%
CHEMICALS--2.6%
CHEMICALS--DIVERSIFIED--0.5%
Equistar Chemical LP
10.125% 09/01/08 $ 155,000 $ 178,638
10.625% 05/01/11 180,000 208,575
---------------
387,213
---------------
CHEMICALS--SPECIALTY--1.1%
Ethyl Corp.
8.875% 05/01/10 255,000 281,775
MacDermid, Inc.
9.125% 07/15/11 300,000 333,000
Nalco Co.
7.750% 11/15/11 225,000 242,156
---------------
856,931
---------------
INDUSTRIAL GASES--1.0%
Airgas, Inc.
6.250% 07/15/14 440,000 449,350
9.125% 10/01/11 350,000 392,437
---------------
841,787
---------------
FOREST PRODUCTS & PAPER--1.0%
PAPER & RELATED PRODUCTS--1.0%
Boise Cascade LLC
7.125% 10/15/14 (a) 785,000 830,138
---------------
IRON/STEEL--0.6%
STEEL--PRODUCERS--0.6%
Russel Metals, Inc.
6.375% 03/01/14 500,000 507,500
---------------
COMMUNICATIONS--14.9%
ADVERTISING--1.7%
ADVERTISING SALES--1.7%
Lamar Media Corp.
7.250% 01/01/13 1,300,000 1,405,625
---------------
MEDIA--9.6%
CABLE TV--4.8%
DirecTV Holdings LLC
8.375% 03/15/13 1,390,000 1,558,538
EchoStar DBS Corp.
5.750% 10/01/08 780,000 791,700
6.625% 10/01/14 (a) 700,000 710,500
Rogers Cable, Inc.
6.250% 06/15/13 625,000 628,125
7.875% 05/01/12 160,000 175,200
---------------
3,864,063
---------------
MULTIMEDIA--0.5%
Emmis Operating Co.
6.875% 05/15/12 410,000 427,425
---------------
PUBLISHING--PERIODICALS--2.8%
Dex Media West LLC
5.875% 11/15/11 (a) $ 1,270,000 $ 1,263,650
R.H. Donnelley Finance Corp.
10.875% 12/15/12 (a) 510,000 605,625
10.875% 12/15/12 350,000 415,625
---------------
2,284,900
---------------
TELEVISION--1.5%
LIN Television Corp.
6.500% 05/15/13 700,000 720,125
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 450,000 490,500
---------------
1,210,625
---------------
TELECOMMUNICATIONS--3.6%
CELLULAR TELECOMMUNICATIONS--3.6%
Nextel Communications, Inc.
5.950% 03/15/14 960,000 996,000
6.875% 10/31/13 60,000 65,550
7.375% 08/01/15 625,000 691,406
Rogers Wireless, Inc.
7.500% 03/15/15 (a) 210,000 222,075
8.000% 12/15/12 (a) 940,000 994,050
---------------
2,969,081
---------------
CONSUMER CYCLICAL--21.3%
ENTERTAINMENT--2.1%
MUSIC--0.4%
Warner Music Group
7.375% 04/15/14 (a) 340,000 348,500
---------------
RACETRACKS--1.0%
Speedway Motorsports, Inc.
6.750% 06/01/13 740,000 780,700
---------------
THEATERS--0.7%
Cinemark USA, Inc.
9.000% 02/01/13 485,000 554,113
---------------
HOME BUILDERS--2.7%
BUILDING--RESIDENTIAL/COMMERCIAL--2.7%
KB Home
5.875% 01/15/15 400,000 397,000
7.750% 02/01/10 250,000 270,625
8.625% 12/15/08 400,000 452,000
Toll Corp.
8.000% 05/01/09 50,000 51,937
8.250% 02/01/11 325,000 351,813
8.250% 12/01/11 600,000 663,000
---------------
2,186,375
---------------
LEISURE TIME--2.7%
CRUISE LINES--2.2%
Royal Caribbean Cruises
6.750% 03/15/08 145,000 155,150
6.875% 12/01/13 550,000 595,375
8.750% 02/02/11 890,000 1,052,425
---------------
1,802,950
---------------
</Table>
See Accompanying Notes to Financial Statements.
46
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
LEISURE & RECREATIONAL PRODUCTS--0.5%
K2, Inc.
7.375% 07/01/14 (a) $ 410,000 $ 449,975
---------------
LODGING--8.8%
CASINO HOTELS--8.1%
Harrah's Operating Co., Inc.
7.875% 12/15/05 550,000 572,687
Kerzner International
8.875% 08/15/11 820,000 897,900
MGM Mirage
6.000% 10/01/09 440,000 453,200
9.750% 06/01/07 800,000 890,000
Park Place Entertainment Corp.
7.875% 03/15/10 600,000 677,280
8.875% 09/15/08 300,000 340,515
9.375% 02/15/07 635,000 698,532
Station Casinos, Inc.
6.500% 02/01/14 870,000 893,925
6.875% 03/01/16 570,000 595,650
Wynn Las Vegas LLC
6.625% 12/01/14 (a) 565,000 559,350
---------------
6,579,039
---------------
HOTELS & MOTELS--0.7%
Starwood Hotels & Resorts Worldwide, Inc.
7.375% 05/01/07 200,000 213,500
7.875% 05/01/12 325,000 370,500
---------------
584,000
---------------
RETAIL--3.9%
RETAIL--AUTOMOBILE--1.5%
AutoNation, Inc.
9.000% 08/01/08 630,000 718,200
Group 1 Automotive, Inc.
8.250% 08/15/13 450,000 479,812
---------------
1,198,012
---------------
RETAIL--CONVENIENCE STORES--1.0%
Couche-Tard
7.500% 12/15/13 745,000 800,875
---------------
RETAIL--JEWELRY--0.5%
Finlay Fine Jewelry Corp.
8.375% 06/01/12 405,000 437,400
---------------
RETAIL--PROPANE DISTRIBUTOR--0.5%
Suburban Propane Partners
6.875% 12/15/13 415,000 423,300
---------------
RETAIL--RESTAURANTS--0.4%
Domino's, Inc.
8.250% 07/01/11 325,000 355,469
---------------
TOYS--1.1%
TOYS/GAMES/HOBBIES--1.1%
Hasbro, Inc.
6.150% 07/15/08 825,000 875,531
---------------
CONSUMER NON-CYCLICAL--17.7%
BEVERAGES--3.5%
BEVERAGES--NON-ALCOHOLIC--1.6%
Cott Beverages, Inc.
8.000% 12/15/11 1,225,000 1,330,656
---------------
BEVERAGES--WINE/SPIRITS--1.9%
Constellation Brands, Inc.
8.000% 02/15/08 $ 575,000 $ 629,625
8.125% 01/15/12 825,000 901,313
8.625% 08/01/06 25,000 26,750
---------------
1,557,688
---------------
COMMERCIAL SERVICES--3.7%
COMMERCIAL SERVICES--1.4%
Iron Mountain, Inc.
7.750% 01/15/15 530,000 535,300
8.625% 04/01/13 605,000 642,812
---------------
1,178,112
---------------
PRIVATE CORRECTIONS--1.5%
Corrections Corp. of America
7.500% 05/01/11 850,000 909,500
9.875% 05/01/09 275,000 305,594
---------------
1,215,094
---------------
RENTAL AUTO/EQUIPMENT--0.8%
United Rentals, Inc.
7.000% 02/15/14 125,000 117,500
7.750% 11/15/13 535,000 526,975
---------------
644,475
---------------
HEALTHCARE SERVICES--7.2%
MEDICAL--NURSING HOMES--0.7%
Extendicare Health Services, Inc.
6.875% 05/01/14 455,000 464,100
9.500% 07/01/10 45,000 50,400
---------------
514,500
---------------
MEDICAL--HOSPITALS--3.3%
HCA, Inc.
6.950% 05/01/12 850,000 893,384
Province Healthcare Co.
7.500% 06/01/13 550,000 616,687
Triad Hospitals, Inc.
7.000% 05/15/12 525,000 552,563
7.000% 11/15/13 600,000 612,000
---------------
2,674,634
---------------
MEDICAL--OUTPATIENT/HOME MEDICAL--1.5%
Select Medical Corp.
7.500% 08/01/13 700,000 791,000
9.500% 06/15/09 425,000 455,281
---------------
1,246,281
---------------
MEDICAL--PRODUCTS--1.7%
Fisher Scientific International, Inc.
6.750% 08/15/14 (a) 1,310,000 1,404,975
---------------
HOUSEHOLD PRODUCTS/WARES--0.9%
CONSUMER PRODUCTS--MISCELLANEOUS--0.8%
Scotts Co.
6.625% 11/15/13 625,000 659,375
---------------
SOAP & CLEANING PRODUCTS--0.1%
Church & Dwight Co., Inc.
6.000% 12/15/12 (a) 35,000 35,700
---------------
</Table>
See Accompanying Notes to Financial Statements.
47
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
PHARMACEUTICALS--2.4%
MEDICAL--WHOLESALE DRUG DISTRIBUTOR--1.4%
AmerisourceBergen Corp.
7.250% 11/15/12 $ 330,000 $ 370,012
8.125% 09/01/08 675,000 750,938
---------------
1,120,950
---------------
PHARMACY SERVICES--1.0%
Omnicare, Inc.
6.125% 06/01/13 400,000 402,000
8.125% 03/15/11 420,000 450,450
---------------
852,450
---------------
ENERGY--15.2%
COAL--3.2%
COAL--3.2%
Arch Western Finance LLC
7.500% 07/01/13 1,075,000 1,109,937
Peabody Energy Corp.
5.875% 04/15/16 375,000 374,062
6.875% 03/15/13 1,070,000 1,160,950
---------------
2,644,949
---------------
OIL & GAS--6.4%
OIL COMPANIES--EXPLORATION & PRODUCTION--5.6%
Chesapeake Energy Corp.
6.375% 06/15/15 (a) 815,000 841,487
7.500% 09/15/13 425,000 463,250
7.750% 01/15/15 250,000 271,875
Newfield Exploration Co.
6.625% 09/01/14 (a) 1,000,000 1,060,000
Plains Exploration & Production Co.
7.125% 06/15/14 685,000 753,500
Pogo Producing Co.
8.250% 04/15/11 455,000 496,519
Vintage Petroleum, Inc.
7.875% 05/15/11 300,000 318,750
8.250% 05/01/12 290,000 320,450
---------------
4,525,831
---------------
OIL & GAS DRILLING--0.8%
Pride International, Inc.
7.375% 07/15/14 625,000 682,813
---------------
OIL & GAS SERVICES - 3.3%
OIL FIELD MACHINERY & EQUIPMENT--1.7%
Grant Prideco, Inc.
9.000% 12/15/09 25,000 27,750
9.625% 12/01/07 1,200,000 1,344,000
---------------
1,371,750
---------------
OIL -- FIELD SERVICES--1.6%
Hornbeck Offshore Services, Inc.
6.125% 12/01/14 (a) 575,000 575,000
Universal Compression, Inc.
7.250% 05/15/10 695,000 743,650
---------------
1,318,650
---------------
PIPELINES--2.3%
PIPELINES--2.3%
Markwest Energy Partners
6.875% 11/01/14 (a) $ 545,000 $ 553,175
Williams Companies, Inc.
7.125% 09/01/11 65,000 71,013
8.125% 03/15/12 1,060,000 1,226,950
---------------
1,851,138
---------------
FINANCIALS--0.9%
REITs--0.9%
REITs--DIVERSIFIED--0.9%
iStar Financial, Inc.
5.125% 04/01/11 200,000 201,926
6.000% 12/15/10 30,000 31,625
7.000% 03/15/08 85,000 91,844
8.750% 08/15/08 381,000 433,917
---------------
759,312
---------------
INDUSTRIAL--13.9%
AEROSPACE & DEFENSE--2.6%
AEROSPACE/DEFENSE--EQUIPMENT--0.9%
TransDigm, Inc.
8.375% 07/15/11 675,000 722,250
---------------
ELECTRONICS--MILITARY--1.7%
L-3 Communications Corp.
6.125% 07/15/13 340,000 351,900
7.625% 06/15/12 960,000 1,044,000
---------------
1,395,900
---------------
ENVIRONMENTAL CONTROL--1.8%
ALTERNATIVE WASTE--0.2%
Synagro Technologies, Inc.
9.500% 04/01/09 175,000 190,750
---------------
NON-HAZARDOUS WASTE DISPOSAL--1.6%
Allied Waste North America, Inc.
6.500% 11/15/10 560,000 547,400
7.375% 04/15/14 650,000 619,125
9.250% 09/01/12 100,000 108,625
---------------
1,275,150
---------------
HAND/MACHINE TOOLS--0.7%
MACHINE TOOLS & RELATED PRODUCTS--0.7%
Kennametal, Inc.
7.200% 06/15/12 490,000 541,122
---------------
MACHINERY DIVERSIFIED--1.1%
MACHINERY--GENERAL INDUSTRIAL--1.1%
Manitowoc Co., Inc.
7.125% 11/01/13 75,000 81,187
Westinghouse Air Brake
6.875% 07/31/13 805,000 845,250
---------------
926,437
---------------
</Table>
See Accompanying Notes to Financial Statements.
48
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
PACKAGING & CONTAINERS--5.5%
CONTAINERS--METAL/GLASS--4.0%
Ball Corp.
6.875% 12/15/12 $ 1,045,000 $ 1,123,375
7.750% 08/01/06 100,000 105,000
Owens-Brockway Glass Container
6.750% 12/01/14 (a) 125,000 126,875
8.875% 02/15/09 290,000 315,375
Owens-Illinois, Inc.
7.350% 05/15/08 50,000 52,500
7.500% 05/15/10 700,000 742,000
8.100% 05/15/07 50,000 53,125
Silgan Holdings, Inc.
6.750% 11/15/13 735,000 760,725
---------------
3,278,975
---------------
CONTAINERS--PAPER/PLASTIC--1.5%
Smurfit-Stone Container Corp.
7.375% 07/15/14 625,000 662,500
8.250% 10/01/12 400,000 437,000
8.375% 07/01/12 125,000 135,937
---------------
1,235,437
---------------
TRANSPORTATION--2.2%
TRANSPORTATION--MARINE--1.5%
Teekay Shipping Corp.
8.875% 07/15/11 1,035,000 1,198,013
---------------
TRANSPORTATION--SERVICES--0.7%
Offshore Logistics, Inc.
6.125% 06/15/13 570,000 577,125
---------------
TECHNOLOGY--1.0%
SEMICONDUCTORS--1.0%
ELECTRONIC COMPONENTS--SEMICONDUCTOR--1.0%
Freescale Semiconductor, Inc.
6.875% 07/15/11 715,000 768,625
---------------
UTILITIES--2.8%
ELECTRIC--2.8%
ELECTRIC GENERATION--2.1%
AES Corp.
7.750% 03/01/14 835,000 904,931
Texas Genco LLC
6.875% 12/15/14 (a) 800,000 827,000
---------------
1,731,931
---------------
ELECTRIC--INTEGRATED--0.7%
Nevada Power Co.
5.875% 01/15/15 (a) 275,000 276,375
6.500% 04/15/12 200,000 210,250
Northwestern Corp.
5.875% 11/01/14 (a) 50,000 51,000
---------------
537,625
---------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $73,214,484) 74,930,200
---------------
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--0.0%
INDUSTRIAL--0.0%
COMMERCIAL SERVICES & SUPPLIES--0.0%
Fairlane Management Corp. (b)(c)(d) 1,200 $ --
---------------
TOTAL COMMON STOCKS
(cost of $0) --
---------------
<Caption>
UNITS
---------------
WARRANTS (b)--0.0%
COMMUNICATIONS--0.0%
MEDIA--0.0%
Cable Satisfaction International, Inc.
Expires 03/01/05 (a)(c)(d) 220 --
Ono Finance PLC
Expires 03/16/11 (a)(c)(d) 85 --
---------------
--
---------------
TELECOMMUNICATIONS--0.0%
Carrier1 International SA
Expires 02/19/09 (a)(c)(d) 113 --
Horizon PCS, Inc.
Expires 10/01/10 (a)(c)(d) 145 --
Jazztel PLC
Expires 07/15/10 (a)(c)(d) 60 --
UbiquiTel, Inc.
Expires 04/15/10 (a)(c)(d) 50 --
---------------
--
---------------
INDUSTRIAL--0.0%
TRANSPORTATION--0.0%
QDI LLC
Expires 01/15/07 (a)(d) 153 528
---------------
TOTAL WARRANTS
(cost of $5,213) 528
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION--6.5%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/04, due 01/03/05
at 1.500%, collateralized by a
U.S. Treasury Note maturing
08/31/06, market value of
$5,364,272 (repurchase
proceeds $5,256,657) $ 5,256,000 5,256,000
---------------
TOTAL SHORT-TERM OBLIGATION
(cost of $5,256,000) 5,256,000
---------------
TOTAL INVESTMENTS--98.4%
(cost of $78,475,697) (e) 80,186,728
---------------
OTHER ASSETS & LIABILITIES, NET--1.6% 1,297,466
---------------
NET ASSETS--100.0% $ 81,484,194
===============
</Table>
See Accompanying Notes to Financial Statements.
49
<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
December 31, 2004, these securities amounted to $11,735,978, which
represents 14.4% of net assets.
(b) Non-income producing security.
(c) Security has no value.
(d) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(e) Cost for federal income tax purposes is $78,808,227.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
HOLDINGS BY REVENUE SOURCE (UNAUDITED) % OF NET ASSETS
- -------------------------------------- ---------------
Consumer Cyclical 21.3%
Consumer Non--Cyclical 17.7
Energy 15.2
Communications 14.9
Industrial 13.9
Basic Materials 4.2
Utilities 2.8
Technology 1.0
Financials 0.9
Short-Term Obligation 6.5
Other Assets & Liabilities, Net 1.6
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
50
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia High Yield Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 78,475,697
---------------
Investments, at value $ 80,186,728
Cash 150
Receivable for:
Fund shares sold 659,538
Interest 1,284,762
Expense reimbursement due from Investment Advisor/Distributor 15,088
Deferred Trustees' compensation plan 2,634
---------------
TOTAL ASSETS 82,148,900
---------------
LIABILITIES:
Payable for:
Investments purchased 578,797
Fund shares repurchased 901
Investment advisory fee 38,513
Transfer agent fee 417
Pricing and bookkeeping fees 2,959
Trustees' fees 183
Audit fee 16,230
Custody fee 753
Reports to shareholders 5,275
Distribution fee--Class B 14,265
Deferred Trustees' fees 2,634
Other liabilities 3,779
---------------
TOTAL LIABILITIES 664,706
---------------
NET ASSETS $ 81,484,194
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 89,358,945
Overdistributed net investment income (334,201)
Accumulated net realized loss (9,251,581)
Net unrealized appreciation on investments 1,711,031
---------------
NET ASSETS $ 81,484,194
===============
CLASS A:
Net assets $ 9,722,420
Shares outstanding 1,017,639
===============
Net asset value per share $ 9.55
===============
CLASS B:
Net assets $ 71,761,774
Shares outstanding 7,503,627
===============
Net asset value per share $ 9.56
===============
</Table>
See Accompanying Notes to Financial Statements.
51
<Page>
STATEMENT OF OPERATIONS
Columbia High Yield Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $ 3,451,296
---------------
EXPENSES:
Investment advisory fee 331,369
Distribution fee--Class B 111,205
Transfer agent fee 5,000
Pricing and bookkeeping fees 30,963
Trustees' fees 7,454
Custody fee 7,478
Non-recurring costs (See Note 6) 2,473
Other expenses 41,313
---------------
Total Expenses 537,255
Fees and expenses waived or reimbursed by Investment Advisor (91,694)
Fees waived by Distributor--Class B (84,515)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,473)
Custody earnings credit (515)
---------------
Net Expenses 358,058
---------------
Net Investment Income 3,093,238
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 375,239
Foreign currency transactions 544
---------------
Net realized gain 375,783
---------------
Net change in unrealized appreciation/depreciation on:
Investments 698,689
Foreign currency translations (66)
---------------
Net change in unrealized appreciation/depreciation 698,623
---------------
Net Gain 1,074,406
---------------
Net Increase in Net Assets from Operations $ 4,167,644
===============
</Table>
See Accompanying Notes to Financial Statements.
52
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia High Yield Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 3,093,238 $ 1,658,060
Net realized gain (loss) on investments and foreign currency transactions 375,783 (856,112)
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations 698,623 2,257,504
--------------- ---------------
Net Increase from Operations 4,167,644 3,059,452
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (566,446) (666,816)
Class B (2,926,406) (1,094,776)
From net realized gains:
Class A -- (20,678)
Class B -- (48,075)
--------------- ---------------
Total Distributions Declared to Shareholders (3,492,852) (1,830,345)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 3,321,916 8,243,839
Proceeds received in connection with merger -- 12,120,783
Distributions reinvested 566,446 687,494
Redemptions (6,454,849) (11,587,253)
--------------- ---------------
Net Increase (Decrease) (2,566,487) 9,464,863
--------------- ---------------
Class B:
Subscriptions 48,472,376 13,066,846
Proceeds received in connection with merger -- 17,750,911
Distributions reinvested 2,926,406 1,142,851
Redemptions (8,511,450) (4,362,756)
--------------- ---------------
Net Increase 42,887,332 27,597,852
--------------- ---------------
Net Increase from Share Transactions 40,320,845 37,062,715
--------------- ---------------
Total Increase in Net Assets 40,995,637 38,291,822
NET ASSETS:
Beginning of period 40,488,557 2,196,735
--------------- ---------------
End of period (including overdistributed net investment income of
$(334,201) and $(113,376), respectively) $ 81,484,194 $ 40,488,557
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 352,089 896,663
Issued in connection with merger -- 1,328,306
Issued for distributions reinvested 59,622 73,952
Redemptions (682,101) (1,256,145)
--------------- ---------------
Net Increase (Decrease) (270,390) 1,042,776
--------------- ---------------
Class B:
Subscriptions 5,089,040 1,411,911
Issued in connection with merger -- 1,946,759
Issued for distributions reinvested 306,985 122,973
Redemptions (902,982) (471,059)
--------------- ---------------
Net Increase 4,493,043 3,010,584
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
53
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia High Yield Fund, Variable Series / December 31, 2004
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 pricing services
approved by the Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
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. 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
54
<Page>
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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for foreign currency transactions,
discount accretion/premium amortization on debt securities, market discount
reclassifications and distributions in excess were identified and reclassified
among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 194,653 $ (154,112) $ (40,541)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 3,492,852 $ 1,830,345
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 1,378,501
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales and
discount accretion/premium amortization on debt securities.
Unrealized appreciation at December 31, 2004, based on cost of investments for
federal income tax purposes, was:
<Table>
Unrealized appreciation $ 1,729,781
Unrealized depreciation (351,280)
--------------
Net unrealized appreciation $ 1,378,501
==============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2007 $ 1,061,194
2008 2,794,418
2009 4,226,387
2010 260,165
2011 908,941
------------
$ 9,251,105
============
</Table>
55
<Page>
Of the capital loss carryforwards attributable to the Fund, $7,971,674
($1,027,358 expiring 12/31/07, $2,734,633 expiring 12/31/08, $4,075,815 expiring
12/31/09 and $133,868 expiring 12/31/10) remain from the Fund's merger with
Colonial High Yield Securities Fund, Variable Series (See Note 7). Utilization
of these losses could be subject to limitations imposed by the Internal Revenue
Code.
Capital loss carryforwards of $210,757 were utilized during the year ended
December 31, 2004 for the Fund.
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 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 $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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.056%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $5,000.
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 up to
an annual rate of 0.27% of the Fund's average daily net assets. For the year
ended December 31, 2004, fees reimbursed by Columbia amounted to 0.16% 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 contractually agreed to
maintain these arrangements until April 13, 2004. Effective April 14, 2004,
Columbia and the Distributor voluntarily agreed to continue these arrangements,
however Columbia or the Distributor, at their discretion, may revise or
discontinue these arrangements any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
56
<Page>
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,343 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $56,555,450 and
$19,463,181, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
HIGH-YIELD SECURITIES--Investing in high-yield securities may involve greater
credit risk and considerations not typically associated with investing in U.S.
government bonds and other higher quality fixed income securities. These
securities are non-investment grade securities, often referred to as "junk
bonds." Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. Moreover, high-yield securities may be less liquid to the extent
that there is no established secondary market.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the
57
<Page>
Investment Company Act of 1940, by failing to ensure that the Fund and other
affiliated funds participated in securities class action settlements for which
the funds were eligible. Specifically, plaintiffs allege that defendants failed
to submit proof of claims in connection with settlements of securities class
action lawsuits filed against companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $2,473 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.
58
<Page>
FINANCIAL HIGHLIGHTS Columbia
High Yield Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.42 $ 8.96 $ 9.29 $ 9.35 $ 9.70
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.54(b) 0.56(b) 0.59 0.64(c) 0.69
Net realized and unrealized gain (loss) on investments
and foreign currency 0.11 0.52 (0.35) (0.07)(c) (0.35)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.65 1.08 0.24 0.57 0.34
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.52) (0.60) (0.57) (0.63) (0.69)
From net realized gains -- (0.02) -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.52) (0.62) (0.57) (0.63) (0.69)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.55 $ 9.42 $ 8.96 $ 9.29 $ 9.35
========== ========== ========== ========== ==========
Total return (d)(e)(f) 7.07% 12.37% 2.74% 6.18% 3.66%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 0.60% 0.77% 1.68% 1.60% 1.60%
Net investment income (g) 5.71% 6.06% 6.46% 6.89%(c) 7.29%
Waiver/reimbursement 0.16% 0.36% 1.68% 1.63% 1.58%
Portfolio turnover rate 38% 112% 49% 54% 46%
Net assets, end of period (000's) $ 9,722 $ 12,132 $ 2,197 $ 2,421 $ 2,188
</Table>
(a) The information shown in this table for the periods prior to April 14,
2003, relates to shares of the Galaxy VIP Columbia High Yield Fund II, the
predecessor to the Columbia High Yield Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective January 1, 2001. The effect of the changes for the year
ended December 31, 2001 (which is reflected in the amounts shown above) on
the net investment income per share, the net realized and unrealized gain
(loss) per share and the ratio of net investment income to average net
assets is $0.01, $(0.01) and 0.25%, respectively.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
59
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia High Yield Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Columbia High Yield Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the years ended December 31,
2004 and 2003, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and the Class A
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion. The financial highlights of
the Fund for periods prior to January 1, 2003 were audited by another
independent registered public accounting firm whose report dated February 7,
2003 expressed an unqualified opinion on those highlights.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
60
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia International Fund, Variable Series / December 31, 2004
Columbia International Fund, Variable Series seeks long-term growth by investing
primarily in equity securities of growth companies located outside the United
States.
Penelope L. Burgess and Deborah F. Snee are the fund's portfolio managers. Ms.
Burgess and Ms. Snee have co-managed the fund since July 2004. Ms. Burgess has
been with the advisor and its predecessors or affiliate organizations since
1993. Ms. Snee has been with the advisor and its predecessors or affiliate
organizations since 1999.
Most international markets finished 2004 with a positive performance, as
improving economic growth and a weak US dollar attracted investors. In this
environment, the portfolio had strong returns from developed countries. However,
it had less exposure to emerging markets than its benchmark, the MSCI All
Country World ex US Index. Because emerging markets were strong performers, this
underexposure detracted from performance. For most of the year, the portfolio
was underexposed compared to its benchmark in Mexico and Brazil, which produced
exceptional returns. In addition, for most of the year the portfolio had an
emphasis on Thailand, which did poorly. Stock selection in Europe and Japan also
held back returns.
A SLOW DOMESTIC RECOVERY IN JAPAN
Early in the year, we boosted investment in Japan on the belief that, after more
than 10 years of recession and deflation, there would be a strong domestic
recovery. We favored companies that had the potential to benefit from the
reemergence of inflation, the economy and consumer spending. In fact, we were
premature in our assessment of how quickly this domestic expansion would occur.
Inflation did not return as fast as forecasts suggested, and consumer spending
did not rebound at the pace we originally thought. As a result, consumer-related
Japanese stocks declined. Retailers Isetan Co. Ltd. and Shimamura Co. Ltd.,
which we sold, detracted considerably from performance. In the
telecommunications area, NTT DoCoMo a wireless communications company, suffered
from stiff competition and was a disappointment (0.7% of net assets).
A FOCUS ON EUROPE'S SMALLER ECONOMIES
We raised our commitment to Europe and the United Kingdom (UK), where long-term
growth prospects appeared strong. In Europe we focused on small markets that
were growing faster than Europe as a whole and that were attractively priced
relative to their earnings potential compared to larger markets. This strategy
benefited the portfolio. Two areas that were particularly helpful were Austria
and Greece. Both countries have fast-growing economies, relatively low interest
rates and policies that are generally friendly to business. For example, Austria
trimmed corporate taxes and Greece announced it would do the same in 2005. When
selecting stocks in Austria and Greece, we gravitated toward banks, which have
had a substantial increase in loan demand in the improving economic environment.
In Austria, Erste Bank der oesterreichischen Sparkassen helped returns (0.6% of
net assets). In Greece, the National Bank of Greece was also a positive
contributor to the portfolio (0.7% of net assets). Ireland, another small
economy, was also supportive, with long-term holding Anglo Irish Bank posting
significant returns (0.7% of net assets).
In the UK, performance was mixed. Rising oil prices aided energy stock
performance. In addition, cruise line Carnival Corp., was a standout, benefiting
from strong demand, cost reductions and higher fares. Carnival upgraded its
earnings forecast several times (0.8% of net assets). However, pharmaceutical
companies GlaxoSmithKline and AstraZeneca were disappointments (1.8% and 0.9% of
net assets, respectively). AstraZeneca's stock price fell on news of
disappointing sales as well as a delay in approval of Iressa, a cancer drug.
GlaxoSmithKline experienced a substantial decline in sales, primarily because
its antidepressant Paxil encountered competition from generics. A weak dollar
also lowered margins. However, we believe that the stock still has attractive
long-term potential and we continue to own it in the portfolio.
A FOUR-PRONGED APPROACH FOR 2005
We expect to emphasize four themes in 2005. First, we will seek more
high-yielding companies that we believe are likely to increase dividends and/or
share buybacks. Many of these companies are in the financials and
telecommunications sectors. Second, we plan to increase the portfolio's exposure
to companies that could benefit from increased capital expenditures. After
earning record-breaking profits in 2004, many companies have large cash
positions, which we believe they are likely to put to work in the year ahead.
Third, because we believe that improved employment growth could have a favorable
impact on consumer confidence, we plan to increase our exposure to retailers,
which have suffered for two consecutive years. Fourth, we plan to emphasize
large-cap stocks. We believe they have the potential to outperform small-cap
stocks, which have led the global markets for three years and are considerably
more expensive relative to their earnings potential than large-cap stocks.
Economic and market conditions change frequently. There is no assurance that the
trends described here will continue or commence.
An investment in the Columbia International Fund, Variable Series may present
certain risks, including stock market fluctuations that occur in response to
economic and business developments. The fund invests in foreign securities,
which have special risks, including political or economic instability and higher
transactions costs; different regulations, accounting standards, trading
practices and levels of information; and currency exchange rate fluctuations.
As a non-diversified portfolio, the fund may invest a significant percentage of
its assets in a single issuer. As a result it may have increased risk compared
to a more diversified fund.
Holdings are disclosed as of December 31, 2004 and are subject to change.
61
<Page>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Class A (5/2/94) 13.73 -3.80 3.53
MSCI All Country
World ex US Index 21.37 0.02 6.02
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 1/1/95 - 12/31/04
Class A: $14,146
<Table>
<Caption>
CLASS A SHARES MSCI ALL COUNTRY WORLD EX US INDEX
1/1/1995 $ 10,000 $ 10,000
1/31/1995 $ 9,415 $ 9,546
2/28/1995 $ 9,256 $ 9,494
3/31/1995 $ 9,415 $ 10,031
4/30/1995 $ 9,681 $ 10,422
5/31/1995 $ 9,681 $ 10,375
6/30/1995 $ 9,627 $ 10,232
7/31/1995 $ 10,159 $ 10,812
8/31/1995 $ 10,159 $ 10,437
9/30/1995 $ 10,318 $ 10,615
10/31/1995 $ 10,158 $ 10,332
11/30/1995 $ 10,318 $ 10,575
12/31/1995 $ 10,584 $ 10,994
1/31/1996 $ 10,530 $ 11,144
2/29/1996 $ 10,530 $ 11,144
3/31/1996 $ 10,745 $ 11,353
4/30/1996 $ 11,336 $ 11,697
5/31/1996 $ 11,228 $ 11,521
6/30/1996 $ 11,282 $ 11,580
7/31/1996 $ 10,852 $ 11,195
8/31/1996 $ 11,014 $ 11,261
9/30/1996 $ 11,122 $ 11,541
10/31/1996 $ 10,853 $ 11,425
11/30/1996 $ 11,282 $ 11,866
12/31/1996 $ 11,179 $ 11,729
1/31/1997 $ 11,236 $ 11,513
2/28/1997 $ 11,350 $ 11,724
3/31/1997 $ 11,350 $ 11,699
4/30/1997 $ 11,294 $ 11,798
5/31/1997 $ 12,150 $ 12,526
6/30/1997 $ 12,776 $ 13,218
7/31/1997 $ 12,834 $ 13,485
8/31/1997 $ 11,942 $ 12,424
9/30/1997 $ 12,399 $ 13,096
10/31/1997 $ 11,313 $ 11,980
11/30/1997 $ 10,970 $ 11,830
12/31/1997 $ 10,814 $ 11,966
1/31/1998 $ 11,178 $ 12,324
2/28/1998 $ 11,725 $ 13,146
3/31/1998 $ 12,454 $ 13,601
4/30/1998 $ 12,697 $ 13,699
5/31/1998 $ 12,697 $ 13,450
6/30/1998 $ 12,393 $ 13,400
7/31/1998 $ 12,758 $ 13,527
8/31/1998 $ 10,891 $ 11,620
9/30/1998 $ 10,404 $ 11,375
10/31/1998 $ 11,195 $ 12,567
11/30/1998 $ 11,803 $ 13,241
12/31/1998 $ 12,214 $ 13,697
1/31/1999 $ 12,214 $ 13,682
2/28/1999 $ 11,969 $ 13,375
3/31/1999 $ 12,397 $ 14,021
4/30/1999 $ 13,129 $ 14,723
5/31/1999 $ 12,519 $ 14,031
6/30/1999 $ 13,251 $ 14,676
7/31/1999 $ 13,740 $ 15,019
8/31/1999 $ 13,862 $ 15,072
9/30/1999 $ 13,923 $ 15,173
10/31/1999 $ 14,290 $ 15,737
11/30/1999 $ 15,206 $ 16,367
12/31/1999 $ 17,169 $ 17,928
1/31/2000 $ 16,123 $ 16,955
2/29/2000 $ 16,739 $ 17,413
3/31/2000 $ 16,985 $ 18,067
4/30/2000 $ 15,692 $ 17,059
5/31/2000 $ 15,385 $ 16,622
6/30/2000 $ 15,446 $ 17,331
7/31/2000 $ 14,954 $ 16,646
8/31/2000 $ 15,138 $ 16,852
9/30/2000 $ 14,656 $ 15,917
10/31/2000 $ 14,158 $ 15,411
11/30/2000 $ 13,722 $ 14,720
12/31/2000 $ 13,999 $ 15,222
1/31/2001 $ 13,564 $ 15,451
2/28/2001 $ 12,548 $ 14,227
3/31/2001 $ 11,533 $ 13,221
4/30/2001 $ 12,113 $ 14,120
5/31/2001 $ 11,751 $ 13,731
6/30/2001 $ 11,606 $ 13,205
7/31/2001 $ 11,243 $ 12,910
8/31/2001 $ 11,098 $ 12,590
9/30/2001 $ 10,372 $ 11,254
10/31/2001 $ 10,445 $ 11,569
11/30/2001 $ 10,590 $ 12,098
12/31/2001 $ 10,590 $ 12,254
1/31/2002 $ 10,082 $ 11,730
2/28/2002 $ 10,228 $ 11,814
3/31/2002 $ 10,446 $ 12,441
4/30/2002 $ 10,591 $ 12,537
5/31/2002 $ 10,591 $ 12,674
6/30/2002 $ 10,446 $ 12,126
7/31/2002 $ 9,502 $ 10,944
8/31/2002 $ 9,502 $ 10,945
9/30/2002 $ 8,922 $ 9,785
10/31/2002 $ 9,139 $ 10,309
11/30/2002 $ 9,212 $ 10,805
12/31/2002 $ 9,176 $ 10,457
1/31/2003 $ 8,811 $ 10,090
2/28/2003 $ 8,811 $ 9,886
3/31/2003 $ 8,885 $ 9,694
4/30/2003 $ 9,467 $ 10,628
5/31/2003 $ 10,050 $ 11,305
6/30/2003 $ 10,195 $ 11,618
7/31/2003 $ 10,268 $ 11,927
8/31/2003 $ 10,486 $ 12,283
9/30/2003 $ 10,852 $ 12,627
10/31/2003 $ 11,435 $ 13,445
11/30/2003 $ 11,654 $ 13,738
12/31/2003 $ 12,437 $ 14,786
1/31/2004 $ 12,732 $ 15,024
2/29/2004 $ 12,952 $ 15,406
3/31/2004 $ 13,099 $ 15,502
4/30/2004 $ 12,585 $ 15,019
5/31/2004 $ 12,512 $ 15,067
6/30/2004 $ 12,732 $ 15,394
7/31/2004 $ 12,216 $ 14,946
8/31/2004 $ 12,216 $ 15,066
9/30/2004 $ 12,381 $ 15,551
10/31/2004 $ 12,823 $ 16,092
11/30/2004 $ 13,634 $ 17,209
12/31/2004 $ 14,146 $ 17,948
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- --------------------------------------------------------------------------------
Class A 1.69 1.90
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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.
62
<Page>
UNDERSTANDING YOUR EXPENSES
Columbia International Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00 which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,111.00 1,020.36 5.04 4.82 0.95
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
Had the investment advisor not waived/reimbursed a portion of expenses, account
values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
63
<Page>
INVESTMENT PORTFOLIO
Columbia International Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
------------- -------------
COMMON STOCKS--97.8%
CONSUMER DISCRETIONARY--13.8%
AUTO COMPONENTS--1.3%
Continental AG 6,500 $ 411,063
Denso Corp. 22,800 610,547
-------------
1,021,610
-------------
AUTOMOBILES--2.4%
Nissan Motor Co., Ltd. 26,000 283,778
Renault SA 9,300 775,336
Toyota Motor Corp. 19,100 777,745
-------------
1,836,859
-------------
HOTELS, RESTAURANTS & LEISURE--1.1%
Carnival Corp. 11,100 639,693
OPAP SA 8,800 242,445
-------------
882,138
-------------
HOUSEHOLD DURABLES--2.8%
Koninklijke (Royal) Philips
Electronics NV 23,900 631,588
Matsushita Electric Industrial
Co., Ltd. 55,000 876,379
Pioneer Corp. 16,300 317,944
Sharp Corp. 19,000 308,456
-------------
2,134,367
-------------
LEISURE EQUIPMENT & PRODUCTS--1.0%
Fuji Photo Film Co., Ltd. 22,000 810,827
-------------
MEDIA--3.9%
Dentsu, Inc. 118 317,357
JC Decaux SA (a) 30,100 875,749
News Corp., Class B 22,650 434,880
Pearson PLC 79,000 951,621
WPP Group PLC 37,400 410,732
-------------
2,990,339
-------------
MULTILINE RETAIL--0.2%
Takashimaya Co., Ltd. 17,000 163,398
-------------
SPECIALTY RETAIL--0.2%
Nitori Co., Ltd. 2,450 159,412
-------------
TEXTILES, APPAREL & LUXURY GOODS--0.9%
Burberry Group PLC 88,400 679,404
-------------
CONSUMER STAPLES--9.3%
BEVERAGES--1.9%
Diageo PLC 59,400 845,876
SABMiller PLC 37,666 623,728
-------------
1,469,604
-------------
FOOD & STAPLES RETAILING--0.7%
Ito-Yokado Co., Ltd. 10,000 419,643
William Morrison Supermarkets PLC 33,968 134,763
-------------
554,406
-------------
FOOD PRODUCTS--3.5%
Nestle SA, Registered Shares 5,811 $ 1,517,607
Unilever PLC 121,640 1,192,487
-------------
2,710,094
-------------
HOUSEHOLD PRODUCTS--1.9%
Kao Corp. 13,000 330,894
Reckitt Benckiser PLC 36,727 1,107,955
-------------
1,438,849
-------------
TOBACCO--1.3%
Imperial Tobacco Group PLC 21,689 593,192
Japan Tobacco, Inc. 34 386,746
-------------
979,938
-------------
ENERGY--8.7%
ENERGY EQUIPMENT & SERVICES--0.2%
Saipem S.p.A. 17,100 204,888
-------------
OIL & GAS--8.5%
BG Group PLC 54,771 371,608
BP PLC 153,300 1,492,580
EnCana Corp. 25,200 1,436,220
ENI S.p.A. 55,200 1,380,893
Norsk Hydro ASA 5,660 444,780
Shell Transport & Trading Co., PLC 77,100 656,099
Total SA 3,500 761,838
-------------
6,544,018
-------------
FINANCIALS--23.5%
CAPITAL MARKETS--1.3%
Deutsche Bank AG,
Registered Shares 7,719 682,425
Nomura Holdings, Inc. 22,000 318,887
-------------
1,001,312
-------------
COMMERCIAL BANKS--15.0%
Anglo Irish Bank Corp., PLC 21,900 530,977
Banco Popolare di Verona e Novara 23,100 467,891
Banco Popular Espanol SA 8,170 536,432
Bank of Ireland 37,068 611,039
Bank of Yokohama Ltd. (a) 24,000 150,767
Barclays PLC 88,170 990,262
BNP Paribas SA 14,691 1,060,614
Danske Bank A/S 16,400 500,920
DNB NOR ASA 46,600 457,198
Erste Bank der oesterreichischen
Sparkassen AG 9,415 500,832
HSBC Holdings PLC 66,900 1,127,059
Mitsubishi Tokyo Financial
Group, Inc. 65 656,191
Mizuho Financial Group, Inc. 101 505,521
</Table>
See Accompanying Notes to Financial Statements.
64
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
National Bank of Greece SA 17,355 $ 570,758
Royal Bank of Scotland Group PLC 33,420 1,122,205
Skandinaviska Enskilda Banken
AB, Class A 55,600 1,072,248
Sumitomo Mitsui Financial
Group, Inc. 61 441,832
UniCredito Italiano S.p.A. 53,400 305,808
-------------
11,608,554
-------------
CONSUMER FINANCE--0.4%
Credit Saison Co., Ltd. 9,000 327,639
-------------
DIVERSIFIED FINANCIAL SERVICES--1.1%
ING Groep NV, CVA 27,957 842,936
-------------
INSURANCE--4.8%
Aegon NV 52,800 717,321
Allianz AG, Registered Shares 5,552 733,322
AXA 18,300 450,634
Irish Life & Permanent PLC 31,800 594,409
Mitsui Sumitomo Insurance Co., Ltd. 42,000 364,429
Riunione Adriatica di Sicurta S.p.A. 12,982 293,014
T&D Holdings, Inc. (a) 10,800 514,833
-------------
3,667,962
-------------
REAL ESTATE--0.9%
Sumitomo Realty & Development
Co., Ltd. 34,000 441,474
Swire Pacific Ltd., Class A 25,500 213,238
-------------
654,712
-------------
HEALTH CARE--11.6%
HEALTH CARE EQUIPMENT & SUPPLIES--1.9%
GN Store Nord A/S 18,000 193,219
Nobel Biocare Holding AG 1,800 324,932
Smith & Nephew PLC 74,871 764,844
Synthes, Inc. (a) 1,800 200,935
-------------
1,483,930
-------------
PHARMACEUTICALS--9.7%
AstraZeneca PLC 20,200 731,333
Chugai Pharmaceutical Co., Ltd. 34,200 564,600
GlaxoSmithKline PLC 58,300 1,365,436
Novartis AG, Registered Shares 21,950 1,101,374
Sanofi-Aventis 14,600 1,162,811
Schering AG 4,500 334,664
Shire Pharmaceuticals Group PLC 23,200 243,224
Takeda Pharmaceutical Co., Ltd. 25,400 1,277,505
Teva Pharmaceutical
Industries Ltd., ADR 23,600 704,696
-------------
7,485,643
-------------
INDUSTRIAL--9.8%
BUILDING PRODUCTS--0.9%
Nippon Sheet Glass Co. Ltd. 49,000 201,989
Wienerberger AG 9,591 457,092
-------------
659,081
-------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Randstad Holding NV 14,900 584,270
-------------
CONSTRUCTION & ENGINEERING--1.5%
Shimizu Corp. 95,000 $ 474,523
Vinci SA 5,290 707,932
-------------
1,182,455
-------------
ELECTRICAL EQUIPMENT--0.4%
Mitsubishi Electric Corp. 62,000 303,545
-------------
INDUSTRIAL CONGLOMERATES--1.7%
Hutchison Whampoa Ltd. 46,000 430,529
Siemens AG, Registered Shares 5,549 468,518
Smiths Group PLC 28,491 448,860
-------------
1,347,907
-------------
MACHINERY--2.4%
Atlas Copco AB, Class B 22,900 952,615
Heidelberger Druckmaschinen AG (a) 12,800 433,299
Volvo AB, Class B 11,100 438,878
-------------
1,824,792
-------------
ROAD & RAIL--1.4%
Canadian National Railway Co. 9,273 564,578
ComfortDelGro Corp., Ltd. 263,000 249,663
East Japan Railway Co. 54 299,912
-------------
1,114,153
-------------
TRADING COMPANIES & DISTRIBUTORS--0.7%
Mitsubishi Corp. 41,000 527,847
-------------
INFORMATION TECHNOLOGY--5.0%
COMMUNICATIONS EQUIPMENT--1.6%
Nokia Oyj 27,400 428,946
Tandberg ASA 41,000 506,365
Telefonaktiebolaget LM Ericsson,
ADR (a) 9,100 286,559
-------------
1,221,870
-------------
COMPUTERS & PERIPHERALS--0.4%
Toshiba Corp. 73,000 313,416
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.7%
Hoya Corp. 1,800 203,228
TDK Corp. 4,400 325,893
-------------
529,121
-------------
INTERNET SOFTWARE & SERVICES--0.3%
NIWS Co., Ltd. 66 190,253
-------------
OFFICE ELECTRONICS--0.6%
Canon, Inc. 9,000 485,965
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.3%
Marvell Technology Group Ltd. (a) 1,800 63,846
Samsung Electronics Co., Ltd.,
GDR, Registered Shares 3,143 688,317
STMicroelectronics NV, N.Y
Registered Shares 14,400 278,208
-------------
1,030,371
-------------
</Table>
See Accompanying Notes to Financial Statements.
65
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
SOFTWARE--0.1%
Sage Group PLC 14,284 $ 55,370
-------------
MATERIALS--5.4%
CHEMICALS--4.0%
BASF AG 8,500 609,799
Novozymes A/S, Class B 4,150 210,022
Shin-Etsu Chemical Co., Ltd. 9,600 392,991
Sumitomo Chemical Co., Ltd. 107,000 521,494
Syngenta AG (a) 11,000 1,163,573
Teijin Ltd. 45,000 194,532
-------------
3,092,411
-------------
CONSTRUCTION MATERIALS--0.9%
Cemex SA de CV, ADR 19,600 713,832
-------------
PAPER & FOREST PRODUCTS--0.5%
UPM-Kymmene Oyj 17,600 390,904
-------------
TELECOMMUNICATION SERVICES--6.8%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.1%
Belgacom SA (a) 11,100 478,111
Deutsche Telekom AG, Registered
Shares (a) 42,126 951,046
France Telecom SA 15,049 496,551
Nippon Telegraph & Telephone Corp. 96 430,867
TDC A/S 7,000 295,460
Telecom Italia S.p.A. 122,856 500,454
-------------
3,152,489
-------------
WIRELESS TELECOMMUNICATION SERVICES--2.7%
NTT DoCoMo, Inc. 295 542,696
Vodafone Group PLC 557,900 1,510,346
-------------
2,053,042
-------------
UTILITIES--3.9%
ELECTRIC UTILITIES--1.6%
E.ON AG 4,474 406,237
Fortum Oyj 25,400 468,445
Tokyo Electric Power Co., Inc. 13,300 325,876
-------------
1,200,558
-------------
GAS UTILITIES--0.8%
Centrica PLC 72,000 326,014
Tokyo Gas Co., Ltd. 78,000 319,060
-------------
645,074
-------------
MULTI-UTILITIES & UNREGULATED POWER--0.7%
National Grid Transco PLC 58,550 556,596
-------------
WATER UTILITIES--0.8%
Veolia Environnement 17,800 642,052
-------------
TOTAL COMMON STOCKS
(cost of $59,760,637) 75,470,213
-------------
PREFERRED STOCKS--0.9%
CONSUMER DISCRETIONARY--0.9%
AUTOMOBILES--0.9%
Porsche AG 1,100 $ 699,161
-------------
TOTAL PREFERRED STOCKS
(cost of $703,184) 699,161
-------------
<Caption>
UNITS
-------------
WARRANTS--0.0%
INFORMATION TECHNOLOGY--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
Lucent Technologies, Inc. (a) 113 178
-------------
TOTAL WARRANTS
(cost of $0) 178
-------------
<Caption>
PAR
-------------
SHORT-TERM OBLIGATION--1.4%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/04, due 01/03/05
at 1.500%, collateralized by a
U.S. Treasury Bond maturing
11/15/27, market value of $1,077,379
(repurchase proceeds $1,056,132) $ 1,056,000 1,056,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $1,056,000) 1,056,000
-------------
TOTAL INVESTMENTS--100.1%
(cost of $61,519,821) (b) 77,225,552
-------------
OTHER ASSETS & LIABILITIES, NET--(0.1)% (41,740)
-------------
NET ASSETS--100.0% $ 77,183,812
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $62,045,370.
See Accompanying Notes to Financial Statements.
66
<Page>
The Fund was invested in the following countries at December 31, 2004:
<Table>
<Caption>
SUMMARY OF SECURITIES BY % OF TOTAL
COUNTRY (UNAUDITED) VALUE INVESTMENTS
- ------------------------ ----- -----------
United Kingdom $ 18,301,594 23.7%
Japan 17,380,891 22.5
France 6,933,517 9.0
Germany 5,729,534 7.4
Switzerland 4,107,486 5.3
Italy 3,152,948 4.1
Netherlands 3,054,323 4.0
Sweden 2,750,300 3.6
Canada 2,000,798 2.6
United States* 1,755,839 2.3
Ireland 1,736,425 2.2
Norway 1,408,343 1.8
Finland 1,288,295 1.7
Denmark 1,199,621 1.6
Austria 957,924 1.2
Greece 813,203 1.1
Mexico 713,832 0.9
Israel 704,696 0.9
South Korea 688,317 0.9
Hong Kong 643,767 0.8
Panama 639,693 0.8
Spain 536,432 0.7
Belgium 478,111 0.6
Singapore 249,663 0.3
------------- -----
$ 77,225,552 100.0%
============= =====
</Table>
* Includes short-term obligation.
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 23.5%
Consumer Discretionary 14.7
Health Care 11.6
Industrial 9.8
Consumer Staples 9.3
Energy 8.7
Telecommunication Services 6.8
Materials 5.4
Information Technology 5.0
Utilities 3.9
Short-Term Obligation 1.4
Other Assets & Liabilities, Net (0.1)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
GDR Global Depositary Receipt
</Table>
See Accompanying Notes to Financial Statements.
67
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia International Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 61,519,821
---------------
Investments, at value $ 77,225,552
Cash 59
Foreign currency (cost of $7,317) 7,307
Receivable for:
Investments sold 1,091,573
Interest 44
Dividends 74,823
Foreign tax reclaim 21,631
Expense reimbursement due from Investment Advisor 13,838
Deferred Trustees' compensation plan 5,783
---------------
TOTAL ASSETS 78,440,610
---------------
LIABILITIES:
Payable for:
Investments purchased 339,346
Fund shares repurchased 811,340
Investment advisory fee 58,493
Transfer agent fee 606
Pricing and bookkeeping fees 3,760
Trustees' fees 379
Audit fee 19,250
Custody fee 9,114
Distribution fee--Class B 1,848
Deferred Trustees' fees 5,783
Other liabilities 6,879
---------------
TOTAL LIABILITIES 1,256,798
---------------
NET ASSETS $ 77,183,812
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 73,776,010
Overdistributed net investment income (7,668)
Accumulated net realized loss (12,293,699)
Net unrealized appreciation on:
Investments 15,705,731
Foreign currency translations 3,438
---------------
NET ASSETS $ 77,183,812
===============
CLASS A:
Net assets $ 70,391,359
Shares outstanding 37,001,999
===============
Net asset value per share $ 1.90
===============
CLASS B:
Net assets $ 6,792,453
Shares outstanding 3,582,100
===============
Net asset value per share $ 1.90
===============
</Table>
See Accompanying Notes to Financial Statements.
68
<Page>
STATEMENT OF OPERATIONS
Columbia International Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 1,476,810
Interest 10,665
---------------
Total Investment Income (net of foreign taxes withheld
of $185,526) 1,487,475
---------------
EXPENSES:
Investment advisory fee 694,542
Distribution fee--Class B 16,418
Transfer agent fee 7,500
Pricing and bookkeeping fees 35,986
Trustees' fees 9,299
Custody fee 84,826
Non-recurring costs (See Note 7) 3,909
Other expenses 64,399
---------------
Total Expenses 916,879
Fees and expenses waived or reimbursed by Investment Advisor (162,060)
Non-recurring costs assumed by Investment Advisor (See Note 7) (3,909)
Custody earnings credit (43)
---------------
Net Expenses 750,867
---------------
Net Investment Income 736,608
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FOREIGN CAPITAL GAINS TAX:
Net realized gain (loss) on:
Investments 12,932,946
Foreign currency transactions (12,136)
Foreign capital gains tax (68,972)
Net realized loss on disposal of invesments purchased in
error (See Note 6) --
---------------
Net realized gain 12,851,838
---------------
Net change in unrealized appreciation/depreciation on:
Investments (4,052,824)
Foreign currency translations (44,358)
Foreign capital gains tax 103,767
---------------
Net change in unrealized appreciation/depreciation (3,993,415)
---------------
Net Gain 8,858,423
---------------
Net Increase in Net Assets from Operations $ 9,595,031
===============
</Table>
See Accompanying Notes to Financial Statements.
69
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia International Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 736,608 $ 1,145,148
Net realized gain (loss) on investments and foreign currency
transactions 12,851,838 (2,602,025)
Net change in unrealized appreciation/depreciation on
investments, foreign currency translations and foreign
capital gains tax (3,993,415) 24,758,829
--------------- ---------------
Net Increase from Operations 9,595,031 23,301,952
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (812,607) (780,341)
Class B (62,958) (54,564)
--------------- ---------------
Total Distributions Declared to Shareholders (875,565) (834,905)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,715,897 22,045,783
Proceeds received in connection with merger -- 35,910,049
Distributions reinvested 812,607 780,341
Redemptions (16,270,373) (33,015,574)
--------------- ---------------
Net Increase (Decrease) (12,741,869) 25,720,599
--------------- ---------------
Class B:
Subscriptions 504,785 261,779
Proceeds received in connection with merger -- 5,503,084
Distributions reinvested 62,958 54,564
Redemptions (1,363,336) (888,774)
--------------- ---------------
Net Increase (Decrease) (795,593) 4,930,653
--------------- ---------------
Net Increase (Decrease) from Share Transactions (13,537,462) 30,651,252
--------------- ---------------
Total Increase (Decrease) in Net Assets (4,817,996) 53,118,299
NET ASSETS:
Beginning of period 82,001,808 28,883,509
--------------- ---------------
End of period (including undistributed (overdistributed) net
investment income of $(7,668) and $101,611, respectively) $ 77,183,812 $ 82,001,808
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 1,543,162 15,774,129
Issued in connection with merger -- 28,728,067
Issued for distributions reinvested 432,171 468,404
Redemptions (9,365,532) (23,430,429)
--------------- ---------------
Net Increase (Decrease) (7,390,199) 21,540,171
--------------- ---------------
Class B:
Subscriptions 302,309 180,431
Issued in connection with merger -- 4,437,971
Issued for distributions reinvested 33,751 32,782
Redemptions (790,682) (614,950)
--------------- ---------------
Net Increase (Decrease) (454,622) 4,036,234
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
70
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia International Fund, Variable Series / December 31, 2004
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.
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. The Fund
may use a systematic fair valuation model provided by an independent third party
to value securities principally traded in foreign markets in order to adjust for
possible stale pricing that may occur between the close of the foreign exchanges
and the time for valuation. If a security is valued at a "fair value", such
value is likely to be different from the last quoted market price for the
security.
Investments for which market quotations are not readily available, or 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 current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from
71
<Page>
such contracts is the aggregate face value in U.S. dollars at the time the
contract was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. The Fund could also
be exposed to risk if the counterparties of the contracts are unable to fulfill
the terms of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date, except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for distributions in excess,
foreign currency transactions and foreign capital gains tax were identified and
reclassified among the components of the Fund's net assets as follows:
<Table>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 29,678 $ (199,649) $ 169,971
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 875,565 $ 834,905
Long-term capital gains -- --
</Table>
72
<Page>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- -------------
$ -- $ -- $ 15,181,595
</Table>
* The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to deferral of losses from wash sales and changes in the
value of assets and liabilities resulting from changes in exchange rates.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 15,786,144
Unrealized depreciation (605,962)
------------
Net unrealized appreciation $ 15,180,182
============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2007 $ 339,440
2008 668,968
2009 6,672,015
2010 3,027,462
2011 1,060,264
------------
$ 11,768,149
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $1,038,036 ($106,582
expiring 12/31/07, $585,442 expiring 12/31/08, $173,006 expiring 12/31/09 and
$173,006 expiring 12/31/10) remain from the Fund's merger with Colonial
International Horizons Fund, Variable Series and $474,576 ($232,858 expiring
12/31/07, $83,526 expiring 12/31/08, $79,096 expiring 12/31/09 and $79,096
expiring 12/31/10) remain from the Fund's merger with Colonial Global Equity
Fund, Variable Series (See Note 8). Utilization of these losses could be subject
to limitations imposed by the Internal Revenue Code.
Capital loss carryforwards of $11,725,001 were utilized during the year ended
December 31, 2004 for the Fund.
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 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 0.87%
Next $500 million 0.82%
Next $500 million 0.77%
$1.5 billion to $3 billion 0.72%
$3 billion to $6 billion 0.70%
Over $6 billion 0.68%
</Table>
Prior to November 1, 2004, Columbia received 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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.049%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's 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
73
<Page>
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
contractually agreed to maintain this arrangement until April 6, 2004. Effective
April 7, 2004, Columbia voluntarily agreed to continue this arrangement, however
Columbia, at its discretion, may revise or discontinue this arrangement any
time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,404 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $77,081,937 and
$91,184,283, respectively.
NOTE 6. OTHER
During the year ended December 31, 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.
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--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to
74
<Page>
reduce certain Columbia Funds, Nations Funds and other mutual fund management
fees collectively by $32 million per year for five years, for a projected total
of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $3,909 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 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.
75
<Page>
FINANCIAL HIGHLIGHTS
Columbia International Fund, Variable Series -- Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.69 $ 1.26 $ 1.46 $ 1.93 $ 2.79
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.02 0.03 0.01 0.01 0.03
Net realized and unrealized gain (loss) on
investments, foreign currency and
foreign capital gains tax 0.21 0.42 (0.20) (0.48) (0.55)
-------- -------- -------- -------- --------
Total from Investment Operations 0.23 0.45 (0.19) (0.47) (0.52)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.02) (0.02) (0.01) -- (0.04)
In excess of net investment income -- -- -- -- --(b)
From net realized gains -- -- -- -- (0.30)
In excess of net realized gains -- -- -- -- --(b)
-------- -------- -------- -------- --------
Total Distributions Declared to Shareholders (0.02) (0.02) (0.01) -- (0.34)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.90 $ 1.69 $ 1.26 $ 1.46 $ 1.93
======== ======== ======== ======== ========
Total return (c)(d) 13.73%(e)(f) 35.54%(e) (13.35)% (24.35)% (18.47)%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 0.95% 0.97% 1.13% 1.23% 1.08%
Net investment income (g) 0.98% 1.84% 0.62% 0.41% 1.20%
Waiver/reimbursement 0.21% 0.18% -- -- --
Portfolio turnover rate 101% 104% 39% 34% 76%
Net assets, end of period (000's) $ 70,391 $ 75,184 $ 28,883 $ 41,299 $ 61,372
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) Total return includes a voluntary reimbursement by the Investment Advisor
for a realized investment loss on an investment not meeting the Fund's
investment restrictions. This reimbursement had an impact of less than
0.01% on the Fund's total return.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
76
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia International Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Columbia International Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
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<Page>
PORTFOLIO MANAGER'S DISCUSSION
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
Columbia Real Estate Equity Fund, Variable Series seeks to provide capital
appreciation and above-average current income.
David W. Jellison has managed the fund and its predecessor since its inception
in March 1998.
Buoyed by a strong economy and a relatively favorable interest rate environment,
the market for real estate investment trusts (REITs) took in a stampede of
investor money during 2004. As a result, REIT stock prices were propelled higher
and the sector delivered exceptional returns for the year ended December 31,
2004. The fund and its benchmark, the NAREIT Index, both handily outperformed
the S&P 500 Index. However, a defensive posture, represented by an allocation to
the paper and forest product sectors, caused the fund to modestly underperform
its benchmark for the 12-month period. Even so, we continue to believe that
these securities will help cushion the fund in a less favorable REIT
environment.
ECONOMIC GROWTH INCREASED DEMAND FOR SPACE
Steady economic growth benefited REIT stocks because it generally increased the
demand for space. Relatively low interest rates also tended to favor REITs.
Despite five increases in short-term interest rates by the Federal Reserve
Board, yields on longer term securities, such as the 10-year bond, were
virtually unchanged from where they started the year.
LODGING AND OFFICE REIT STOCKS AID PERFORMANCE
During the year, we increased the fund's allocation to lodging stocks from
approximately 5% to 17.5% of net assets. This allocation, which was
approximately three times the sector's weight in the index, paid off as lodging
REITs performed strongly--particularly in the last nine months. We used proceeds
from the sale of retail and industrial REITs to add to the lodging sector. We
shifted the fund's exposure to industrial REITs from an overweight to an
underweight relative to the index, a move that did not benefit performance
because the sector continued to perform strongly. However, we believe industrial
REITs have become expensive relative to their earnings prospects while valuation
concerns justify lower exposure going forward. We also reduced the fund's retail
REIT allocation even though retail was the fastest growing sector of the REIT
market. We believe that cash flow growth rates for these companies have peaked.
We believe the fund's allocation has the potential to help performance going
forward.
Although the office REIT sector underperformed, we zeroed in on some strong
performers in the sector. And the fund had less exposure to office REITs than
the index, which also helped relative performance. We have underweighted office
REITs because the sector continues to struggle with oversupply in the face of a
very slow recovery in the employment market.
REIT DIVIDEND YIELDS FALL
The average dividend yield on REIT stocks fell from 5.5% to 4.7% during this
reporting period. Because REITs are pass-through vehicles that are taxed at the
ordinary income tax rate (as compared to the lower dividend tax rate), this
decline was significant for investors. To help offset the impact of declining
yields, we sought more income potential by purchasing additional income deposit
securities (IDS). An IDS combines a share of dividend-paying common stock with
an interest in corporate subordinated debt. The security pays both a dividend,
which is now taxed at the lower dividend tax rate, and interest, which is taxed
at the ordinary income rate. The fund now holds three of these securities,
representing 2.4% of net assets as of year end.
THREAT OF RISING RATES LOOMS
The biggest threat to REIT stocks is the potential for intermediate- and
long-term interest rates to rise as the Federal Reserve continues to apply the
brakes to inflation and manage economic growth. Because we believe economic good
news is already priced into many of these stocks, rising rates could provide a
valuation headwind for the REIT market. As a result, we plan to continue to
position the fund away from REIT stocks and toward other real estate related
issues, particularly in sectors we believe are linked to a strengthening economy
such as lodging and paper and forest products.
On October 13, 2004, the Board of Trustees of the fund voted to liquidate the
fund. The fund was liquidated on February 18, 2005.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the fund may present certain risks, including stock market
fluctuations that occur in response to economic and business developments. The
fund may be subject to the same types of risks associated with direct ownership
of real estate including the decline of property value due to general, local and
regional economic conditions. In addition, the fund's share price will likely be
subject to more volatility than the overall stock market because it concentrates
in real estate stocks.
Holdings are disclosed as of December 31, 2004, and are subject to change.
78
<Page>
PERFORMANCE INFORMATION
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- --------------------------------------------------------------------------------
Class A (3/3/98) 30.65 19.25 11.40
NAREIT Index(1) 31.58 21.95 12.00
S&P 500 Index(2) 10.88 -2.30 3.62
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 3/3/98(3) - 12/31/04
Class A: $20,901
<Table>
<Caption>
CLASS A SHARES NAREIT INDEX S&P 500 Index
3/3/1998 $ 10,000 $ 10,000 $ 10,000
3/31/1998 $ 10,350 $ 10,179 $ 10,485
4/30/1998 $ 9,981 $ 9,847 $ 10,591
5/31/1998 $ 9,931 $ 9,778 $ 10,409
6/30/1998 $ 9,908 $ 9,712 $ 10,831
7/31/1998 $ 9,356 $ 9,081 $ 10,717
8/31/1998 $ 8,664 $ 8,224 $ 9,167
9/30/1998 $ 9,079 $ 8,690 $ 9,755
10/31/1998 $ 8,917 $ 8,529 $ 10,548
11/30/1998 $ 9,079 $ 8,654 $ 11,187
12/31/1998 $ 9,044 $ 8,436 $ 11,831
1/31/1999 $ 8,889 $ 8,260 $ 12,326
2/28/1999 $ 8,827 $ 8,066 $ 11,942
3/31/1999 $ 8,753 $ 8,029 $ 12,420
4/30/1999 $ 9,406 $ 8,791 $ 12,901
5/31/1999 $ 9,675 $ 8,985 $ 12,596
6/30/1999 $ 9,443 $ 8,839 $ 13,295
7/31/1999 $ 9,077 $ 8,558 $ 12,880
8/31/1999 $ 9,066 $ 8,450 $ 12,817
9/30/1999 $ 8,645 $ 8,128 $ 12,466
10/31/1999 $ 8,454 $ 7,928 $ 13,255
11/30/1999 $ 8,370 $ 7,799 $ 13,524
12/31/1999 $ 8,670 $ 8,046 $ 14,321
1/31/2000 $ 8,702 $ 8,073 $ 13,602
2/29/2000 $ 8,487 $ 7,977 $ 13,345
3/31/2000 $ 8,925 $ 8,239 $ 14,650
4/30/2000 $ 9,466 $ 8,793 $ 14,209
5/31/2000 $ 9,552 $ 8,879 $ 13,918
6/30/2000 $ 9,874 $ 9,107 $ 14,262
7/31/2000 $ 10,772 $ 9,903 $ 14,039
8/31/2000 $ 10,323 $ 9,501 $ 14,911
9/30/2000 $ 10,731 $ 9,804 $ 14,124
10/31/2000 $ 10,234 $ 9,379 $ 14,064
11/30/2000 $ 10,521 $ 9,499 $ 12,956
12/31/2000 $ 11,145 $ 10,168 $ 13,020
1/31/2001 $ 11,023 $ 10,274 $ 13,482
2/28/2001 $ 10,866 $ 10,109 $ 12,252
3/31/2001 $ 10,659 $ 10,207 $ 11,475
4/30/2001 $ 11,041 $ 10,451 $ 12,367
5/31/2001 $ 11,254 $ 10,704 $ 12,450
6/30/2001 $ 11,776 $ 11,331 $ 12,147
7/31/2001 $ 11,527 $ 11,106 $ 12,028
8/31/2001 $ 11,900 $ 11,512 $ 11,275
9/30/2001 $ 11,101 $ 11,035 $ 10,364
10/31/2001 $ 10,688 $ 10,719 $ 10,562
11/30/2001 $ 11,352 $ 11,309 $ 11,372
12/31/2001 $ 11,668 $ 11,584 $ 11,472
1/31/2002 $ 11,737 $ 11,608 $ 11,305
2/28/2002 $ 11,979 $ 11,832 $ 11,087
3/31/2002 $ 12,477 $ 12,542 $ 11,504
4/30/2002 $ 12,569 $ 12,648 $ 10,807
5/31/2002 $ 12,812 $ 12,819 $ 10,727
6/30/2002 $ 13,010 $ 13,169 $ 9,963
7/31/2002 $ 12,277 $ 12,480 $ 9,187
8/31/2002 $ 12,149 $ 12,455 $ 9,246
9/30/2002 $ 11,642 $ 11,977 $ 8,241
10/31/2002 $ 11,256 $ 11,401 $ 8,967
11/30/2002 $ 11,852 $ 11,938 $ 9,495
12/31/2002 $ 11,966 $ 12,026 $ 8,937
1/31/2003 $ 11,643 $ 11,676 $ 8,703
2/28/2003 $ 11,768 $ 11,869 $ 8,573
3/31/2003 $ 11,988 $ 12,106 $ 8,656
4/30/2003 $ 12,510 $ 12,639 $ 9,369
5/31/2003 $ 13,121 $ 13,402 $ 9,863
6/30/2003 $ 13,382 $ 13,694 $ 9,989
7/31/2003 $ 14,056 $ 14,427 $ 10,165
8/31/2003 $ 14,294 $ 14,505 $ 10,363
9/30/2003 $ 14,644 $ 14,998 $ 10,253
10/31/2003 $ 14,833 $ 15,270 $ 10,834
11/30/2003 $ 15,410 $ 15,935 $ 10,929
12/31/2003 $ 15,999 $ 16,493 $ 11,502
1/31/2004 $ 16,495 $ 17,206 $ 11,713
2/29/2004 $ 16,904 $ 17,507 $ 11,876
3/31/2004 $ 17,634 $ 18,475 $ 11,697
4/30/2004 $ 15,525 $ 15,781 $ 11,513
5/31/2004 $ 16,418 $ 16,906 $ 11,671
6/30/2004 $ 16,959 $ 17,402 $ 11,897
7/31/2004 $ 16,871 $ 17,459 $ 11,503
8/31/2004 $ 17,926 $ 18,846 $ 11,549
9/30/2004 $ 18,112 $ 18,834 $ 11,674
10/31/2004 $ 18,828 $ 19,842 $ 11,853
11/30/2004 $ 19,810 $ 20,697 $ 12,333
12/31/2004 $ 20,901 $ 21,704 $ 12,749
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- --------------------------------------------------------------------------------
Class A 10.96 12.39
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE
MAY BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR
CURRENT MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE
COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY
INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF
PERFORMANCE INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE
LOWER.
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.
(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) For the life of the fund, index performance for the NAREIT Index is from
February 28, 1998, and for the S&P 500 Index is from March 3, 1998.
79
<Page>
UNDERSTANDING YOUR EXPENSES
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,232.41 1,020.76 4.88 4.42 0.87
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
Had the investment advisor not waived/reimbursed a portion of expenses, account
values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
80
<Page>
INVESTMENT PORTFOLIO
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
------------- -------------
COMMON STOCKS--99.3%
CONSUMER DISCRETIONARY--13.7%
HOTELS, RESTAURANTS & LEISURE--13.1%
Hilton Hotels Corp. 7,515 $ 170,891
La Quinta Corp. (a) 7,520 68,357
Marriott International, Inc., Class A 1,970 124,071
Starwood Hotels & Resorts
Worldwide, Inc. 2,535 148,044
-------------
511,363
-------------
MULTILINE RETAIL--0.6%
Sears, Roebuck and Co. 400 20,412
-------------
FINANCIALS--76.8%
REAL ESTATE--76.8%
Alexandria Real Estate Equities, Inc.,
REIT 2,310 171,910
Archstone-Smith Trust, REIT 2,440 93,452
AvalonBay Communities, Inc., REIT 1,060 79,818
Boston Properties, Inc., REIT 925 59,820
Brookfield Properties Corp. 1,670 62,458
CenterPoint Properties Trust, REIT 1,870 89,554
Corporate Office Properties Trust,
REIT 1,500 44,025
Cousins Properties, Inc., REIT 4,920 148,928
Duke Realty Corp., REIT 2,740 93,544
Equity Office Properties Trust, REIT 3,606 105,007
Equity Residential, REIT 5,090 184,156
Essex Property Trust, Inc., REIT 400 33,520
General Growth Properties, Inc.,
REIT 4,650 168,144
Host Marriott Corp., REIT 10,210 176,633
iStar Financial, Inc., REIT 4,520 204,575
Kimco Realty Corp., REIT 2,037 118,126
Liberty Property Trust, REIT 1,800 77,760
Newcastle Investment Corp., REIT 1,295 41,155
Pan Pacific Retail Properties, Inc.,
REIT 1,210 75,867
ProLogis Trust, REIT 3,890 168,554
Public Storage, Inc., REIT 2,370 132,127
Regency Centers Corp., REIT 2,640 146,256
Simon Property Group, Inc., REIT 3,180 205,651
SL Green Realty Corp., REIT 1,050 63,578
St. Joe Co. 1,850 118,770
United Dominion Realty Trust, Inc.,
REIT 2,030 50,344
Vornado Realty Trust, REIT 1,110 84,504
-------------
2,998,236
-------------
MATERIALS--8.8%
PAPER & FOREST PRODUCTS--8.8%
Bowater, Inc. 3,415 $ 150,157
International Paper Co. 2,860 120,120
MeadWestvaco Corp. 2,175 73,711
-------------
343,988
-------------
TOTAL COMMON STOCKS
(cost of $2,723,998) 3,873,999
-------------
INCOME DEPOSIT SECURITIES--2.4%
CONSUMER DISCRETIONARY--0.9%
HOTELS, RESTAURANTS & LEISURE--0.9%
Centerplate, Inc. 2,700 35,721
-------------
CONSUMER STAPLES--1.0%
FOOD & STAPLES RETAILING--1.0%
B&G Foods, Inc. 2,600 38,948
-------------
TELECOMMUNICATION SERVICES--0.5%
DIVERSIFIED TELECOMMUNICATION SERVICES--0.5%
Otelco, Inc. 1,300 20,670
-------------
TOTAL INCOME DEPOSIT SECURITIES
(cost of $99,771) 95,339
-------------
TOTAL INVESTMENTS--101.7%
(cost of $2,823,769) (b) 3,969,338
-------------
OTHER ASSETS & LIABILITIES, NET--(1.7)% (66,013)
-------------
NET ASSETS--100.0% $ 3,903,325
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $2,831,845.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 76.8%
Consumer Discretionary 14.6
Materials 8.8
Consumer Staples 1.0
Telecommunication Services 0.5
Other Assets & Liabilities, Net (1.7)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
81
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 2,823,769
---------------
Investments, at value $ 3,969,338
Receivable for:
Fund shares sold 571
Dividends 13,873
Expense reimbursement due from Investment Advisor 3,231
Deferred Trustees' compensation plan 1,718
---------------
TOTAL ASSETS 3,988,731
---------------
LIABILITIES:
Payable to custodian bank 39,685
Payable for:
Investments purchased 3,040
Fund shares repurchased 26,820
Investment advisory fee 2,676
Administration fee 301
Transfer agent fee 417
Pricing and bookkeeping fees 2,085
Trustees' fees 33
Audit fee 7,544
Custody fee 416
Distribution fee--Class B 640
Deferred Trustees' fees 1,718
Other liabilities 31
---------------
TOTAL LIABILITIES 85,406
---------------
NET ASSETS $ 3,903,325
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 2,709,077
Overdistributed net investment income (1,705)
Accumulated net realized gain 50,384
Net unrealized appreciation on investments 1,145,569
---------------
NET ASSETS $ 3,903,325
===============
CLASS A:
Net assets $ 1,149,381
Shares outstanding 92,784
===============
Net asset value per share $ 12.39
===============
CLASS B:
Net assets $ 2,753,944
Shares outstanding 221,695
===============
Net asset value per share $ 12.42
===============
</Table>
See Accompanying Notes to Financial Statements.
82
<Page>
STATEMENT OF OPERATIONS
Columbia Real Estate Equity Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 177,777
Interest 1,988
---------------
Total Investment Income (net of foreign taxes withheld
of $156) 179,765
---------------
EXPENSES:
Investment advisory fee 29,082
Administration fee 3,296
Distribution fee--Class B 6,680
Transfer agent fee 5,000
Pricing and bookkeeping fees 25,000
Trustees' fees 6,275
Custody fee 3,953
Audit fee 4,833
Non-recurring costs (See Note 6) 194
Other expenses 5,900
---------------
Total Expenses 90,213
Fees and expenses waived or reimbursed by Investment Advisor (34,899)
Non-recurring costs assumed by Investment Advisor (See Note 6) (194)
Custody earnings credit (102)
---------------
Net Expenses 55,018
---------------
Net Investment Income 124,747
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 420,171
Net change in unrealized appreciation/depreciation on
investments 491,286
---------------
Net Gain 911,457
---------------
Net Increase in Net Assets from Operations $ 1,036,204
===============
</Table>
See Accompanying Notes to Financial Statements.
83
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia Real Estate Equity Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 124,747 $ 20,974
Net realized gain on investments 420,171 540,776
Net change in unrealized appreciation/depreciation on
investments 491,286 323,613
--------------- ---------------
Net Increase from Operations 1,036,204 885,363
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (45,038) (6,669)
Class B (94,997) (12,646)
From net realized gains:
Class A (127,115) (127,579)
Class B (277,739) (344,419)
--------------- ---------------
Total Distributions Declared to Shareholders (544,889) (491,313)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 496,124 689,817
Proceeds received in connection with merger -- 1,269
Distributions reinvested 172,153 137,660
Redemptions (596,466) (1,058,627)
--------------- ---------------
Net Increase (Decrease) 71,811 (229,881)
--------------- ---------------
Class B:
Subscriptions 647,949 429,718
Proceeds received in connection with merger -- 1,868,312
Distributions reinvested 372,736 353,653
Redemptions (1,035,323) (440,174)
--------------- ---------------
Net Increase (Decrease) (14,638) 2,211,509
--------------- ---------------
Net Increase from Share Transactions 57,173 1,981,628
--------------- ---------------
Total Increase in Net Assets 548,488 2,375,678
NET ASSETS:
Beginning of period 3,354,837 979,159
--------------- ---------------
End of period (including overdistributed net investment
income of $(1,705) and $(785), respectively) $ 3,903,325 $ 3,354,837
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 43,392 50,234
Issued in connection with merger -- 129
Issued for distributions reinvested 13,969 12,550
Redemptions (48,001) (81,080)
--------------- ---------------
Net Increase (Decrease) 9,360 (18,167)
--------------- ---------------
Class B:
Subscriptions 55,312 38,575
Issued in connection with merger -- 190,256
Issued for distributions reinvested 30,157 32,073
Redemptions (85,863) (38,815)
--------------- ---------------
Net Increase (Decrease) (394) 222,089
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
84
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia Real Estate Equity Fund, Variable Series / December 31, 2004
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. If the Fund no longer owns the
applicable securities, any distributions received in excess of income are
recorded as realized gains.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are 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.
85
<Page>
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for REIT adjustments and
distribution reclassifications were identified and reclassified among the
components of the Fund's net assets as follows:
<Table>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 14,368 $ (13,733) $ (635)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income* $ 157,871 $ 165,123
Long-term capital gains 387,018 326,190
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- -------------
$ -- $ 58,459 $ 1,137,493
</Table>
* The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 1,144,894
Unrealized depreciation (7,401)
------------
Net unrealized appreciation $ 1,137,493
============
</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 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
at the annual rate of 0.65% of the Fund's average daily net assets.
Prior to November 1, 2004, Columbia received 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>
For the year ended December 31, 2004, the Fund's effective administration fee
rate was 0.085%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). 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>
ANNUAL
AVERAGE DAILY NET ASSETS 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>
86
<Page>
The Fund also pays additional fees for pricing services based on the number of
securities held by the Fund.
For the year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.644%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $5,000.
For the year ended December 31, 2004, the Fund's 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
contractually agreed to maintain this arrangement until April 13, 2004.
Effective April 14, 2004, Columbia voluntarily agreed to continue this
arrangement, however Columbia, at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,291 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $1,390,821 and
$1,616,890, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
87
<Page>
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $194 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 DEPRECIATION(1)
------ ---------- ---------------
190,385 $ 1,869,581 $ 243,393
</Table>
<Table>
<Caption>
NET ASSETS NET ASSETS
OF GALAXY VIP OF CRABBE HUSON
COLUMBIA REAL ESTATE NET ASSETS OF
REAL ESTATE INVESTMENT GALAXY VIP COLUMBIA
EQUITY FUND II FUND, VARIABLE REAL ESTATE EQUITY
PRIOR TO SERIES PRIOR TO FUND II IMMEDIATELY
COMBINATION COMBINATION AFTER COMBINATION
-------------- --------------- -------------------
$ 998,543 $ 1,869,581 $ 2,868,124
</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 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.
NOTE 8. PLAN OF LIQUIDATION
On October 13, 2004, the Board of Trustees of the Fund voted to liquidate the
Fund. The Fund was liquidated on February 18, 2005.
88
<Page>
FINANCIAL HIGHLIGHTS
Columbia Real Estate Equity Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.96 $ 9.64 $ 10.11 $ 9.96 $ 8.08
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.40(b) 0.11(b) 0.40 0.38 0.41
Net realized and unrealized gain (loss) on
investments 2.92 3.12 (0.14) 0.07 1.86
-------- -------- -------- -------- --------
Total from Investment Operations 3.32 3.23 0.26 0.45 2.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.50) (0.11) (0.32) (0.30) (0.38)
In excess of net investment income -- -- -- -- (0.01)
From net realized gains (1.39) (1.80) (0.41) -- --
-------- -------- -------- -------- --------
Total Distributions Declared to Shareholders (1.89) (1.91) (0.73) (0.30) (0.39)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.39 $ 10.96 $ 9.64 $ 10.11 $ 9.96
======== ======== ======== ======== ========
Total return (c)(d)(e) 30.65% 33.69% 2.57% 4.68% 28.57%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (f) 1.25% 2.59% 1.78% 1.70% 1.70%
Net investment income (f) 3.42% 1.05% 3.68% 3.81% 4.39%
Waiver/reimbursement 0.90% 0.67% 5.85% 4.29% 4.06%
Portfolio turnover rate 37% 152% 98% 54% 41%
Net assets, end of period (000's) $ 1,149 $ 914 $ 979 $ 1,112 $ 1,092
</Table>
(a) The information shown in this table, for the periods prior to April 14,
2003, relates to shares of the Galaxy VIP Real Estate Equity Fund II, the
predecessor to the Columbia Real Estate Equity Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
89
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Columbia Real Estate Equity Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Columbia Real Estate Equity
Fund, Variable Series (the "Fund") (a series of Liberty Variable Investment
Trust) at December 31, 2004, and the results of its operations, the changes in
its net assets and the Class A financial highlights for the years ended December
31, 2004 and 2003, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and the Class A
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion. The financial highlights of
the Fund for periods prior to January 1, 2003 were audited by another
independent registered public accounting firm whose report dated February 7,
2003 expressed an unqualified opinion on those highlights.
The Trustees of the Fund approved a plan of liquidation for the Fund as
described in Note 8.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
90
<Page>
UNAUDITED INFORMATION
Columbia Real Estate Equity Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
For the fiscal year ended December 31, 2004, the Fund designates long-term
capital gains of $388,337.
15.60% of the ordinary income distributed by the Fund for the year ended
December 31, 2004, qualifies for the corporate dividends received deduction.
91
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Equity Fund, Variable Series / December 31, 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 or its predecessors since 1998.
The economic backdrop for stocks was mixed during 2004. For much of the year,
the war in Iraq, a huge spike in oil prices, and the possibility of higher
interest rates restrained investors, and stocks went nowhere. However, oil
prices trended down and stocks rose in the last two months of the year.
Improving economic growth, strong consumer spending and robust corporate
earnings were also instrumental in sparking the late-year rally in stocks. All
stock categories went up for the year; however, large-cap growth stocks trailed
smaller-cap and value stocks. In this environment, the fund fell behind its
benchmark, the S&P 500 Index, which returned 10.88% for the year.
FINANCIALS AND INFORMATION TECHNOLOGY FELL SHORT OF OUR EXPECTATIONS
Stock selection and an underweight in financials were largely responsible for
the portfolio's underperformance relative to the S&P 500. The fund owned Marsh &
McLennan, Inc., which came under investigation by the attorney general of New
York. Another holding was the Federal National Mortgage Association (Fannie
Mae), which declined because of an accounting controversy. Both stocks were
sold. The fund also lost out on the strong performance of our parent company,
Bank of America. The stock accounts for a significant position in the S&P 500
Index, but the fund is prohibited from purchasing it due to regulatory
requirements.
An emphasis on corporate cost cutting, rather than on capital spending, had a
negative impact on the information technology sector. For many companies, the
technology upgrades that were installed in the late 1990s in preparation for the
year 2000 continued to be adequate. We believe we are coming to the end of this
upgrade cycle and that capital spending for technology should pick up.
Therefore, we maintained the fund's relatively large weight in information
technology. The fund had a relatively big position in semiconductor company
Analog Devices, Inc., which declined (0.6% of net assets). It also owned Agilent
Technologies, Inc. and Veritas Software Corporation. Both stocks detracted from
performance and were sold.
SEEKING SOLUTIONS TO THE HIGH COST OF HEALTH CARE WAS A THEME
Health care stocks made the biggest contribution to performance. In this area,
we de-emphasized large pharmaceutical companies in favor of companies that we
believe are part of the solution to rising health care costs. The fund owned
Caremark Rx, Inc., a prescription drug benefit manager, which aided returns
(2.5% of net assets). An investment in generic drug producer Teva Pharmaceutical
Industries Ltd. also added to results. (1.7% of net assets). HMOs were
represented in the portfolio, and WellPoint, Inc. was a significant benefit to
performance (1.6% of net assets).
While the consumer staples sector did not perform as well as the benchmark,
the fund's holdings in the area were a main driver of performance. We focused on
companies with new products and/or business initiatives that could accelerate
their growth. The fund owned Costco Wholesale Corp., which led the sector. We
sold the stock when it reached our target price. Bunge Ltd., the world's largest
soybean processor, added substantially to the fund's return (0.5% of net
assets). Procter & Gamble Co., PepsiCo, Inc. and Hershey Foods Corp. were also
large contributors to results (2.6%, 1.9% and 0.7% of net assets, respectively).
A POSITIVE OUTLOOK
Solid economic growth and declining oil prices have raised our hopes for another
positive year for the stock market. However, there are offsetting factors that
make us somewhat cautious, such as the threat of higher interest rates. As a
result, we do not expect outsized returns in 2005. Because we believe that there
is a good chance that companies will spend more heavily on technology, we have
positioned the portfolio for that possibility. We also plan to continue to
monitor areas that have been underweighted in the portfolio. For example, we
have avoided owning large pharmaceutical companies, which has been a fortunate
move because they have underperformed for three years. However, they account for
a significant percentage of the fund's benchmark, and as such, we believe they
bear watching. That said, we do not expect to make any dramatic shifts in the
portfolio, and we will continue to diversify assets among leading growth
companies in what we believe are 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 and the possibility of losses due to the sensitivity of
growth stock prices to changes in current or expected earnings.
Holdings are disclosed as of December 31, 2004, and are subject to change.
92
<Page>
PERFORMANCE INFORMATION
Liberty Equity Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------
Class A (1/11/93) 7.53 -4.94 9.14
S&P 500 Index 10.88 -2.30 12.07
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 1/1/95 - 12/31/04
Class A: $23,981
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
1/1/1995 $ 10,000 $ 10,000
1/31/1995 $ 10,231 $ 10,259
2/28/1995 $ 10,539 $ 10,659
3/31/1995 $ 10,834 $ 10,974
4/30/1995 $ 11,076 $ 11,296
5/31/1995 $ 11,403 $ 11,748
6/30/1995 $ 11,616 $ 12,021
7/31/1995 $ 11,944 $ 12,420
8/31/1995 $ 11,809 $ 12,451
9/30/1995 $ 12,041 $ 12,976
10/31/1995 $ 12,119 $ 12,929
11/30/1995 $ 12,595 $ 13,497
12/31/1995 $ 12,677 $ 13,757
1/31/1996 $ 13,018 $ 14,225
2/29/1996 $ 13,047 $ 14,358
3/31/1996 $ 13,288 $ 14,495
4/30/1996 $ 13,445 $ 14,708
5/31/1996 $ 13,788 $ 15,088
6/30/1996 $ 13,763 $ 15,145
7/31/1996 $ 13,361 $ 14,476
8/31/1996 $ 13,666 $ 14,781
9/30/1996 $ 14,284 $ 15,613
10/31/1996 $ 14,539 $ 16,044
11/30/1996 $ 15,554 $ 17,257
12/31/1996 $ 15,400 $ 16,916
1/31/1997 $ 16,190 $ 17,973
2/28/1997 $ 16,101 $ 18,113
3/31/1997 $ 15,793 $ 17,369
4/30/1997 $ 16,893 $ 18,406
5/31/1997 $ 17,577 $ 19,526
6/30/1997 $ 18,141 $ 20,401
7/31/1997 $ 19,502 $ 22,025
8/31/1997 $ 18,706 $ 20,792
9/30/1997 $ 19,409 $ 21,931
10/31/1997 $ 18,872 $ 21,199
11/30/1997 $ 19,410 $ 22,180
12/31/1997 $ 19,672 $ 22,562
1/31/1998 $ 19,801 $ 22,812
2/28/1998 $ 20,940 $ 24,457
3/31/1998 $ 21,677 $ 25,709
4/30/1998 $ 21,887 $ 25,969
5/31/1998 $ 21,375 $ 25,522
6/30/1998 $ 21,871 $ 26,558
7/31/1998 $ 21,539 $ 26,277
8/31/1998 $ 17,940 $ 22,477
9/30/1998 $ 19,330 $ 23,918
10/31/1998 $ 21,273 $ 25,862
11/30/1998 $ 22,430 $ 27,430
12/31/1998 $ 24,294 $ 29,010
1/31/1999 $ 25,421 $ 30,222
2/28/1999 $ 24,295 $ 29,282
3/31/1999 $ 25,602 $ 30,454
4/30/1999 $ 26,147 $ 31,632
5/31/1999 $ 25,439 $ 30,886
6/30/1999 $ 27,494 $ 32,600
7/31/1999 $ 26,598 $ 31,583
8/31/1999 $ 26,329 $ 31,428
9/30/1999 $ 26,074 $ 30,567
10/31/1999 $ 27,458 $ 32,502
11/30/1999 $ 28,650 $ 33,161
12/31/1999 $ 30,902 $ 35,115
1/31/2000 $ 29,678 $ 33,352
2/29/2000 $ 30,542 $ 32,722
3/31/2000 $ 33,629 $ 35,922
4/30/2000 $ 33,004 $ 34,840
5/31/2000 $ 31,667 $ 34,126
6/30/2000 $ 32,684 $ 34,969
7/31/2000 $ 32,213 $ 34,424
8/31/2000 $ 34,671 $ 36,561
9/30/2000 $ 33,052 $ 34,631
10/31/2000 $ 32,513 $ 34,485
11/30/2000 $ 29,314 $ 31,768
12/31/2000 $ 30,340 $ 31,924
1/31/2001 $ 31,089 $ 33,057
2/28/2001 $ 27,859 $ 30,042
3/31/2001 $ 25,485 $ 28,137
4/30/2001 $ 27,415 $ 30,324
5/31/2001 $ 27,692 $ 30,527
6/30/2001 $ 26,379 $ 29,785
7/31/2001 $ 26,007 $ 29,493
8/31/2001 $ 24,332 $ 27,647
9/30/2001 $ 21,977 $ 25,413
10/31/2001 $ 22,737 $ 25,898
11/30/2001 $ 24,458 $ 27,885
12/31/2001 $ 24,830 $ 28,130
1/31/2002 $ 23,869 $ 27,720
2/28/2002 $ 23,125 $ 27,185
3/31/2002 $ 24,722 $ 28,207
4/30/2002 $ 23,172 $ 26,497
5/31/2002 $ 22,614 $ 26,301
6/30/2002 $ 20,538 $ 24,429
7/31/2002 $ 18,895 $ 22,526
8/31/2002 $ 19,020 $ 22,672
9/30/2002 $ 16,804 $ 20,208
10/31/2002 $ 18,293 $ 21,986
11/30/2002 $ 19,394 $ 23,281
12/31/2002 $ 17,970 $ 21,914
1/31/2003 $ 17,473 $ 21,340
2/28/2003 $ 17,317 $ 21,020
3/31/2003 $ 17,527 $ 21,224
4/30/2003 $ 18,911 $ 22,973
5/31/2003 $ 19,970 $ 24,183
6/30/2003 $ 20,110 $ 24,493
7/31/2003 $ 20,359 $ 24,924
8/31/2003 $ 20,765 $ 25,410
9/30/2003 $ 20,328 $ 25,141
10/31/2003 $ 21,294 $ 26,564
11/30/2003 $ 21,575 $ 26,797
12/31/2003 $ 22,309 $ 28,202
1/31/2004 $ 22,668 $ 28,721
2/29/2004 $ 22,965 $ 29,120
3/31/2004 $ 22,715 $ 28,680
4/30/2004 $ 22,308 $ 28,230
5/31/2004 $ 22,605 $ 28,617
6/30/2004 $ 23,057 $ 29,172
7/31/2004 $ 22,137 $ 28,206
8/31/2004 $ 21,964 $ 28,319
9/30/2004 $ 22,230 $ 28,625
10/31/2004 $ 22,308 $ 29,063
11/30/2004 $ 23,198 $ 30,240
12/31/2004 $ 23,981 $ 31,258
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- --------------------------------------------------------
Class A 14.30 15.27
</Table>
PERFORMANCE HISTORY INCLUDES PERIODS FROM ITS PREDECESSOR FUND.PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY BE HIGHER OR
LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT MONTH-END PERFORMANCE
INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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.
93
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty Equity Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,040.42 1,019.61 5.64 5.58 1.10
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
Had the investment advisor not waived/reimbursed a portion of expenses, account
values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
94
<Page>
INVESTMENT PORTFOLIO
Liberty Equity Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--98.7%
CONSUMER DISCRETIONARY--13.6%
HOTELS, RESTAURANTS & LEISURE - 2.6%
Hilton Hotels Corp. 8,290 $ 188,514
Marriott International, Inc., Class A 5,750 362,135
Wendy's International, Inc. 9,700 380,822
---------------
931,471
---------------
INTERNET & CATALOG RETAIL--1.0%
eBay, Inc. (a) 3,000 348,840
---------------
MEDIA--2.8%
News Corp., Class A 17,300 322,818
Viacom Inc., Class B 18,530 674,307
---------------
997,125
---------------
MULTILINE RETAIL--2.6%
Nordstrom, Inc. 7,910 369,634
Target Corp. 10,550 547,862
---------------
917,496
---------------
SPECIALTY RETAIL--4.6%
Bed Bath & Beyond, Inc. (a) 4,540 180,828
Home Depot, Inc. 17,210 735,555
Lowe's Companies, Inc. 12,510 720,451
---------------
1,636,834
---------------
CONSUMER STAPLES--12.6%
BEVERAGES - 2.9%
Coca-Cola Co. 8,040 334,705
PepsiCo, Inc. 12,870 671,814
---------------
1,006,519
---------------
FOOD & STAPLES RETAILING--3.2%
Wal-Mart Stores, Inc. 8,660 457,421
Walgreen Co. 17,710 679,533
---------------
1,136,954
---------------
FOOD PRODUCTS--1.2%
Bunge Ltd. 3,270 186,423
Hershey Foods Corp. 4,480 248,819
---------------
435,242
---------------
HOUSEHOLD PRODUCTS--3.1%
Colgate-Palmolive Co. 3,650 186,734
Procter & Gamble Co. 16,600 914,328
---------------
1,101,062
---------------
PERSONAL PRODUCTS - 2.2%
Alberto-Culver Co. 7,710 374,475
Avon Products, Inc. 10,500 406,350
---------------
780,825
---------------
ENERGY--7.1%
ENERGY EQUIPMENT & SERVICES--2.9%
Baker Hughes, Inc. 12,500 533,375
National-Oilwell, Inc. (a) 13,700 483,473
---------------
1,016,848
---------------
OIL & GAS--4.2%
Ashland, Inc. 6,000 $ 350,280
BP PLC, ADR 11,900 694,960
EOG Resources, Inc. 6,500 463,840
---------------
1,509,080
---------------
FINANCIALS--17.4%
CAPITAL MARKETS--2.7%
Bank of New York Co., Inc. 18,000 601,560
Merrill Lynch & Co., Inc. 5,990 358,022
---------------
959,582
---------------
COMMERCIAL BANKS--4.9%
U.S. Bancorp 18,000 563,760
Wachovia Corp. 7,400 389,240
Wells Fargo & Co. 12,540 779,361
---------------
1,732,361
---------------
CONSUMER FINANCE--1.1%
MBNA Corp. 13,470 379,719
---------------
DIVERSIFIED FINANCIAL SERVICES--4.8%
Citigroup, Inc. 22,900 1,103,322
JPMorgan Chase & Co. 15,460 603,095
---------------
1,706,417
---------------
INSURANCE--3.9%
AFLAC, Inc. 9,400 374,496
American International Group, Inc. 8,540 560,822
Willis Group Holdings Ltd. 11,100 456,987
---------------
1,392,305
---------------
HEALTH CARE--16.0%
BIOTECHNOLOGY--1.3%
Amgen, Inc. (a) 6,980 447,767
---------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.9%
Alcon, Inc. 10,000 806,000
Boston Scientific Corp. (a) 8,940 317,817
Medtronic, Inc. 12,670 629,319
---------------
1,753,136
---------------
HEALTH CARE PROVIDERS & SERVICES--4.1%
Caremark Rx, Inc. (a) 22,820 899,793
WellPoint, Inc. (a) 5,000 575,000
---------------
1,474,793
---------------
PHARMACEUTICALS--5.7%
Johnson & Johnson 9,000 570,780
Pfizer, Inc. 31,460 845,959
Teva Pharmaceutical Industries
Ltd., ADR 19,780 590,631
---------------
2,007,370
---------------
</Table>
See Accompanying Notes to Financial Statements.
95
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
INDUSTRIAL--12.6%
AEROSPACE & DEFENSE--4.1%
Boeing Co. 9,020 $ 466,965
United Technologies Corp. 9,480 979,758
---------------
1,446,723
---------------
COMMERCIAL SERVICES & SUPPLIES--1.4%
Cendant Corp. 20,900 488,642
---------------
INDUSTRIAL CONGLOMERATES--5.1%
3M Co. 3,880 318,432
General Electric Co. 41,210 1,504,165
---------------
1,822,597
---------------
MACHINERY--2.0%
Illinois Tool Works, Inc. 7,780 721,050
---------------
INFORMATION TECHNOLOGY--19.4%
COMMUNICATIONS EQUIPMENT--2.6%
Cisco Systems, Inc. (a) 48,150 929,295
---------------
COMPUTERS & PERIPHERALS--5.2%
Dell, Inc. (a) 24,300 1,024,002
International Business Machines Corp. 3,800 374,604
Lexmark International, Inc., Class A (a) 5,180 440,300
---------------
1,838,906
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.0%
Flextronics International Ltd. (a) 24,730 341,769
---------------
IT SERVICES--0.4%
Accenture Ltd., Class A (a) 5,000 135,000
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.8%
Analog Devices, Inc. 6,010 221,889
Intel Corp. 31,230 730,470
Marvell Technology Group Ltd. (a) 11,660 413,580
---------------
1,365,939
---------------
SOFTWARE--6.4%
Electronic Arts, Inc. (a) 4,640 286,195
Microsoft Corp. 47,350 1,264,718
Oracle Corp. (a) 35,480 486,786
SAP AG, ADR 5,460 241,387
---------------
2,279,086
---------------
TOTAL INVESTMENTS--98.7%
(cost of $28,972,633) (b) 35,040,753
---------------
OTHER ASSETS & LIABILITIES, NET--1.3% 458,139
---------------
NET ASSETS--100.0% $ 35,498,892
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $29,098,186.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Information Technology 19.4%
Financials 17.4
Health Care 16.0
Consumer Discretionary 13.6
Industrial 12.6
Consumer Staples 12.6
Energy 7.1
Other Assets & Liabilities, Net 1.3
-----
100.0%
=====
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
See Accompanying Notes to Financial Statements.
96
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Equity Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 28,972,633
---------------
Investments, at value $ 35,040,753
Receivable for:
Investments sold 753,025
Fund shares sold 191
Dividends 27,165
Expense reimbursement due from Investment Advisor 615
Deferred Trustees' compensation plan 4,336
---------------
TOTAL ASSETS 35,826,085
---------------
LIABILITIES:
Payable to custodian bank 187,593
Payable for:
Fund shares repurchased 53,486
Investment advisory fee 23,020
Administration fee 2,039
Transfer agent fee 415
Pricing and bookkeeping fees 2,085
Merger fee 25,570
Trustees' fees 689
Audit fee 15,119
Custody fee 1,072
Deferred Trustees' fees 4,336
Other liabilities 11,769
---------------
TOTAL LIABILITIES 327,193
---------------
NET ASSETS $ 35,498,892
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 40,959,690
Overdistributed net investment income (2,895)
Accumulated net realized loss (11,526,023)
Net unrealized appreciation on investments 6,068,120
---------------
NET ASSETS $ 35,498,892
===============
CLASS A:
Net assets $ 35,497,560
Shares outstanding 2,324,848
===============
Net asset value per share $ 15.27
===============
CLASS B:
Net assets $ 1,332
Shares outstanding 87
===============
Net asset value per share $ 15.31
===============
</Table>
See Accompanying Notes to Financial Statements.
97
<Page>
STATEMENT OF OPERATIONS
Liberty Equity Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 631,201
Interest 1,119
---------------
Total Investment Income (net of foreign taxes withheld of $6,222) 632,320
---------------
EXPENSES:
Investment advisory fee 291,421
Administration fee 26,034
Distribution fee -- Class B 3
Transfer agent fee 5,000
Pricing and bookkeeping fees 25,000
Trustees' fees 3,268
Custody fee 6,345
Merger costs 25,570
Non-recurring costs (See Note 6) 1,991
Other expenses 14,761
---------------
Total Expenses 399,393
Fees and expenses waived or reimbursed by Investment Advisor (7,771)
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,991)
---------------
Net Expenses 389,631
---------------
Net Investment Income 242,689
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,325,658
Net change in unrealized appreciation/depreciation on investments 1,112,194
---------------
Net Gain 2,437,852
---------------
Net Increase in Net Assets from Operations $ 2,680,541
===============
</Table>
See Accompanying Notes to Financial Statements.
98
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Equity Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 242,689 $ 146,742
Net realized gain (loss) on investments 1,325,658 (4,782,702)
Net change in unrealized appreciation/depreciation on investments 1,112,194 14,341,706
--------------- ---------------
Net Increase from Operations 2,680,541 9,705,746
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (248,755) (147,146)
Class B (6) --
--------------- ---------------
Total Distributions Declared to Shareholders (248,761) (147,146)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 367,950 2,333,191
Proceeds received in connection with merger -- 4,822,551
Distributions reinvested 248,755 147,146
Redemptions (11,599,572) (16,415,799)
--------------- ---------------
Net Decrease (10,982,867) (9,112,911)
--------------- ---------------
Class B:
Subscriptions -- 1,000
Distributions reinvested 6 --
--------------- ---------------
Net Increase 6 1,000
--------------- ---------------
Net Decrease from Share Transactions (10,982,861) (9,111,911)
--------------- ---------------
Total Increase (Decrease) in Net Assets (8,551,081) 446,689
NET ASSETS:
Beginning of period 44,049,973 43,603,284
--------------- ---------------
End of period (including overdistributed net investment income
of $(2,895) and $(1,896), respectively) $ 35,498,892 $ 44,049,973
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 25,469 177,747
Issued in connection with merger -- 416,815
Issued for distributions reinvested 16,258 11,315
Redemptions (796,797) (1,296,537)
--------------- ---------------
Net Decrease (755,070) (690,660)
--------------- ---------------
Class B:
Subscriptions -- 86
Issued for distributions reinvested 1 --
--------------- ---------------
Net Increase 1 86
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
99
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Equity Fund, Variable Series / December 31, 2004
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. Awards from
class action litigation are recorded as a reduction of cost if the Fund still
owns the applicable securities on the payment date. If the Fund no longer owns
the applicable securities, the proceeds are recorded as realized gains.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, 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 timing and character of income and capital gain distributions are determined
in accordance with income tax
100
<Page>
regulations, which may differ from GAAP. Reclassifications are made to the
Fund's capital accounts for permanent tax differences to reflect income and
gains available for distribution (or available capital loss carryforwards) under
income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for distributions in excess were
identified and reclassified among the components of the Fund's net assets as
follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 5,073 $ -- $ (5,073)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 248,761 $ 147,146
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 5,942,567
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 7,304,431
Unrealized depreciation (1,361,864)
--------------
Net unrealized appreciation $ 5,942,567
==============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2009 $ 1,982,030
2010 4,000,679
2011 5,417,761
------------
$ 11,400,470
============
</Table>
Of the capital loss carryforward attributable to the Fund, $316,971 ($15,067
expiring 12/31/09 and $301,904 expiring 12/31/10) remain from the Fund's merger
with Galaxy VIP Growth & Income Fund (See Note 7.) Utilization of these losses
could be subject to limitations imposed by the Internal Revenue Code.
Capital loss carryforwards of $1,320,294 were utilized during the year ended
December 31, 2004 for the Fund.
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 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 0.700%
Next $500 million 0.650%
Next $500 million 0.610%
$1.5 billion to $3 billion 0.560%
$3 billion to $6 billion 0.545%
Over $6 billion 0.525%
</Table>
Prior to November 1, 2004, Columbia received 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>
For the year ended December 31, 2004, the Fund's effective administration fee
rate was 0.067%.
101
<Page>
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>
ANNUAL
AVERAGE DAILY NET ASSETS 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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.064%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $5,000.
For the year ended December 31, 2004, the Fund's 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
contractually agreed to maintain this arrangement until April 13, 2004.
Effective April 14, 2004, Columbia, voluntarily agreed to continue this
arrangement, however Columbia at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement. For the year ended December 31, 2004, there were no such credits.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,358 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $9,984,428 and
$20,850,468, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an
102
<Page>
independent distribution consultant (see below). The Columbia Funds have also
voluntarily undertaken to implement certain governance measures designed to
maintain the independence of their boards of trustees. The NYAG Settlement also,
among other things, requires Columbia and its affiliates, Banc of America
Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia
Funds, Nations Funds and other mutual fund management fees collectively by $32
million per year for five years, for a projected total of $160 million in
management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $1,991 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 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
<Caption>
NET ASSETS NET ASSETS NET ASSETS
OF GALAXY VIP OF GALAXY VIP OF GALAXY VIP
EQUITY FUND GROWTH & INCOME EQUITY FUND
PRIOR TO FUND IMMEDIATELY IMMEDIATELY
COMBINATION PRIOR TO COMBINATION AFTER COMBINATION
------------- -------------------- -----------------
$ 39,395,832 $ 4,822,551 $ 44,218,383
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount shown
above.
Also on April 14, 2003, subsequent to the merger described above, the Galaxy VIP
Equity Fund was renamed 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.
NOTE 8. PROPOSED REORGANIZATION
FUND MERGER--On October 13, 2004, the Board of Trustees approved a proposal
to merge the Fund into the Stein Roe Growth Stock Fund, Variable Series, subject
to shareholder approval and the satisfaction of certain other conditions. The
effective date of the merger is expected to be on or around February 25, 2005 or
such date that the parties may agree.
103
<Page>
FINANCIAL HIGHLIGHTS
Liberty Equity Fund, Variable Series--Class A Shares (a)
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.30 $ 11.56 $ 16.02 $ 19.81 $ 22.21
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.09(b)(c) 0.03(b) 0.03 --(d) (0.02)
Net realized and unrealized gain (loss) on
investments 0.99 2.76 (4.46) (3.58) (0.37)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.08 2.79 (4.43) (3.58) (0.39)
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.11) (0.05) (0.03) -- --
From net realized gains -- -- -- (0.21) (2.01)
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.11) (0.05) (0.03) (0.21) (2.01)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.27 $ 14.30 $ 11.56 $ 16.02 $ 19.81
========== ========== ========== ========== ==========
Total return (e)(f) 7.53%(g) 24.14%(g) (27.64)% (18.17)% (1.82)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.00% 1.01% 1.09% 1.02% 0.98%
Net investment income (loss) (h) 0.62% 0.33% 0.18% 0.00% (0.11)%
Waiver/reimbursement 0.02% 0.03% -- -- --
Portfolio turnover rate 26% 46% 35% 51% 54%
Net assets, end of period (000's) $ 35,498 $ 44,049 $ 43,603 $ 79,813 $ 120,712
</Table>
(a) The information shown in this table, for the periods prior to April 14,
2003, relates to shares of the Galaxy VIP Equity Fund, the predecessor to
the Liberty Equity Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Net investment income per share reflects a special dividend which amounted
to $0.07 per share.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
104
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Equity Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Liberty Equity Fund, Variable
Series (the "Fund") (a series of Liberty Variable Investment Trust) at December
31, 2004, and the results of its operations, the changes in its net assets and
the Class A financial highlights for the years ended December 31, 2004 and 2003,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion. The financial statements and financial
highlights of the Fund for the periods prior to January 1, 2003 were audited by
another independent registered public accounting firm whose report dated
February 7, 2003 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
105
<Page>
UNAUDITED INFORMATION
Liberty Equity Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
97.96% of the ordinary income distributed by the Fund for the year ended
December 31, 2004, qualifies for the corporate dividends received deduction.
106
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Growth & Income Fund, Variable Series / December 31, 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 November 2003 and has been
with Columbia Management Advisors, Inc. and its predecessors ("Columbia") since
1987. Mr. Miller has co-managed the fund since April 2003 and joined Columbia in
1985. Mr. Dahlberg, head of Income Strategies Group, has co-managed the fund
since October 2003. He joined Columbia in September 2003.
The fund produced solid, double-digit returns for the year, with most gains
posted during the fourth quarter. Until that time, the stock market was mired in
a trading range, as high energy prices, the fear of higher interest rates and
continued hostilities in Iraq served to dampen investor confidence despite an
impressive upward move in corporate profits. The uncertainties surrounding the
presidential election added to investor caution, so when these uncertainties
were removed in early November, a strong year-end rally ensued.
Value-oriented stocks easily outpaced growth stocks for the year. This
environment was beneficial to the fund because of our emphasis on value in our
investment process. The fund's return for the year solidly outpaced the 10.88%
total return of the S&P 500 Index.
ENERGY AND UTILITIES LEAD THE WAY
The fund benefited from its emphasis on the energy sector. Robust growth in
emerging markets such as China created a surge in demand for oil, and many
analysts also expressed concern about the adequacy of reserves. The combination
of these effects pushed the price of oil over $50 a barrel, a 21-year high. The
fund's holdings in integrated oil companies appreciated nicely, although we took
some profits within our energy holdings.
The utility sector, though not as big a holding for the fund in absolute
terms, was the best performing sector for the fund, finishing the year up over
47%. TXU (2.3% of net assets), a Texas-based utility, was an especially
important holding. The company brought in new management and sold off
non-performing assets. When those efforts enabled the company to raise its
earnings estimates and maintain its dividend, the stock price appreciated
sharply.
INFORMATION TECHNOLOGY AND HEALTH CARE SECTOR
The weakest performing sector for the fund was information technology, where we
were hurt by our stock selection. In particular, we did not own Apple Computer,
which tripled during 2004. We also had disappointing results from our investment
in Hewlett-Packard. Our concerns about the company's challenging foray into the
consumer electronics business eventually led us to sell the stock. We bought
Lexmark International (1.0% of net assets) with the proceeds, thereby obtaining
a more direct play in the ink and printing business, long the source of
Hewlett-Packard's profits.
The health care sector suffered from the well-publicized difficulties at many
of the major pharmaceuticals manufacturers, notably Merck and Pfizer (0.7% and
0.9% of net assets, respectively). However, the fund was not hurt by this sector
because of the performance of a single stock, Aetna (1.4% of net assets), which
rallied strongly amid impressive margin improvement.
SLOWER PROFIT GROWTH EXPECTED IN THE YEAR AHEAD
Corporate profits have grown at over a 20% annual rate for the past two years.
Some tapering from this torrid pace was in evidence late in 2004, and we believe
that growth in the high single-digits is a more realistic expectation for the
year ahead. Interest rates are likely to be stable or slightly higher, which
makes it unlikely that price-earnings multiples will expand from current levels.
One potential swing factor that could boost corporate profit margins would be
lower energy prices, but the possibility of supply disruptions and the
longer-term outlook for oil demand makes us reluctant to commit to this scenario
at this time. Although we reduced our commitment to the energy sector via profit
taking in selected areas, we maintained an overweight at the end of the period.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Liberty Growth & Income Fund, Variable Series offers
significant long-term growth potential, but also involves certain risks. The
fund may be affected by stock market fluctuations due to economic and business
developments.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the advisor's assessment of a company's
prospects is wrong, the price of its stock may not approach the value the
advisor has placed on it.
Holdings are disclosed as of December 31, 2004, and are subject to change.
107
<Page>
PERFORMANCE INFORMATION
Liberty Growth & Income Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------
Class A (7/5/94) 13.76 1.84 11.91
S&P 500 Index 10.88 -2.30 12.07
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 1/1/95 - 12/31/04
Class A: $30,798
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
1/1/1995 $ 10,000 $ 10,000
1/31/1995 $ 10,253 $ 10,259
2/28/1995 $ 10,662 $ 10,659
3/31/1995 $ 10,945 $ 10,974
4/30/1995 $ 11,169 $ 11,296
5/31/1995 $ 11,568 $ 11,748
6/30/1995 $ 11,821 $ 12,021
7/31/1995 $ 12,230 $ 12,420
8/31/1995 $ 12,181 $ 12,451
9/30/1995 $ 12,590 $ 12,976
10/31/1995 $ 12,541 $ 12,929
11/30/1995 $ 13,018 $ 13,497
12/31/1995 $ 12,970 $ 13,757
1/31/1996 $ 13,316 $ 14,225
2/29/1996 $ 13,578 $ 14,358
3/31/1996 $ 13,652 $ 14,495
4/30/1996 $ 14,155 $ 14,708
5/31/1996 $ 14,491 $ 15,088
6/30/1996 $ 14,176 $ 15,145
7/31/1996 $ 13,495 $ 14,476
8/31/1996 $ 13,945 $ 14,781
9/30/1996 $ 14,627 $ 15,613
10/31/1996 $ 14,994 $ 16,044
11/30/1996 $ 16,065 $ 17,257
12/31/1996 $ 15,802 $ 16,916
1/31/1997 $ 16,957 $ 17,973
2/28/1997 $ 16,945 $ 18,113
3/31/1997 $ 16,267 $ 17,369
4/30/1997 $ 17,134 $ 18,406
5/31/1997 $ 18,112 $ 19,526
6/30/1997 $ 18,801 $ 20,401
7/31/1997 $ 20,301 $ 22,025
8/31/1997 $ 19,600 $ 20,792
9/30/1997 $ 20,612 $ 21,931
10/31/1997 $ 19,668 $ 21,199
11/30/1997 $ 20,468 $ 22,180
12/31/1997 $ 20,894 $ 22,562
1/31/1998 $ 21,124 $ 22,812
2/28/1998 $ 22,586 $ 24,457
3/31/1998 $ 23,726 $ 25,709
4/30/1998 $ 23,714 $ 25,969
5/31/1998 $ 23,124 $ 25,522
6/30/1998 $ 24,010 $ 26,558
7/31/1998 $ 23,534 $ 26,277
8/31/1998 $ 19,700 $ 22,477
9/30/1998 $ 20,611 $ 23,918
10/31/1998 $ 22,369 $ 25,862
11/30/1998 $ 23,729 $ 27,430
12/31/1998 $ 25,103 $ 29,010
1/31/1999 $ 25,758 $ 30,222
2/28/1999 $ 24,730 $ 29,282
3/31/1999 $ 25,531 $ 30,454
4/30/1999 $ 26,239 $ 31,632
5/31/1999 $ 25,892 $ 30,886
6/30/1999 $ 27,402 $ 32,600
7/31/1999 $ 26,719 $ 31,583
8/31/1999 $ 26,425 $ 31,428
9/30/1999 $ 25,516 $ 30,567
10/31/1999 $ 26,532 $ 32,502
11/30/1999 $ 26,880 $ 33,161
12/31/1999 $ 28,116 $ 35,115
1/31/2000 $ 26,601 $ 33,352
2/29/2000 $ 25,693 $ 32,722
3/31/2000 $ 28,229 $ 35,922
4/30/2000 $ 28,201 $ 34,840
5/31/2000 $ 28,060 $ 34,126
6/30/2000 $ 27,679 $ 34,969
7/31/2000 $ 27,878 $ 34,424
8/31/2000 $ 29,662 $ 36,561
9/30/2000 $ 28,971 $ 34,631
10/31/2000 $ 29,177 $ 34,485
11/30/2000 $ 27,767 $ 31,768
12/31/2000 $ 29,134 $ 31,924
1/31/2001 $ 28,941 $ 33,057
2/28/2001 $ 28,750 $ 30,042
3/31/2001 $ 27,635 $ 28,137
4/30/2001 $ 28,129 $ 30,324
5/31/2001 $ 28,655 $ 30,527
6/30/2001 $ 27,985 $ 29,785
7/31/2001 $ 28,799 $ 29,493
8/31/2001 $ 28,624 $ 27,647
9/30/2001 $ 27,490 $ 25,413
10/31/2001 $ 27,630 $ 25,898
11/30/2001 $ 28,741 $ 27,885
12/31/2001 $ 28,959 $ 28,130
1/31/2002 $ 28,476 $ 27,720
2/28/2002 $ 28,177 $ 27,185
3/31/2002 $ 29,481 $ 28,207
4/30/2002 $ 28,420 $ 26,497
5/31/2002 $ 28,383 $ 26,301
6/30/2002 $ 25,366 $ 24,429
7/31/2002 $ 23,281 $ 22,526
8/31/2002 $ 23,579 $ 22,672
9/30/2002 $ 20,188 $ 20,208
10/31/2002 $ 21,920 $ 21,986
11/30/2002 $ 23,597 $ 23,281
12/31/2002 $ 22,604 $ 21,914
1/31/2003 $ 21,792 $ 21,340
2/28/2003 $ 20,583 $ 21,020
3/31/2003 $ 20,507 $ 21,224
4/30/2003 $ 21,998 $ 22,973
5/31/2003 $ 23,810 $ 24,183
6/30/2003 $ 24,358 $ 24,493
7/31/2003 $ 24,263 $ 24,924
8/31/2003 $ 24,678 $ 25,410
9/30/2003 $ 24,206 $ 25,141
10/31/2003 $ 25,075 $ 26,564
11/30/2003 $ 25,339 $ 26,797
12/31/2003 $ 27,074 $ 28,202
1/31/2004 $ 27,475 $ 28,721
2/29/2004 $ 28,222 $ 29,120
3/31/2004 $ 28,107 $ 28,680
4/30/2004 $ 27,438 $ 28,230
5/31/2004 $ 27,457 $ 28,617
6/30/2004 $ 28,223 $ 29,172
7/31/2004 $ 27,707 $ 28,206
8/31/2004 $ 28,031 $ 28,319
9/30/2004 $ 28,446 $ 28,625
10/31/2004 $ 28,733 $ 29,063
11/30/2004 $ 29,957 $ 30,240
12/31/2004 $ 30,798 $ 31,258
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- -------------------------------------------------------
Class A 14.15 15.82
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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.
108
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty Growth & Income Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,091.30 1,021.32 4.00 3.86 0.76
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
Had the investment advisor not waived/reimbursed a portion of expenses, account
values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
109
<Page>
INVESTMENT PORTFOLIO
Liberty Growth & Income Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--98.7%
CONSUMER DISCRETIONARY--8.0%
HOTELS, RESTAURANTS & LEISURE--1.1%
Harrah's Entertainment, Inc. 13,313 $ 890,507
McDonald's Corp. 59,340 1,902,440
---------------
2,792,947
---------------
MEDIA--3.6%
Clear Channel Communications, Inc. 49,048 1,642,618
McGraw-Hill Companies, Inc. 33,134 3,033,086
Time Warner, Inc. (a) 171,021 3,324,648
Viacom, Inc., Class A 29,879 1,107,913
---------------
9,108,265
---------------
MULTILINE RETAIL--1.0%
Federated Department Stores, Inc. 34,641 2,001,903
May Department Stores Co. 22,959 674,995
---------------
2,676,898
---------------
SPECIALTY RETAIL--2.3%
Home Depot, Inc. 44,671 1,909,239
Limited Brands, Inc. 58,723 1,351,803
Office Depot, Inc. (a) 143,363 2,488,782
---------------
5,749,824
---------------
CONSUMER STAPLES--10.4%
BEVERAGES--1.8%
PepsiCo, Inc. 86,607 4,520,885
---------------
FOOD PRODUCTS--2.5%
ConAgra Foods, Inc. 91,711 2,700,889
Kraft Foods, Inc., Class A 97,557 3,474,005
---------------
6,174,894
---------------
HOUSEHOLD PRODUCTS--3.9%
Clorox Co. 55,997 3,299,903
Kimberly-Clark Corp. 50,669 3,334,527
Procter & Gamble Co. 59,586 3,281,997
---------------
9,916,427
---------------
PERSONAL PRODUCTS--1.0%
Gillette Co. 56,633 2,536,026
---------------
TOBACCO--1.2%
Altria Group, Inc. 49,809 3,043,330
---------------
ENERGY--13.0%
ENERGY EQUIPMENT & SERVICES--1.2%
Halliburton Co. 80,378 3,154,033
---------------
OIL & GAS--11.8%
BP PLC, ADR 113,247 6,613,625
ChevronTexaco Corp. 24,992 1,312,330
ConocoPhillips 85,845 7,453,921
Exxon Mobil Corp. 183,944 9,428,969
Marathon Oil Corp. 49,974 1,879,522
Royal Dutch Petroleum Co.,
N.Y. Registered Shares 54,012 3,099,209
---------------
29,787,576
---------------
FINANCIALS--30.9%
CAPITAL MARKETS--4.0%
Bank of New York Co., Inc. 104,487 $ 3,491,955
Goldman Sachs Group, Inc. 22,017 2,290,649
Janus Capital Group, Inc. 77,214 1,297,967
Morgan Stanley 22,803 1,266,023
State Street Corp. 35,938 1,765,275
---------------
10,111,869
---------------
COMMERCIAL BANKS--7.2%
National City Corp. 64,585 2,425,167
U.S. Bancorp 197,348 6,180,939
Wachovia Corp. 65,607 3,450,928
Wells Fargo & Co. 97,218 6,042,099
---------------
18,099,133
---------------
CONSUMER FINANCE--0.8%
MBNA Corp. 75,141 2,118,225
---------------
DIVERSIFIED FINANCIAL SERVICES--7.1%
Citigroup, Inc. 222,283 10,709,595
JPMorgan Chase & Co. 188,059 7,336,182
---------------
18,045,777
---------------
INSURANCE--8.0%
AFLAC, Inc. 36,252 1,444,280
Ambac Financial Group, Inc. 35,938 2,951,588
American International Group, Inc. 77,837 5,111,556
Chubb Corp. 17,662 1,358,208
Hartford Financial Services
Group, Inc. 31,268 2,167,185
Lincoln National Corp. 65,951 3,078,593
St. Paul Travelers Companies, Inc. 1 37
Willis Group Holdings Ltd. 34,098 1,403,814
XL Capital Ltd., Class A 36,630 2,844,319
---------------
20,359,580
---------------
REAL ESTATE--2.0%
Archstone-Smith Trust, REIT 44,087 1,688,532
AvalonBay Communities,
Inc., REIT 20,344 1,531,903
Kimco Realty Corp., REIT 30,003 1,739,874
---------------
4,960,309
---------------
THRIFTS & MORTGAGE FINANCE--1.8%
Countrywide Financial Corp. 46,650 1,726,516
Freddie Mac 37,620 2,772,594
---------------
4,499,110
---------------
HEALTH CARE--4.1%
HEALTH CARE PROVIDERS & SERVICES--1.4%
Aetna, Inc. 29,065 3,625,859
---------------
PHARMACEUTICALS--2.7%
Bristol-Myers Squibb Co. 45,635 1,169,169
Johnson & Johnson 23,820 1,510,664
Merck & Co., Inc. 54,153 1,740,478
Pfizer, Inc. 86,607 2,328,862
---------------
6,749,173
---------------
</Table>
See Accompanying Notes to Financial Statements
110
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
INDUSTRIAL--12.3%
AEROSPACE & DEFENSE--3.7%
General Dynamics Corp. 30,715 $ 3,212,789
Raytheon Co. 36,867 1,431,546
United Technologies Corp. 45,952 4,749,139
---------------
9,393,474
---------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
Cendant Corp. 55,834 1,305,399
Republic Services, Inc. 21,794 730,971
Waste Management, Inc. 91,351 2,735,049
---------------
4,771,419
---------------
INDUSTRIAL CONGLOMERATES--4.7%
General Electric Co. 197,055 7,192,507
Textron, Inc. 63,546 4,689,695
---------------
11,882,202
---------------
MACHINERY--2.0%
Deere & Co. 42,297 3,146,897
Eaton Corp. 28,416 2,056,181
---------------
5,203,078
---------------
INFORMATION TECHNOLOGY--5.7%
COMMUNICATIONS EQUIPMENT--1.1%
Nokia Oyj, ADR 174,155 2,729,009
---------------
COMPUTERS & PERIPHERALS--2.1%
International Business Machines Corp. 27,894 2,749,790
Lexmark International, Inc., Class A (a) 29,993 2,549,405
---------------
5,299,195
---------------
IT SERVICES--1.3%
Accenture Ltd., Class A (a) 119,749 3,233,223
---------------
OFFICE ELECTRONICS--0.8%
Xerox Corp. (a) 115,061 1,957,188
---------------
SOFTWARE--0.4%
Microsoft Corp. 41,162 1,099,437
---------------
MATERIALS--3.9%
CHEMICALS--1.7%
Air Products & Chemicals, Inc. 74,769 4,334,359
---------------
PAPER & FOREST PRODUCTS--2.2%
MeadWestvaco Corp. 98,726 3,345,824
Neenah Paper, Inc. (a) 1,535 50,041
Weyerhaeuser Co. 32,377 2,176,382
---------------
5,572,247
---------------
TELECOMMUNICATION SERVICES--4.8%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.8%
BellSouth Corp. 72,490 2,014,497
SBC Communications, Inc. 210,301 5,419,457
Verizon Communications, Inc. 113,144 4,583,463
---------------
12,017,417
---------------
UTILITIES--5.6%
ELECTRIC UTILITIES--5.6%
American Electric Power Co., Inc. 82,637 $ 2,837,755
Entergy Corp. 36,005 2,433,578
Exelon Corp. 44,443 1,958,603
PG&E Corp. (a) 40,394 1,344,312
TXU Corp. 88,595 5,719,693
---------------
14,293,941
---------------
TOTAL COMMON STOCKS
(cost of $199,888,347) 249,816,329
---------------
INVESTMENT COMPANY--1.5%
iShares Russell 1000 Value
Index Fund 55,360 3,674,243
---------------
TOTAL INVESTMENT COMPANY
(cost of $3,373,129) 3,674,243
---------------
<Caption>
UNITS
---------------
WARRANTS--0.0%
INFORMATION TECHNOLOGY--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
Lucent Technologies, Inc. (a) 3,846 6,077
---------------
TOTAL WARRANTS
(cost of $0) 6,077
---------------
TOTAL INVESTMENTS--100.2%
(cost of $203,261,476) (b) 253,496,649
---------------
OTHER ASSETS & LIABILITIES, NET--(0.2)% (405,396)
---------------
NET ASSETS--100.0% $ 253,091,253
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $203,496,573.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 30.9%
Energy 13.0
Industrial 12.3
Consumer Staples 10.4
Consumer Discretionary 8.0
Information Technology 5.7
Utilities 5.6
Telecommunications Services 4.8
Health Care 4.1
Materials 3.9
Investment Company 1.5
Other Assets & Liabilities, Net (0.2)
-----
100.0%
=====
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
111
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Growth & Income Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 203,261,476
---------------
Investments, at value $ 253,496,649
Cash 15,627
Receivable for:
Fund shares sold 18,546
Dividends 485,743
Expense reimbursement due from Investment Advisor / Distributor 24,346
Deferred Trustees' compensation plan 17,938
---------------
TOTAL ASSETS 254,058,849
---------------
LIABILITIES:
Payable for:
Fund shares repurchased 694,471
Investment advisory fee 171,582
Transfer agent fee 625
Pricing and bookkeeping fees 6,576
Trustees' fees 74
Audit fee 27,430
Custody fee 1,407
Distribution fee--Class B 10,561
Deferred Trustees' fees 17,938
Other liabilities 36,932
---------------
TOTAL LIABILITIES 967,596
---------------
NET ASSETS $ 253,091,253
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 261,949,264
Overdistributed net investment income (16,722)
Accumulated net realized loss (59,076,462)
Net unrealized appreciation on investments 50,235,173
---------------
NET ASSETS $ 253,091,253
===============
CLASS A:
Net assets $ 206,695,219
Shares outstanding 13,065,168
===============
Net asset value per share $ 15.82
===============
CLASS B:
Net assets $ 46,396,034
Shares outstanding 2,935,828
===============
Net asset value per share $ 15.80
===============
</Table>
See Accompanying Notes to Financial Statements.
112
<Page>
STATEMENT OF OPERATIONS
Liberty Growth & Income Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 6,173,301
Interest 20,074
---------------
Total Investment Income (net of foreign taxes withheld of $47,021) 6,193,375
---------------
EXPENSES:
Investment advisory fee 2,030,029
Distribution fee--Class B 112,316
Transfer agent fee 7,500
Pricing and bookkeeping fees 72,344
Trustees' fees 10,360
Custody fee 14,941
Non-recurring costs (See Note 6) 12,796
Other expenses 75,793
---------------
Total Expenses 2,336,079
Fees and expenses waived or reimbursed by Investment Advisor (279,266)
Fees waived by Distributor--Class B (8,985)
Non-recurring costs assumed by Investment Advisor (See Note 6) (12,796)
Custody earnings credit (103)
---------------
Net Expenses 2,034,929
---------------
Net Investment Income 4,158,446
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 15,629,602
Net change in unrealized appreciation/depreciation on investments 12,488,990
---------------
Net Gain 28,118,592
---------------
Net Increase in Net Assets from Operations $ 32,277,038
===============
</Table>
See Accompanying Notes to Financial Statements.
113
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Growth & Income Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 4,158,446 $ 3,475,469
Net realized gain (loss) on investments 15,629,602 (27,529,590)
Net change in unrealized appreciation/depreciation on investments 12,488,990 74,661,609
--------------- ---------------
Net Increase from Operations 32,277,038 50,607,488
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (3,575,650) (2,859,733)
Class B (703,626) (497,712)
--------------- ---------------
Total Distributions Declared to Shareholders (4,279,276) (3,357,445)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 4,999,188 7,840,182
Proceeds received in connection with merger -- 88,842,502
Distributions reinvested 3,575,650 2,859,733
Redemptions (41,791,870) (35,938,840)
--------------- ---------------
Net Increase (Decrease) (33,217,032) 63,603,577
--------------- ---------------
Class B:
Subscriptions 2,762,038 14,226,069
Proceeds received in connection with merger -- 7,935,880
Distributions reinvested 703,626 497,712
Redemptions (6,672,090) (13,087,318)
--------------- ---------------
Net Increase (Decrease) (3,206,426) 9,572,343
--------------- ---------------
Net Increase (Decrease) from Share Transactions (36,423,458) 73,175,920
--------------- ---------------
Total Increase (Decrease) in Net Assets (8,425,696) 120,425,963
NET ASSETS:
Beginning of period 261,516,949 141,090,986
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income of
$(16,722) and $103,584, respectively) $ 253,091,253 $ 261,516,949
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 341,822 613,478
Issued in connection with merger -- 7,939,987
Issued for distributions reinvested 226,127 202,962
Redemptions (2,834,667) (2,893,899)
--------------- ---------------
Net Increase (Decrease) (2,266,718) 5,862,528
--------------- ---------------
Class B:
Subscriptions 189,109 1,213,974
Issued in connection with merger -- 710,257
Issued for distributions reinvested 44,566 35,349
Redemptions (452,411) (1,128,428)
--------------- ---------------
Net Increase (Decrease) (218,736) 831,152
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
114
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Growth & Income Fund, Variable Series / December 31, 2004
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 certain investment companies are
valued at the last sale price on the principal exchange on which they trade,
except for securities traded on the NASDAQ, which are valued at the NASDAQ
official close price. Unlisted securities or listed securities for which there
were no sales during the day are valued at the closing bid price on such
exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
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. If the Fund no longer owns the
applicable securities, any distributions received in excess of income are
recorded as realized gains.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are 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.
115
<Page>
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for non-deductible excise tax,
distributions in excess and REIT adjustments were identified and reclassified
among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$ 3,152 $ 77,110 $ (80,262)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 4,279,276 $ 3,357,445
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 50,000,076
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 53,576,378
Unrealized depreciation (3,576,302)
------------
Net unrealized appreciation $ 50,000,076
============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2009 $ 5,586,639
2010 26,407,250
2011 26,847,476
------------
$ 58,841,365
============
</Table>
Of the capital loss carryforwards attributable to the Fund, $11,538,311
($5,586,639 expiring 12/31/09 and $5,951,672 expiring 12/31/10) remain from the
Fund's merger with Liberty Value Fund, Variable Series (See Note 7). Utilization
of these losses could be subject to limitations imposed by the Internal Revenue
Code.
Capital loss carryforwards of $14,204,927 were utilized during the year ended
December 31, 2004 for the Fund.
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 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 0.77%
Next $500 million 0.72%
Next $500 million 0.67%
$1.5 billion to $3 billion 0.62%
$3 billion to $6 billion 0.60%
Over $6 billion 0.58%
</Table>
Prior to November 1, 2004, Columbia received 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>
116
<Page>
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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.028%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's 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
contractually agreed to maintain this arrangement until April 6, 2004. Effective
April 7, 2004, Columbia and the Distributor voluntarily agreed to continue this
arrangement, however, Columbia or the Distributor, at their discretion, may
revise or discontinue these arrangements any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,677 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $93,767,587 and
$129,256,085, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance,
117
<Page>
control and other policies and procedures; and retain an independent
distribution consultant (see below). The Columbia Funds have also voluntarily
undertaken to implement certain governance measures designed to maintain the
independence of their boards of trustees. The NYAG Settlement also, among other
things, requires Columbia and its affiliates, Banc of America Capital
Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds,
Nations Funds and other mutual fund management fees collectively by $32 million
per year for five years, for a projected total of $160 million in management fee
reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $12,796 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 of assets from the Liberty Value Fund,
Variable Series as follows:
<Table>
<Caption>
SHARES NET ASSETS UNREALIZED
ISSUED RECEIVED DEPRECIATION(1)
------ -------- ---------------
8,650,244 $ 96,778,382 $ 17,342,259
<Caption>
NET ASSETS
NET ASSETS 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.
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<Page>
FINANCIAL HIGHLIGHTS
Liberty Growth & Income Fund, Variable Series--Class A Shares Selected data for
a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.15 $ 11.97 $ 15.55 $ 18.27 $ 19.85
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.25 0.21 0.15 0.16 0.17
Net realized and unrealized gain (loss)
on investments 1.70 2.16 (3.56) (0.35) 0.54
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.95 2.37 (3.41) (0.19) 0.71
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.28) (0.19) (0.17) (0.15) (0.17)
In excess of net investment income -- -- -- -- --(b)
From net realized gains -- -- -- (2.34) (2.12)
Return of capital -- -- -- (0.04) --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.28) (0.19) (0.17) (2.53) (2.29)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.82 $ 14.15 $ 11.97 $ 15.55 $ 18.27
========== ========== ========== ========== ==========
Total return (c)(d) 13.76%(e) 19.79%(e) (21.95)% (0.60)% 3.60%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (f) 0.76% 0.80% 0.88% 0.96% 0.88%
Net investment income (f) 1.68% 1.66% 1.08% 0.92% 0.85%
Waiver/reimbursement 0.11% 0.09% -- -- --
Portfolio turnover rate 37% 73% 69% 53% 120%
Net assets, end of period (000's) $ 206,695 $ 216,923 $ 113,335 $ 180,053 $ 203,366
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
119
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Growth & Income Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Liberty Growth & Income Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
120
<Page>
UNAUDITED INFORMATION
Liberty Growth & Income Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
98.13% of the ordinary income distributed by the Fund for the year ended
December 31, 2004, qualifies for the corporate dividends received deduction.
121
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Liberty S&P 500 Index Fund, Variable Series / December 31, 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.
James May, a principal of State Street Global Advisors, is the portfolio manager
of the fund.
Large-company stocks generated a small positive return in the first half of
2004. However, they experienced a rocky stretch before staging a comeback in the
fourth quarter. Investor concern over a slowdown in corporate earnings, several
weak job reports and a sharp rise in crude oil prices held stocks back during
the third quarter. However, US stocks ended the year on a high note after the
presidential election was decided quickly and without controversy. The S&P 500
Index rose 10.88% for the 12-month period ended December 31, 2004, and the
fund's performance was comparable to the index for the period.
Large-cap stocks trailed both mid-cap and small-cap stocks during the year.
Overall, small-cap stocks were the best performers. For the year, the S&P
SmallCap 600 Index gained 22.7%, outpacing the S&P 500 Index by more than 10
percentage points. The S&P MidCap 400 Index rose 16.48%.
ALL SECTORS POSTED POSITIVE RETURNS
All ten economic sectors of the S&P 500 had positive returns for 2004. Energy
and utilities were the strongest performers as surging oil prices fueled
investor optimism. Exxon Mobil (2.9% of net assets) was one of the top
contributors to the index's return for the year. Financials and industrials also
made significant positive contributions to performance. In the financials
sector, Bank of America (1.7% of net assets) benefited from its merger with
FleetBoston Financial Corporation, which brought an expanded customer base and
new focus on its higher-margin consumer loan department.
Health care and technology stocks turned in the most disappointing
performances for the year. In health care, the threat of competition from drug
imports and concerns about declining new-product pipelines punished several of
the larger companies within the sector. In late September, Merck (0.6% of net
assets) recalled its multi-billion-dollar arthritis drug Vioxx after research
concluded that the drug doubled the risk of heart attack or stroke. Pfizer (1.8%
of net assets) also hurt the sector's performance after it lowered its third
quarter revenue expectations. The technology sector turned in a poor performance
as a result of lackluster corporate spending on technology. Intel and Cisco
Systems (1.3% and 1.1% of net assets, respectively) were the sector's largest
detractors.
ABOUT OUR MANAGEMENT STYLE
Cost-effective trade execution is a hallmark of our management style. We also
manage the fund with a full replication investment strategy. As a result, 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.
Because the fund incurs trading costs in seeking to maintain the appropriate
weight of each security in the index, its 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 December 31, 2004, and are subject to change.
122
<Page>
PERFORMANCE INFORMATION
Liberty S&P 500 Index Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR LIFE
- -------------------------------------------------------------
Class A (5/30/00) 10.13 -2.07
S&P 500 Index(1) 10.88 -1.23
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 12/31/04
Class A: $9,085
<Table>
<Caption>
CLASS A SHARES S&P 500 INDEX
5/30/2000 $ 10,000 $ 10,000
6/1/2000 $ 10,008 $ 10,312
6/30/2000 $ 10,316 $ 10,567
7/31/2000 $ 10,167 $ 10,402
8/31/2000 $ 10,792 $ 11,048
9/30/2000 $ 10,225 $ 10,464
10/31/2000 $ 10,209 $ 10,421
11/30/2000 $ 9,426 $ 9,599
12/31/2000 $ 9,471 $ 9,646
1/31/2001 $ 9,815 $ 9,989
2/28/2001 $ 8,944 $ 9,078
3/31/2001 $ 8,367 $ 8,502
4/30/2001 $ 9,012 $ 9,163
5/31/2001 $ 9,070 $ 9,224
6/30/2001 $ 8,835 $ 9,000
7/31/2001 $ 8,743 $ 8,912
8/31/2001 $ 8,207 $ 8,354
9/30/2001 $ 7,554 $ 7,679
10/31/2001 $ 7,688 $ 7,826
11/30/2001 $ 8,274 $ 8,426
12/31/2001 $ 8,336 $ 8,500
1/31/2002 $ 8,201 $ 8,376
2/28/2002 $ 8,042 $ 8,214
3/31/2002 $ 8,336 $ 8,523
4/30/2002 $ 7,822 $ 8,007
5/31/2002 $ 7,764 $ 7,948
6/30/2002 $ 7,216 $ 7,382
7/31/2002 $ 6,652 $ 6,807
8/31/2002 $ 6,694 $ 6,851
9/30/2002 $ 5,970 $ 6,106
10/31/2002 $ 6,483 $ 6,644
11/30/2002 $ 6,853 $ 7,035
12/31/2002 $ 6,454 $ 6,622
1/31/2003 $ 6,284 $ 6,448
2/28/2003 $ 6,182 $ 6,352
3/31/2003 $ 6,242 $ 6,413
4/30/2003 $ 6,751 $ 6,942
5/31/2003 $ 7,100 $ 7,308
6/30/2003 $ 7,194 $ 7,401
7/31/2003 $ 7,312 $ 7,531
8/31/2003 $ 7,448 $ 7,678
9/30/2003 $ 7,372 $ 7,597
10/31/2003 $ 7,780 $ 8,027
11/30/2003 $ 7,848 $ 8,097
12/31/2003 $ 8,247 $ 8,522
1/31/2004 $ 8,393 $ 8,679
2/29/2004 $ 8,505 $ 8,799
3/31/2004 $ 8,376 $ 8,666
4/30/2004 $ 8,239 $ 8,530
5/31/2004 $ 8,342 $ 8,647
6/30/2004 $ 8,504 $ 8,815
7/31/2004 $ 8,213 $ 8,523
8/31/2004 $ 8,247 $ 8,557
9/30/2004 $ 8,333 $ 8,650
10/31/2004 $ 8,453 $ 8,782
11/30/2004 $ 8,788 $ 9,138
12/31/2004 $ 9,085 $ 9,447
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- ------------------------------------------------------------
Class A 9.62 10.45
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
Total return performance includes changes in share price and reinvestment of all
distributions. The Standard & Poor's (S&P) 500 Index is an unmanaged index that
tracks the performance of 500 widely held, large-capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
(1) Index performance for the life of the fund is from May 30, 2000.
123
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UNDERSTANDING YOUR EXPENSES
Liberty S&P 500 Index Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,068.02 1,021.97 3.27 3.20 0.63
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
124
<Page>
INVESTMENT PORTFOLIO
Liberty S&P 500 Index Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--98.8%
CONSUMER DISCRETIONARY--11.8%
AUTO COMPONENTS--0.2%
Cooper Tire & Rubber Co. 300 $ 6,465
Dana Corp. 657 11,386
Delphi Corp. 2,741 24,724
Goodyear Tire & Rubber Co. (a) 731 10,717
Johnson Controls, Inc. 932 59,126
Visteon Corp. 646 6,311
---------------
118,729
---------------
AUTOMOBILES--0.6%
Ford Motor Co. 8,850 129,564
General Motors Corp. 2,729 109,324
Harley-Davidson, Inc. 1,396 84,807
---------------
323,695
---------------
DISTRIBUTORS--0.1%
Genuine Parts Co. 845 37,231
---------------
HOTELS, RESTAURANTS & LEISURE--1.6%
Carnival Corp. 3,024 174,273
Darden Restaurants, Inc. 771 21,388
Harrah's Entertainment, Inc. 519 34,716
Hilton Hotels Corp. 1,761 40,045
International Game Technology, Inc. 1,697 58,343
Marriott International, Inc., Class A 1,026 64,618
McDonald's Corp. 5,991 192,071
Starbucks Corp. (a) 1,913 119,295
Starwood Hotels & Resorts
Worldwide, Inc. 1,031 60,210
Wendy's International, Inc. 540 21,200
Yum! Brands, Inc. 1,363 64,306
---------------
850,465
---------------
HOUSEHOLD DURABLES--0.5%
Black & Decker Corp. 378 33,389
Centex Corp. 584 34,795
Fortune Brands, Inc. 693 53,486
KB Home 190 19,836
Leggett & Platt, Inc. 916 26,042
Maytag Corp. 351 7,406
Newell Rubbermaid, Inc. 1,350 32,656
Pulte Homes, Inc. 640 40,832
Snap-On, Inc. 238 8,177
Stanley Works 381 18,665
Whirlpool Corp. 295 20,417
---------------
295,701
---------------
INTERNET & CATALOG RETAIL--0.7%
eBay, Inc. (a) 3,190 370,933
---------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Brunswick Corp. 491 24,305
Eastman Kodak Co. 1,357 43,763
Hasbro, Inc. 772 14,961
Mattel, Inc. 2,025 39,467
---------------
122,496
---------------
MEDIA--3.9%
Clear Channel Communications, Inc. 2,766 92,633
Comcast Corp., Class A (a) 10,594 352,568
Dow Jones & Co., Inc. 347 14,942
Gannett Co., Inc. 1,265 $ 103,351
Interpublic Group of
Companies, Inc. (a) 1,972 26,425
Knight-Ridder, Inc. 412 27,579
McGraw-Hill Companies, Inc. 861 78,816
Meredith Corp. 257 13,929
New York Times Co., Class A 707 28,846
News Corp., Ltd., ADR, Class A 12,700 236,982
Omnicom Group, Inc. 915 77,153
Time Warner, Inc. (a) 21,938 426,475
Tribune Co. 1,551 65,359
Univision Communications, Inc.,
Class A (a) 1,545 45,222
Viacom Inc., Class B 8,166 297,161
Walt Disney Co. 9,885 274,803
---------------
2,162,244
---------------
MULTILINE RETAIL--1.1%
Big Lots, Inc. (a) 501 6,077
Dillard's, Inc., Class A 422 11,339
Dollar General Corp. 1,564 32,484
Family Dollar Stores, Inc. 812 25,359
Federated Department Stores, Inc. 824 47,619
J.C. Penney Co., Inc. 1,376 56,967
Kohl's Corp. (a) 1,671 82,163
May Department Stores Co. 1,391 40,895
Nordstrom, Inc. 720 33,646
Sears, Roebuck and Co. 1,001 51,081
Target Corp. 4,285 222,520
---------------
610,150
---------------
SPECIALTY RETAIL--2.4%
Autonation, Inc. (a) 1,304 25,050
AutoZone, Inc. (a) 388 35,428
Bed Bath & Beyond, Inc. (a) 1,477 58,829
Best Buy Co., Inc. 1,561 92,755
Circuit City Stores, Inc. 972 15,202
Gap, Inc. 4,336 91,576
Home Depot, Inc. 10,519 449,582
Limited Brands 1,879 43,255
Lowe's Companies, Inc. 3,707 213,486
Office Depot, Inc. (a) 1,476 25,624
OfficeMax, Inc. 450 14,121
RadioShack Corp. 806 26,501
Sherwin Williams Co. 718 32,044
Staples, Inc. 2,361 79,589
Tiffany & Co. 689 22,027
TJX Companies, Inc. 2,406 60,463
Toys "R" Us, Inc. (a) 1,046 21,412
---------------
1,306,944
---------------
TEXTILES, APPAREL & LUXURY GOODS--0.5%
Coach, Inc. (a) 900 50,760
Jones Apparel Group, Inc. 631 23,076
Liz Claiborne, Inc. 506 21,358
NIKE, Inc., Class B 1,281 116,174
Reebok International Ltd. 285 12,540
V.F. Corp. 553 30,625
---------------
254,533
---------------
</Table>
See Accompanying Notes to Financial Statements.
125
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
CONSUMER STAPLES--10.4%
BEVERAGES--2.2%
Adolph Coors Co., Class B 129 $ 9,762
Anheuser-Busch Companies, Inc. 3,771 191,303
Brown-Forman Corp., Class B 662 32,226
Coca-Cola Co. 11,571 481,701
Coca-Cola Enterprises, Inc. 2,305 48,059
Pepsi Bottling Group, Inc. 1,232 33,313
PepsiCo, Inc. 8,077 421,619
---------------
1,217,983
---------------
FOOD & STAPLES RETAILING--3.2%
Albertson's, Inc. 1,814 43,318
Costco Wholesale Corp. 2,272 109,988
CVS Corp. 1,895 85,408
Kroger Co. (a) 3,600 63,144
Safeway, Inc. (a) 2,172 42,875
SUPERVALU, Inc. 629 21,713
Sysco Corp. 3,131 119,510
Wal-Mart Stores, Inc. 20,235 1,068,813
Walgreen Co. 4,861 186,517
---------------
1,741,286
---------------
FOOD PRODUCTS--1.3%
Archer-Daniels-Midland Co. 3,128 69,786
Campbell Soup Co. 1,941 58,016
ConAgra Foods, Inc. 2,506 73,802
General Mills, Inc. 1,791 89,031
H.J. Heinz Co. 1,714 66,829
Hershey Foods Corp. 1,156 64,204
Kellogg Co. 1,979 88,382
McCormick & Co., Inc. 613 23,662
Sara Lee Corp. 3,846 92,842
Wrigley (Wm.) Jr. Co. 1,084 75,002
---------------
701,556
---------------
HOUSEHOLD PRODUCTS--1.8%
Clorox Co. 726 42,783
Colgate-Palmolive Co. 2,574 131,686
Kimberly-Clark Corp. 2,336 153,732
Procter & Gamble Co. 12,110 667,019
---------------
995,220
---------------
PERSONAL PRODUCTS--0.6%
Alberto-Culver Co. 478 23,217
Avon Products, Inc. 2,296 88,855
Gillette Co. 4,821 215,884
---------------
327,956
---------------
TOBACCO--1.3%
Altria Group, Inc. 9,857 602,263
Reynolds American, Inc. 700 55,020
UST, Inc. 824 39,642
---------------
696,925
---------------
ENERGY--7.1%
ENERGY EQUIPMENT & SERVICES--1.0%
Baker Hughes, Inc. 1,662 70,917
BJ Services Co. 756 35,184
Halliburton Co. 2,111 82,836
Nabors Industries Ltd. (a) 734 37,647
Noble Corp. (a) 617 $ 30,690
Rowan Companies, Inc. (a) 540 13,986
Schlumberger Ltd. 2,846 190,540
Transocean, Inc. (a) 1,537 65,153
---------------
526,953
---------------
OIL & GAS--6.1%
Amerada Hess Corp. 442 36,412
Anadarko Petroleum Corp. 1,155 74,856
Apache Corp. 1,544 78,080
Ashland, Inc. 376 21,951
Burlington Resources, Inc. 1,862 80,997
ChevronTexaco Corp. 10,098 530,246
ConocoPhillips 3,305 286,973
Devon Energy Corp. 2,386 92,863
El Paso Corp. 3,064 31,866
EOG Resources, Inc. 545 38,891
Exxon Mobil Corp. 30,880 1,582,909
Kerr-McGee Corp. 688 39,759
Kinder Morgan, Inc. 546 39,929
Marathon Oil Corp. 1,720 64,689
Occidental Petroleum Corp. 1,875 109,425
Sunoco, Inc. 339 27,700
Unocal Corp. 1,314 56,817
Valero Energy Corp. 1,200 54,480
Williams Companies, Inc. 2,658 43,299
XTO Energy, Inc. 1,200 42,456
---------------
3,334,598
---------------
FINANCIALS--20.4%
CAPITAL MARKETS--2.8%
Bank of New York Co., Inc. 3,757 125,559
Bear Stearns Companies, Inc. 537 54,940
Charles Schwab Corp. 6,530 78,099
E*TRADE Financial Corp. (a) 1,700 25,415
Federated Investors, Inc., Class B 528 16,051
Franklin Resources, Inc. 1,233 85,878
Goldman Sachs Group, Inc. 2,352 244,702
Janus Capital Group, Inc. 1,108 18,626
Lehman Brothers Holdings, Inc. 1,291 112,937
Mellon Financial Corp. 2,086 64,895
Merrill Lynch & Co., Inc. 4,456 266,335
Morgan Stanley 5,278 293,035
Northern Trust Corp. 1,072 52,078
State Street Corp. 1,616 79,378
T. Rowe Price Group, Inc. 631 39,248
---------------
1,557,176
---------------
COMMERCIAL BANKS--5.9%
AmSouth Bancorp 1,645 42,606
Bank of America Corp. (b) 19,372 910,290
BB&T Corp. 2,620 110,171
Comerica, Inc. 788 48,084
Compass Bancshares, Inc. 500 24,335
Fifth Third Bancorp 2,687 127,041
First Horizon National Corp. 567 24,443
Huntington Bancshares, Inc. 1,061 26,292
KeyCorp 1,990 67,461
M&T Bank Corp. 600 64,704
</Table>
See Accompanying Notes to Financial Statements.
126
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Marshall & Ilsley Corp. 1,030 $ 45,526
National City Corp. 3,249 122,000
North Fork Bancorporation, Inc. 2,268 65,432
PNC Financial Services Group, Inc. 1,406 80,761
Regions Financial Corp. 2,227 79,259
SunTrust Banks, Inc. 1,742 128,699
Synovus Financial Corp. 1,516 43,327
U.S. Bancorp 8,972 281,003
Wachovia Corp. 7,647 402,232
Wells Fargo & Co. 8,101 503,477
Zions Bancorporation 440 29,933
---------------
3,227,076
---------------
CONSUMER FINANCE--1.4%
American Express Co. 6,032 340,024
Capital One Financial Corp. 1,121 94,399
MBNA Corp. 6,117 172,438
Providian Financial Corp. (a) 1,446 23,816
SLM Corp. 2,067 110,357
---------------
741,034
---------------
DIVERSIFIED FINANCIAL SERVICES--3.7%
CIT Group, Inc. 1,000 45,820
Citigroup, Inc. 24,866 1,198,044
JPMorgan Chase & Co. 17,055 665,316
Moody's Corp. 706 61,316
Principal Financial Group 1,548 63,375
---------------
2,033,871
---------------
INSURANCE--4.2%
ACE Ltd. 1,333 56,986
AFLAC, Inc. 2,415 96,214
Allstate Corp. 3,308 171,090
Ambac Financial Group, Inc. 536 44,022
American International Group, Inc. 12,486 819,956
Aon Corp. 1,531 36,530
Chubb Corp. 866 66,595
Cincinnati Financial Corp. 802 35,496
Hartford Financial Services
Group, Inc. 1,395 96,687
Jefferson-Pilot Corp. 645 33,514
Lincoln National Corp. 817 38,137
Loews Corp. 863 60,669
Marsh & McLennan Companies, Inc. 2,533 83,336
MBIA, Inc. 646 40,879
MetLife, Inc. 3,640 147,456
Progressive Corp. 940 79,750
Prudential Financial, Inc. 2,494 137,070
SAFECO Corp. 655 34,217
St. Paul Travelers Companies, Inc. 3,239 120,070
Torchmark Corp. 487 27,827
UnumProvident Corp. 1,414 25,367
XL Capital Ltd., Class A 678 52,647
---------------
2,304,515
---------------
REAL ESTATE--0.6%
Apartment Investment &
Management Co., Class A, REIT 500 19,270
Archstone-Smith Trust, REIT 900 34,470
Equity Office Properties Trust, REIT 1,962 57,133
Equity Residential, REIT 1,381 49,965
Plum Creek Timber Co., Inc., REIT 881 $ 33,866
ProLogis Trust, REIT 900 38,997
Simon Property Group, Inc., REIT 1,100 71,137
---------------
304,838
---------------
THRIFTS & MORTGAGE FINANCE--1.8%
Countrywide Financial Corp. 2,734 101,185
Fannie Mae 4,612 328,421
Freddie Mac 3,336 245,863
Golden West Financial Corp. 1,486 91,270
MGIC Investment Corp. 413 28,460
Sovereign Bancorp, Inc. 1,700 38,335
Washington Mutual, Inc. 4,194 177,322
---------------
1,010,856
---------------
HEALTH CARE--12.5%
BIOTECHNOLOGY--1.3%
Amgen, Inc. (a) 6,109 391,892
Applera Corp. - Applied
Biosystems Group 1,004 20,993
Biogen Idec, Inc. (a) 1,616 107,642
Chiron Corp. (a) 940 31,330
Genzyme Corp. (a) 1,142 66,316
Gilead Sciences, Inc. (a) 2,100 73,479
MedImmune, Inc. (a) 1,206 32,695
---------------
724,347
---------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.2%
Bausch & Lomb, Inc. 279 17,984
Baxter International, Inc. 2,918 100,788
Becton, Dickinson & Co. 1,199 68,103
Biomet, Inc. 1,217 52,806
Boston Scientific Corp. (a) 4,054 144,120
C.R. Bard, Inc. 526 33,653
Fisher Scientific International, Inc. (a) 600 37,428
Guidant Corp. 1,526 110,025
Hospira, Inc. (a) 745 24,957
Medtronic, Inc. 5,798 287,987
Millipore Corp. (a) 201 10,012
PerkinElmer, Inc. 537 12,077
St. Jude Medical, Inc. (a) 1,692 70,946
Stryker Corp. 1,930 93,122
Thermo Electron Corp. (a) 777 23,458
Waters Corp. (a) 539 25,220
Zimmer Holdings, Inc. (a) 1,169 93,660
---------------
1,206,346
---------------
HEALTH CARE PROVIDERS & SERVICES--2.2%
Aetna, Inc. 706 88,073
AmerisourceBergen Corp. 551 32,333
Cardinal Health, Inc. 2,085 121,243
Caremark Rx, Inc. (a) 2,193 86,470
CIGNA Corp. 665 54,244
Express Scripts, Inc. (a) 400 30,576
HCA, Inc. 1,987 79,400
Health Management Associates, Inc.,
Class A 1,126 25,583
Humana, Inc. (a) 717 21,288
IMS Health, Inc. 1,167 27,086
</Table>
See Accompanying Notes to Financial Statements.
127
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
Laboratory Corp. of America
Holdings (a) 600 $ 29,892
Manor Care, Inc. 458 16,227
McKesson Corp. 1,449 45,586
Medco Health Solutions, Inc. (a) 1,330 55,328
Quest Diagnostics, Inc. 471 45,004
Tenet Healthcare Corp. (a) 2,180 23,936
UnitedHealth Group, Inc. 3,082 271,308
WellPoint, Inc. (a) 1,381 158,815
---------------
1,212,392
---------------
PHARMACEUTICALS--6.8%
Abbott Laboratories 7,451 347,589
Allergan, Inc. 652 52,858
Bristol-Myers Squibb Co. 9,270 237,497
Eli Lilly & Co. 5,386 305,656
Forest Laboratories, Inc. (a) 1,824 81,825
Johnson & Johnson 14,217 901,642
King Pharmaceuticals, Inc. (a) 1,127 13,975
Merck & Co., Inc. 10,578 339,977
Mylan Laboratories, Inc. 1,300 22,984
Pfizer, Inc. 36,069 969,895
Schering-Plough Corp. 7,057 147,350
Watson Pharmaceuticals, Inc. (a) 562 18,439
Wyeth 6,439 274,237
---------------
3,713,924
---------------
INDUSTRIAL--11.6%
AEROSPACE & DEFENSE--2.0%
Boeing Co. 4,028 208,530
General Dynamics Corp. 995 104,077
Goodrich Corp. 585 19,094
Honeywell International, Inc. 4,114 145,677
L-3 Communications Holdings, Inc. 500 36,620
Lockheed Martin Corp. 2,133 118,488
Northrop Grumman Corp. 1,780 96,761
Raytheon Co. 2,165 84,067
Rockwell Collins, Inc. 873 34,431
United Technologies Corp. 2,400 248,040
---------------
1,095,785
---------------
AIR FREIGHT & LOGISTICS--1.1%
FedEx Corp. 1,395 137,394
Ryder System, Inc. 264 12,611
United Parcel Service, Inc., Class B 5,393 460,886
---------------
610,891
---------------
AIRLINES--0.1%
Delta Air Lines, Inc. (a) 600 4,488
Southwest Airlines Co. 3,739 60,871
---------------
65,359
---------------
BUILDING PRODUCTS--0.2%
American Standard Cos., Inc. (a) 1,020 42,146
Masco Corp. 2,160 78,905
---------------
121,051
---------------
COMMERCIAL SERVICES & SUPPLIES--1.0%
Allied Waste Industries, Inc. (a) 1,470 13,642
Apollo Group, Inc., Class A (a) 868 70,056
Avery Dennison Corp. 481 $ 28,846
Cendant Corp. 5,151 120,430
Cintas Corp. 782 34,298
Equifax, Inc. 696 19,558
H&R Block, Inc. 832 40,768
Monster Worldwide, Inc. (a) 500 16,820
Pitney Bowes, Inc. 1,152 53,315
R.R. Donnelley & Sons Co. 1,081 38,148
Robert Half International, Inc. 800 23,544
Waste Management, Inc. 2,815 84,281
---------------
543,706
---------------
CONSTRUCTION & ENGINEERING--0.0%
Fluor Corp. 409 22,295
---------------
ELECTRICAL EQUIPMENT--0.4%
American Power Conversion Corp. 893 19,110
Cooper Industries Ltd. 399 27,088
Emerson Electric Co. 1,984 139,078
Power-One, Inc. (a) 467 4,166
Rockwell Automation, Inc. 909 45,041
---------------
234,483
---------------
INDUSTRIAL CONGLOMERATES--4.7%
3M Co. 3,734 306,449
General Electric Co. 50,639 1,848,324
Textron, Inc. 665 49,077
Tyco International Ltd. 9,629 344,140
---------------
2,547,990
---------------
MACHINERY--1.5%
Caterpillar, Inc. 1,592 155,236
Cummins, Inc. 180 15,082
Danaher Corp. 1,492 85,656
Deere & Co. 1,197 89,057
Dover Corp. 940 39,424
Eaton Corp. 766 55,428
Illinois Tool Works, Inc. 1,433 132,810
Ingersoll-Rand Co., Class A 778 62,473
ITT Industries, Inc. 481 40,620
Navistar International Corp. (a) 371 16,317
Paccar, Inc. 819 65,913
Pall Corp. 600 17,370
Parker Hannifin Corp. 556 42,111
---------------
817,497
---------------
ROAD & RAIL--0.5%
Burlington Northern Santa Fe Corp. 1,803 85,300
CSX Corp. 1,063 42,605
Norfolk Southern Corp. 1,862 67,386
Union Pacific Corp. 1,239 83,322
---------------
278,613
---------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
W.W. Grainger, Inc. 425 28,314
---------------
</Table>
See Accompanying Notes to Financial Statements.
128
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
INFORMATION TECHNOLOGY--15.8%
COMMUNICATIONS EQUIPMENT--2.6%
ADC Telecommunications, Inc. (a) 3,764 $ 10,088
Andrew Corp. (a) 787 10,727
Avaya, Inc. (a) 2,098 36,086
CIENA Corp. (a) 2,719 9,081
Cisco Systems, Inc. (a) 31,535 608,625
Comverse Technology, Inc. (a) 921 22,518
Corning, Inc. (a) 6,609 77,788
JDS Uniphase Corp. (a) 6,993 22,168
Lucent Technologies, Inc. (a) 20,798 78,200
Motorola, Inc. 11,608 199,658
QUALCOMM, Inc. 7,790 330,296
Scientific-Atlanta, Inc. 705 23,272
Tellabs, Inc. (a) 1,991 17,103
---------------
1,445,610
---------------
COMPUTERS & PERIPHERALS--3.9%
Apple Computer, Inc. (a) 1,936 124,678
Dell, Inc. (a) 11,879 500,581
EMC Corp. (a) 11,392 169,399
Gateway, Inc. (a) 1,545 9,285
Hewlett-Packard Co. 14,609 306,351
International Business Machines Corp. 8,010 789,626
Lexmark International, Inc.,
Class A (a) 595 50,575
NCR Corp. (a) 480 33,230
Network Appliance, Inc. (a) 1,684 55,943
QLogic Corp. (a) 455 16,712
Sun Microsystems, Inc. (a) 15,975 85,946
---------------
2,142,326
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.3%
Agilent Technologies, Inc. (a) 2,273 54,779
Jabil Circuit, Inc. (a) 915 23,406
Molex, Inc. 915 27,450
Sanmina-SCI Corp. (a) 2,403 20,354
Solectron Corp. (a) 4,686 24,976
Symbol Technologies, Inc. 1,094 18,926
Tektronix, Inc. 387 11,691
---------------
181,582
---------------
INTERNET SOFTWARE & SERVICES--0.5%
Yahoo! Inc. (a) 6,588 248,236
---------------
IT SERVICES--1.2%
Affiliated Computer Services, Inc.,
Class A (a) 600 36,114
Automatic Data Processing, Inc. 2,800 124,180
Computer Sciences Corp. (a) 941 53,044
Convergys Corp. (a) 680 10,193
Electronic Data Systems Corp. 2,591 59,852
First Data Corp. 3,979 169,267
Fiserv, Inc. (a) 964 38,743
Paychex, Inc. 1,859 63,355
Sabre Holdings Corp., Class A 708 15,689
SunGard Data Systems, Inc. (a) 1,423 40,314
Unisys Corp. (a) 1,537 15,647
---------------
626,398
---------------
OFFICE ELECTRONICS--0.1%
Xerox Corp. (a) 4,409 $ 74,997
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.0%
Advanced Micro Devices, Inc. (a) 1,837 40,451
Altera Corp. (a) 1,817 37,612
Analog Devices, Inc. 1,808 66,751
Applied Materials, Inc. (a) 8,130 139,023
Applied Micro Circuits Corp. (a) 1,304 5,490
Broadcom Corp., Class A (a) 1,541 49,743
Freescale Semiconductor, Inc.,
Class B (a) 1,881 34,535
Intel Corp. 30,309 708,928
KLA-Tencor Corp. (a) 913 42,528
Linear Technology Corp. 1,523 59,031
LSI Logic Corp. (a) 1,791 9,815
Maxim Integrated Products, Inc. 1,587 67,273
Micron Technology, Inc. (a) 2,915 36,000
National Semiconductor Corp. 1,690 30,335
Novellus Systems, Inc. (a) 742 20,694
NVIDIA Corp. (a) 780 18,377
PMC-Sierra, Inc. (a) 798 8,978
Teradyne, Inc. (a) 876 14,953
Texas Instruments, Inc. 8,363 205,897
Xilinx, Inc. 1,626 48,211
---------------
1,644,625
---------------
SOFTWARE--4.2%
Adobe Systems, Inc. 1,193 74,849
Autodesk, Inc. 1,000 37,950
BMC Software, Inc. (a) 1,062 19,753
Citrix Systems, Inc. (a) 793 19,452
Computer Associates International, Inc. 2,839 88,179
Compuware Corp. (a) 1,836 11,879
Electronic Arts, Inc. (a) 1,428 88,079
Intuit, Inc. (a) 913 40,181
Mercury Interactive Corp. (a) 407 18,539
Microsoft Corp. 52,039 1,389,962
Novell, Inc. (a) 1,736 11,718
Oracle Corp. (a) 24,542 336,716
Parametric Technology Corp. (a) 1,191 7,015
Siebel Systems, Inc. (a) 2,348 24,654
Symantec Corp. (a) 3,032 78,104
VERITAS Software Corp. (a) 2,094 59,784
---------------
2,306,814
---------------
MATERIALS--3.1%
CHEMICALS--1.6%
Air Products & Chemicals, Inc. 1,092 63,303
Dow Chemical Co. 4,510 223,290
E.I. du Pont de Nemours & Co. 4,724 231,712
Eastman Chemical Co. 367 21,187
Ecolab, Inc. 1,220 42,859
Engelhard Corp. 584 17,911
Great Lakes Chemical Corp. 255 7,265
Hercules, Inc. (a) 483 7,173
</Table>
See Accompanying Notes to Financial Statements.
129
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
International Flavors &
Fragrances, Inc. 416 $ 17,821
Monsanto Co. 1,255 69,715
PPG Industries, Inc. 821 55,959
Praxair, Inc. 1,540 67,991
Rohm and Haas Co. 1,081 47,813
Sigma-Aldrich Corp. 301 18,199
---------------
892,198
---------------
CONSTRUCTION MATERIALS--0.1%
Vulcan Materials Co. 522 28,507
---------------
CONTAINERS & PACKAGING--0.2%
Ball Corp. 580 25,508
Bemis Co., Inc. 496 14,429
Pactiv Corp. (a) 772 19,524
Sealed Air Corp. (a) 390 20,775
Temple-Inland, Inc. 313 21,409
---------------
101,645
---------------
METALS & MINING--0.7%
Alcoa, Inc. 4,182 131,398
Allegheny Technologies, Inc. 382 8,278
Freeport-McMoRan Copper &
Gold, Inc., Class B 880 33,642
Newmont Mining Corp. 2,189 97,214
Nucor Corp. 788 41,244
Phelps Dodge Corp. 414 40,953
United States Steel Corp. 509 26,086
---------------
378,815
---------------
PAPER & FOREST PRODUCTS--0.5%
Georgia-Pacific Corp. 1,245 46,663
International Paper Co. 2,320 97,440
Louisiana-Pacific Corp. 570 15,242
MeadWestvaco Corp. 1,011 34,263
Weyerhaeuser Co. 1,157 77,773
---------------
271,381
---------------
TELECOMMUNICATION SERVICES--3.2%
DIVERSIFIED TELECOMMUNICATION SERVICES--2.9%
ALLTEL Corp. 1,443 84,791
AT&T Corp. 3,820 72,809
BellSouth Corp. 8,782 244,052
CenturyTel, Inc. 689 24,439
Citizens Communications Co. 1,579 21,774
Qwest Communications
International, Inc. (a) 8,256 36,657
SBC Communications, Inc. 15,851 408,480
Sprint Corp. 7,118 176,882
Verizon Communications, Inc. 13,205 534,935
---------------
1,604,819
---------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Nextel Communications, Inc.,
Class A (a) 5,309 159,270
---------------
UTILITIES--2.9%
ELECTRIC UTILITIES--2.0%
Allegheny Energy Inc. (a) 567 $ 11,176
Ameren Corp. 964 48,335
American Electric Power Co., Inc. 1,932 66,345
CenterPoint Energy, Inc. 1,393 15,741
Cinergy Corp. 878 36,551
Consolidated Edison, Inc. 1,160 50,750
DTE Energy Co. 804 34,676
Edison International 1,606 51,440
Entergy Corp. 1,028 69,483
Exelon Corp. 3,198 140,936
FirstEnergy Corp. 1,632 64,480
FPL Group, Inc. 875 65,406
PG&E Corp. (a) 2,022 67,292
Pinnacle West Capital Corp. 412 18,297
PPL Corp. 957 50,989
Progress Energy, Inc. 1,229 55,600
Southern Co. 3,559 119,298
TECO Energy, Inc. 800 12,272
TXU Corp. 1,128 72,824
Xcel Energy, Inc. 1,857 33,797
---------------
1,085,688
---------------
GAS UTILITIES--0.1%
KeySpan Corp. 769 30,337
Nicor, Inc. 245 9,050
NiSource, Inc. 1,209 27,541
Peoples Energy Corp. 152 6,681
---------------
73,609
---------------
MULTI-UTILITIES & UNREGULATED POWER--0.8%
AES Corp. (a) 3,326 45,466
Calpine Corp. (a) 1,926 7,589
CMS Energy Corp. (a) 800 8,360
Constellation Energy Group 887 38,771
Dominion Resources, Inc. 1,545 104,658
Duke Energy Corp. 4,586 116,163
Dynegy, Inc., Class A (a) 1,600 7,392
Public Service Enterprise Group, Inc. 1,100 56,947
Sempra Energy 1,080 39,614
---------------
424,960
---------------
TOTAL COMMON STOCKS
(cost of $47,794,895) 54,089,437
---------------
<Caption>
UNITS
---------------
WARRANT--0.0%
INFORMATION TECHNOLOGY--0.0%
COMMUNICATIONS EQUIPMENT--0.0%
Lucent Technologies, Inc. (a) 197 311
---------------
TOTAL WARRANT
(cost of $0) 311
---------------
</Table>
See Accompanying Notes to Financial Statements.
130
<Page>
<Table>
<Caption>
PAR VALUE
--------------- ---------------
SHORT-TERM OBLIGATIONS--1.7%
GOVERNMENT & AGENCY DISCOUNT NOTE--0.2%
United States Treasury Bill
2.185% 08/10/05 (c) $ 80,000 $ 79,670
REPURCHASE AGREEMENT--1.5%
Repurchase agreement with State Street
Bank & Trust Co., dated 12/31/04,
due 01/03/05 at 1.500%, collateralized
by a U.S. Treasury Bond maturing
11/15/27, market value of $854,877
(repurchase proceeds $835,104) 835,000 835,000
---------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $914,670) 914,670
---------------
TOTAL INVESTMENTS--100.5%
(cost of $48,709,565) (d) 55,004,418
---------------
OTHER ASSETS & LIABILITIES, NET--(0.5)% (267,642)
---------------
NET ASSETS--100.0% $ 54,736,776
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Investments in affiliates during the year ended December 31, 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 12/31/04: --
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: 1,000
Shares sold: (1,101)
Shares acquired through acquisition: 2,809
Shares acquired through two for one stock split: 9,736
Shares as of 12/31/04: 19,372
Net realized gain*: $ 1,588
Dividend income earned*: $ 31,196
Value at end of period: $ 910,290
</Table>
* Represents activity for the period April 1, 2004 through December 31,
2004.
(c) Security pledged as collateral for open futures contracts.
(d) Cost for federal income tax purposes is $50,709,403.
At December 31, 2004, the Fund held the following open long futures contracts:
<Table>
<Caption>
AGGREGATE SETTLEMENT UNREALIZED
TYPE CONTRACTS VALUE FACE VALUE DATE APPRECIATION
---- --------- ----- ---------- ---------- ------------
S&P Mini 500 16 $ 970,960 $ 961,980 Mar-05 $ 8,980
==========
</Table>
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 20.4%
Information Technology 15.8
Health Care 12.5
Consumer Discretionary 11.8
Industrial 11.6
Consumer Staples 10.4
Energy 7.1
Telecommunication Services 3.2
Materials 3.1
Utilities 2.9
Short-Term Obligations 1.7
Other Assets & Liabilities, Net (0.5)
-----
100.0%
=====
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
131
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty S&P 500 Index Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 48,114,132
Affiliated investments, at cost 595,433
---------------
Investments, at value $ 54,094,128
Affiliated investments, at value 910,290
Cash 229
Receivable for:
Interest 35
Dividends 70,701
Expense reimbursement due from Distributor 22,521
Deferred Trustees' compensation plan 3,281
---------------
TOTAL ASSETS 55,101,185
---------------
LIABILITIES:
Payable for:
Fund shares repurchased 287,896
Futures variation margin 800
Investment advisory fee 18,499
Transfer agent fee 625
Pricing and bookkeeping fees 3,011
Trustees' fees 78
Audit fee 21,260
Custody fee 2,139
Distribution fee--Class B 12,404
Deferred Trustees' fees 3,281
Other liabilities 14,416
---------------
TOTAL LIABILITIES 364,409
---------------
NET ASSETS $ 54,736,776
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 52,097,832
Overdistributed net investment income (1,760)
Accumulated net realized loss (3,663,129)
Net unrealized appreciation on:
Investments 6,294,853
Futures contracts 8,980
---------------
NET ASSETS $ 54,736,776
===============
CLASS A:
Net assets $ 90,880
Shares outstanding 8,695
===============
Net asset value per share $ 10.45
===============
CLASS B:
Net assets $ 54,645,896
Shares outstanding 5,241,565
===============
Net asset value per share $ 10.43
===============
</Table>
See Accompanying Notes to Financial Statements.
132
<Page>
STATEMENT OF OPERATIONS
Liberty S&P 500 Index Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 1,000,525
Dividends from affiliates 32,966
Interest 10,883
---------------
Total Investment Income 1,044,374
---------------
EXPENSES:
Investment advisory fee 205,138
Distribution fee--Class B 128,000
Transfer agent fee 7,500
Pricing and bookkeeping fees 42,965
Trustees' fee 7,276
Custody fee 19,173
Audit fee 23,369
Non-recurring costs (See Note 6) 2,554
Other expenses 20,618
---------------
Total Expenses 456,593
Fees waived by Distributor--Class B (69,352)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,554)
Custody earnings credit (67)
---------------
Net Expenses 384,620
---------------
Net Investment Income 659,754
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Unaffiliated investments (408,394)
Affiliated investments 1,588
Futures contracts 109,227
---------------
Net realized loss (297,579)
---------------
Net change in unrealized appreciation/depreciation on:
Investments 4,732,247
Futures contracts (31,186)
---------------
Net change in unrealized appreciation/depreciation 4,701,061
---------------
Net Gain 4,403,482
---------------
Net Increase in Net Assets from Operations $ 5,063,236
===============
</Table>
See Accompanying Notes to Financial Statements.
133
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty S&P 500 Index Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 659,754 $ 377,448
Net realized loss on investments and futures contracts (297,579) (371,434)
Net change in unrealized appreciation/depreciation on investments and futures
contracts 4,701,061 9,268,500
--------------- ---------------
Net Increase from Operations 5,063,236 9,274,514
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (1,243) (680)
Class B (677,613) (377,651)
--------------- ---------------
Total Distributions Declared to Shareholders (678,856) (378,331)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Distributions reinvested 1,243 680
--------------- ---------------
Class B:
Subscriptions 6,819,068 13,560,308
Distributions reinvested 677,613 377,651
Redemptions (5,669,755) (3,136,822)
--------------- ---------------
Net Increase 1,826,926 10,801,137
--------------- ---------------
Net Increase from Share Transactions 1,828,169 10,801,817
--------------- ---------------
Total Increase in Net Assets 6,212,549 19,698,000
NET ASSETS:
Beginning of period 48,524,227 28,826,227
--------------- ---------------
End of period (including overdistributed net investment income of $(1,760) and
$(934), respectively) $ 54,736,776 $ 48,524,227
=============== ===============
CHANGES IN SHARES:
Class A:
Issued for distributions reinvested 119 71
--------------- ---------------
Class B:
Subscriptions 700,537 1,585,888
Issued for distributions reinvested 64,905 39,462
Redemptions (573,226) (374,208)
--------------- ---------------
Net Increase 192,216 1,251,142
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
134
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty S&P 500 Index Fund, Variable Series / December 31, 2004
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.
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 futures contracts. The Fund will
invest in these instruments to hedge against the effects of changes in the value
of portfolio securities due to anticipated changes in market conditions 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 or
(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. Any of these risks may involve amounts exceeding the
variation margin recorded in the Fund's Statement of Assets and Liabilities at
any given time.
Upon entering into a futures contract, the Fund deposits cash or securities with
the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin receivable or payable
and offset in unrealized gains or losses. The Fund also identifies portfolio
securities as segregated with the custodian in a separate account in an amount
equal to the futures contract. The Fund recognizes a realized gain or loss when
the contract is closed or expires.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a 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. If the Fund no longer owns the
applicable securities, any distributions received in excess of income are
recorded as realized gains.
135
<Page>
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for REIT adjustments and
distributions in excess were identified and reclassified among the components of
the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED NET ACCUMULATED NET PAID-IN
INVESTMENT INCOME REALIZED LOSS CAPITAL
------------------- --------------- -----------
$ 19,783 $ 7,027 $ (26,810)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 678,856 $ 378,331
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 4,295,015
</Table>
* The differences between book-basis and tax-basis net unrealized
appreciation are primarily due to deferral of losses from wash sales and
return of capital distributions received.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 9,022,591
Unrealized depreciation (4,727,576)
-------------
Net unrealized appreciation $ 4,295,015
=============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 19,479
2009 243,840
2010 1,209,651
2011 9,406
2012 61,449
------------
$ 1,543,825
============
</Table>
Under current tax rules, certain capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
As of December 31, 2004, post-October capital losses of $109,288 attributed to
security transactions were deferred to January 1, 2005.
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 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 0.20% of the Fund's
average daily net assets.
136
<Page>
Prior to November 1, 2004, Columbia received a monthly investment advisory
fee at the annual rate of 0.40% of the Fund's averagae 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, from 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 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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.084%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's 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. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,352 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $5,270,512 and
$2,997,575, respectively.
137
<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--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $2,554 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
138
<Page>
FINANCIAL HIGHLIGHTS
Liberty S&P 500 Index Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000 (a)
---------- ---------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 7.59 $ 9.90 $ 11.31 $ 12.00
---------- ---------- ---------- ---------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.14(c) 0.09 0.09 0.07 0.07
Net realized and unrealized gain (loss) on
investments and futures contracts 0.83 2.02 (2.32) (1.42) (0.70)
---------- ---------- ---------- ---------- ------------
Total from Investment Operations 0.97 2.11 (2.23) (1.35) (0.63)
---------- ---------- ---------- ---------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.14) (0.08) (0.07) (0.06) (0.06)
Return of capital -- -- (0.01) -- --
---------- ---------- ---------- ---------- ------------
Total Distributions Declared to Shareholders (0.14) (0.08) (0.08) (0.06) (0.06)
---------- ---------- ---------- ---------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.45 $ 9.62 $ 7.59 $ 9.90 $ 11.31
========== ========== ========== ========== ============
Total return (d)(e) 10.13% 27.80%(f) (22.55)% (11.98)%(f) (5.29)%(f)(g)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 0.64% 0.69% 0.64% 0.75% 0.75%(i)
Net investment income (h) 1.42% 1.11% 0.99% 0.72% 0.89%(i)
Waiver/reimbursement -- 0.03% -- 0.28% 0.36%(i)
Portfolio turnover rate 6% 3% 17% 7% 2%(g)
Net assets, end of period (000's) $ 91 $ 82 $ 65 $ 83 $ 95
</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) Net investment income per share reflects a special dividend which amounted
to $0.03 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.
139
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty S&P 500 Index Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Liberty S&P 500 Index Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
140
<Page>
UNAUDITED INFORMATION
Liberty S&P 500 Index Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
96.49% of the ordinary income distributed by the Fund for the year ended
December 31, 2004, qualifies for the corporate dividends received deduction.
141
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Select Value Fund, Variable Series / December 31, 2004
Liberty Select Value Fund, Variable Series seeks long-term growth.
Diane L. Sobin, the lead manager, and David I. Hoffman co-manage the fund. Ms.
Sobin and Mr. Hoffman have been affiliated with Columbia Management Advisors,
Inc. and its predecessors since August 2001.
Mid-cap value stocks were exceptional performers in 2004, the beneficiaries of
steady economic growth and continued low interest rates. The portfolio
participated in these gains, aided by its emphasis on the energy sector, which
was the period's strongest performer. A late-year rally in stocks tied to
consumer spending in the leisure and retail areas, also made a positive
contribution to returns. However, the portfolio underperformed its benchmark,
the Russell Midcap Value Index. Disappointing results from cyclical technology
stocks, the impact of a larger-than-normal cash position and our decision to
underweight interest-rate sensitive sectors, such as financials, utilities and
real estate investment trusts (REITs), restrained performance.
ENERGY, BASIC MATERIALS AND CONSUMER STOCKS AIDED PERFORMANCE
Energy and basic materials holdings were amongst the largest contributors to the
fund's performance during the year. These stocks were the beneficiaries of a
significant rise in commodity prices, which were buoyed by worldwide economic
growth. XTO Energy, Amerada Hess, and Transocean (1.8%, 1.4%, and 1.0% of net
assets, respectively) were top contributors. On the basic materials side,
plastic bottle manufacturer Eastman Chemical (1.2% of net assets) rode the
petrochemical cycle to higher levels. Improving payroll numbers near the end of
the year helped boost consumer stocks, including Harrah's Entertainment (1.0% of
net assets) in the leisure area, and Federated Department Stores (1.8% of net
assets), which benefited from a rising sales base.
NEW POSITIONS IN FINANCIALS, REITS AND UTILITIES
We positioned the portfolio away from interest-rate sensitive sectors early in
the period because we expected rates to rise, an environment that is generally
negative for sectors such as financials, utilities and REITs. Short-term
interest rates began to rise midway through the year. However, intermediate and
long-term interest rates held steady or declined during the year and these
sectors were among the best performers.
During the second half of the year, we increased the fund's exposure to
financial stocks. We added to holdings in the commercial lending area, which is
less sensitive to rising interest rates than other areas of the sector. The
financial sector was the largest contributor to performance for the year. We
also added selectively to hotel and office REITs with reasonable valuations and
the potential to benefit from continued economic growth. We believe that the
hotel sector has strong business prospects due to increased travel. We added
Host Marriott (1.1% of net assets) based on its city center locations, which
limit new development and enhance its ability to increase room rates at an above
average rate. We believe prospects for office property REITs are also beginning
to improve. Finally, we added Constellation Energy (0.9% of net assets) in the
utility sector, a company that we believe has the potential to benefit from
rising power prices.
TRIMMING WINNERS AND LOSERS
The portfolio phased in new management during the second half of the period. We
continued to use a disciplined approach to finding attractive value stocks among
middle capitalization companies. We look for companies that are "cheap" on the
basis of price/earnings, price/sales and price/book value--common measures of
valuing stocks versus their peers. We also use fundamental research to identify
companies that we believe have the potential to increase their operating margins
from currently depressed levels over a one- to three-year time horizon. During
the period, our disciplined approach led us to reduce exposure to the auto parts
industry because we believe that auto sales and production have reached peak
levels.
SEEKING COMPANIES THAT ARE FOCUSED ON PRUDENT CAPITAL DEPLOYMENT
Despite the strong performance of mid-cap value stocks during the past year, we
continue to find attractively-valued stocks with the potential for continued
improvement in operating margins. In particular, we believe that companies that
generate excess cash, increase their dividends, repurchase their own shares and
make prudent investments in their own businesses are poised to reward
shareholders. Our research continues to point us toward economically-sensitive
companies. However, our focus has shifted from early-cycle industries, such as
semiconductors, to late-cycle industries, such as commercial construction and
infrastructure builders. We are also seeking companies that have the potential
to benefit from higher spending on equipment and technology.
CAREFULLY POSITIONED FOR OPPORTUNITY
We believe the US economy will continue to grow into 2005, albeit at a slower
pace. We also foresee continued increases in short-term interest rates by the
Federal Reserve Board, which could lead to higher long-term bond rates and
increased pressure on the dollar. In this environment, we are looking for
attractively-valued stocks of companies that have the opportunity to improve
operating performance while minimizing the fund's exposure to rising interest
rates and currency factors.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Liberty Select Value Fund, Variable Series offers the
potential for long-term growth, but also involves certain risks, including stock
market fluctuations due to economic and business developments. The value and
returns earned on an investment in the fund may also be affected by stock market
fluctuations. Mid-cap stocks can present special risks including greater price
volatility than stocks of larger, more established companies.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor. If the advisor's assessment of a company's
prospects is wrong, the price of its stock may not approach the value the
advisor has placed on it.
Holdings are disclosed as of December 31, 2004, and are subject to change.
142
<Page>
PERFORMANCE INFORMATION
Liberty Select Value Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR LIFE
- --------------------------------------------------------------
Class A (5/30/00) 15.59 9.43
Russell Midcap Value Index(1) 23.71 14.44
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/30/00 - 12/31/04
Class A: $15,128
<Table>
<Caption>
CLASS A SHARES RUSSELL MIDCAP VALUE INDEX
5/30/2000 $ 10,000 $ 10,000
5/31/2000 $ 10,200 $ 10,183
6/30/2000 $ 10,066 $ 9,803
7/31/2000 $ 10,333 $ 10,033
8/31/2000 $ 11,184 $ 10,648
9/30/2000 $ 10,983 $ 10,750
10/31/2000 $ 11,034 $ 10,954
11/30/2000 $ 10,309 $ 10,812
12/31/2000 $ 11,139 $ 11,765
1/31/2001 $ 11,551 $ 11,723
2/28/2001 $ 11,206 $ 11,674
3/31/2001 $ 10,961 $ 11,350
4/30/2001 $ 11,769 $ 11,975
5/31/2001 $ 12,106 $ 12,315
6/30/2001 $ 11,870 $ 12,151
7/31/2001 $ 11,971 $ 12,102
8/31/2001 $ 11,676 $ 11,881
9/30/2001 $ 10,238 $ 10,747
10/31/2001 $ 10,439 $ 10,804
11/30/2001 $ 11,070 $ 11,561
12/31/2001 $ 11,533 $ 12,040
1/31/2002 $ 11,626 $ 12,162
2/28/2002 $ 11,828 $ 12,359
3/31/2002 $ 12,377 $ 12,991
4/30/2002 $ 12,411 $ 12,981
5/31/2002 $ 12,444 $ 12,962
6/30/2002 $ 11,760 $ 12,384
7/31/2002 $ 10,923 $ 11,171
8/31/2002 $ 11,000 $ 11,301
9/30/2002 $ 9,835 $ 10,160
10/31/2002 $ 10,038 $ 10,483
11/30/2002 $ 10,620 $ 11,143
12/31/2002 $ 10,256 $ 10,878
1/31/2003 $ 9,993 $ 10,577
2/28/2003 $ 9,764 $ 10,401
3/31/2003 $ 9,748 $ 10,436
4/30/2003 $ 10,366 $ 11,230
5/31/2003 $ 10,957 $ 12,218
6/30/2003 $ 11,033 $ 12,303
7/31/2003 $ 11,363 $ 12,686
8/31/2003 $ 11,727 $ 13,136
9/30/2003 $ 11,506 $ 13,034
10/31/2003 $ 12,284 $ 13,991
11/30/2003 $ 12,554 $ 14,396
12/31/2003 $ 13,084 $ 15,018
1/31/2004 $ 13,322 $ 15,415
2/29/2004 $ 13,746 $ 15,795
3/31/2004 $ 13,754 $ 15,821
4/30/2004 $ 13,483 $ 15,151
5/31/2004 $ 13,704 $ 15,539
6/30/2004 $ 14,111 $ 16,094
7/31/2004 $ 13,492 $ 15,658
8/31/2004 $ 13,415 $ 15,910
9/30/2004 $ 13,788 $ 16,373
10/31/2004 $ 13,873 $ 16,751
11/30/2004 $ 14,679 $ 17,884
12/31/2004 $ 15,128 $ 18,577
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- --------------------------------------------------------------
Class A 15.42 17.66
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFOMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
Total return performance includes changes in share price and reinvestment of all
distributions. The Russell Midcap Value Index is an unmanaged index that
measures the performance of those Russell Midcap Index companies with lower
price-to-book ratios and lower forecasted growth values. Indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in an index. Securities in the fund may
not match those in an index.
(1) Index performance for the life of the fund is from May 30, 2000.
143
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty Select Value Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00 which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,071.79 1,020.91 4.37 4.27 0.84
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
144
<Page>
INVESTMENT PORTFOLIO
Liberty Select Value Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS -- 98.9%
CONSUMER DISCRETIONARY -- 14.4%
AUTO COMPONENTS -- 2.5%
BorgWarner, Inc. 5,900 $ 319,603
Johnson Controls, Inc. 6,600 418,704
Lear Corp. 5,500 335,555
---------------
1,073,862
---------------
HOTELS, RESTAURANTS & LEISURE -- 2.7%
Brinker International, Inc. (a) 14,000 490,980
Darden Restaurants, Inc. 8,700 241,338
Harrah's Entertainment, Inc. 6,300 421,407
---------------
1,153,725
---------------
HOUSEHOLD DURABLES -- 0.7%
Newell Rubbermaid, Inc. 12,600 304,794
---------------
LEISURE EQUIPMENT & PRODUCTS -- 0.7%
Mattel, Inc. 14,600 284,554
---------------
MEDIA -- 1.4%
Knight-Ridder, Inc. 4,100 274,454
New York Times Co., Class A 8,000 326,400
---------------
600,854
---------------
MULTILINE RETAIL -- 2.8%
Federated Department Stores, Inc. 13,500 780,165
J.C. Penney Co., Inc. 10,200 422,280
---------------
1,202,445
---------------
SPECIALTY RETAIL -- 3.1%
Borders Group, Inc. 16,100 408,940
OfficeMax, Inc. 8,500 266,730
TJX Companies, Inc. 26,000 653,380
---------------
1,329,050
---------------
TEXTILES, APPAREL & LUXURY GOODS-- 0.5%
Wolverine World Wide, Inc. 7,100 223,082
---------------
CONSUMER STAPLES -- 4.2%
BEVERAGES -- 0.7%
Pepsi Bottling Group, Inc. 12,000 324,480
---------------
FOOD PRODUCTS -- 2.7%
Dean Foods Co. (a) 28,300 932,485
Hormel Foods Corp. 6,900 216,315
---------------
1,148,800
---------------
TOBACCO -- 0.8%
UST, Inc. 7,100 341,581
---------------
ENERGY -- 6.8%
ENERGY EQUIPMENT & SERVICES -- 3.0%
BJ Services Co. 5,400 251,316
Noble Corp. (a) 8,200 407,868
Transocean, Inc. (a) 9,650 409,063
Weatherford International Ltd. (a) 4,400 225,720
---------------
1,293,967
---------------
OIL & GAS -- 3.8%
Amerada Hess Corp. 7,100 584,898
Williams Companies, Inc. 15,400 250,866
XTO Energy, Inc. 21,791 770,966
---------------
1,606,730
---------------
FINANCIALS -- 24.2%
CAPITAL MARKETS -- 2.7%
Bear Stearns Companies, Inc. 4,200 $ 429,702
Janus Capital Group, Inc. 25,800 433,698
Lehman Brothers Holdings, Inc. 3,500 306,180
---------------
1,169,580
---------------
COMMERCIAL BANKS -- 5.3%
Banknorth Group, Inc. 12,800 468,480
City National Corp. 6,300 445,095
Cullen/Frost Bankers, Inc. 3,800 184,680
North Fork Bancorporation, Inc. 28,639 826,235
UnionBanCal Corp. 4,900 315,952
---------------
2,240,442
---------------
DIVERSIFIED FINANCIAL SERVICES -- 1.1%
CIT Group, Inc. 9,700 444,454
---------------
INSURANCE -- 5.6%
Ambac Financial Group, Inc. 5,150 422,970
Cincinnati Financial Corp. 5,565 246,307
Endurance Specialty Holdings Ltd. 6,000 205,200
Hartford Financial Services Group, Inc. 4,800 332,688
Loews Corp. 4,300 302,290
Nationwide Financial Services, Inc.,
Class A 7,400 282,902
Old Republic International Corp. 12,800 323,840
St. Paul Travelers Companies, Inc. 7,900 292,853
---------------
2,409,050
---------------
REAL ESTATE -- 1.8%
Equity Office Properties Trust, REIT 10,600 308,672
Host Marriott Corp., REIT 27,200 470,560
---------------
779,232
---------------
THRIFTS & MORTGAGE FINANCE -- 7.7%
Golden West Financial Corp. 19,200 1,179,264
PMI Group, Inc. 12,300 513,525
Radian Group, Inc. 9,900 527,076
Sovereign Bancorp, Inc. 26,500 597,575
Webster Financial Corp. 9,100 460,824
---------------
3,278,264
---------------
HEALTH CARE -- 4.2%
HEALTH CARE EQUIPMENT & SUPPLIES-- 1.4%
Millipore Corp. (a) 6,900 343,689
Varian, Inc. (a) 6,700 274,767
---------------
618,456
---------------
HEALTH CARE PROVIDERS & SERVICES-- 2.8%
HCA, Inc. 6,800 271,728
Medco Health Solutions, Inc. (a) 5,400 224,640
WellPoint, Inc. (a) 5,900 678,500
---------------
1,174,868
---------------
</Table>
See Accompanying Notes to Financial Statements.
145
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
INDUSTRIAL -- 15.8%
AEROSPACE & DEFENSE -- 2.0%
Alliant Techsystems, Inc. (a) 4,300 $ 281,134
Goodrich Corp. 13,100 427,584
Northrop Grumman Corp. 2,400 130,464
---------------
839,182
---------------
COMMERCIAL SERVICES & SUPPLIES -- 5.0%
Adesa, Inc. 6,700 142,174
Brink's Co. 20,000 790,400
Cendant Corp. 24,400 570,472
Manpower, Inc. 6,700 323,610
Waste Management, Inc. 10,500 314,370
---------------
2,141,026
---------------
CONSTRUCTION & ENGINEERING -- 0.4%
Fluor Corp. 2,900 158,079
---------------
ELECTRICAL EQUIPMENT -- 1.1%
AMETEK, Inc. 8,000 285,360
Hubbell, Inc., Class B 3,900 203,970
---------------
489,330
---------------
INDUSTRIAL CONGLOMERATES -- 1.1%
Carlisle Companies, Inc. 7,100 460,932
---------------
MACHINERY -- 4.4%
AGCO Corp. (a) 9,700 212,333
Dover Corp. 5,800 243,252
Ingersoll-Rand Co., Class A 6,200 497,860
Navistar International Corp. (a) 14,300 628,914
Parker Hannifin Corp. 4,000 302,960
---------------
1,885,319
---------------
ROAD & RAIL -- 1.8%
Burlington Northern Santa Fe Corp. 9,500 449,445
CNF, Inc. 6,500 325,650
---------------
775,095
---------------
INFORMATION TECHNOLOGY -- 6.6%
COMMUNICATIONS EQUIPMENT -- 1.0%
Andrew Corp. (a) 31,900 434,797
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS-- 3.8%
Amphenol Corp., Class A (a) 20,000 734,800
Arrow Electronics, Inc. (a) 10,400 252,720
AVX Corp. 13,600 171,360
Littelfuse, Inc. (a) 10,000 341,600
Vishay Intertechnology, Inc. (a) 9,450 141,939
---------------
1,642,419
---------------
IT SERVICES-- 1.8%
Affiliated Computer Services, Inc.,
Class A (a) 6,900 415,311
DST Systems, Inc. (a) 6,500 338,780
---------------
754,091
---------------
MATERIALS -- 13.8%
CHEMICALS -- 8.5%
Air Products & Chemicals, Inc. 6,800 394,196
Eastman Chemical Co. 9,100 525,343
Engelhard Corp. 11,200 343,504
International Flavors & Fragrances, Inc. 10,400 445,536
Lubrizol Corp. 14,400 530,784
Nalco Holding Co. (a) 14,600 $ 284,992
OM Group, Inc. (a) 4,700 152,374
PPG Industries, Inc. 6,700 456,672
Praxair, Inc. 10,600 467,990
---------------
3,601,391
---------------
CONTAINERS & PACKAGING -- 2.9%
Bemis Co., Inc. 7,200 209,448
Crown Holdings, Inc. (a) 25,000 343,500
Packaging Corp. of America 17,300 407,415
Pactiv Corp. (a) 11,000 278,190
---------------
1,238,553
---------------
PAPER & FOREST PRODUCTS -- 2.4%
Georgia-Pacific Corp. 15,000 562,200
MeadWestvaco Corp. 13,634 462,056
---------------
1,024,256
---------------
TELECOMMUNICATION SERVICES -- 1.5%
WIRELESS TELECOMMUNICATION SERVICES -- 1.5%
Telephone and Data Systems, Inc. 8,500 654,075
---------------
UTILITIES -- 7.4%
ELECTRIC UTILITIES -- 5.8%
ALLETE, Inc. 2,233 82,063
Edison International 10,500 336,315
Entergy Corp. 5,400 364,986
Exelon Corp. 15,700 691,899
PPL Corp. 5,700 303,696
Progress Energy, Inc. 10,800 488,592
Reliant Energy, Inc. (a) 14,900 203,385
---------------
2,470,936
---------------
MULTI-UTILITIES & UNREGULATED POWER-- 1.6%
Constellation Energy Group 9,100 397,761
Energy East Corp. 11,300 301,484
---------------
699,245
---------------
TOTAL COMMON STOCKS
(cost of $31,345,967) 42,270,996
---------------
<Caption>
PAR
---------------
SHORT-TERM OBLIGATION - 1.3%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 12/31/04, due 01/03/05
at 1.500%, collateralized by a U.S.
Treasury Bond maturing 11/15/27,
market value of $585,532
(repurchase proceeds $570,071) $ 570,000 570,000
---------------
TOTAL SHORT-TERM OBLIGATION
(cost of $570,000) 570,000
---------------
TOTAL INVESTMENTS -- 100.2%
(cost of $31,915,967) (b) 42,840,996
---------------
OTHER ASSETS & LIABILITIES, NET-- (0.2)% (104,184)
---------------
NET ASSETS -- 100.0% $ 42,736,812
===============
</Table>
See Accompanying Notes to Financial Statements.
146
<Page>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $31,964,501.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 24.2%
Industrial 15.8
Consumer Discretionary 14.4
Materials 13.8
Utilities 7.4
Energy 6.8
Information Technology 6.6
Consumer Staples 4.2
Health Care 4.2
Telecommunication Services 1.5
Short-Term Obligation 1.3
Other Assets & Liabilities, Net (0.2)
---------------
100.0%
===============
<Caption>
ACRONYM NAME
-------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
147
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Select Value Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 31,915,967
---------------
Investments, at value $ 42,840,996
Cash 852
Receivable for:
Fund shares sold 147
Interest 24
Dividends 38,946
Deferred Trustees' compensation plan 3,072
---------------
TOTAL ASSETS 42,884,037
---------------
LIABILITIES:
Expense reimbursement due to the Distributor 12,875
Payable for:
Fund shares repurchased 76,785
Investment advisory fee 24,457
Transfer agent fee 625
Pricing and bookkeeping fees 1,044
Trustees' fees 388
Audit fee 13,910
Custody fee 199
Distribution fee--Class B 8,745
Deferred Trustees' fees 3,072
Other liabilities 5,125
---------------
TOTAL LIABILITIES 147,225
---------------
NET ASSETS $ 42,736,812
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 31,891,761
Overdistributed net investment income (2,641)
Accumulated net realized loss (77,337)
Net unrealized appreciation on investments 10,925,029
---------------
NET ASSETS $ 42,736,812
===============
CLASS A:
Net assets $ 1,612,032
Shares outstanding 91,273
===============
Net asset value per share $ 17.66
===============
CLASS B:
Net assets $ 41,124,780
Shares outstanding 2,331,697
===============
Net asset value per share $ 17.64
===============
</Table>
See Accompanying Notes to Financial Statements.
148
<Page>
STATEMENT OF OPERATIONS
Liberty Select Value Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 508,610
Interest 21,212
---------------
Total Investment Income 529,822
---------------
EXPENSES:
Investment advisory fee 279,887
Distribution fee--Class B 96,410
Transfer agent fee 7,500
Pricing and bookkeeping fees 11,606
Trustees' fee 7,185
Custody fee 5,135
Non-recurring costs (See Note 6) 2,005
Other expenses 32,661
---------------
Total Expenses 442,389
Fees reimbursed by the Distributor--Class B (3,786)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,005)
Custody earnings credit (26)
---------------
Net Expenses 436,572
---------------
Net Investment Income 93,250
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 895,509
Net change in unrealized appreciation/depreciation on investments 4,793,118
---------------
Net Gain 5,688,627
---------------
Net Increase in Net Assets from Operations $ 5,781,877
===============
</Table>
See Accompanying Notes to Financial Statements.
149
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Select Value Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 93,250 $ 59,485
Net realized gain (loss) on investments 895,509 (705,613)
Net change in unrealized appreciation/depreciation on investments 4,793,118 8,564,493
--------------- ---------------
Net Increase from Operations 5,781,877 7,918,365
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (7,134) (4,195)
Class B (107,354) (55,597)
From net realized gains:
Class A (7,660) --
Class B (196,158) --
--------------- ---------------
Total Distributions Declared to Shareholders (318,306) (59,792)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 321,105 578,918
Distributions reinvested 14,794 4,195
Redemptions (337,200) (93,140)
--------------- ---------------
Net Increase (Decrease) (1,301) 489,973
--------------- ---------------
Class B:
Subscriptions 3,272,086 7,832,430
Distributions reinvested 303,512 55,597
Redemptions (4,501,454) (3,283,568)
--------------- ---------------
Net Increase (Decrease) (925,856) 4,604,459
--------------- ---------------
Net Increase (Decrease) from Share Transactions (927,157) 5,094,432
--------------- ---------------
Total Increase in Net Assets 4,536,414 12,953,005
NET ASSETS:
Beginning of period 38,200,398 25,247,393
--------------- ---------------
End of period (including overdistributed net investment income of $(2,641) and
$(1,403), respectively) $ 42,736,812 $ 38,200,398
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 19,659 46,620
Issued for distributions reinvested 837 272
Redemptions (21,172) (7,103)
--------------- ---------------
Net Increase (Decrease) (676) 39,789
--------------- ---------------
Class B:
Subscriptions 203,481 601,441
Issued for distributions reinvested 17,196 3,606
Redemptions (276,030) (251,382)
--------------- ---------------
Net Increase (Decrease) (55,353) 353,665
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
150
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Select Value Fund, Variable Series / December 31, 2004
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. 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. If the Fund no longer owns the
applicable securities, any distributions received in excess of income are
recorded as realized gains.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are 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.
151
<Page>
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for distributions in excess and
REIT adjustments were identified and reclassified among the components of the
Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED PAID-IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- ------------
$ 20,000 $ 5,733 $ (25,733)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 119,464 $ 59,792
Long-term capital gains 198,842 --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 10,876,495
</Table>
- - The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to deferral of losses from wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 11,470,405
Unrealized depreciation (593,910)
-------------
Net unrealized appreciation $ 10,876,495
=============
</Table>
Capital loss carryforwards of $726,227 were utilized during the year ended
December 31, 2004 for the Fund.
Under current tax rules, certain capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
As of December 31, 2004, post-October capital losses of $28,801 attributed to
security transactions were deferred to January 1, 2005.
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 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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.029%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's effective transfer agent fee
rate was 0.02%.
152
<Page>
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. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,339 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $7,001,980 and
$6,587,584, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
153
<Page>
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $2,005 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
154
<Page>
FINANCIAL HIGHLIGHTS
Liberty Select Value Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000 (a)
---------- ---------- ---------- ---------- -------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.42 $ 12.12 $ 13.66 $ 13.24 $ 12.00
---------- ---------- ---------- ---------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.08 0.05 0.03 0.05 0.09
Net realized and unrealized gain (loss) on investments 2.32 3.30 (1.54) 0.42 1.28
---------- ---------- ---------- ---------- -------------
Total from Investment Operations 2.40 3.35 (1.51) 0.47 1.37
---------- ---------- ---------- ---------- -------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.08) (0.05) (0.03) (0.03) (0.07)
From net realized gains (0.08) -- -- (0.02) --(c)
Return of capital -- -- -- -- (0.06)
---------- ---------- ---------- ---------- -------------
Total Distributions Declared to Shareholders (0.16) (0.05) (0.03) (0.05) (0.13)
---------- ---------- ---------- ---------- -------------
NET ASSET VALUE, END OF PERIOD $ 17.66 $ 15.42 $ 12.12 $ 13.66 $ 13.24
========== ========== ========== ========== =============
Total return (d)(e) 15.59% 27.61% (11.07)% 3.55%(f) 11.38%(f)(g)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 0.86% 0.95% 0.93% 1.10% 1.10%(i)
Net investment income (h) 0.47% 0.35% 0.26% 0.34% 1.13%(i)
Waiver/reimbursement -- -- -- 0.48% 1.31%(i)
Portfolio turnover rate 17% 12% 21% 15% 26%(g)
Net assets, end of period (000's) $ 1,612 $ 1,418 $ 632 $ 115 $ 111
</Table>
(a) For the period from commencement of operations on May 30, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
155
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Liberty Select Value Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Liberty Select Value Fund,
Variable Series (the "Fund") (a series of Liberty Variable Investment Trust) at
December 31, 2004, and the results of its operations, the changes in its net
assets and the Class A financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and the Class A financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
156
<Page>
UNAUDITED INFORMATION
Liberty Select Value Fund, Variable Series
FEDERAL INCOME TAX INFORMATION
For the fiscal year ended December 31, 2004, the Fund designates long-term
capital gains of $198,842.
100% of the ordinary income distributed by the Fund for the year ended December
31, 2004, qualifies for the corporate dividends received deduction.
157
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Newport Tiger Fund, Variable Series / December 31, 2004
Newport Tiger Fund, Variable Series seeks capital appreciation.
Eric R.L. Sandlund has managed or co-managed the fund since August 2002.
Good economic growth and an influx of foreign investment drove strong
performance for most Asian equity markets in 2004. The markets of Thailand and
China were the exceptions, posting negative results for the year. An overweight
in Thailand was the main reason the portfolio underperformed its benchmark, the
MSCI All Country Asia ex Japan Index. An underweight in China, which started the
year strongly but then pulled back, aided results. An overweight in India also
helped performance.
THAILAND AND INDIA HAD SHORT-TERM PROBLEMS BUT REMAINED ATTRACTIVE
Thailand and India were a major focus for the fund during 2004. Both countries
had improving economic growth and rising consumer and business spending. In
addition, they suffered what we consider to be temporary setbacks in their stock
markets. In Thailand, the market declined on profit-taking, after making
extraordinary gains in 2003. Thailand was also affected by an uprising of rebels
in the southern part of the country and by outbreaks of Avian Flu. We used the
market sell-off to purchase new companies and add to positions that we believe
have attractive prospects. Therefore, we have positioned the portfolio to take
advantage of positive internal factors, such as increasing domestic spending and
business expansion, rather than on companies that rely heavily on exports for
their earnings growth.
The Indian market did poorly during the first half of 2004, when the Congress
Party, which was perceived by some to be anti-business, was elected. Later in
the period, however, the Indian market rebounded, as interest rates declined and
investors were attracted to the country's strong economic backdrop. Investor
sentiment regarding the business policies of the new government also turned more
positive.
At the beginning of 2004, the fund had an overweight in China. When the
government instituted policies designed to slow economic growth, we reduced
exposure to the country. Despite China's underperformance, individual stocks did
well. China Merchants Holdings, the leading public port operator, and People's
Food Holdings Ltd., a maker of pork products, helped drive performance (1.3% and
0.9% of net assets, respectively).
INFRASTRUCTURE DEVELOPMENT AND DOMESTIC CONSUMPTION WERE CONTINUING THEMES
For more than a year we have emphasized companies that have the potential to
benefit from the build-out of the infrastructure and the rise of domestic
consumption. We view financial stocks as an integral part of these trends and
expect certain financial institutions and real estate companies to profit from
rising consumer and capital spending. As a result, financials accounted for the
biggest sector weight in the portfolio. In virtually every market, we found
attractive financial institutions. Hong Kong's Sun Hung Kai Properties Ltd. was
the largest holding in the sector and provided the biggest return (5.0% of net
assets). In Taiwan, Chinatrust Financial Holding Co., Ltd. and Cathay Financial
Holding Co., Ltd. aided results (2.1% and 1.8% of net assets, respectively). We
added to the fund's position in Kookmin Bank in Korea, which significantly
underperformed its peers, but which we believe has the potential to add value to
the portfolio (2.6% of net assets).
An emphasis on consumer discretionary stocks reflected our optimistic outlook
for consumer spending. Hong Kong retailer Esprit Holdings Ltd., India's scooter
manufacturer Bajaj Auto Ltd. and Singapore Press Holdings Ltd., the leading
newspaper publisher in Singapore, had a positive impact on performance (2.0%,
0.3% and 2.5% of net assets, respectively).
INTERNAL FACTORS SHOULD DRIVE PERFORMANCE
While a tragedy, the tsunami is expected to have only a marginal effect on Asian
economic activity and financial markets. Instead, we expect local economies to
continue to grow in 2005, positively impacting their equity markets. A strong
euro would also benefit exports, as Asian goods would become more affordable in
Europe. Yet, a downturn in consumer spending in the United States could hurt
exports.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence.
An investment in the Newport Tiger Fund, Variable Series offers long-term growth
potential; however, the net asset value of the fund will fluctuate due to
economic and political developments and currency exchange rate fluctuations.
Many of the Asian countries are considered emerging economies, which means there
may be greater risks associated with investing there than in more developed
countries. In addition, concentration of investments in a single region may
result in greater volatility.
Holdings are disclosed as of December 31, 2004, and are subject to change.
On October 13, 2004, the Board of Trustees of the fund voted to liquidate the
fund. The fund was liquidated on February 18, 2005.
158
<Page>
PERFORMANCE INFORMATION
Newport Tiger Fund, Variable Series / December 31, 2004
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2004 (%)
<Table>
<Caption>
1-YEAR 5-YEAR LIFE
- -------------------------------------------------------------
Class A (5/1/95) 16.30 -0.78 3.05
MSCI All Country Asia
ex Japan Index(1) 17.72 -0.24 0.70
</Table>
Inception date of share class is in parentheses.
[CHART]
VALUE OF A $10,000 INVESTMENT, 5/1/95 - 12/31/04
Class A: $13,376
<Table>
<Caption>
CLASS A SHARES MSCI ALL COUNTRY ASIA EX JAPAN INDEX
5/1/1995 $ 10,000 $ 10,000
5/31/1995 $ 11,100 $ 11,125
6/30/1995 $ 10,900 $ 10,951
7/31/1995 $ 11,200 $ 11,157
8/31/1995 $ 10,851 $ 10,643
9/30/1995 $ 11,050 $ 10,770
10/31/1995 $ 11,000 $ 10,584
11/30/1995 $ 11,050 $ 10,344
12/31/1995 $ 11,501 $ 10,855
1/31/1996 $ 12,661 $ 11,699
2/29/1996 $ 12,560 $ 11,826
3/31/1996 $ 12,560 $ 11,912
4/30/1996 $ 12,510 $ 12,341
5/31/1996 $ 12,460 $ 12,203
6/30/1996 $ 12,208 $ 12,021
7/31/1996 $ 11,552 $ 11,134
8/31/1996 $ 11,956 $ 11,470
9/30/1996 $ 12,308 $ 11,668
10/31/1996 $ 12,207 $ 11,446
11/30/1996 $ 12,813 $ 11,986
12/31/1996 $ 12,851 $ 11,944
1/31/1997 $ 12,750 $ 12,191
2/28/1997 $ 12,750 $ 12,295
3/31/1997 $ 11,985 $ 11,600
4/30/1997 $ 11,781 $ 11,428
5/31/1997 $ 12,852 $ 11,944
6/30/1997 $ 13,464 $ 12,381
7/31/1997 $ 13,668 $ 12,485
8/31/1997 $ 11,324 $ 10,272
9/30/1997 $ 11,681 $ 10,225
10/31/1997 $ 9,028 $ 7,952
11/30/1997 $ 8,876 $ 7,407
12/31/1997 $ 8,850 $ 7,130
1/31/1998 $ 7,556 $ 6,514
2/28/1998 $ 9,212 $ 7,895
3/31/1998 $ 9,161 $ 7,779
4/30/1998 $ 8,385 $ 7,097
5/31/1998 $ 7,246 $ 6,014
6/30/1998 $ 6,522 $ 5,339
7/31/1998 $ 6,004 $ 5,204
8/31/1998 $ 5,124 $ 4,454
9/30/1998 $ 6,003 $ 4,896
10/31/1998 $ 7,763 $ 5,961
11/30/1998 $ 8,281 $ 6,442
12/31/1998 $ 8,281 $ 6,576
1/31/1999 $ 7,806 $ 6,471
2/28/1999 $ 7,806 $ 6,345
3/31/1999 $ 8,492 $ 7,106
4/30/1999 $ 10,338 $ 8,405
5/31/1999 $ 9,652 $ 8,223
6/30/1999 $ 10,707 $ 9,508
7/31/1999 $ 10,707 $ 9,299
8/31/1999 $ 10,760 $ 9,529
9/30/1999 $ 10,338 $ 8,862
10/31/1999 $ 11,023 $ 9,147
11/30/1999 $ 12,342 $ 10,017
12/31/1999 $ 13,912 $ 10,829
1/31/2000 $ 13,274 $ 10,775
2/29/2000 $ 13,646 $ 10,550
3/31/2000 $ 14,177 $ 10,798
4/30/2000 $ 13,274 $ 9,808
5/31/2000 $ 12,530 $ 8,955
6/30/2000 $ 13,857 $ 9,428
7/31/2000 $ 13,805 $ 9,024
8/31/2000 $ 13,698 $ 8,957
9/30/2000 $ 12,742 $ 7,931
10/31/2000 $ 12,159 $ 7,307
11/30/2000 $ 11,522 $ 7,024
12/31/2000 $ 11,736 $ 7,013
1/31/2001 $ 12,594 $ 7,916
2/28/2001 $ 11,843 $ 7,542
3/31/2001 $ 10,396 $ 6,688
4/30/2001 $ 10,985 $ 6,698
5/31/2001 $ 10,664 $ 6,688
6/30/2001 $ 10,342 $ 6,528
7/31/2001 $ 10,127 $ 6,281
8/31/2001 $ 9,484 $ 6,183
9/30/2001 $ 7,984 $ 5,211
10/31/2001 $ 8,198 $ 5,492
11/30/2001 $ 9,109 $ 6,226
12/31/2001 $ 9,566 $ 6,744
1/31/2002 $ 9,566 $ 7,013
2/28/2002 $ 9,404 $ 7,065
3/31/2002 $ 9,782 $ 7,538
4/30/2002 $ 9,782 $ 7,616
5/31/2002 $ 9,459 $ 7,444
6/30/2002 $ 8,972 $ 7,074
7/31/2002 $ 8,486 $ 6,806
8/31/2002 $ 8,270 $ 6,685
9/30/2002 $ 7,567 $ 5,949
10/31/2002 $ 7,891 $ 6,251
11/30/2002 $ 8,324 $ 6,583
12/31/2002 $ 7,944 $ 6,182
1/31/2003 $ 7,889 $ 6,233
2/28/2003 $ 7,616 $ 5,981
3/31/2003 $ 7,342 $ 5,701
4/30/2003 $ 7,451 $ 5,881
5/31/2003 $ 8,054 $ 6,389
6/30/2003 $ 8,547 $ 6,791
7/31/2003 $ 9,258 $ 7,370
8/31/2003 $ 9,970 $ 7,936
9/30/2003 $ 10,190 $ 7,996
10/31/2003 $ 10,902 $ 8,682
11/30/2003 $ 10,792 $ 8,575
12/31/2003 $ 11,501 $ 9,088
1/31/2004 $ 11,999 $ 9,641
2/29/2004 $ 12,275 $ 9,967
3/31/2004 $ 11,888 $ 9,801
4/30/2004 $ 11,390 $ 9,263
5/31/2004 $ 11,224 $ 8,952
6/30/2004 $ 11,003 $ 8,873
7/31/2004 $ 10,782 $ 8,696
8/31/2004 $ 11,224 $ 9,120
9/30/2004 $ 11,556 $ 9,471
10/31/2004 $ 11,832 $ 9,532
11/30/2004 $ 12,938 $ 10,379
12/31/2004 $ 13,376 $ 10,698
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/03 12/31/04
- -------------------------------------------------------------
Class A 2.08 2.39
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY
BE HIGHER OR LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR CURRENT
MONTH-END PERFORMANCE INFORMATION, PLEASE CONTACT YOUR INSURANCE COMPANY.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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.
(1) Index performance for the life of the fund is from April 30, 1995.
159
<Page>
UNDERSTANDING YOUR EXPENSES
Newport Tiger Fund, Variable Series / December 31, 2004
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the continuing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
07/01/04 - 12/31/04 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class A 1,000.00 1,000.00 1,215.52 1,017.19 8.80 8.01 1.58
</Table>
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 366.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts. The hypothetical examples provided are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
160
<Page>
INVESTMENT PORTFOLIO
Newport Tiger Fund, Variable Series / December 31, 2004
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
COMMON STOCKS--100.1%
CONSUMER DISCRETIONARY--15.8%
AUTO COMPONENTS--0.7%
Tong Yang Industry Co., Ltd. 138,000 $ 212,274
---------------
AUTOMOBILES--5.7%
Bajaj Auto Ltd. 3,611 94,466
Hyundai Motor Co. (a) 13,330 713,879
Maruti Udyog Ltd. 31,558 336,558
PT Astra International, Inc. 467,500 483,399
---------------
1,628,302
---------------
DISTRIBUTORS--3.1%
Li & Fung Ltd. 532,000 896,591
---------------
HOTELS, RESTAURANTS & LEISURE--0.8%
Genting Berhad 43,600 218,000
---------------
MEDIA--3.5%
Astro All Asia Networks PLC (a) 209,800 298,137
Singapore Press Holdings Ltd. 250,197 704,867
---------------
1,003,004
---------------
SPECIALTY RETAIL--2.0%
Esprit Holdings Ltd. 95,000 574,424
---------------
CONSUMER STAPLES--1.6%
FOOD PRODUCTS--1.6%
People's Food Holdings Ltd. 286,000 262,739
Thai Union Frozen
Products Public Co., Ltd. 303,000 206,667
---------------
469,406
---------------
FINANCIALS--38.8%
COMMERCIAL BANKS--19.5%
Bangkok Bank Public Co., Ltd.,
NVDR 257,900 689,962
Bank Rakyat Indonesia 945,000 292,773
Chinatrust Financial
Holding Co., Ltd. 506,158 603,441
Dah Sing Financial Group 19,200 148,823
Hong Leong Bank Berhad 609,800 882,605
Kasikornbank Public Co., Ltd.,
NVDR (a) 390,300 527,107
Kookmin Bank (a) 19,403 756,491
Oversea-Chinese Banking Corp., Ltd. 36,000 297,648
Public Bank Berhad 146,093 292,186
Standard Chartered PLC 21,413 397,474
United Overseas Bank Ltd. 82,000 693,043
---------------
5,581,553
---------------
DIVERSIFIED FINANCIAL SERVICES--3.1%
Housing Development
Finance Corp., Ltd. 50,169 888,658
---------------
INSURANCE--3.5%
Cathay Financial Holding Co., Ltd. 250,000 511,167
Samsung Fire & Marine
Insurance Co., Ltd. 6,470 510,476
---------------
1,021,643
---------------
REAL ESTATE--12.7%
City Developments Ltd. 117,000 $ 508,758
Henderson Land
Development Co., Ltd. 119,000 620,031
Land & Houses Public
Co., Ltd., NVDR 1,118,100 290,498
SM Prime Holdings, Inc. 2,377,000 325,922
Sun Hung Kai Properties Ltd. 142,000 1,420,365
Swire Pacific Ltd., Class A 56,500 472,469
---------------
3,638,043
---------------
HEALTH CARE--3.0%
HEALTH CARE EQUIPMENT & SUPPLIES--0.5%
Pihsiang Machinery
Manufacturing Co., Ltd. 77,054 152,702
---------------
PHARMACEUTICALS--2.5%
Dr. Reddy's Laboratories Ltd., ADR 17,400 345,042
Ranbaxy Laboratories Ltd. 12,426 359,535
---------------
704,577
---------------
INDUSTRIAL--3.7%
INDUSTRIAL CONGLOMERATES--2.5%
China Merchants Holdings
International Co., Ltd. 191,000 359,983
Hutchison Whampoa Ltd. 37,500 350,975
---------------
710,958
---------------
MACHINERY--0.5%
Bharat Forge Ltd. 6,138 152,329
---------------
TRANSPORTATION INFRASTRUCTURE--0.7%
Zhejiang Expressway Co., Ltd.,
Class H 284,000 195,471
---------------
INFORMATION TECHNOLOGY--23.2%
COMPUTERS & PERIPHERALS--2.5%
Acer, Inc. 185,442 306,250
Lite-On Technology Corp. 376,700 401,703
---------------
707,953
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--5.9%
Hon Hai Precision Industry Co., Ltd. 165,147 763,656
Interflex Co., Ltd. (a) 9,297 155,639
MFS Technology Ltd. 262,500 148,709
Synnex Technology
International Corp. 124,000 182,938
Venture Corp., Ltd. 46,000 447,942
---------------
1,698,884
---------------
INTERNET SOFTWARE & SERVICES--1.2%
NCSoft Corp. (a) 4,460 361,846
---------------
IT SERVICES--2.1%
Infosys Technologies Ltd. 12,436 600,666
---------------
</Table>
See Accompanying Notes to Financial Statements
161
<Page>
<Table>
<Caption>
SHARES VALUE
--------------- ---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--11.5%
MediaTek, Inc. 18,895 $ 128,384
Samsung Electronics Co., Ltd. 4,950 2,160,195
Taiwan Semiconductor
Manufacturing Co., Ltd. 630,108 1,000,958
---------------
3,289,537
---------------
MATERIALS--3.3%
CONSTRUCTION MATERIALS--3.3%
Siam Cement Public Co., Ltd.,
NVDR 150,050 941,817
---------------
TELECOMMUNICATION SERVICES--6.6%
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
PT Telekomunikasi Indonesia 725,200 378,100
---------------
WIRELESS TELECOMMUNICATION SERVICES--5.3%
China Mobile Hong Kong Ltd. 254,500 862,740
Taiwan Cellular Corp. 572,000 638,754
---------------
1,501,494
---------------
UTILITIES--4.1%
ELECTRIC UTILITIES--1.5%
Datang International Power
Generation Co., Ltd., Class H 242,000 182,130
Huaneng Power International, Inc.,
Class H 310,000 231,314
---------------
413,444
---------------
GAS UTILITIES--2.6%
Hong Kong & China Gas Co., Ltd. 254,002 526,107
Xinao Gas Holdings Ltd. (a) 392,000 226,940
---------------
753,047
---------------
TOTAL COMMON STOCKS
(cost of $19,102,977) 28,694,723
---------------
<Caption>
UNITS
---------------
WARRANT--0.0%
INDUSTRIAL--0.0%
MACHINERY--0.0%
Bharat Forge Ltd. (a)(b)(c) 155 --
---------------
TOTAL WARRANT
(cost of $0) --
---------------
TOTAL INVESTMENTS--100.1%
(cost of $19,102,977)(d) 28,694,723
---------------
OTHER ASSETS & LIABILITIES, NET--(0.1)% (16,650)
---------------
NET ASSETS--100.0% $ 28,678,073
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Security has no value.
(c) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(d) Cost for federal income tax purposes is $19,127,115.
The Fund was invested in the following countries as of December 31, 2004:
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY (UNAUDITED) VALUE INVESTMENTS
- ---------------------- ------------ -----------
Hong Kong $ 6,459,448 22.5%
Taiwan 4,902,227 17.1
Korea, Republic of 4,658,526 16.2
Singapore 3,063,706 10.7
India 2,777,254 9.7
Thailand 2,656,051 9.3
Malaysia 1,392,791 4.9
Indonesia 1,154,272 4.0
United Kingdom 695,611 2.4
China 608,915 2.1
Philippines 325,922 1.1
------------ -----
$ 28,694,723 100.0%
============ =====
</Table>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
At December 31, 2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR (UNAUDITED) % OF NET ASSETS
- ------------------ ---------------
Financials 38.8%
Information Technology 23.2
Consumer Discretionary 15.8
Telecommunication Services 6.6
Utilities 4.1
Industrial 3.7
Materials 3.3
Health Care 3.0
Consumer Staples 1.6
Other Assets & Liabilities, Net (0.1)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- -----
ADR American Depositary Receipt
NVDR Non-Voting Depositary Receipt
</Table>
See Accompanying Notes to Financial Statements.
162
<Page>
STATEMENT OF ASSETS & LIABILITIES
Newport Tiger Fund, Variable Series / December 31, 2004
<Table>
ASSETS:
Investments, at cost $ 19,102,977
----------------
Investments, at value $ 28,694,723
Foreign currency (cost of $98,150) 98,517
Receivable for:
Investments sold 1,047,290
Dividends 472
Deferred Trustees' compensation plan 6,031
----------------
TOTAL ASSETS 29,847,033
----------------
LIABILITIES:
Payable to custodian bank 718,675
Payable for:
Fund shares repurchased 215,674
Investment advisory fee 22,322
Transfer agent fee 625
Pricing and bookkeeping fees 2,719
Trustees' fees 125
Audit fee 22,789
Custody fee 9,147
Distribution fee--Class B 824
Deferred Trustees' fees 6,031
Deferred foreign capital gains tax payable 157,506
Other liabilities 12,523
----------------
TOTAL LIABILITIES 1,168,960
----------------
NET ASSETS $ 28,678,073
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 27,264,185
Overdistributed net investment income (5,262)
Accumulated net realized loss (8,014,759)
Net unrealized appreciation (depreciation) on:
Investments 9,591,746
Foreign currency translations (331)
Foreign capital gains tax (157,506)
----------------
NET ASSETS $ 28,678,073
================
CLASS A:
Net assets $ 25,429,803
Shares outstanding 10,652,761
================
Net asset value per share $ 2.39
================
CLASS B:
Net assets $ 3,248,270
Shares outstanding 1,337,384
================
Net asset value per share $ 2.43
================
</Table>
See Accompanying Notes to Financial Statements.
163
<Page>
STATEMENT OF OPERATIONS
Newport Tiger Fund, Variable Series
For the Year Ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 800,920
Interest 5,481
----------------
Total Investment Income (net of foreign taxes withheld of $103,016) 806,401
----------------
EXPENSES:
Investment advisory fee 251,565
Distribution fee--Class B 8,123
Transfer agent fee 7,500
Pricing and bookkeeping fees 16,991
Trustees' fees 6,488
Custody fee 82,660
Audit fee 24,529
Non-recurring costs (See Note 6) 1,368
Other expenses 23,010
----------------
Total Expenses 422,234
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,368)
Custody earnings credit (36)
----------------
Net Expenses 420,830
----------------
Net Investment Income 385,571
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN
CURRENCY AND FOREIGN CAPITAL GAINS TAX:
Net realized gain (loss) on:
Investments 4,019,603
Foreign currency transactions (10,137)
Foreign capital gains tax (85,710)
----------------
Net realized gain 3,923,756
----------------
Net change in unrealized appreciation/depreciation on:
Investments (401,760)
Foreign currency translations (504)
Foreign capital gains tax 269,276
----------------
Net change in unrealized appreciation/depreciation (132,988)
----------------
Net Gain 3,790,768
----------------
Net Increase in Net Assets from Operations $ 4,176,339
================
</Table>
See Accompanying Notes to Financial Statements.
164
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Newport Tiger Fund, Variable Series
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 385,571 $ 242,310
Net realized gain on investments, foreign currency transactions
and foreign capital gains tax 3,923,756 38,348
Net change in unrealized appreciation/depreciation on investments,
foreign currency translations and foreign capital gains tax (132,988) 8,428,501
--------------- ---------------
Net Increase from Operations 4,176,339 8,709,159
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (303,930) (238,610)
Class B (32,522) (19,194)
--------------- ---------------
Total Distributions Declared to Shareholders (336,452) (257,804)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,850,359 4,595,945
Distributions reinvested 303,930 238,610
Redemptions (5,792,173) (9,993,129)
--------------- ---------------
Net Decrease (3,637,884) (5,158,574)
--------------- ---------------
Class B:
Subscriptions 783,384 1,441,440
Distributions reinvested 32,522 19,194
Redemptions (1,023,453) (242,928)
--------------- ---------------
Net Increase (Decrease) (207,547) 1,217,706
--------------- ---------------
Net Decrease from Share Transactions (3,845,431) (3,940,868)
--------------- ---------------
Total Increase (Decrease) in Net Assets (5,544) 4,510,487
NET ASSETS:
Beginning of period 28,683,617 24,173,130
--------------- ---------------
End of period (including overdistributed net investment income
of $(5,262) and $(5,343), respectively) $ 28,678,073 $ 28,683,617
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 868,459 2,997,732
Issued for distributions reinvested 128,241 115,267
Redemptions (2,684,388) (6,743,620)
--------------- ---------------
Net Decrease (1,687,688) (3,630,621)
--------------- ---------------
Class B:
Subscriptions 360,640 802,770
Issued for distributions reinvested 13,495 9,140
Redemptions (452,582) (134,468)
--------------- ---------------
Net Increase (Decrease) (78,447) 677,442
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
165
<Page>
NOTES TO FINANCIAL STATEMENTS
Newport Tiger Fund, Variable Series / December 31, 2004
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. The Fund
may use a systematic fair valuation model provided by an independent third party
to value securities principally traded in foreign markets in order to adjust for
possible stale pricing that may occur between the close of the foreign exchanges
and the time for valuation. If a security is valued at a "fair value", such
value is likely to be different from the last quoted market price for the
security.
Investments for which market quotations are not readily available, or 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.
166
<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.
In late September, India's Ministry of Finance confirmed that, effective October
1, 2004, the tax on long-term capital gains was eliminated and the short-term
capital gains tax rate was reduced from 33.66% to 11.22%. The impact of the
change resulted in a reduction in the deferred foreign capital gains tax payable
and a corresponding increase in the net asset value of the Fund of $79,643
($0.006 per share).
Additionally, effective October 1, 2004, India's Ministry of Finance charges a
securities transactions tax, levied at the rate of 0.075% on the value of all
equity security transactions traded on a recognized Indian stock exchange. The
transaction tax will be included in the net amount of purchases and sales of
securities.
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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2004, permanent book and tax basis differences
resulting primarily from differing treatments for distributions in excess,
foreign currency transactions and foreign capital gains tax were identified and
reclassified among the components of the Fund's net assets as follows:
<Table>
<Caption>
OVERDISTRIBUTED
NET INVESTMENT ACCUMULATED PAID-IN
INCOME NET REALIZED LOSS CAPITAL
--------------- ----------------- ----------
$ (49,038) $ 95,846 $ (46,808)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Distributions paid from:
Ordinary income $ 336,452 $ 257,804
Long-term capital gains -- --
</Table>
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$ -- $ -- $ 9,567,277
</Table>
*The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to deferral of losses from wash sales and foreign capital
gains tax.
Unrealized appreciation and depreciation at December 31, 2004, based on cost of
investments for federal income tax purposes, was:
<Table>
Unrealized appreciation $ 9,870,719
Unrealized depreciation (303,111)
------------
Net unrealized appreciation $ 9,567,608
============
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future net realized gains on investments, if any, to the
extent permitted by the Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2006 $ 3,898,632
2007 1,050,865
2009 2,161,521
2010 879,602
------------
$ 7,990,620
============
</Table>
167
<Page>
Capital loss carryforwards of $3,949,680 were utilized during the year ended
December 31, 2004 for the Fund.
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 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 year ended December 31, 2004, the effective pricing and bookkeeping fee
rate for the Fund, inclusive of out-of-pocket expenses, was 0.061%.
TRANSFER AGENT FEE--Columbia Funds Services, Inc. (the "Transfer Agent"), an
affiliate of Columbia, provides shareholder services to the Fund and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
sub-transfer agent. For such services, the Transfer Agent receives a monthly
fee, at the annual rate of $7,500.
For the year ended December 31, 2004, the Fund's 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. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--With the exception of one officer, all
officers of the Fund are employees of Columbia or its affiliates and receive no
compensation from the Fund. Effective August 23, 2004, the Board of Trustees
appointed a Chief Compliance Officer to the Fund in accordance with federal
securities regulations. The Fund, along with other affiliated funds, will pay
its pro-rata share of the expenses associated with the Office of the Chief
Compliance Officer. The Fund's fee will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the year ended December 31, 2004, the Fund paid
$1,326 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $8,766,415 and
$12,532,319, respectively.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
168
<Page>
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--On February 9, 2005, Columbia and the Distributor
(collectively the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the SEC (the "SEC Order"
and together, the "Settlements"). The Settlements contain substantially the same
terms and conditions as outlined in the agreements in principle which Columbia
Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual fund management fees collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order will be available on the SEC website at
http://www.sec.gov. A copy of the NYAG Settlement is available as part of the
Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or Bank of America (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
direct and derivative actions under various sections of the Investment Company
Act of 1940, as amended, alleging, among other things, that the fees and
expenses paid by those funds are excessive.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the Fund
and Columbia. The lawsuit alleges that defendants violated common law duties to
fund shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
The funds and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the funds.
For the year ended December 31, 2004, Columbia has assumed $1,368 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
NOTE 7. PLAN OF LIQUIDATION
On October 13, 2004, the Board of Trustees of the Fund voted to liquidate the
Fund. The Fund was liquidated on February 18, 2005.
169
<Page>
FINANCIAL HIGHLIGHTS
Newport Tiger Fund, Variable Series--Class A Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.08 $ 1.45 $ 1.77 $ 2.19 $ 2.62
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.03 0.02 0.02 0.02 0.02
Net realized and unrealized gain (loss) on investments,
foreign currency and foreign capital gains tax 0.31 0.63 (0.32) (0.42) (0.43)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.34 0.65 (0.30) (0.40) (0.41)
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.03) (0.02) (0.02) (0.02) (0.02)
Return of capital -- -- --(b) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.03) (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 2.39 $ 2.08 $ 1.45 $ 1.77 $ 2.19
========== ========== ========== ========== ==========
Total return (c)(d) 16.30% 44.79% (16.96)% (18.48)% (15.63)%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (e) 1.48% 1.52% 1.27% 1.31% 1.15%
Net investment income (e) 1.41% 1.06% 0.96% 0.99% 0.80%
Portfolio turnover rate 32% 28% 28% 24% 22%
Net assets, end of period (000's) $ 25,430 $ 25,684 $ 23,087 $ 33,688 $ 44,346
</Table>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Rounds to less than $0.01 per share.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
170
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of Liberty Variable Investment Trust and
the Class A Shareholders of Newport Tiger Fund, Variable Series
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class A financial highlights present fairly, in
all material respects, the financial position of Newport Tiger Fund, Variable
Series (the "Fund") (a series of Liberty Variable Investment Trust) at December
31, 2004, and the results of its operations, the changes in its net assets and
the Class A financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and the Class A financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
The Trustees of the Fund approved a plan of liquidation for the Fund as
described in Note 7.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2005
171
<Page>
TRUSTEES AND OFFICERS
Liberty Variable Investment Trust
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA
YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
DISINTERESTED TRUSTEES
DOUGLAS A. HACKER (age 49) Executive Vice President-Strategy of United Airlines (airline) since December
P.O. Box 66100 2002 (formerly President of UAL Loyalty Services (airline) from September 2001
Chicago, IL 60666 to December 2002; Executive Vice President and Chief Financial Officer of United
Trustee (since 1996) Airlines from March 1999 to September 2001; Senior Vice President-Finance from
March 1993 to July 1999). Oversees 104, None
JANET LANGFORD KELLY (age 47) Adjunct Professor of Law, Northwestern University, since September 2004; Private
9534 W. Gull Lake Drive Investor since March 2004 (formerly Chief Administrative Officer and Senior Vice
Richland, MI 49083-8530 President, Kmart Holding Corporation (consumer goods), from September 2003 to
Trustee (since 1996) March 2004; Executive Vice President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food manufacturer), from
September 1999 to August 2003; Senior Vice President, Secretary and General
Counsel, Sara Lee Corporation (branded, packaged, consumer-products
manufacturer) from January 1995 to September 1999). Oversees 104, None
RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive
10701 Charleston Drive Officer, U. S. Plywood Corporation (building products manufacturer)). Oversees
Vero Beach, FL 32963 106(3), None
Trustee (since 1995)
CHARLES R. NELSON (age 62) Professor of Economics, University of Washington, since January 1976; Ford and
Department of Economics Louisa Van Voorhis Professor of Political Economy, University of Washington,
University of Washington since September 1993 (formerly Director, Institute for Economic Research,
Seattle, WA 98195 University of Washington from September 2001 to June 2003) Adjunct Professor of
Trustee (since 1981) Statistics, University of Washington, since September 1980; Associate Editor,
Journal of Money Credit and Banking, since September 1993; consultant on
econometric and statistical matters. Oversees 104, None
JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College
84 College Road (formerly Dean, Boston College School of Management from September 1977 to
Chestnut Hill, MA 02467-3838 September 1999). Oversees 107(3),(4), Saucony, Inc. (athletic footwear)
Trustee (since 1985)
PATRICK J. SIMPSON (age 60) Partner, Perkins Coie LLP (law firm). Oversees 104, None
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Trustee (since 2000)
</Table>
172
<Page>
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA
YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
DISINTERESTED TRUSTEES
THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999,
2208 Tawny Woods Place College of Business, Boise State University); Chartered Financial Analyst.
Boise, ID 83706 Oversees 104, None.
Trustee (since 1998)
THOMAS C. THEOBALD (age 67) Partner and Senior Advisor, Chicago Growth Partners (private equity investing)
303 W. Madison since September 2004 (formerly Managing Director, William Blair Capital Partners
Suite 2500 (private equity investing) from September 1994 to September 2004). Oversees 104,
Chicago, IL 60606 Anixter International (network support equipment distributor); Ventas, Inc.
Trustee and Chairman of the Board(5) (real estate investment trust); Jones Lang LaSalle (real estate management
(since 1996) services) and Ambac Financial Group (financial guaranty insurance)
ANNE-LEE VERVILLE (age 59) Retired since 1997 (formerly General Manager, Global Education Industry, IBM
359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 105(4),
Hopkinton, NH 03229 Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer and
Trustee (since 1998) distributor of giftware and collectibles)
RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The
100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer,
Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young &
Trustee (since 1991) Company). Oversees 104, Northwest Natural Gas Co. (natural gas service provider)
INTERESTED TRUSTEE
WILLIAM E. MAYER2 (age 64) Partner, Park Avenue Equity Partners (private equity) since February 1999
399 Park Avenue (formerly Partner, Development Capital LLC from November 1996 to February 1999).
Suite 3204 Oversees 106(3), Lee Enterprises (print media), WR Hambrecht + Co. (financial
New York, NY 10022 service provider); First Health (healthcare); Reader's Digest (publishing);
Trustee (since 1994) OPENFIELD Solutions (retail industry technology provider)
</Table>
(1) In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for
the oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. The date shown is the earliest date on which a
trustee/director was elected or appointed to the board of a Fund in the
Columbia Funds Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
Liberty All-Star Funds, currently consisting of 2 funds, which are advised
by an affiliate of the Advisor.
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
The Statement of Additional Information includes additional information
about the Trustees of the Funds and is available, without change, upon
request by calling 800-426-3750.
173
<Page>
TRUSTEES AND OFFICERS
Liberty Variable Investment Trust
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA FUNDS,
YEAR FIRST ELECTED OR APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
OFFICERS
CHRISTOPHER L. WILSON (age 47) Head of Mutual Funds of the Advisor since August 2004; President of the
One Financial Center Columbia Funds since October 2004 (formerly President and Chief
Boston, MA 02111 Executive Officer, CDC IXIS Asset Management Services, Inc. from
President (since 2004) September 1998 to August 2004).
J. KEVIN CONNAUGHTON (age 40) Treasurer of the Columbia Funds and of the Liberty All-Star Funds since
One Financial Center December 2000; Vice President of the Advisor since April 2003 (formerly
Boston, MA 02111 President of the Columbia Funds from February 2004 to October 2004;
Treasurer (since 2000) Chief Accounting Officer and Controller of the Liberty Funds and of the
Liberty All-Star Funds from February 1998 to October 2000); Treasurer of
the Galaxy Funds since September 2002; (formerly Treasurer from December
2002 to December 2004 and President from February 2004 to December 2004
of Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of
Colonial Management Associates, Inc. from February 1998 to October
2000).
MARY JOAN HOENE (age 55) Senior Vice President and Chief Compliance Officer of the Columbia
40 West 57th Street Funds, the Galaxy Fund, Nations Funds and of the Liberty All-Star Funds
New York, NY 10019 since August 2004 and the BACAP Registered Hedge Fund since October 2004
Senior Vice President and Chief Compliance (formerly Partner, Carter, Ledyard & Milburn LLP from January 2001 to
Officer (since 2004) August 2004; Counsel, Carter, Ledyard & Milburn LLP from November 1999
to December 2000; Vice President and Counsel, Equitable Life Assurance
Society of the United States from April 1998 to November 1999).
MICHAEL G. CLARKE (age 34) Chief Accounting Officer of the Columbia Funds and of the Liberty
One Financial Center All-Star Funds since October 2004 (formerly Controller of the Columbia
Boston, MA 02111 Funds and of the Liberty All-Star Funds from May 2004 to October 2004;
Chief Accounting Officer (since 2004) Assistant Treasurer from June, 2002 to May 2004; Vice President, Product
Strategy & Development of the Liberty Funds Group from February 2001 to
June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty
All-Star Funds from August 1999 to February 2001; Audit Manager,
Deloitte & Touche LLP from May 1997 to August 1999).
JEFFREY R. COLEMAN (age 35) Controller of the Columbia Funds and of the Liberty All-Star Funds since
One Financial Center October 2004 (formerly Vice President of CDC IXIS Asset Management
Boston, MA 02111 Services, Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis
Controller (since 2004) Sayles Funds from February 2003 to September 2004; Assistant Vice
President of CDC IXIS Asset Management Services, Inc. and Assistant
Treasurer of the CDC Nvest Funds from August 2000 to February 2003; Tax
Manager of PFPC Inc. from November 1996 to August 2000).
R. SCOTT HENDERSON (age 45) Secretary of the Columbia Funds since December 2004 (formerly Of
One Financial Center Counsel, Bingham McCutchen from April 2001 to September 2004; Executive
Boston, MA 02111 Director and General Counsel, Massachusetts Pension Reserves Investment
Secretary (since 2004) Management Board from September 1997 to March 2001).
</Table>
174
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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 funds' proxy voting policies and procedures is
available (i) on the funds' website, www.columbiamanagement.com; (ii) on
the Securities and Exchange Commission's website at www.sec.gov, and (iii)
without charge, upon request, by calling 800-368-0346. Information
regarding how the funds voted proxies relating to portfolio securities
during the 12-month period ended June 30, 2004 is available from the SEC's
website. Information regarding how the funds voted proxies relating to
portfolio securities is also available from the funds' website.
The funds file a complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The funds'
Form N-Q is available on the SEC's website at www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
175
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SHR-02/096U-0105 (03/05) 05/4265
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ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this report,
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.
(b) During the period covered by this report, there were not any amendments
to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas
E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members
of the registrant's Board of Trustees and Audit Committee, each qualify as an
audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr.
Woolworth are each independent trustees, as defined in paragraph (a)(2) of this
item's instructions and collectively constitute the entire Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fee information below is disclosed in aggregate for the series of the registrant
whose reports to stockholders are included in this annual filing, as well as the
series of the registrant whose reports to stockholders would have been included
in this filing had they not been merged or liquidated during the period.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are approximately as follows:
<Page>
2004 2003
$ 192,500 $ 238,600
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended December 31, 2004
and December 31, 2003 are approximately as follows:
2004 2003
$ 41,600 $ 67,800
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported in Audit Fees
above. In both fiscal years 2004 and 2003, Audit-Related Fees include certain
agreed-upon procedures performed for semi-annual shareholder reports.
Audit-Related Fees in fiscal year 2003 also include agreed-upon procedures
relating to fund mergers.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are approximately as follows:
2004 2003
$ 30,000 $ 94,400
Tax Fees in both fiscal years 2004 and 2003 consist primarily of the review of
annual tax returns and include amounts for professional services by the
principal accountant for tax compliance, tax advice and tax planning.
(d) Aggregate All Other Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are as follows:
2004 2003
$ 0 $ 0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) above.
None of the amounts described in paragraphs (a) through (d) above were approved
pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
<Page>
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
I. GENERAL OVERVIEW
The Audit Committee of the registrant has adopted a formal policy (the "Policy")
which sets forth the procedures and the conditions pursuant to which the Audit
Committee will pre-approve (i) all audit and non-audit (including audit related,
tax and all other) services provided by the registrant's independent auditor to
the registrant and individual funds (collectively "Fund Services"), and (ii) all
non-audit services provided by the registrant's independent auditor to the
funds' adviser or a control affiliate of the adviser, that relate directly to
the funds' operations and financial reporting (collectively "Fund-related
Adviser Services"). A "control affiliate" is an entity controlling, controlled
by, or under common control with the adviser that provides ongoing services to
the funds, and the term "adviser" is deemed to exclude any unaffiliated
sub-adviser whose role is primarily portfolio management and is sub-contracted
or overseen by another investment adviser. The adviser and control affiliates
are collectively referred to as "Adviser Entities."
The Audit Committee uses a combination of specific (on a case-by-case basis as
potential services are contemplated) and general (pre-determined list of
permitted services) pre-approvals. Unless a type of service has received general
pre-approval, it will require specific pre-approval by the Audit Committee if it
is to be provided by the independent auditor.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. GENERAL PROCEDURES
On an annual basis, the Fund Treasurer and/or Director of Trustee Administration
shall submit to the Audit Committee a schedule of the types of Fund Services and
Fund-related Adviser Services that are subject to general pre-approval.
These schedules will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide estimated fees
for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover a one-year period (for
example, from June 1 through May 31 of the following year). The Audit Committee
will review and approve the types of services and review the projected fees for
the next one-year period and may add to, or subtract from, the list of general
pre-approved services from time to time, based on subsequent determinations.
This approval acknowledges that the Audit Committee is in agreement with the
specific types of services that the independent auditor will be permitted to
perform. The fee amounts will be updated to the extent necessary at other
regularly scheduled meetings of the Audit Committee.
<Page>
In addition to the fees for each individual service, the Audit Committee has the
authority to implement a fee cap on the aggregate amount of non-audit services
provided to an individual fund.
If, subsequent to general pre-approval, a fund, its investment adviser or a
control affiliate determines that it would like to engage the independent
auditor to perform a service that requires pre-approval and that is not included
in the general pre-approval list, the specific pre-approval procedure shall be
as follows:
- A brief written request shall be prepared by management detailing the
proposed engagement with explanation as to why the work is proposed to be
performed by the independent auditor;
- The request should be addressed to the Audit Committee with copies to the
Fund Treasurer and/or Director of Trustee Administration;
- The Fund Treasurer and/or Director of Trustee Administration will arrange
for a discussion of the service to be included on the agenda for the next
regularly scheduled Audit Committee meeting, when the Committee will
discuss the proposed engagement and approve or deny the request.
- If the timing of the project is critical and the project needs to commence
before the next regularly scheduled meeting, the Chairperson of the Audit
Committee may approve or deny the request on behalf of the Audit
Committee, or, in the Chairperson's discretion, determine to call a
special meeting of the Audit Committee for the purpose of considering the
proposal. Should the Chairperson of the Audit Committee be unavailable,
any other member of the Audit Committee may serve as an alternate for the
purpose of approving or denying the request. Discussion with the
Chairperson (or alternate, if necessary) will be arranged by the Fund
Treasurer and/or Director of Trustee Administration. The independent
auditor will not commence any such project unless and until specific
approval has been given.
III. CERTAIN OTHER SERVICES PROVIDED TO ADVISER ENTITIES
The Audit Committee recognizes that there are cases where services proposed to
be provided by the independent auditor to the adviser or control affiliates are
not Fund-related Adviser Services within the meaning of the Policy, but
nonetheless may be relevant to the Audit Committee's ongoing evaluation of the
auditor's independence and objectivity with respect to its audit services to the
funds. As a result, in all cases where an Adviser Entity engages the independent
auditor to provide audit or non-audit services that are not Fund Services or
Fund-related Adviser Services, were not subject to pre-approval by the Audit
Committee, and the projected fees for any such engagement (or the aggregate of
all such engagements during the period covered by the Policy) exceeds a
pre-determined threshold established by the Audit Committee; the independent
auditor, Fund Treasurer and/or Director of Trustee Administration will notify
the Audit Committee not later than its next meeting. Such notification shall
include a general description of the services provided, the entity that is to be
the recipient of such services, the timing of the engagement, the entity's
reasons for selecting the independent auditor,
<Page>
and the projected fees. Such information will allow the Audit Committee to
consider whether non-audit services provided to the adviser and Adviser
Entities, which were not subject to Audit Committee pre-approval, are compatible
with maintaining the auditor's independence with respect to the Funds.
IV. REPORTING TO THE AUDIT COMMITTEE
The Fund Treasurer or Director of Trustee Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was rendered,
including:
- A general description of the services, and
- Actual billed and projected fees, and
- The means by which such Fund Services or Fund-related Adviser Services
were pre-approved by the Audit Committee.
In addition, the independent auditor shall report to the Audit Committee
annually, and no more than 90 days prior to the filing of audit reports with the
SEC, all non-audit services provided to entities in the funds' "investment
company complex," as defined by SEC rules, that did not require pre-approval
under the Policy.
V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
December 31, 2004 and December 31, 2003 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended December 31, 2004 and
December 31, 2003 are disclosed in (b) through (d) of this Item.
During the fiscal years ended December 31, 2004 and December 31, 2003, there
were no Audit-Related Fees or Tax Fees that were approved for services to the
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser) and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services
<Page>
to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
During the fiscal years ended December 31, 2004 and December 31, 2003, All Other
Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X were approximately $93,500 and $95,000, respectively. For both
fiscal years, All Other Fees relate to internal controls reviews of the
registrant's transfer agent.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to be
approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were
approved under the "de minimis" exception during both fiscal years ended
December 31, 2004 and December 31, 2003 was zero.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X, is compatible with maintaining the principal accountant's
independence. The Audit Committee determined that the provision of such services
is compatible with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
<Page>
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of this
report, have concluded that such controls and procedures are adequately
designed to ensure that information required to be disclosed by the
registrant in Form N-CSR is accumulated and communicated to the
registrant's management, including the principal executive officer and
principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter of
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
<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/ Christopher L. Wilson
--------------------------------------------------
Christopher L. Wilson, President
Date March 1, 2005
----------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /S/ Christopher L. Wilson
--------------------------------------------------
Christopher L. Wilson, President
Date March 1, 2005
----------------------------------------------------------------------
By (Signature and Title) /S/ J. Kevin Connaughton
--------------------------------------------------
J. Kevin Connaughton, Treasurer
Date March 1, 2005
----------------------------------------------------------------------