<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-7556
---------------
Liberty Variable Investment Trust
--------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
------------------------------------------------------
(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
-----------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
----------------
Date of fiscal year end: 12/31/05
-------------------
Date of reporting period: 06/30/05
-------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
SEMIANNUAL REPORT - CLASS B SHARES
JUNE 30, 2005
[GRAPHIC]
LIBERTY VARIABLE INVESTMENT TRUST
2005 SEMIANNUAL REPORT - CLASS B SHARES
Liberty Variable Investment Trust
SHC-44/88220-0705 (08/05) 05/7110
<Page>
PRESIDENT'S MESSAGE
Liberty Variable Investment Trust
Dear Shareholder:
Columbia Management, the asset management division of Bank of America, is in the
final stages of a significant business integration effort. Over the last year,
we have been integrating various components of our various fund families,
including Liberty and SteinRoe, which will result in a single fund family that
covers a wide range of markets, sectors and asset classes. Our team of talented,
seasoned investment professionals will continue to strive to achieve strong
results within their investment categories. Our objective is not only to provide
our shareholders with the best products but also to enhance the breadth and
availability of our services. Given our ability to now leverage the size and
scale of the Columbia Management business, I am pleased that these efforts will
also result in substantial cost savings to the funds.
Our goal is to create a more simplified, clearly delineated product line.
Through thoughtful project planning and execution, we will initially reduce the
number of retail mutual funds from over 140 to fewer than 90. Earlier this year
several fund mergers and liquidations were successfully completed. As we work to
complete the remaining product and service provider consolidations in the coming
months, we remain committed to building a mutual fund business that meets, and
hopefully exceeds, your desire for personal financial solutions. We will
continue to strive for the highest standards of performance and service
excellence. The asset management business is in a time of transformation and we
are committed to being progressive and innovative in our approach to the
business. We value the confidence you have placed in us to assist you in
managing your funds during these changing times. As with all businesses within
Bank of America, we understand that your trust must be continuously earned and
will remain focused on producing results for you.
In the pages that follow, you'll find a discussion of the economic environment
during the period followed by a detailed report from the fund's manager or
managers on key factors that influenced performance. We encourage you to read
the manager reports carefully and discuss any questions you have with your
financial advisor. As always, we thank you for choosing Columbia Management. We
look forward to helping you keep your long-term financial goals on target in the
years to come.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management,
responsible for the day-to-day delivery of mutual fund services to the firm's
investors. With the exception of distribution, Chris oversees all aspects of the
mutual fund services operation, including treasury, investment accounting and
shareholder and broker services. Chris serves as Columbia Funds President,
Nations Funds President and CEO and Galaxy Funds President and is the primary
liaison to the Fund Boards of Trustees. Chris joined Bank of America in August
2004.
Columbia Management Advisors, Inc. will combine with Banc of America Capital
Management, LLC on or about September 30, 2005. At that time, the newly combined
advisor will undergo a name change to Columbia Management Advisors, LLC and will
continue to operate as a SEC-registered investment advisor, wholly owned
subsidiary of Bank of America, N.A. and part of Columbia Management.
The views expressed in the President's Letter and Portfolio Commentary reflect
the current views of the respective parties. These views are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict so actual outcomes and results may differ significantly
from the views expressed. These views are subject to change at any time based
upon economic, market or other conditions and the respective parties disclaim
any responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Columbia Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Columbia Fund. References to specific company
securities should not be construed as a recommendation or investment advice.
Not FDIC May Lose Value
-----------------
Insured No Bank Guarantee
<Page>
PERFORMANCE AT A GLANCE
Liberty Variable Investment Trust
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN AS OF 06/30/05 (%)
6-MONTH
INCEPTION (CUMULATIVE) 1-YEAR 5-YEAR 10-YEAR LIFE
- -----------------------------------------------------------------------------------------------------------------------------
LIBERTY VARIABLE INVESTMENT TRUST
Colonial Small Cap Value Fund, Variable Series -- Class B(1) 06/01/00 -1.06 11.12 14.40 -- 9.43
Colonial Strategic Income Fund, Variable Series -- Class B(1) 06/01/00 0.30 10.41 7.88 7.25 7.70
Columbia High Yield Fund, Variable Series -- Class B(1) 04/14/03 1.15 8.03 6.41 -- 5.85
Columbia International Fund, Variable Series -- Class B(1) 06/01/00 -2.63 7.94 -2.41 3.57 2.28
Liberty Growth & Income Fund, Variable Series -- Class B(1) 06/01/00 0.51 9.54 2.12 10.03 11.19
Liberty S&P 500 Index Fund, Variable Series -- Class B 05/30/00 -1.15 5.55 -2.82 -- -2.18
Liberty Select Value Fund, Variable Series -- Class B 05/30/00 3.46 10.76 9.10 -- 9.08
</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.
(1) Class B shares (newer class shares) performance information includes
returns of the fund's class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These class A
share returns were not restated to reflect any expense differential (e.g.,
Rule 12b-1 fees) between class A shares and the newer class shares. If
differences in expenses were reflected, the returns for the periods prior
to the inception of the new class of shares would be lower.
<Page>
TABLE OF CONTENTS
Liberty Variable Investment Trust
<Table>
PORTFOLIO MANAGERS' DISCUSSIONS
Colonial Small Cap Value Fund, Variable Series 2
Colonial Strategic Income Fund, Variable Series 17
Columbia High Yield Fund, Variable Series 39
Columbia International Fund, Variable Series 56
Liberty Growth & Income Fund, Variable Series 72
Liberty S&P 500 Index Fund, Variable Series 86
Liberty Select Value Fund, Variable Series 104
FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series 5
Colonial Strategic Income Fund, Variable Series 20
Columbia High Yield Fund, Variable Series 42
Columbia International Fund, Variable Series 59
Liberty Growth & Income Fund, Variable Series 75
Liberty S&P 500 Index Fund, Variable Series 89
Liberty Select Value Fund, Variable Series 107
</Table>
Must be preceded or accompanied by a prospectus.
Columbia Funds Distributor, Inc. 05/2005
FUNDS ARE DISTRIBUTED BY COLUMBIA FUNDS DISTRIBUTOR, INC. UNTIL ON OR ABOUT
AUGUST 22, 2005, WHEN BACAP DISTRIBUTORS, LLC AND COLUMBIA FUNDS DISTRIBUTOR,
INC., MEMBERS NASD, SIPC, WILL MERGE TO FORM COLUMBIA MANAGEMENT DISTRIBUTORS,
INC. COLUMBIA FUNDS AND NATIONS FUNDS WILL THEN BE DISTRIBUTED BY COLUMBIA
MANAGEMENT DISTRIBUTORS, INC., WHICH WILL BE PART OF COLUMBIA MANAGEMENT AND AN
AFFILIATE OF BANK OF AMERICA CORPORATION. COLUMBIA MANAGEMENT IS THE PRIMARY
INVESTMENT MANAGEMENT DIVISION OF BANK OF AMERICA CORPORATION. COLUMBIA
MANAGEMENT ENTITIES FURNISH INVESTMENT MANAGEMENT SERVICES AND ADVISE
INSTITUTIONAL AND MUTUAL FUND PORTFOLIOS.
<Page>
LIBERTY VARIABLE INVESTMENT TRUST
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Colonial Small Cap Value Fund, Variable Series / June 30, 2005
Colonial Small Cap Value Fund, Variable Series seeks long-term growth by
investing primarily in smaller capitalization (small-cap) equities.
Stephen D. Barbaro has managed the fund since June 2002.
Small-cap stocks made little headway during the first half of 2005. Within the
sector, value stocks modestly outpaced growth stocks. The fund fell slightly
short of both the S&P Small Cap 600/ Barra Value Index and Russell 2000 Value
Index ("Russell")(1). It also trailed the average return of the Lipper Small-Cap
Value Funds Category(2).
We continued to focus on companies with strong competitive and financial
positions, good earnings growth prospects and reasonable valuations. However,
the fund lost some ground relative to the Russell because the fund did not own
highly leveraged companies. These companies were among the period's best
performers, as investors rewarded companies that stretched for incremental
returns by adding debt to their balance sheets. In addition, the fund owned more
stocks than the index at the smaller end of the small-cap universe, a market
capitalization range from $100 million to $2 billion. Relatively larger-cap
stocks within the index outperformed small-cap stocks as the valuation gap
between them narrowed.
ENERGY AND UTILITIES DELIVERED MIXED RESULTS
Although the market was flat, energy and utilities stocks posted strong gains.
The fund's energy stocks were up nicely, even though they did not keep pace with
the sector's return in the index. Leveraged refiners were among the index's best
performers along with more expensive exploration and production stocks. We
missed out on these gains because neither industry met the standards of our
strategy. In utilities, where the fund had a below-average stake, the fund's
returns were positive but also lagged the sector return for the index. The fund
underperformed in this sector because we avoided owning the lower quality,
alternative energy companies that led the sector. However, we continue to
believe that it is prudent to focus on higher quality companies.
WEAK RETURNS FROM INDUSTRIALS
Although the industrials sector's overall return was flat for the period, the
fund's industrial stocks declined modestly. The fund did not keep pace as it did
not own the highly leveraged, lower quality industrial companies that led the
sector. A few smaller-cap industrial stocks in the portfolio also suffered steep
downturns, the result of moderately disappointing earnings. Financials, which
was the fund's largest sector weight, were also flat. The fund had investments
in banks, insurers and specialty finance companies, as well as a small stake in
real estate investments trusts. The fund's technology stocks declined during the
period, which was in line with the sector's return in the index.
POSITIVE STOCK SELECTION IN MATERIALS AND CONSUMER DISCRETIONARY
The fund's materials stocks declined, but far less than those in the Russell.
The fund emphasized coal, titanium, and building materials stocks, all of which
benefited from strong global demand and improved pricing. We reduced the fund's
stake in steel stocks--a fortunate move, because steel commodity prices softened
during the period. In the consumer discretionary sector, the fund generated
positive returns that beat the sector average. Specialty retailers did
especially well, including one company that was bought out at a substantial
premium and another that purchased a major competitor. The fund also owned a
tire retailer and building materials retailer that benefited from attractive
valuations and good earnings.
MORE NEUTRAL POSITIONING
To prepare for more moderate economic growth, we pared back on economically
sensitive sectors, including industrials and materials. In their place, we added
to our stakes in consumer staples and health care. We thought stocks in these
sectors offered relatively attractive valuations along with more predictable
earnings outlooks. In the spring, we also brought the fund's median market cap
in line with the index's, believing that smaller-cap stocks no longer offer much
of an advantage over larger size small-cap stocks. Going forward, we plan to
maintain our focus on companies with strong balance sheets, which we believe
have the potential to be long-term winners.
Stephen D. Barbaro has managed the Colonial Small Cap Value Fund, Variable
Series since June 2002 and has been with advisor or its predecessors since 1976.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence. The opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in
response to economic and business developments.
Investments in small-cap stocks may be subject to greater volatility and price
fluctuations because they may be thinly traded and less liquid than investments
in larger companies.
Value stocks are stocks of companies that may have experienced adverse business
or industry developments or may be subject to special risks that have caused the
stocks to be out of favor and, in the advisor's opinion, undervalued. If the
advisor's assessment of a company's prospects is wrong, the price of the
company's stock may fall or may not approach the value the advisor has placed on
it.
(1) The S&P Small Cap 600/Barra Value Index is an unmanaged index that tracks
the performance of value stocks, as determined by low price-to-book ratios
included in the S&P Small Cap 600 Index. 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.
(2) 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.
2
<Page>
PERFORMANCE INFORMATION
Colonial Small Cap Value Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- ---------------------------------------------------------------------------
Class B (06/01/00) -1.06 11.12 14.40 9.43
Russell 2000 Value Index(1) 0.90 14.39 16.12 9.60
S&P Small Cap 600/Barra Value Index(2) 1.63 14.17 14.38 9.25
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- ---------------------------------------------------------------
Class B 16.92 16.74
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 05/19/98(3) - 06/30/05
<Table>
<Caption>
RUSSELL 2000 S&P SMALL CAP 600/BARRA
CLASS B SHARES VALUE INDEX VALUE INDEX
5/19/1998 $ 10,000 $ 10,000
5/31/1998 $ 10,020 $ 9,794 $ 10,000
6/30/1998 $ 10,050 $ 9,739 $ 9,995
7/31/1998 $ 9,120 $ 8,977 $ 9,070
8/31/1998 $ 7,201 $ 7,571 $ 7,434
9/30/1998 $ 7,461 $ 7,999 $ 7,829
10/31/1998 $ 7,881 $ 8,236 $ 8,171
11/30/1998 $ 8,401 $ 8,459 $ 8,520
12/31/1998 $ 8,675 $ 8,725 $ 8,855
1/31/1999 $ 8,464 $ 8,527 $ 8,753
2/28/1999 $ 7,626 $ 7,945 $ 8,040
3/31/1999 $ 7,525 $ 7,879 $ 8,009
4/30/1999 $ 8,030 $ 8,599 $ 8,707
5/31/1999 $ 8,354 $ 8,863 $ 9,055
6/30/1999 $ 8,788 $ 9,184 $ 9,604
7/31/1999 $ 8,778 $ 8,966 $ 9,454
8/31/1999 $ 8,324 $ 8,638 $ 9,057
9/30/1999 $ 8,273 $ 8,465 $ 8,891
10/31/1999 $ 8,313 $ 8,296 $ 8,685
11/30/1999 $ 8,545 $ 8,339 $ 8,879
12/31/1999 $ 9,226 $ 8,595 $ 9,123
1/31/2000 $ 8,640 $ 8,370 $ 8,656
2/29/2000 $ 9,216 $ 8,881 $ 9,047
3/31/2000 $ 9,358 $ 8,923 $ 9,381
4/30/2000 $ 9,459 $ 8,975 $ 9,446
5/31/2000 $ 9,317 $ 8,838 $ 9,292
6/30/2000 $ 9,692 $ 9,096 $ 9,559
7/31/2000 $ 9,783 $ 9,399 $ 9,747
8/31/2000 $ 10,582 $ 9,819 $ 10,317
9/30/2000 $ 10,582 $ 9,763 $ 10,296
10/31/2000 $ 10,633 $ 9,728 $ 10,346
11/30/2000 $ 9,864 $ 9,530 $ 9,662
12/31/2000 $ 10,969 $ 10,553 $ 11,026
1/31/2001 $ 11,061 $ 10,844 $ 11,899
2/28/2001 $ 10,743 $ 10,829 $ 11,397
3/31/2001 $ 10,569 $ 10,656 $ 10,923
4/30/2001 $ 11,346 $ 11,149 $ 11,581
5/31/2001 $ 11,683 $ 11,436 $ 11,877
6/30/2001 $ 11,765 $ 11,896 $ 12,332
7/31/2001 $ 11,847 $ 11,629 $ 12,216
8/31/2001 $ 11,613 $ 11,588 $ 12,019
9/30/2001 $ 10,215 $ 10,309 $ 10,298
10/31/2001 $ 10,460 $ 10,578 $ 10,769
11/30/2001 $ 11,165 $ 11,339 $ 11,630
12/31/2001 $ 11,978 $ 12,033 $ 12,470
1/31/2002 $ 12,071 $ 12,193 $ 12,703
2/28/2002 $ 12,310 $ 12,267 $ 12,648
3/31/2002 $ 13,181 $ 13,185 $ 13,747
4/30/2002 $ 13,410 $ 13,649 $ 14,310
5/31/2002 $ 12,995 $ 13,197 $ 13,767
6/30/2002 $ 12,591 $ 12,905 $ 13,152
7/31/2002 $ 11,046 $ 10,988 $ 11,013
8/31/2002 $ 11,295 $ 10,939 $ 10,999
9/30/2002 $ 10,531 $ 10,158 $ 10,190
10/31/2002 $ 10,749 $ 10,311 $ 10,394
11/30/2002 $ 11,581 $ 11,133 $ 10,956
12/31/2002 $ 11,243 $ 10,658 $ 10,665
1/31/2003 $ 10,910 $ 10,357 $ 10,225
2/28/2003 $ 10,352 $ 10,009 $ 9,847
3/31/2003 $ 10,373 $ 10,116 $ 9,816
4/30/2003 $ 11,190 $ 11,078 $ 10,704
5/31/2003 $ 12,113 $ 12,209 $ 11,702
6/30/2003 $ 12,382 $ 12,415 $ 12,050
7/31/2003 $ 13,037 $ 13,034 $ 12,639
8/31/2003 $ 13,617 $ 13,530 $ 13,247
9/30/2003 $ 13,496 $ 13,374 $ 12,812
10/31/2003 $ 14,583 $ 14,464 $ 13,954
11/30/2003 $ 15,161 $ 15,020 $ 14,530
12/31/2003 $ 15,667 $ 15,563 $ 14,937
1/31/2004 $ 16,230 $ 16,102 $ 15,294
2/29/2004 $ 16,483 $ 16,414 $ 15,656
3/31/2004 $ 16,814 $ 16,641 $ 15,930
4/30/2004 $ 16,120 $ 15,780 $ 15,344
5/31/2004 $ 16,220 $ 15,971 $ 15,536
6/30/2004 $ 17,091 $ 16,783 $ 16,387
7/31/2004 $ 16,308 $ 16,011 $ 15,609
8/31/2004 $ 16,231 $ 16,167 $ 15,659
9/30/2004 $ 16,887 $ 16,808 $ 16,431
10/31/2004 $ 17,132 $ 17,068 $ 16,572
11/30/2004 $ 18,686 $ 18,582 $ 18,080
12/31/2004 $ 19,198 $ 19,026 $ 18,409
1/31/2005 $ 18,528 $ 18,290 $ 17,765
2/28/2005 $ 18,935 $ 18,654 $ 18,314
3/31/2005 $ 18,617 $ 18,270 $ 17,970
4/30/2005 $ 17,528 $ 17,327 $ 16,983
5/31/2005 $ 18,243 $ 18,384 $ 18,002
6/30/2005 $ 18,983 $ 19,201 $ 18,714
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the indexes. The Indexes are unmanaged and returns for the indexes and the
fund include reinvested dividends and capital gains. It is not possible to
invest directly in an index. Investment earnings, if any, are income
tax-deferred until distribution, at which time taxes will become due.
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 Small Cap 600/Barra Value Index is an
unmanaged index that tracks the performance of value stocks, as determined by
low price-to-book ratios included in the S&P Small Cap 600 Index. Indices are
not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in an index. Securities in the
fund may not match those in an index.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from May 19, 1998.
(2) Index performance for the life of the fund is from May 31, 1998.
(3) Inception date of class A shares (oldest existing share class).
3
<Page>
UNDERSTANDING YOUR EXPENSES
Colonial Small Cap Value Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- --------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- --------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 989.39 1,019.34 5.43 5.51 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 365.
Had the distributor not waived/reimbursed a portion of expenses, account values
at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
4
<Page>
INVESTMENT PORTFOLIO
Colonial Small Cap Value Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
SHARES VALUE
------------- -------------
COMMON STOCKS--99.1%
CONSUMER DISCRETIONARY--13.8%
AUTO COMPONENTS--0.9%
BorgWarner, Inc. 37,700 $ 2,023,359
Modine Manufacturing Co. 28,450 926,332
-------------
2,949,691
-------------
DISTRIBUTORS--0.8%
Building Material Holding Corp. 37,600 2,605,304
-------------
HOTELS, RESTAURANTS & LEISURE--3.5%
Bob Evans Farms, Inc. 35,590 829,959
Dave & Buster's, Inc. (a) 76,400 1,408,816
Landry's Restaurants, Inc. 62,750 1,888,148
Lone Star Steakhouse & Saloon,
Inc. 83,950 2,552,919
Marcus Corp. 78,700 1,670,014
Scientific Games Corp.,
Class A (a) 114,000 3,070,020
Vail Resorts, Inc. (a) 24,900 699,690
-------------
12,119,566
-------------
HOUSEHOLD DURABLES--1.7%
American Greetings Corp.,
Class A 136,200 3,609,300
CSS Industries, Inc. 39,100 1,323,144
Kimball International, Inc.,
Class B 84,200 1,111,440
-------------
6,043,884
-------------
MEDIA--2.3%
4Kids Entertainment, Inc. (a) 74,500 1,481,060
Journal Communications, Inc.,
Class A 68,670 1,153,656
Liberty Corp. 35,800 1,317,798
Media General, Inc., Class A 21,600 1,398,816
Reader's Digest Association, Inc. 52,000 858,000
Scholastic Corp. (a) 45,800 1,765,590
-------------
7,974,920
-------------
SPECIALTY RETAIL--2.5%
GameStop Corp., Class A (a) 90,700 2,966,797
Monro Muffler, Inc. (a) 82,475 2,433,837
Movie Gallery, Inc. 57,200 1,511,796
Pier 1 Imports, Inc. 61,700 875,523
Rent-A-Center, Inc. (a) 11,771 274,147
TBC Corp. (a) 23,450 636,198
Zale Corp. (a) 3,716 117,760
-------------
8,816,058
-------------
TEXTILES, APPAREL & LUXURY GOODS--2.1%
Delta Apparel, Inc. 47,100 609,003
Hampshire Group Ltd. (a) 87,600 1,717,836
Kellwood Co. 56,350 1,515,815
Russell Corp. 61,700 1,261,765
Stride Rite Corp. 77,600 1,070,104
Tandy Brands Accessories, Inc. 3,967 43,240
Wolverine World Wide, Inc. 45,880 1,101,579
-------------
7,319,342
-------------
CONSUMER STAPLES--3.7%
FOOD & STAPLES RETAILING--1.4%
BJ's Wholesale Club, Inc. (a) 33,900 $ 1,101,411
Performance Food Group Co. (a) 30,600 924,426
Weis Markets, Inc. 75,530 2,929,809
-------------
4,955,646
-------------
FOOD PRODUCTS--2.3%
Central Garden & Pet Co. (a) 18,100 889,072
Corn Products International, Inc. 94,060 2,234,866
Flowers Foods, Inc. 56,307 1,991,015
J&J Snack Foods Corp. 20,874 1,092,754
Lancaster Colony Corp. 13,866 595,129
Lance, Inc. 61,100 1,051,531
-------------
7,854,367
-------------
ENERGY--6.4%
ENERGY EQUIPMENT & SERVICES--1.5%
Gulf Island Fabrication, Inc. 795 15,805
Lufkin Industries, Inc. 100,900 3,630,382
Universal Compression
Holdings, Inc. (a) 44,150 1,599,996
-------------
5,246,183
-------------
OIL, GAS & CONSUMABLE FUELS--4.9%
Bill Barrett Corp. (a) 14,807 437,991
Bois d'Arc Energy, Inc. (a) 52,087 768,283
Cimarex Energy Co. (a) 65,091 2,532,691
Energy Partners Ltd. (a) 74,400 1,950,024
Harvest Natural Resources,
Inc. (a) 109,250 1,194,102
Houston Exploration Co. (a) 22,560 1,196,808
InterOil Corp. (a) 31,800 864,324
Peabody Energy Corp. 32,920 1,713,157
Range Resources Corp. 77,100 2,073,990
Stone Energy Corp. (a) 43,800 2,141,820
Western Gas Resources, Inc. 63,600 2,219,640
-------------
17,092,830
-------------
FINANCIALS--26.9%
CAPITAL MARKETS--0.3%
Piper Jaffray Companies,
Inc. (a) 36,320 1,105,218
-------------
COMMERCIAL BANKS--11.7%
BancFirst Corp. 10,199 887,211
BancorpSouth, Inc. 75,770 1,788,172
BancTrust Financial Group, Inc. 39,800 777,294
Bank of Granite Corp. 56,100 1,073,754
Bryn Mawr Bank Corp. 62,797 1,200,051
Capitol Bancorp Ltd. 59,400 1,996,434
Chemical Financial Corp. 58,415 1,934,121
Chittenden Corp. 79,475 2,161,720
Citizens Banking Corp. 32,720 988,798
City Holding Co. 21,060 769,111
Columbia Banking System, Inc. 44,100 1,085,742
Community Trust Bancorp, Inc. 37,742 1,234,918
</Table>
See Accompanying Notes to Financial Statements.
5
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Corus Bankshares, Inc. 52,200 $ 2,896,578
First Citizens BancShares, Inc.,
Class A 8,500 1,228,675
First Financial Bankshares, Inc. 37,700 1,275,768
First Financial Corp. 40,200 1,154,946
Greater Bay Bancorp 57,440 1,514,693
Hancock Holding Co. 29,459 1,013,390
ITLA Capital Corp. (a) 27,500 1,482,250
MASSBANK Corp. 11,400 395,010
Merchants Bancshares, Inc. 45,400 1,191,205
Mid-State Bancshares 80,050 2,222,988
Northrim BanCorp, Inc. 41,500 974,420
Sterling Bancshares, Inc. 134,300 2,089,708
TriCo Bancshares 97,014 2,167,293
TrustCo Bank Corp. 101,130 1,320,758
UMB Financial Corp. 36,200 2,064,486
Whitney Holding Corp. 60,600 1,977,378
-------------
40,866,872
-------------
CONSUMER FINANCE--0.6%
Cash America International, Inc. 104,140 2,095,297
-------------
DIVERSIFIED FINANCIAL SERVICES--1.9%
Advance America Cash
Advance Centers, Inc. 98,900 1,582,400
Metris Companies, Inc. (a) 170,300 2,462,538
MFC Bancorp Ltd. (a) 137,600 2,563,488
-------------
6,608,426
-------------
INSURANCE--6.0%
AmerUs Group Co. 30,600 1,470,330
Argonaut Group, Inc. (a) 16,504 381,077
Baldwin & Lyons, Inc., Class B 47,320 1,140,412
CNA Surety Corp. (a) 88,400 1,312,740
Commerce Group, Inc. 15,900 987,549
Delphi Financial Group, Inc.,
Class A 50,586 2,233,372
Harleysville Group, Inc. 68,700 1,435,143
Horace Mann Educators Corp. 67,400 1,268,468
Navigators Group, Inc. (a) 61,577 2,128,717
Phoenix Companies, Inc. 142,350 1,693,965
ProCentury Corp. 104,100 1,044,123
Quanta Capital Holdings Ltd. (a) 146,290 911,387
RLI Corp. 37,207 1,659,432
UICI 59,650 1,775,780
United America Indemnity Ltd.,
Class A (a) 77,700 1,335,663
-------------
20,778,158
-------------
REAL ESTATE--6.4%
Alexandria Real Estate Equities,
Inc., REIT 21,340 1,567,423
BioMed Realty Trust, Inc.,
REIT 46,550 1,110,218
Brandywine Realty Trust,
REIT 55,160 1,690,654
Cousins Properties, Inc.,
REIT 44,620 1,319,860
EastGroup Properties, Inc.,
REIT 51,750 2,179,192
Equity One, Inc., REIT 67,000 $ 1,520,900
Getty Realty Corp., REIT 54,160 1,500,232
Mid-America Apartment
Communities, Inc., REIT 57,060 2,591,665
Nationwide Health Properties,
Inc., REIT 88,650 2,093,026
PS Business Parks, Inc., REIT 58,900 2,618,105
Tanger Factory Outlet Centers,
Inc., REIT 61,800 1,664,274
Universal Health Realty Income
Trust, REIT 30,000 1,143,300
Urstadt Biddle Properties, Inc.,
Class A, REIT 65,500 1,134,460
-------------
22,133,309
-------------
HEALTH CARE--9.5%
HEALTH CARE EQUIPMENT & SUPPLIES--3.2%
Bio-Rad Laboratories, Inc.,
Class A (a) 19,148 1,133,753
Greatbatch, Inc. (a) 60,500 1,445,950
Haemonetics Corp. (a) 38,570 1,567,485
Invacare Corp. 38,300 1,698,988
STERIS Corp. 77,100 1,986,867
Sybron Dental Specialties,
Inc. (a) 43,620 1,640,984
Varian, Inc. (a) 22,610 854,432
Viasys Healthcare, Inc. (a) 36,700 829,053
-------------
11,157,512
-------------
HEALTH CARE PROVIDERS & SERVICES--5.9%
Cross Country Healthcare,
Inc. (a) 64,600 1,098,200
Genesis HealthCare Corp. (a) 50,300 2,327,884
Gentiva Health Services, Inc. (a) 88,600 1,582,396
Hooper Holmes, Inc. 168,500 699,275
Kindred Healthcare, Inc. (a) 90,600 3,588,666
OCA, Inc. (a) 132,500 249,100
Owens & Minor, Inc. 45,500 1,471,925
PAREXEL International
Corp. (a) 83,000 1,647,550
Pediatrix Medical Group,
Inc. (a) 41,600 3,059,264
RehabCare Group, Inc. (a) 39,400 1,053,162
Res-Care, Inc. (a) 45,900 622,404
Symbion, Inc. (a) 57,900 1,380,915
United Surgical Partners
International, Inc. (a) 30,300 1,578,024
-------------
20,358,765
-------------
PHARMACEUTICALS--0.4%
Perrigo Co. 97,800 1,363,332
-------------
INDUSTRIALS--15.7%
AEROSPACE & DEFENSE--2.7%
AAR Corp. (a) 94,723 1,488,098
Esterline Technologies Corp. (a) 65,200 2,613,216
Kaman Corp., Class A 79,900 1,441,396
</Table>
See Accompanying Notes to Financial Statements.
6
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Ladish Co., Inc. (a) 65,004 $ 653,496
Precision Castparts Corp. 38,700 3,014,730
-------------
9,210,936
-------------
AIR FREIGHT & LOGISTICS--0.3%
Ryder System, Inc. 30,300 1,108,980
-------------
AIRLINES--0.5%
MAIR Holdings, Inc. (a) 45,968 406,357
Skywest, Inc. 70,900 1,288,962
-------------
1,695,319
-------------
BUILDING PRODUCTS--0.5%
NCI Building Systems, Inc. (a) 51,700 1,695,760
-------------
COMMERCIAL SERVICES & SUPPLIES--4.4%
ABM Industries, Inc. 70,600 1,376,700
Angelica Corp. 36,800 901,968
Casella Waste Systems, Inc.,
Class A (a) 148,400 1,780,800
Century Business Services,
Inc. (a) 89,474 362,370
Consolidated Graphics, Inc. (a) 66,350 2,705,089
Healthcare Services Group, Inc. 127,250 2,555,180
Imagistics International, Inc. (a) 73,450 2,056,600
NCO Group, Inc. (a) 45,300 979,839
Sourcecorp, Inc. (a) 45,200 895,864
TeleTech Holdings, Inc. (a) 110,000 896,500
United Stationers, Inc. (a) 15,310 751,721
-------------
15,262,631
-------------
CONSTRUCTION & ENGINEERING--1.3%
Comfort Systems USA, Inc. (a) 2,684 17,661
Dycom Industries, Inc. (a) 66,200 1,311,422
EMCOR Group, Inc. (a) 22,100 1,080,690
Washington Group International,
Inc. (a) 42,400 2,167,488
-------------
4,577,261
-------------
ELECTRICAL EQUIPMENT--1.3%
Genlyte Group, Inc. (a) 50,600 2,466,244
Woodward Governor Co. 24,900 2,092,347
-------------
4,558,591
-------------
MACHINERY--2.3%
Briggs & Stratton Corp. 47,300 1,637,526
EnPro Industries, Inc. (a) 71,400 2,061,318
Harsco Corp. 50,900 2,776,595
Kadant, Inc. (a) 30,133 660,817
Robbins & Myers, Inc. 36,733 790,127
-------------
7,926,383
-------------
ROAD & RAIL--0.9%
Dollar Thrifty Automotive
Group, Inc. (a) 44,900 1,705,302
Werner Enterprises, Inc. 75,300 1,478,892
-------------
3,184,194
-------------
TRADING COMPANIES & DISTRIBUTORS--1.5%
Hughes Supply, Inc. 70,422 1,978,858
Watsco, Inc. 78,350 3,337,710
-------------
5,316,568
-------------
INFORMATION TECHNOLOGY--11.3%
COMMUNICATIONS EQUIPMENT--1.1%
Anaren, Inc. (a) 90,200 $ 1,186,130
Belden CDT, Inc. 43,200 915,840
Black Box Corp. 27,300 966,420
Tollgrade Communications,
Inc. (a) 71,850 538,875
-------------
3,607,265
-------------
COMPUTERS & PERIPHERALS--0.8%
Electronics for Imaging, Inc. (a) 23,300 490,232
Imation Corp. 35,400 1,373,166
Intergraph Corp. (a) 26,466 912,018
-------------
2,775,416
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.6%
Agilysys, Inc. 55,450 870,565
Anixter International, Inc. (a) 27,650 1,027,750
Benchmark Electronics, Inc. (a) 48,450 1,473,849
Brightpoint, Inc. (a) 104,000 2,307,760
MTS Systems Corp. 50,050 1,680,679
Vishay Intertechnology, Inc. (a) 149,900 1,779,313
-------------
9,139,916
-------------
INTERNET SOFTWARE & SERVICES--0.5%
Digitas, Inc. (a) 56,890 649,115
Keynote Systems, Inc. (a) 86,800 1,012,956
-------------
1,662,071
-------------
IT SERVICES--1.4%
Acxiom Corp. 66,400 1,386,432
MAXIMUS, Inc. 30,320 1,069,993
MPS Group, Inc. (a) 247,000 2,326,740
-------------
4,783,165
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.9%
ATMI, Inc. (a) 30,600 887,706
Exar Corp. (a) 85,300 1,270,117
Fairchild Semiconductor Corp.,
Class A (a) 45,230 667,143
Integrated Device Technology,
Inc. (a) 39,160 420,970
MEMC Electronic Materials,
Inc. (a) 106,960 1,686,759
Standard Microsystems Corp. (a) 76,000 1,776,880
-------------
6,709,575
-------------
SOFTWARE--3.0%
Captaris, Inc. (a) 175,100 724,914
Internet Security Systems,
Inc. (a) 64,500 1,308,705
Lawson Software, Inc. (a) 85,900 442,385
MSC.Software Corp. (a) 111,700 1,535,875
PLATO Learning, Inc. (a) 107,062 790,118
SeaChange International, Inc. (a) 35,100 246,402
Sybase, Inc. (a) 71,700 1,315,695
Take-Two Interactive Software,
Inc. (a) 45,550 1,159,247
THQ, Inc. (a) 30,300 886,881
</Table>
See Accompanying Notes to Financial Statements.
7
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Transaction Systems Architects, Inc.,
Class A (a) 83,400 $ 2,054,142
-------------
10,464,364
-------------
MATERIALS--7.2%
CHEMICALS--2.5%
Cytec Industries, Inc. 39,800 1,584,040
H.B. Fuller Co. 58,900 2,006,134
Minerals Technologies, Inc. 30,100 1,854,160
Schulman (A.), Inc. 79,150 1,415,993
Sensient Technologies Corp. 51,100 1,053,171
Stepan Co. 42,700 943,670
-------------
8,857,168
-------------
CONSTRUCTION MATERIALS--0.9%
Eagle Materials, Inc. 32,700 3,027,693
-------------
CONTAINERS & PACKAGING--1.3%
AptarGroup, Inc. 29,800 1,513,840
Greif, Inc., Class A 49,350 3,015,285
-------------
4,529,125
-------------
METALS & MINING--1.8%
Alpha Natural Resources,
Inc. (a) 56,240 1,343,011
AMCOL International Corp. 46,400 871,856
Carpenter Technology Corp. 17,700 916,860
Metal Management, Inc. 49,200 952,020
RTI International Metals,
Inc. (a) 44,430 1,395,547
Worthington Industries, Inc. 45,430 717,794
-------------
6,197,088
-------------
PAPER & FOREST PRODUCTS--0.7%
Mercer International, Inc. (a) 152,500 1,111,725
P.H. Glatfelter Co. 107,100 1,328,040
-------------
2,439,765
-------------
TELECOMMUNICATION SERVICES--0.6%
DIVERSIFIED TELECOMMUNICATION SERVICES--0.3%
North Pittsburgh Systems, Inc. 53,100 1,038,636
-------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Price Communications Corp. (a) 68,075 1,177,698
-------------
UTILITIES--4.0%
ELECTRIC UTILITIES--3.3%
ALLETE, Inc. 30,600 1,526,940
Central Vermont Public Service
Corp. 74,600 1,380,100
CH Energy Group, Inc. 50,300 2,446,089
El Paso Electric Co. (a) 84,400 1,725,980
Maine & Maritimes Corp. 16,900 414,050
MGE Energy, Inc. 29,400 1,069,572
Otter Tail Corp. 42,800 1,169,724
Puget Energy, Inc. 72,800 1,702,064
-------------
11,434,519
-------------
GAS UTILITIES--0.7%
Cascade Natural Gas Corp. 32,100 $ 658,050
Northwest Natural Gas Co. 24,300 929,232
WGL Holdings, Inc. 25,800 867,912
-------------
2,455,194
-------------
TOTAL COMMON STOCKS
(cost of $305,415,474) 344,279,961
-------------
<Caption>
PAR
-------------
SHORT-TERM OBLIGATION--0.6%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/05, due 07/01/05
at 2.700%, collateralized by a
U.S. Treasury Note maturing
11/15/12, market value of
$2,245,913 (repurchase
proceeds $2,198,165) $ 2,198,000 2,198,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $2,198,000) 2,198,000
-------------
TOTAL INVESTMENTS--99.7%
(cost of $307,613,474) (b) 346,477,961
-------------
OTHER ASSETS & LIABILITIES, NET--0.3% 1,139,960
-------------
NET ASSETS--100.0% $ 347,617,921
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $307,613,474.
At June 30, 2005, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR % OF NET ASSETS
- ------ ---------------
Financials 26.9%
Industrials 15.7
Consumer Discretionary 13.8
Information Technology 11.3
Health Care 9.5
Materials 7.2
Energy 6.4
Utilities 4.0
Consumer Staples 3.7
Telecommunication Services 0.6
Short-Term Obligation 0.6
Other Assets & Liabilities, Net 0.3
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
8
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Small Cap Value Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 307,613,474
--------------
Investments, at value $ 346,477,961
Cash 497
Receivable for:
Investments sold 1,283,697
Fund shares sold 1,163,393
Interest 165
Dividends 324,061
Expense reimbursement due from Distributor 12,085
Deferred Trustees' compensation plan 6,163
--------------
TOTAL ASSETS 349,268,022
--------------
LIABILITIES:
Payable for:
Investments purchased 1,254,416
Fund shares repurchased 56,157
Investment advisory fee 221,203
Transfer agent fee 595
Pricing and bookkeeping fees 7,602
Trustees' fees 646
Custody fee 13,714
Distribution fee--Class B 66,432
Deferred Trustees' fees 6,163
Other liabilities 23,173
--------------
TOTAL LIABILITIES 1,650,101
--------------
NET ASSETS $ 347,617,921
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 306,560,463
Undistributed net investment income 853,661
Accumulated net realized gain 1,339,310
Net unrealized appreciation on investments 38,864,487
--------------
NET ASSETS $ 347,617,921
==============
CLASS A:
Net assets $ 13,281,033
Shares outstanding 791,581
==============
Net asset value per share $ 16.78
==============
CLASS B:
Net assets $ 334,336,888
Shares outstanding 19,966,627
==============
Net asset value per share $ 16.74
==============
</Table>
See Accompanying Notes to Financial Statements.
9
<Page>
STATEMENT OF OPERATIONS
Colonial Small Cap Value Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 2,671,660
Interest 48,784
--------------
Total Investment Income 2,720,444
--------------
EXPENSES:
Investment advisory fee 1,227,630
Distribution fee--Class B 367,143
Transfer agent fee 3,719
Pricing and bookkeeping fees 43,083
Trustees' fees 6,091
Custody fee 55,135
Non-recurring costs (See Note 6) 3,699
Other expenses 44,582
--------------
Total Expenses 1,751,082
Fees reimbursed by Distributor--Class B (72,476)
Non-recurring costs assumed by Investment Advisor (See Note 6) (3,699)
Custody earnings credit (93)
--------------
Net Expenses 1,674,814
--------------
Net Investment Income 1,045,630
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 599,519
Net change in unrealized appreciation (depreciation) on investments (2,575,850)
--------------
Net Loss (1,976,331)
--------------
Net Decrease in Net Assets from Operations $ (930,701)
==============
</Table>
See Accompanying Notes to Financial Statements.
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Small Cap Value Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 1,045,630 $ 717,153
Net realized gain on investments and foreign currency transactions 599,519 6,089,366
Net change in unrealized appreciation (depreciation) on investments (2,575,850) 32,496,427
-------------- --------------
Net Increase (Decrease) from Operations (930,701) 39,302,946
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (59,647)
Class B -- (777,348)
From net realized gains:
Class A -- (363,580)
Class B -- (6,319,347)
-------------- --------------
Total Distributions Declared to Shareholders -- (7,519,922)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,096,584 3,893,180
Distributions reinvested -- 423,227
Redemptions (2,186,327) (2,651,167)
-------------- --------------
Net Increase (Decrease) (1,089,743) 1,665,240
-------------- --------------
Class B:
Subscriptions 78,655,294 175,158,904
Distributions reinvested -- 7,096,695
Redemptions (8,061,454) (6,127,471)
-------------- --------------
Net Increase 70,593,840 176,128,128
-------------- --------------
Net Increase from Share Transactions 69,504,097 177,793,368
-------------- --------------
Total Increase in Net Assets 68,573,396 209,576,392
NET ASSETS:
Beginning of period 279,044,525 69,468,133
-------------- --------------
End of period (including undistributed (overdistributed) net investment income of
$853,661 and $(191,969), respectively) $ 347,617,921 $ 279,044,525
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 67,033 254,063
Issued for distributions reinvested -- 25,530
Redemptions (134,741) (174,777)
-------------- --------------
Net Increase (Decrease) (67,708) 104,816
-------------- --------------
Class B:
Subscriptions 4,830,958 11,470,781
Issued for distributions reinvested -- 427,336
Redemptions (492,010) (399,816)
-------------- --------------
Net Increase 4,338,948 11,498,301
-------------- --------------
</Table>
See Accompanying Notes to Financial Statements.
11
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Small Cap Value Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Small Cap Value Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust"), is a diversified portfolio. The Trust
is a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth by investing primarily in
smaller capitalization (small-cap) equities.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings. 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.
12
<Page>
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31,
2004 was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income* $ 5,382,821
Long-term capital gains 2,137,101
</Table>
* For tax purposes short-term capital gains distributions are considered
ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 51,199,125
Unrealized depreciation (12,334,638)
-------------
Net unrealized appreciation $ 38,864,487
=============
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.80%
$500 million to $1 billion 0.75%
Over $1 billion 0.70%
</Table>
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.80%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received to State Street under the Outsourcing
Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund.
For the six months ended June 30, 2005, the annualized 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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was less than 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) will not exceed 1.10% annually of the Fund's average daily net assets.
The Distributor will first reimburse the Class B distribution fee up to 0.25%
annually to reach the 1.10% limit on Class B expenses. If additional
reimbursement is needed to meet the limit for each class, Columbia will then
reimburse other expenses to the extent necessary. If additional reimbursement is
still needed in order to reach the expense limit, Columbia will then waive a
portion of its investment advisory fee to the extent
13
<Page>
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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$889 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $133,255,838 and
$64,402,443, 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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been
14
<Page>
transferred to the Federal District Court in Maryland and consolidated in a
multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $3,699 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
15
<Page>
FINANCIAL HIGHLIGHTS
Colonial Small Cap Value Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------------ DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
------------ ---------- --------- ---------- --------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.92 $ 14.22 $ 10.47 $ 11.55 $ 10.73 $ 9.21
------------ ---------- --------- ---------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.05 0.07 0.07 0.02 0.02 0.06
Net realized and unrealized gain (loss)
on investments and foreign currency (0.23) 3.12 4.03 (0.73) 0.97 1.57
------------ ---------- --------- ---------- --------- ------------
Total from Investment Operations (0.18) 3.19 4.10 (0.71) 0.99 1.63
------------ ---------- --------- ---------- --------- ------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income -- (0.05) (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 -- (0.49) (0.35) (0.37) (0.17) (0.11)
------------ ---------- --------- ---------- --------- ------------
NET ASSET VALUE, END OF PERIOD $ 16.74 $ 16.92 $ 14.22 $ 10.47 $ 11.55 $ 10.73
============ ========== ========= ========== ========= ============
Total return (c)(d)(e) (1.06)%(f) 22.51% 39.34% (6.14)% 9.20% 17.72%(f)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 1.10%(h) 1.10% 1.10% 1.10% 1.10% 1.10%(h)
Net investment income (g) 0.67%(h) 0.43% 0.54% 0.18% 0.22% 1.01%(h)
Waiver/reimbursement 0.05%(h) 0.12% 0.36% 0.29% 0.47% 1.07%(h)
Portfolio turnover rate 21%(f) 30% 55% 125% 56% 54%
Net assets, end of period (000's) $ 334,337 $ 264,487 $ 58,730 $ 12,080 $ 9,020 $ 3,469
</Table>
(a) For the period from commencement of operations on June 1, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Had the Investment Advisor and/or Distributor not waived a portion of
expenses, total return would have been reduced.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
16
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Colonial Strategic Income Fund, Variable Series / June 30, 2005
Colonial Strategic Income Fund, Variable Series seeks current income consistent
with prudent risk. The Fund also seeks maximum total return.
Laura A. Ostrander has managed or co-managed the fund since September 2000.
Kevin L. Cronk has co-managed the fund since May 2005. Thomas A. LaPointe has
co-managed the fund since May 2005.
The fund posted a slight gain for the first six months of 2005. However, this
gain was below the fund's peer group, the Lipper Variable Series General Bond
Category(1) average and its benchmark return during the same period. Adverse
results from the high-yield and currency markets were responsible for most of
the shortfall in performance.
A SHIFT IN HIGH-YIELD PREFERENCE
The high-yield market started the period on a strong note, essentially
continuing the positive momentum of 2004. However, this momentum was disrupted
in early May by the credit downgrades at Ford Motor and General Motors (0.1% and
0.1% of net assets, respectively). The bonds of both companies were reduced to
junk-bond status for the first time in their respective histories, and the
high-yield market responded by becoming more risk-averse. This shift in market
sentiment hurt the fund, because our high-yield investments emphasized
low-quality (CCC) companies while underweighting BB credits. And with high-yield
securities as a group underperforming the broader bond market, our 40%
commitment to this asset class was a drag on the fund's overall results.
MIXED RESULTS OVERSEAS
The fund's overseas investments are divided into two categories:
developed-market bonds (19.3% of net assets) and emerging-market bonds (15.1% of
net assets). Although developed-market bonds in their local currencies performed
as well or better than comparable US Treasury securities, these gains were
eliminated by the weakness in foreign currencies versus the US dollar. Stalled
economic growth in Europe and concern over the direction of the political union
caused the euro to backtrack after a prolonged period of market leadership.
The fund experienced better results from its positions in emerging market
bonds, which were the single best-performing asset class during the period.
Higher commodity prices, steady global growth, and low interest rates produced
an environment in which many countries were able to grow their economies and
improve their fiscal profiles. The fund's investments in Russia, Panama,
Colombia, Mexico, and Brazil all made positive contributions to overall
performance.
REPOSITIONING THE PORTFOLIO
Although we didn't make any meaningful shifts to our asset allocations during
the period, we reduced the fund's overall currency exposure as the dollar
strengthened. In the near term, US interest rates and the trend toward a tighter
monetary policy could give support to the dollar, but we are mindful that
America's high budget and current account deficits represent a longer-term
concern.
We expect growth in the US to be steady or slightly lower in the second half
of the year. All indications are that the Federal Reserve will continue to lift
short-term rates gradually as conditions permit. Long-term rates actually
declined slightly over the past six months, enabling the fund's holdings in US
government bonds to contribute positively to performance. With stable growth and
little evidence of inflation outside the commodities markets, we are maintaining
our commitment to the domestic bond market at around 24% of the overall
portfolio.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence. The opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
Strategic investing offers attractive income and total return opportunities, but
also involves certain risks. The value and return of your investment may
fluctuate as a result of changes in interest rates, the financial strength of
issuers of lower-rated bonds, foreign, political and economic developments, and
changes in currency exchange rates.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices typically drop, and vice versa.
Some of the countries in which the fund invests are considered emerging
economies, which means there may be greater risks associated with investing
there than in more developed countries. In addition, concentration of
investments in a single region may result in greater volatility.
Investing in high-yield securities or "junk bonds" offers the potential for
higher current income and attractive total return, but involves certain risks.
Changes in economic conditions or other circumstances may adversely affect a
high-yield bond issuer's ability to make timely principal and interest payments.
High yield bonds issued by foreign entities have greater potential risks,
including foreign taxation, currency fluctuations, risks associated with
possible differences in financial standards and other monetary and political
risks.
Holdings are disclosed as of June 30, 2005, 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.
17
<Page>
PERFORMANCE INFORMATION
Colonial Strategic Income Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005(%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------
Class B (06/01/00) 0.30 10.41 7.88 7.25
Lehman Brothers
Government/Credit
Bond Index 2.75 7.26 7.71 6.90
</Table>
Inception date of share class is in parenthesis.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- -----------------------------------------------------------------
Class B 9.95 9.98
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 07/01/1995 - 06/30/05
<Table>
<Caption>
LEHMAN BROTHERS GOVERNMENT/
CLASS B SHARES CREDIT BOND INDEX
7/1/1995 $ 10,000 $ 10,000
7/31/1995 $ 10,092 $ 9,961
8/31/1995 $ 10,092 $ 10,089
9/30/1995 $ 10,267 $ 10,191
10/31/1995 $ 10,404 $ 10,341
11/30/1995 $ 10,505 $ 10,512
12/31/1995 $ 10,654 $ 10,666
1/31/1996 $ 10,810 $ 10,733
2/29/1996 $ 10,722 $ 10,505
3/31/1996 $ 10,674 $ 10,417
4/30/1996 $ 10,722 $ 10,345
5/31/1996 $ 10,732 $ 10,327
6/30/1996 $ 10,799 $ 10,465
7/31/1996 $ 10,887 $ 10,489
8/31/1996 $ 11,013 $ 10,462
9/30/1996 $ 11,236 $ 10,649
10/31/1996 $ 11,410 $ 10,897
11/30/1996 $ 11,681 $ 11,097
12/31/1996 $ 11,701 $ 10,974
1/31/1997 $ 11,669 $ 10,987
2/28/1997 $ 11,755 $ 11,010
3/31/1997 $ 11,585 $ 10,879
4/30/1997 $ 11,734 $ 11,038
5/31/1997 $ 11,925 $ 11,141
6/30/1997 $ 12,094 $ 11,275
7/31/1997 $ 12,381 $ 11,620
8/31/1997 $ 12,297 $ 11,489
9/30/1997 $ 12,562 $ 11,670
10/31/1997 $ 12,584 $ 11,857
11/30/1997 $ 12,648 $ 11,919
12/31/1997 $ 12,771 $ 12,044
1/31/1998 $ 12,976 $ 12,214
2/28/1998 $ 13,010 $ 12,190
3/31/1998 $ 13,101 $ 12,228
4/30/1998 $ 13,159 $ 12,289
5/31/1998 $ 13,217 $ 12,420
6/30/1998 $ 13,239 $ 12,547
7/31/1998 $ 13,354 $ 12,557
8/31/1998 $ 12,860 $ 12,802
9/30/1998 $ 13,147 $ 13,168
10/31/1998 $ 13,169 $ 13,075
11/30/1998 $ 13,547 $ 13,153
12/31/1998 $ 13,539 $ 13,186
1/31/1999 $ 13,649 $ 13,279
2/28/1999 $ 13,490 $ 12,963
3/31/1999 $ 13,674 $ 13,028
4/30/1999 $ 13,857 $ 13,061
5/31/1999 $ 13,576 $ 12,926
6/30/1999 $ 13,588 $ 12,886
7/31/1999 $ 13,576 $ 12,850
8/31/1999 $ 13,527 $ 12,840
9/30/1999 $ 13,600 $ 12,955
10/31/1999 $ 13,600 $ 12,989
11/30/1999 $ 13,686 $ 12,981
12/31/1999 $ 13,780 $ 12,902
1/31/2000 $ 13,648 $ 12,898
2/29/2000 $ 13,820 $ 13,059
3/31/2000 $ 13,767 $ 13,249
4/30/2000 $ 13,649 $ 13,184
5/31/2000 $ 13,530 $ 13,172
6/30/2000 $ 13,782 $ 13,441
7/31/2000 $ 13,888 $ 13,583
8/31/2000 $ 14,020 $ 13,775
9/30/2000 $ 13,867 $ 13,827
10/31/2000 $ 13,602 $ 13,914
11/30/2000 $ 13,378 $ 14,152
12/31/2000 $ 13,790 $ 14,431
1/31/2001 $ 14,361 $ 14,673
2/28/2001 $ 14,405 $ 14,825
3/31/2001 $ 14,082 $ 14,893
4/30/2001 $ 13,922 $ 14,781
5/31/2001 $ 14,025 $ 14,867
6/30/2001 $ 13,864 $ 14,938
7/31/2001 $ 13,922 $ 15,310
8/31/2001 $ 14,171 $ 15,506
9/30/2001 $ 13,760 $ 15,649
10/31/2001 $ 14,141 $ 16,046
11/30/2001 $ 14,332 $ 15,783
12/31/2001 $ 14,279 $ 15,658
1/31/2002 $ 14,328 $ 15,773
2/28/2002 $ 14,359 $ 15,907
3/31/2002 $ 14,407 $ 15,584
4/30/2002 $ 14,679 $ 15,886
5/31/2002 $ 14,743 $ 16,032
6/30/2002 $ 14,536 $ 16,169
7/31/2002 $ 14,392 $ 16,363
8/31/2002 $ 14,632 $ 16,729
9/30/2002 $ 14,712 $ 17,089
10/31/2002 $ 14,761 $ 16,925
11/30/2002 $ 15,065 $ 16,935
12/31/2002 $ 15,434 $ 17,384
1/31/2003 $ 15,626 $ 17,384
2/28/2003 $ 15,938 $ 17,693
3/31/2003 $ 16,094 $ 17,670
4/30/2003 $ 16,667 $ 17,859
5/31/2003 $ 17,136 $ 18,366
6/30/2003 $ 17,257 $ 18,293
7/31/2003 $ 16,841 $ 17,526
8/31/2003 $ 16,910 $ 17,642
9/30/2003 $ 17,484 $ 18,201
10/31/2003 $ 17,536 $ 17,970
11/30/2003 $ 17,813 $ 18,019
12/31/2003 $ 18,278 $ 18,197
1/31/2004 $ 18,390 $ 18,363
2/29/2004 $ 18,502 $ 18,587
3/31/2004 $ 18,652 $ 18,758
4/30/2004 $ 18,167 $ 18,182
5/31/2004 $ 18,074 $ 18,089
6/30/2004 $ 18,242 $ 18,163
7/31/2004 $ 18,446 $ 18,356
8/31/2004 $ 18,838 $ 18,745
9/30/2004 $ 19,099 $ 18,811
10/31/2004 $ 19,455 $ 18,974
11/30/2004 $ 19,772 $ 18,764
12/31/2004 $ 20,080 $ 18,962
1/31/2005 $ 20,000 $ 19,095
2/28/2005 $ 20,122 $ 18,969
3/31/2005 $ 19,738 $ 18,836
4/30/2005 $ 19,799 $ 19,119
5/31/2005 $ 19,939 $ 19,358
6/30/2005 $ 20,135 $ 19,486
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the index. The Index is unmanaged and returns for the index and the fund
include reinvested dividends and capital gains. It is not possible to invest
directly in an index. Investment earnings, if any, are income tax-deferred until
distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. The Lehman Brothers Government/Credit Bond Index is an unmanaged
index that tracks the performance of a selection of US government and investment
grade US corporate bonds. Indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in an index. Securities in the fund may not match those in an index.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
18
<Page>
UNDERSTANDING YOUR EXPENSES
Colonial Strategic Income Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 1,002.98 1,019.98 4.82 4.86 0.97
</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 365.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
19
<Page>
INVESTMENT PORTFOLIO
Colonial Strategic Income Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
PAR VALUE
---------------- ------------
GOVERNMENT AGENCIES &
OBLIGATIONS--53.8%
FOREIGN GOVERNMENT BONDS--32.9%
Aries Vermoegensverwaltungs
GmbH
7.750% 10/25/09 (a) EUR 250,000 $ 351,337
Corp. Andina de Fomento
6.375% 06/18/09 510,000 696,580
European Investment Bank
7.625% 12/07/07 GBP 455,000 876,909
Federal Republic of Brazil
4.250% 04/15/24 (b) USD 1,415,000 1,335,477
8.750% 02/04/25 315,000 320,513
11.500% 04/02/09 EUR 480,000 705,785
14.500% 10/15/09 USD 1,200,000 1,558,200
Federal Republic of Germany
4.250% 07/04/14 EUR 1,450,000 1,919,002
5.000% 07/04/12 555,000 763,963
6.000% 07/04/07 1,210,000 1,574,984
Government of Canada
5.250% 06/01/13 CAD 920,000 827,303
10.000% 06/01/08 2,611,000 2,539,582
Government of New Zealand
6.000% 11/15/11 NZD 2,395,000 1,688,447
6.500% 04/15/13 815,000 593,821
Kingdom of Norway
5.500% 05/15/09 NOK 5,200,000 873,098
6.000% 05/16/11 3,450,000 607,832
Kingdom of Spain
5.500% 07/30/17 EUR 1,580,000 2,326,307
Kingdom of Sweden
5.000% 01/28/09 SEK 17,725,000 2,489,586
6.750% 05/05/14 11,070,000 1,841,646
Republic of Bulgaria
8.250% 01/15/15 USD 860,000 1,082,826
Republic of Colombia
9.750% 04/09/11 574,030 656,116
11.500% 05/31/11 EUR 335,000 519,389
11.750% 02/25/20 USD 580,000 758,350
Republic of France
4.000% 04/25/14 EUR 945,000 1,227,578
Republic of Italy
5.000% 02/01/12 1,340,000 1,826,903
Republic of Panama
8.875% 09/30/27 USD 795,000 946,050
Republic of Peru
7.500% 10/14/14 EUR 315,000 428,404
9.875% 02/06/15 USD 660,000 811,800
Republic of Philippines
10.625% 03/16/25 375,000 422,438
Republic of Poland
8.500% 05/12/07 PLN 1,679,000 537,127
Republic of South Africa
5.250% 05/16/13 EUR 660,000 875,827
6.500% 06/02/14 USD 780,000 866,580
Republic of Venezuela
9.250% 09/15/27 868,000 910,532
Russian Federation
5.000% 03/31/30 USD 645,000 $ 720,078
8.750% 07/24/05 640,000 641,408
11.000% 07/24/18 655,000 977,063
12.750% 06/24/28 955,000 1,727,213
United Kingdom Treasury
5.000% 03/07/12 GBP 368,000 692,961
7.500% 12/07/06 840,000 1,575,590
9.000% 07/12/11 615,000 1,388,216
United Mexican States
7.500% 03/08/10 USD 1,210,000 1,381,215
7.500% 04/08/33 EUR 605,000 858,865
11.375% 09/15/16 USD 930,000 1,377,795
Victoria Treasury Corp.
7.500% 08/15/08 AUD 2,120,000 1,711,375
Western Australia Treasury Corp.
8.000% 10/15/07 1,570,000 1,262,242
------------
50,074,313
------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS--20.9%
Federal Farm Credit Bank
5.000% 08/25/10 USD 500,000 501,061
U.S. Treasury Bonds
7.500% 11/15/24 1,310,000 1,861,223
8.750% 05/15/17 4,911,000 7,051,312
8.875% 02/15/19 300,000 445,981
10.375% 11/15/12 3,800,000 4,370,741
12.500% 08/15/14 9,012,000 11,990,538
U.S. Treasury Notes
5.625% 05/15/08 2,900,000 3,052,929
6.500% 10/15/06 2,350,000 2,435,279
------------
31,709,064
------------
TOTAL GOVERNMENT AGENCIES & OBLIGATIONS
(cost of $75,532,918) 81,783,377
------------
CORPORATE FIXED-INCOME
BONDS & NOTES--40.3%
BASIC MATERIALS--4.2%
CHEMICALS--1.7%
AGRICULTURAL CHEMICALS--0.6%
IMC Global, Inc.
10.875% 08/01/13 205,000 240,875
Terra Capital, Inc.
12.875% 10/15/08 310,000 366,575
UAP Holding Corp.
(c) 07/15/12
(10.750% 01/15/08) 190,000 155,800
United Agri Products
8.250% 12/15/11 177,000 183,195
------------
946,445
------------
CHEMICALS - DIVERSIFIED--0.9%
BCP Crystal US Holdings Corp.
9.625% 06/15/14 91,000 101,920
EquiStar Chemicals LP
10.625% 05/01/11 220,000 244,200
</Table>
See Accompanying Notes to Financial Statements.
20
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
Huntsman International LLC
7.375% 01/01/15 (a) $ 140,000 $ 136,500
Huntsman LLC
11.500% 07/15/12 210,000 244,125
Innophos Investments Holdings,
Inc., PIK
11.268% 02/15/15 (a)(b) 118,302 107,134
Lyondell Chemical Co.
9.625% 05/01/07 145,000 154,787
10.875% 05/01/09 5,000 5,200
NOVA Chemicals Corp.
6.500% 01/15/12 270,000 262,575
------------
1,256,441
------------
CHEMICALS - SPECIALTY--0.2%
Rhodia SA
8.875% 06/01/11 350,000 336,000
------------
FOREST PRODUCTS & PAPER--1.5%
FORESTRY--0.2%
Millar Western Forest
Products Ltd.
7.750% 11/15/13 145,000 135,938
Tembec Industries, Inc.
8.500% 02/01/11 180,000 138,150
------------
274,088
------------
PAPER & RELATED PRODUCTS--1.3%
Abitibi-Consolidated, Inc.
8.375% 04/01/15 155,000 158,294
Boise Cascade LLC
6.016% 10/15/12 (a)(b) 105,000 105,262
7.125% 10/15/14 (a) 120,000 117,900
Buckeye Technologies, Inc.
8.500% 10/01/13 145,000 148,444
Caraustar Industries, Inc.
9.875% 04/01/11 145,000 146,450
Fraser Papers, Inc.
8.750% 03/15/15 (a) 170,000 155,125
Georgia-Pacific Corp.
8.000% 01/15/24 210,000 243,075
Neenah Paper, Inc.
7.375% 11/15/14 (a) 85,000 82,450
Newark Group, Inc.
9.750% 03/15/14 290,000 266,075
NewPage Corp.
10.000% 05/01/12 (a) 105,000 105,787
12.000% 05/01/13 (a) 130,000 129,350
Norske Skog Canada Ltd.
7.375% 03/01/14 185,000 181,300
8.625% 06/15/11 90,000 92,700
------------
1,932,212
------------
IRON/STEEL--0.4%
METAL - IRON--0.1%
Wise Metals Group LLC
10.250% 05/15/12 270,000 226,125
------------
STEEL - PRODUCERS--0.1%
Steel Dynamics, Inc.
9.500% 03/15/09 105,000 111,825
------------
STEEL - SPECIALTY--0.2%
UCAR Finance, Inc.
10.250% 02/15/12 $ 250,000 $ 263,750
------------
METALS & MINING--0.6%
METAL - ALUMINUM--0.1%
Kaiser Aluminum &
Chemical Corp.
10.875% 10/15/06 (d) 165,000 143,963
------------
METAL - DIVERSIFIED--0.0%
HudBay Mining &
Smelting Co., Ltd.
9.625% 01/15/12 (a) 65,000 64,025
------------
NON-FERROUS METALS--0.5%
Codelco, Inc.
5.500% 10/15/13 730,000 760,003
------------
COMMUNICATIONS--9.1%
MEDIA--4.1%
BROADCAST SERVICES/PROGRAMS--0.2%
Fisher Communications, Inc.
8.625% 09/15/14 180,000 191,025
XM Satellite Radio Holdings, Inc.
8.710% 05/01/09 (b) 160,000 161,000
------------
352,025
------------
CABLE TV--1.7%
Atlantic Broadband
Finance LLC
9.375% 01/15/14 (a) 235,000 221,487
Charter Communications
Holdings II LLC
10.250% 09/15/10 210,000 212,625
Charter Communications
Holdings LLC
9.920% 04/01/11 910,000 668,850
CSC Holdings, Inc.
6.750% 04/15/12 (a) 105,000 98,438
7.625% 04/01/11 290,000 288,550
EchoStar DBS Corp.
6.625% 10/01/14 345,000 340,687
Insight Midwest LP
9.750% 10/01/09 115,000 119,313
Northland Cable Television, Inc.
10.250% 11/15/07 245,000 240,712
Pegasus Satellite
Communications, Inc.
11.250% 01/15/10 (a)(d) 270,000 147,825
Telenet Group Holding NV
(c) 06/15/14
(11.500% 06/15/08) (a) 315,000 239,400
------------
2,577,887
------------
MULTIMEDIA--0.7%
Advanstar Communications, Inc.
12.000% 02/15/11 195,000 207,675
(c) 10/15/11
(15.000% 10/15/05) 185,000 183,150
</Table>
See Accompanying Notes to Financial Statements.
21
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
Haights Cross
Communications, Inc.
(c) 08/15/11
(12.500% 02/15/09) $ 205,000 $ 125,306
Haights Cross
Operating Co.
11.750% 08/15/11 280,000 306,600
Quebecor Media, Inc.
11.125% 07/15/11 205,000 227,550
------------
1,050,281
------------
PUBLISHING - NEWSPAPERS--0.1%
Hollinger, Inc.
11.875% 03/01/11 (a) 81,000 82,620
12.875% 03/01/11 (a) 117,000 127,530
------------
210,150
------------
PUBLISHING - PERIODICALS--0.9%
CBD Media Holdings LLC &
Finance, Inc.
9.250% 07/15/12 145,000 146,088
Dex Media West LLC
9.875% 08/15/13 436,000 499,220
Dex Media, Inc.
(c) 11/15/13
(9.000% 11/15/08) 160,000 128,800
Primedia, Inc.
8.875% 05/15/11 315,000 330,750
WDAC Subsidiary Corp.
8.375% 12/01/14 (a) 180,000 172,350
------------
1,277,208
------------
TELEVISION--0.5%
Paxson Communications Corp.
10.750% 07/15/08 250,000 246,250
(c) 01/15/09
(12.250% 01/15/06) 220,000 205,700
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 250,000 262,500
------------
714,450
------------
TELECOMMUNICATIONS--5.0%
CELLULAR TELECOMMUNICATIONS--2.0%
American Cellular Corp.
10.000% 08/01/11 180,000 183,150
Dobson Cellular Systems, Inc.
8.375% 11/01/11 (a) 55,000 57,888
Dobson Communications Corp.
8.875% 10/01/13 175,000 160,125
Horizon PCS, Inc.
11.375% 07/15/12 120,000 133,800
iPCS, Inc.
11.500% 05/01/12 105,000 117,862
Nextel Communications, Inc.
7.375% 08/01/15 390,000 421,200
Nextel Partners, Inc.
8.125% 07/01/11 255,000 277,312
Rogers Cantel, Inc.
9.750% 06/01/16 230,000 282,900
Rogers Wireless, Inc.
8.000% 12/15/12 $ 140,000 $ 150,500
Rural Cellular Corp.
8.250% 03/15/12 150,000 156,750
9.750% 01/15/10 180,000 166,050
UbiquiTel Operating Co.
9.875% 03/01/11 260,000 282,750
US Unwired, Inc.
10.000% 06/15/12 300,000 333,000
Western Wireless Corp.
9.250% 07/15/13 270,000 308,475
------------
3,031,762
------------
SATELLITE TELECOMMUNICATIONS--0.7%
Inmarsat Finance II PLC
(c) 11/15/12
(10.375% 11/15/08) 255,000 200,813
Intelsat Bermuda Ltd.
8.250% 01/15/13 (a) 275,000 283,937
PanAmSat Corp.
9.000% 08/15/14 373,000 406,570
Zeus Special Subsidiary Ltd.
(c) 02/01/15
(9.250% 02/01/10) (a) 200,000 133,000
------------
1,024,320
------------
TELECOMMUNICATION EQUIPMENT--0.1%
Lucent Technologies, Inc.
6.450% 03/15/29 220,000 196,900
------------
TELECOMMUNICATION SERVICES--0.4%
Axtel SA de CV
11.000% 12/15/13 270,000 294,300
Time Warner Telecom
Holdings, Inc.
9.250% 02/15/14 (a) 90,000 87,300
Time Warner Telecom, Inc.
9.750% 07/15/08 15,000 15,075
10.125% 02/01/11 280,000 280,700
------------
677,375
------------
TELEPHONE - INTEGRATED--1.5%
Cincinnati Bell, Inc.
8.375% 01/15/14 330,000 338,250
Citizens Communications Co.
9.000% 08/15/31 95,000 97,613
Qwest Capital Funding, Inc.
7.250% 02/15/11 530,000 506,150
7.750% 02/15/31 150,000 127,500
Qwest Communications
International, Inc.
7.500% 02/15/14 (a) 265,000 249,100
Qwest Services Corp.
13.500% 12/15/10 680,000 785,400
US LEC Corp.
11.890% 10/01/09 (b) 130,000 131,625
------------
2,235,638
------------
</Table>
See Accompanying Notes to Financial Statements.
22
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
WIRELESS EQUIPMENT--0.3%
American Towers, Inc.
7.250% 12/01/11 $ 180,000 $ 189,900
SBA Telecommunications, Inc.
(c) 12/15/11
(9.750% 12/15/07) 327,000 300,023
------------
489,923
------------
CONSUMER CYCLICAL--7.5%
AIRLINES--0.3%
AIRLINES--0.3%
Continental Airlines, Inc.
7.568% 12/01/06 335,000 288,100
Northwest Airlines, Inc.
9.875% 03/15/07 360,000 189,900
------------
478,000
------------
APPAREL--0.6%
APPAREL MANUFACTURERS--0.6%
Broder Brothers Co.
11.250% 10/15/10 180,000 181,800
Levi Strauss & Co.
9.750% 01/15/15 475,000 471,437
Phillips-Van Heusen Corp.
7.250% 02/15/11 95,000 97,850
8.125% 05/01/13 115,000 122,188
------------
873,275
------------
AUTO MANUFACTURERS--0.2%
AUTO - CARS/LIGHT TRUCKS--0.2%
Ford Motor Co.
7.450% 07/16/31 195,000 161,850
General Motors Corp.
8.375% 07/15/33 255,000 213,563
------------
375,413
------------
AUTO PARTS & EQUIPMENT--1.0%
AUTO - MEDIUM & HEAVY DUTY TRUCKS--0.1%
Navistar International Corp.
7.500% 06/15/11 180,000 183,600
------------
AUTO/TRUCK PARTS & EQUIPMENT -
ORIGINAL--0.4%
Cooper-Standard Automotive, Inc.
8.375% 12/15/14 370,000 296,000
Delco Remy International, Inc.
9.375% 04/15/12 195,000 159,900
Dura Operating Corp.
8.625% 04/15/12 165,000 149,325
------------
605,225
------------
AUTO/TRUCK PARTS & EQUIPMENT -
REPLACEMENT--0.2%
Commercial Vehicle Group
8.000% 07/01/13 (a) 135,000 137,363
Rexnord Corp.
10.125% 12/15/12 150,000 164,250
------------
301,613
------------
RUBBER - TIRES--0.3%
Goodyear Tire & Rubber Co.
7.857% 08/15/11 $ 85,000 $ 82,450
9.000% 07/01/15 (a) 330,000 322,575
12.250% 03/01/11 75,000 83,812
------------
488,837
------------
DISTRIBUTION/WHOLESALE--0.1%
DISTRIBUTION/WHOLESALE--0.1%
Buhrmann US, Inc.
7.875% 03/01/15 (a) 100,000 97,000
------------
ENTERTAINMENT--1.0%
GAMBLING (NON-HOTEL)--0.2%
Global Cash Access LLC
8.750% 03/15/12 265,000 288,188
------------
MUSIC--0.3%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 155,000 162,362
Warner Music Group
7.375% 04/15/14 240,000 243,000
------------
405,362
------------
RESORTS/THEME PARKS--0.2%
Six Flags, Inc.
9.625% 06/01/14 300,000 278,250
------------
THEATERS--0.3%
AMC Entertainment, Inc.
9.875% 02/01/12 300,000 297,750
LCE Acquisition Corp.
9.000% 08/01/14 (a) 225,000 218,250
------------
516,000
------------
HOME BUILDERS--0.5%
BUILDING - RESIDENTIAL/COMMERCIAL--0.5%
D.R. Horton, Inc.
9.750% 09/15/10 250,000 292,500
K. Hovnanian Enterprises, Inc.
8.875% 04/01/12 45,000 48,600
10.500% 10/01/07 250,000 276,250
Standard-Pacific Corp.
9.250% 04/15/12 185,000 205,813
------------
823,163
------------
HOME FURNISHINGS--0.3%
APPLIANCES--0.1%
ALH Finance LLC
8.500% 01/15/13 195,000 179,400
------------
HOME FURNISHINGS--0.2%
WII Components, Inc.
10.000% 02/15/12 200,000 196,500
------------
LEISURE TIME--0.5%
LEISURE & RECREATIONAL PRODUCTS--0.1%
K2, Inc.
7.375% 07/01/14 120,000 126,000
------------
RECREATIONAL CENTERS--0.4%
AMF Bowling Worldwide, Inc.
10.000% 03/01/10 225,000 227,250
</Table>
See Accompanying Notes to Financial Statements.
23
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
Equinox Holdings, Inc.
9.000% 12/15/09 $ 240,000 $ 247,800
Town Sports International, Inc.
(c) 02/01/14
(11.000% 02/01/09) 280,000 165,200
------------
640,250
------------
LODGING--2.0%
CASINO HOTELS--2.0%
Circus & Eldorado/Silver
Legacy Capital Corp.
10.125% 03/01/12 220,000 230,450
Hard Rock Hotel, Inc.
8.875% 06/01/13 260,000 282,750
Hollywood Casino Shreveport
13.000% 08/01/06 (e) 600,000 489,000
Inn of the Mountain Gods
Resort & Casino
12.000% 11/15/10 205,000 234,212
Las Vegas Sands Corp.
6.375% 02/15/15 (a) 55,000 53,763
MGM Mirage
6.750% 09/01/12 210,000 215,775
Mohegan Tribal
Gaming Authority
6.125% 02/15/13 (a) 125,000 126,250
Penn National Gaming, Inc.
6.750% 03/01/15 (a) 340,000 338,300
Pinnacle Entertainment, Inc.
8.750% 10/01/13 140,000 148,400
River Rock Entertainment
9.750% 11/01/11 145,000 159,862
Seneca Gaming Corp.
7.250% 05/01/12 180,000 186,075
Station Casinos, Inc.
6.875% 03/01/16 65,000 66,950
Virgin River Casino Corp.
(c) 01/15/13
(12.750% 01/15/09) (a) 150,000 103,500
9.000% 01/15/12 (a) 83,000 86,528
Wynn Las Vegas LLC
6.625% 12/01/14 270,000 262,575
------------
2,984,390
------------
RETAIL--0.9%
RETAIL - AUTOMOBILES--0.1%
Asbury Automotive Group, Inc.
8.000% 03/15/14 200,000 193,000
------------
RETAIL - DRUG STORES--0.2%
Jean Coutu Group, Inc. (PJC)
8.500% 08/01/14 145,000 142,462
Rite Aid Corp.
7.500% 01/15/15 70,000 67,200
9.250% 06/01/13 110,000 106,700
------------
316,362
------------
RETAIL - HOME FURNISHINGS--0.1%
Tempur-Pedic, Inc.
10.250% 08/15/10 173,000 192,030
------------
RETAIL - JEWELRY--0.1%
Finlay Fine Jewelry Corp.
8.375% 06/01/12 $ 185,000 $ 164,650
------------
RETAIL - PROPANE DISTRIBUTORS--0.2%
Ferrellgas Partners LP
8.750% 06/15/12 180,000 180,000
Suburban Propane Partners LP
6.875% 12/15/13 (a) 100,000 95,000
------------
275,000
------------
RETAIL - RESTAURANTS--0.1%
Landry's Restaurants, Inc.
7.500% 12/15/14 175,000 169,750
------------
RETAIL - VIDEO RENTAL--0.1%
Movie Gallery, Inc.
11.000% 05/01/12 (a) 90,000 94,500
------------
TEXTILES--0.1%
TEXTILE - PRODUCTS--0.1%
INVISTA
9.250% 05/01/12 (a) 135,000 147,656
------------
CONSUMER NON-CYCLICAL--5.5%
AGRICULTURE--0.1%
TOBACCO--0.1%
Alliance One International, Inc.
11.000% 05/15/12 (a) 140,000 143,850
------------
BEVERAGES--0.1%
BEVERAGES - WINE/SPIRITS--0.1%
Constellation Brands, Inc.
8.125% 01/15/12 145,000 154,788
------------
BIOTECHNOLOGY--0.2%
MEDICAL - BIOMEDICAL/GENE--0.2%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 220,000 237,600
------------
COMMERCIAL SERVICES--1.7%
COMMERCIAL SERVICES--0.3%
Iron Mountain, Inc.
7.750% 01/15/15 225,000 227,250
Language Line Holdings, Inc.
11.125% 06/15/12 275,000 247,500
------------
474,750
------------
COMMERCIAL SERVICES - FINANCE--0.2%
Dollar Financial Group, Inc.
9.750% 11/15/11 290,000 298,700
------------
FUNERAL SERVICES & RELATED ITEMS--0.2%
Service Corp. International
7.700% 04/15/09 275,000 294,938
------------
PRINTING - COMMERCIAL - 0.3%
Sheridan Group
10.250% 08/15/11 155,000 161,200
Vertis, Inc.
13.500% 12/07/09 (a) 285,000 209,475
------------
370,675
------------
</Table>
See Accompanying Notes to Financial Statements.
24
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
PRIVATE CORRECTIONS--0.3%
Corrections Corp. of America
6.250% 03/15/13 $ 190,000 $ 188,575
GEO Group, Inc.
8.250% 07/15/13 245,000 237,037
------------
425,612
------------
RENTAL AUTO/EQUIPMENT--0.4%
NationsRent, Inc.
9.500% 10/15/10 175,000 189,000
9.500% 05/01/15 (a) 160,000 157,600
Neff Rent LLC/Neff
Finance Corp.
11.250% 06/15/12 (a) 155,000 158,100
Williams Scotsman, Inc.
9.875% 06/01/07 155,000 153,450
------------
658,150
------------
COSMETICS/PERSONAL CARE--0.4%
COSMETICS & TOILETRIES--0.4%
DEL Laboratories, Inc.
8.000% 02/01/12 215,000 182,750
Elizabeth Arden, Inc.
7.750% 01/15/14 175,000 182,000
Revlon Consumer
Products Corp.
8.625% 02/01/08 60,000 57,000
9.500% 04/01/11 170,000 161,500
------------
583,250
------------
FOOD--0.8%
FOOD - CONFECTIONERY--0.2%
Merisant Co.
10.500% 07/15/13 (a) 160,000 117,200
Tabletop Holdings, Inc.
(c) 05/15/14
(12.250% 11/15/08) (a) 480,000 182,400
------------
299,600
------------
FOOD - MISCELLANEOUS/DIVERSIFIED--0.4%
Dole Food Co., Inc.
8.625% 05/01/09 218,000 231,625
Pinnacle Foods Holding Corp.
8.250% 12/01/13 365,000 326,675
Reddy Ice Holdings, Inc.
(c) 11/01/12
(10.500% 11/01/08) (a) 140,000 100,800
------------
659,100
------------
FOOD - RETAIL--0.2%
Stater Brothers Holdings, Inc.
8.125% 06/15/12 330,000 322,575
------------
HEALTHCARE SERVICES--1.4%
DIALYSIS CENTERS--0.1%
DaVita, Inc.
7.250% 03/15/15 (a) 215,000 220,912
------------
MEDICAL - HMO--0.2%
Coventry Health Care, Inc.
8.125% 02/15/12 220,000 237,050
------------
MEDICAL - HOSPITALS--0.3%
Tenet Healthcare Corp.
9.875% 07/01/14 $ 475,000 $ 510,625
------------
MEDICAL - OUTPATIENT/HOME MEDICAL--0.1%
Select Medical Corp.
7.625% 02/01/15 (a) 125,000 123,125
------------
MRI/MEDICAL DIAGNOSTIC IMAGING--0.5%
InSight Health Services Corp.
9.875% 11/01/11 305,000 239,425
MedQuest, Inc.
11.875% 08/15/12 280,000 264,600
MQ Associates, Inc.
(c) 08/15/12
(12.250% 08/15/08) 480,000 256,800
------------
760,825
------------
PHYSICIAN PRACTICE MANAGEMENT - 0.2%
US Oncology Holdings, Inc.
8.620% 03/15/15 (a)(b) 110,000 102,575
US Oncology, Inc.
9.000% 08/15/12 235,000 251,450
------------
354,025
------------
HOUSEHOLD PRODUCTS/WARES--0.4%
CONSUMER PRODUCTS - MISCELLANEOUS--0.4%
Amscan Holdings, Inc.
8.750% 05/01/14 270,000 248,400
Jostens IH Corp.
7.625% 10/01/12 145,000 142,100
Playtex Products, Inc.
9.375% 06/01/11 245,000 259,087
------------
649,587
------------
PHARMACEUTICALS--0.4%
MEDICAL - DRUGS--0.3%
Elan Finance PLC
7.750% 11/15/11 (a) 320,000 271,200
Warner Chilcott Corp.
8.750% 02/01/15 (a) 125,000 121,563
------------
392,763
------------
MEDICAL - WHOLESALE DRUG DISTRIBUTION--0.1%
Nycomed A/S
11.750% 09/15/13 (a) 175,000 196,056
------------
ENERGY--3.6%
OIL & GAS SERVICES--0.6%
OIL - FIELD SERVICES--0.6%
Gazprom
9.625% 03/01/13 630,000 771,120
Newpark Resources, Inc.
8.625% 12/15/07 185,000 185,231
------------
956,351
------------
OIL & GAS--1.5%
OIL & GAS DRILLING--0.1%
Pride International, Inc.
7.375% 07/15/14 130,000 142,188
------------
</Table>
See Accompanying Notes to Financial Statements.
25
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
OIL COMPANIES - EXPLORATION & PRODUCTION--1.3%
Chesapeake Energy Corp.
6.375% 06/15/15 (a) $ 55,000 $ 56,238
7.500% 06/15/14 190,000 204,725
Compton Petroleum Corp.
9.900% 05/15/09 275,000 288,750
Delta Petroleum Corp.
7.000% 04/01/15 (a) 110,000 100,925
Energy Partners Ltd.
8.750% 08/01/10 125,000 131,250
Magnum Hunter
Resources, Inc.
9.600% 03/15/12 101,000 112,110
Pemex Finance Ltd.
9.150% 11/15/18 310,000 394,252
10.610% 08/15/17 215,000 292,808
Petroquest Energy, Inc.
10.375% 05/15/12 (a) 130,000 128,375
Whiting Petroleum Corp.
7.250% 05/01/12 270,000 276,750
------------
1,986,183
------------
OIL REFINING & MARKETING--0.1%
Premcor Refining Group, Inc.
7.500% 06/15/15 165,000 179,437
------------
PIPELINES--1.5%
PIPELINES--1.5%
Coastal Corp.
7.625% 09/01/08 135,000 138,375
7.750% 06/15/10 300,000 306,375
Dynegy Holdings, Inc.
6.875% 04/01/11 300,000 296,250
9.875% 07/15/10 (a) 110,000 121,000
Northwest Pipeline Corp.
8.125% 03/01/10 85,000 92,225
Sonat, Inc.
7.625% 07/15/11 645,000 651,450
Southern Natural Gas Co.
8.875% 03/15/10 130,000 142,675
Williams Companies, Inc.
8.125% 03/15/12 430,000 492,350
------------
2,240,700
------------
FINANCIALS--1.4%
DIVERSIFIED FINANCIAL SERVICES--1.2%
FINANCE - AUTO LOANS--0.1%
General Motors Acceptance Corp.
6.875% 09/15/11 150,000 138,551
6.875% 08/28/12 65,000 59,188
------------
197,739
------------
FINANCE - CONSUMER LOANS--0.5%
SLM Corp.
6.500% 06/15/10 NZD 1,100,000 760,686
------------
FINANCE - INVESTMENT BANKER/BROKER--0.5%
E*Trade Financial Corp.
8.000% 06/15/11 $ 135,000 $ 142,425
LaBranche & Co., Inc.
11.000% 05/15/12 490,000 529,200
------------
671,625
------------
FINANCE - MORTGAGE LOAN/BANKER--0.1%
Residential Capital Corp.
6.375% 06/30/10 (a) 50,000 50,427
6.875% 06/30/15 (a) 50,000 51,316
------------
101,743
------------
REAL ESTATE INVESTMENT TRUSTS--0.1%
REITS - HOTELS--0.0%
La Quinta Properties, Inc.
7.000% 08/15/12 60,000 61,650
------------
REITS - MORTGAGE--0.1%
Thornburg Mortgage, Inc.
8.000% 05/15/13 145,000 147,900
------------
SAVINGS & LOANS--0.1%
SAVINGS & LOANS/THRIFTS - WESTERN US--0.1%
Western Financial Bank
9.625% 05/15/12 150,000 162,750
------------
INDUSTRIALS--6.5%
AEROSPACE & DEFENSE--0.7%
AEROSPACE/DEFENSE - EQUIPMENT--0.7%
Argo-Tech Corp.
9.250% 06/01/11 165,000 179,231
BE Aerospace, Inc.
8.875% 05/01/11 270,000 281,475
Sequa Corp.
8.875% 04/01/08 105,000 112,875
9.000% 08/01/09 90,000 99,000
Standard Aero
Holdings, Inc.
8.250% 09/01/14 (a) 175,000 183,750
TransDigm, Inc.
8.375% 07/15/11 155,000 163,138
------------
1,019,469
------------
BUILDING MATERIALS--0.5%
BUILDING & CONSTRUCTION PRODUCTS - MISCELLANEOUS--0.1%
Associated Materials, Inc.
(c) 03/01/14
(11.250% 03/01/09) 175,000 112,000
Nortek, Inc.
8.500% 09/01/14 120,000 111,000
------------
223,000
------------
BUILDING PRODUCTS - CEMENT/AGGREGATION--0.3%
RMCC Acquisition Co.
9.500% 11/01/12 (a) 225,000 218,250
U.S. Concrete, Inc.
8.375% 04/01/14 195,000 183,300
------------
401,550
------------
</Table>
See Accompanying Notes to Financial Statements.
26
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
BUILDING PRODUCTS - DOORS & WINDOWS--0.1%
ACIH, Inc.
(c) 12/15/12
(11.500% 12/15/07) (a) $ 235,000 $ 138,650
------------
ELECTRICAL COMPONENTS & EQUIPMENT--0.1%
WIRE & CABLE PRODUCTS--0.1%
Coleman Cable, Inc.
9.875% 10/01/12 (a) 220,000 196,350
------------
ELECTRONICS--0.2%
ELECTRONIC COMPONENTS - MISCELLANEOUS--0.2%
Flextronics International Ltd.
6.250% 11/15/14 185,000 185,000
Sanmina-SCI Corp.
6.750% 03/01/13 (a) 215,000 205,325
------------
390,325
------------
ENGINEERING & CONSTRUCTION - 0.2%
BUILDING & CONSTRUCTION - MISCELLANEOUS--0.2%
J. Ray McDermott SA
11.500% 12/15/13 (a) 260,000 291,200
------------
ENVIRONMENTAL CONTROL--0.7%
NON-HAZARDOUS WASTE DISPOSAL--0.6%
Allied Waste North America, Inc.
7.250% 03/15/15 (a) 80,000 77,000
7.875% 04/15/13 390,000 396,825
8.500% 12/01/08 150,000 157,875
Waste Services, Inc.
9.500% 04/15/14 (a) 335,000 329,137
------------
960,837
------------
RECYCLING--0.1%
Aleris International, Inc.
9.000% 11/15/14 70,000 72,800
------------
MACHINERY - DIVERSIFIED--0.1%
MACHINERY - GENERAL INDUSTRY--0.1%
Douglas Dynamics LLC
7.750% 01/15/12 (a) 225,000 220,500
------------
METAL FABRICATE/HARDWARE--0.7%
METAL PROCESSORS & FABRICATION--0.5%
Altra Industrial Motion, Inc.
9.000% 12/01/11 (a) 150,000 141,750
Mueller Group, Inc.
10.000% 05/01/12 200,000 210,000
Mueller Holdings, Inc.
(c) 04/15/14
(14.750% 04/15/09) 175,000 126,438
TriMas Corp.
9.875% 06/15/12 270,000 226,800
------------
704,988
------------
METAL PRODUCTS - FASTENERS--0.2%
FastenTech, Inc.
11.500% 05/01/11 280,000 303,800
------------
MISCELLANEOUS MANUFACTURING--0.8%
DIVERSIFIED MANUFACTURING OPERATORS--0.6%
Bombardier, Inc.
6.300% 05/01/14 (a) 340,000 303,450
J.B. Poindexter & Co.
8.750% 03/15/14 $ 215,000 $ 195,650
Koppers Industries, Inc.
9.875% 10/15/13 210,000 227,850
Trinity Industries, Inc.
6.500% 03/15/14 105,000 104,475
------------
831,425
------------
FILTRATION/SEPARATE PRODUCTS--0.1%
Polypore International, Inc.
(c) 10/01/12
(10.500% 10/01/08) (a) 295,000 156,719
------------
MISCELLANEOUS MANUFACTURING--0.1%
Samsonite Corp.
8.875% 06/01/11 175,000 186,375
------------
PACKAGING & CONTAINERS--1.2%
CONTAINERS - METAL/GLASS--0.6%
Crown European Holdings SA
10.875% 03/01/13 250,000 295,000
Owens-Brockway Glass Container
6.750% 12/01/14 160,000 162,600
8.250% 05/15/13 370,000 400,525
Owens-Illinois, Inc.
7.500% 05/15/10 80,000 84,000
------------
942,125
------------
CONTAINERS - PAPER/PLASTIC--0.6%
Consolidated Container Co. LLC
(c) 06/15/09
(10.750% 06/15/07) 175,000 136,500
Jefferson Smurfit Corp.
8.250% 10/01/12 165,000 166,238
11.500% 10/01/15 239,358 223,488
MDP Acquisitions PLC
9.625% 10/01/12 220,000 218,900
Portola Packaging, Inc.
8.250% 02/01/12 190,000 129,675
------------
874,801
------------
TRANSPORTATION--1.3%
TRANSPORTATION - MARINE--0.6%
Ship Finance International Ltd.
8.500% 12/15/13 445,000 426,087
Stena AB
7.500% 11/01/13 235,000 231,475
9.625% 12/01/12 170,000 184,025
------------
841,587
------------
TRANSPORTATION - RAILROAD--0.2%
TFM SA de CV
9.375% 05/01/12 (a) 220,000 229,900
12.500% 06/15/12 60,000 70,200
------------
300,100
------------
TRANSPORTATION - SERVICES--0.4%
CHC Helicopter Corp.
7.375% 05/01/14 (a) 135,000 134,663
7.375% 05/01/14 165,000 164,587
Petroleum Helicopters, Inc.
9.375% 05/01/09 325,000 342,875
------------
642,125
------------
</Table>
See Accompanying Notes to Financial Statements.
27
<Page>
<Table>
<Caption>
PAR VALUE
---------------- ------------
TRANSPORTATION - TRUCKS--0.1%
QDI LLC
9.000% 11/15/10 $ 240,000 $ 221,400
------------
TECHNOLOGY--0.1%
SEMICONDUCTORS--0.1%
ELECTRONIC COMPONENTS - SEMICONDUCTORS--0.1%
Amkor Technology, Inc.
9.250% 02/15/08 180,000 171,000
------------
UTILITIES--2.4%
ELECTRIC--2.4%
ELECTRIC - GENERATION--0.6%
AES Corp.
9.000% 05/15/15 (a) 70,000 78,400
9.500% 06/01/09 262,000 290,820
Edison Mission Energy
9.875% 04/15/11 290,000 339,300
Texas Genco LLC
6.875% 12/15/14 (a) 150,000 157,875
------------
866,395
------------
ELECTRIC - INTEGRATED--0.7%
CMS Energy Corp.
8.900% 07/15/08 225,000 244,125
Nevada Power Co.
9.000% 08/15/13 125,000 140,312
10.875% 10/15/09 215,000 240,531
PSEG Energy Holdings LLC
8.625% 02/15/08 275,000 291,500
TNP Enterprises, Inc.
10.250% 04/01/10 195,000 204,994
------------
1,121,462
------------
INDEPENDENT POWER PRODUCER--1.1%
Caithness Coso Funding Corp.
9.050% 12/15/09 240,366 257,192
Calpine Corp.
8.500% 07/15/10 (a) 180,000 138,600
Calpine Generating Co. LLC
11.500% 04/01/11 160,000 143,200
12.390% 04/01/11 (b) 360,000 328,500
MSW Energy Holdings LLC
7.375% 09/01/10 90,000 92,250
8.500% 09/01/10 270,000 286,200
Orion Power Holdings, Inc.
12.000% 05/01/10 300,000 359,250
------------
1,605,192
------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $60,673,711) 61,207,893
------------
MORTGAGE-BACKED SECURITIES--2.0%
MORTGAGE-BACKED SECURITIES--2.0%
Federal Home Loan
Mortgage Corp.
8.000% 10/01/26 180,641 194,903
Federal National Mortgage
Association TBA
6.500% 12/01/35 (f) $ 2,795,000 $ 2,891,953
------------
TOTAL MORTGAGE-BACKED SECURITIES
(cost of $3,087,005) 3,086,856
------------
ASSET-BACKED SECURITIES - 0.8%
Equity One ABS, Inc.
4.205% 04/25/34 625,000 615,587
GMAC Mortgage Corp.
4.865% 09/25/34 (b) 520,000 522,574
------------
TOTAL ASSET-BACKED SECURITIES
(cost of $1,140,508) 1,138,161
------------
CONVERTIBLE BONDS--0.3%
COMMUNICATIONS--0.2%
TELECOMMUNICATIONS--0.2%
TELECOMMUNICATIONS EQUIPMENT--0.2%
Nortel Networks Corp.
4.250% 09/01/08 385,000 359,975
------------
UTILITIES--0.1%
ELECTRIC--0.1%
INDEPENDENT POWER PRODUCERS--0.1%
Mirant Corp.
2.500% 06/15/21 (d) 185,000 146,150
------------
TOTAL CONVERTIBLE BONDS
(cost of $469,094) 506,125
------------
MUNICIPAL BOND (TAXABLE)--0.3%
CALIFORNIA--0.3%
CA Cabazon Band
Mission Indians
13.000% 10/01/11 (g) 350,000 363,972
------------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $350,000) 363,972
------------
<Caption>
UNITS
----------------
WARRANTS (i)--0.0%
COMMUNICATIONS--0.0%
TELECOMMUNICATIONS--0.0%
CELLULAR TELECOMMUNICATIONS--0.0%
UbiquiTel, Inc.
Expires 04/15/10 (a) 225 2
------------
TELECOMMUNICATION SERVICES--0.0%
Jazztel PLC
Expires 07/15/10 (h)(j) 95 --
------------
INDUSTRIALS--0.0%
TRANSPORTATION--0.0%
TRANSPORTATION - TRUCKS--0.0%
QDI LLC
Expires 01/15/0 7 (a)(j) 1,020 3,927
------------
TOTAL WARRANTS
(cost of $11,587) 3,929
------------
</Table>
See Accompanying Notes to Financial Statements.
28
<Page>
<Table>
<Caption>
UNITS VALUE
---------------- -------------
COMMON STOCK--0.0%
INDUSTRIALS--0.0%
COMMERCIAL SERVICES & SUPPLIES--0.0%
Fairlane Management
Corp. (h)(i) 2,000 $ --
-------------
TOTAL COMMON STOCK
(cost of $0) --
-------------
<Caption>
PAR
----------------
SHORT-TERM OBLIGATION--3.1%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/05, due 07/01/05
at 2.700%, collateralized by a
U.S. Treasury Bond maturing
02/15/19, market value of
$4,794,975 (repurchase
proceeds $4,694,352) $ 4,694,000 4,694,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $4,694,000) 4,694,000
-------------
TOTAL INVESTMENTS--100.6%
(cost of $145,958,823) (k) 152,784,313
-------------
OTHER ASSETS & LIABILITIES, NET--(0.6)% (849,382)
-------------
NET ASSETS--100.0% $ 151,934,931
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At June 30, 2005, the liquid portion of these Rule 144A securities amounted
to $10,684,865, which represents 7.0% of net assets.
At June 30, 2005, the illiquid Rule 144A security amounted to $210,150,
which represents 0.1% of net assets. Additional information on this
security is as follows:
<Table>
<Caption>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
Hollinger, Inc.
11.875% 03/01/11 09/30/04 $ 81,000
12.875% 03/01/11 09/30/04 116,271
----------
$ 197,271
==========
</Table>
(b) The interest rate shown on floating rate or variable rate securities
reflect the rate at June 30, 2005.
(c) Step bond. This security is currently not paying coupon. Shown
parenthetically is the next interest rate to be paid and the date the Fund
will begin accruing at this rate.
(d) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is not being accrued. At June 30,
2005, the value of these securities amounted to $437,938, which represents
0.3% of net assets.
(e) The issuer is in default of certain debt covenants. Income is not being
accrued. At June 30, 2005, the value of this security represents 0.3% of
net assets.
(f) Security purchased on a delayed delivery basis.
(g) Illiquid security.
(h) Security has no value.
(i) Non-income producing security.
(j) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(k) Cost for federal income tax purposes is $147,825,267.
As of June 30, 2005, 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 1,050,000 $ 1,269,981 1,264,284 07/15/05 $ (5,696)
EUR 880,000 1,064,365 1,060,470 07/15/05 (3,895)
EUR 119,000 143,956 146,822 07/20/05 2,866
EUR 2,300,000 2,780,471 2,775,318 07/18/05 (5,153)
EUR 468,250 566,445 577,572 07/20/05 11,127
EUR 1,190,000 1,439,888 1,433,950 07/27/05 (5,938)
GBP 892,000 1,598,019 1,609,168 07/18/05 11,149
GBP 410,000 733,960 752,350 07/20/05 18,390
NOK 4,875,000 745,631 759,985 07/20/05 14,354
SEK 8,750,000 1,120,835 1,134,890 07/15/05 14,055
SEK 8,750,000 1,120,835 1,134,890 07/15/05 14,055
SEK 8,500,000 1,088,811 1,102,192 07/15/05 13,381
--------------
$ 78,695
==============
</Table>
At June 30, 2005, the asset allocation of the Fund is as follows:
<Table>
<Caption>
% OF
ASSET ALLOCATION NET ASSETS
- ---------------- ----------
Government Agencies & Obligations 53.8%
Corporate Fixed-Income Bonds & Notes 40.3
Mortgage-Backed Securities 2.0
Asset-Backed Securities 0.8
Convertible Bonds 0.3
Municipal Bond (Taxable) 0.3
Warrants 0.0
Common Stock 0.0
Short-Term Obligation 3.1
Other Assets & Liabilities, Net (0.6)
-----
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
PIK Payment-In-Kind
PLN Polish Zloty
REIT Real Estate Investment Trust
SEK Swedish Krona
TBA To Be Announced
USD United States Dollar
</Table>
See Accompanying Notes to Financial Statements.
29
<Page>
STATEMENT OF ASSETS & LIABILITIES
Colonial Strategic Income Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 145,958,823
---------------
Investments, at value $ 152,784,313
Cash 2,022
Net unrealized appreciation on foreign forward currency contracts 99,377
Receivable for:
Investments sold 99,575
Fund shares sold 7,344
Interest 2,913,349
Dollar roll fee income 2,510
Deferred Trustees' compensation plan 10,110
---------------
TOTAL ASSETS 155,918,600
---------------
LIABILITIES:
Net unrealized depreciation on foreign forward currency contracts 20,682
Payable for:
Investments purchased 681,595
Investments purchased on a delayed delivery basis 2,906,264
Fund shares repurchased 236,695
Investment advisory fee 75,105
Transfer agent fee 594
Pricing and bookkeeping fees 7,341
Trustees' fees 508
Audit fee 18,352
Custody fee 7,348
Distribution fee--Class B 12,954
Deferred dollar roll fee income 1,004
Deferred Trustees' fees 10,110
Other liabilities 5,117
---------------
TOTAL LIABILITIES 3,983,669
---------------
NET ASSETS $ 151,934,931
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 165,145,961
Undistributed net investment income 3,227,173
Accumulated net realized loss (23,307,826)
Net unrealized appreciation on:
Investments 6,825,490
Foreign currency translations 44,133
---------------
NET ASSETS $ 151,934,931
===============
CLASS A:
Net assets $ 93,479,755
Shares outstanding 9,348,558
===============
Net asset value per share $ 10.00
===============
CLASS B:
Net assets $ 58,455,176
Shares outstanding 5,858,723
===============
Net asset value per share $ 9.98
===============
</Table>
See Accompanying Notes to Financial Statements.
30
<Page>
STATEMENT OF OPERATIONS
Colonial Strategic Income Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 5,276,549
Dollar roll fee income 23,566
---------------
Total Investment Income 5,300,115
---------------
EXPENSES:
Investment advisory fee 459,935
Distribution fee--Class B 73,742
Transfer agent fee 3,720
Pricing and bookkeeping fees 46,050
Trustees' fees 4,033
Custody fee 20,748
Non-recurring costs (See Note 6) 1,939
Other expenses 34,018
---------------
Total Expenses 644,185
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,939)
Custody earnings credit (382)
---------------
Net Expenses 641,864
---------------
Net Investment Income 4,658,251
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on:
Investments 1,425,878
Foreign currency transactions 989,027
---------------
Net realized gain 2,414,905
---------------
Net change in unrealized appreciation (depreciation) on:
Investments (6,667,737)
Foreign currency translations 110,369
---------------
Net change in unrealized appreciation (depreciation) (6,557,368)
---------------
Net Loss (4,142,463)
---------------
Net Increase in Net Assets from Operations $ 515,788
===============
</Table>
See Accompanying Notes to Financial Statements.
31
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Colonial Strategic Income Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- --------------- ---------------
OPERATIONS:
Net investment income $ 4,658,251 $ 9,642,011
Net realized gain on investments and foreign currency transactions 2,414,905 6,247,432
Net change in unrealized appreciation (depreciation) on investments and foreign
currency translations (6,557,368) (733,434)
--------------- ---------------
Net Increase from Operations 515,788 15,156,009
--------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (7,965,743)
Class B -- (4,548,504)
--------------- ---------------
Total Distributions Declared to Shareholders -- (12,514,247)
--------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 2,122,165 4,779,974
Distributions reinvested -- 7,965,743
Redemptions (11,611,295) (21,801,483)
--------------- ---------------
Net Decrease (9,489,130) (9,055,766)
--------------- ---------------
Class B:
Subscriptions 2,077,701 8,617,658
Distributions reinvested -- 4,548,504
Redemptions (3,991,787) (9,649,517)
--------------- ---------------
Net Increase (Decrease) (1,914,086) 3,516,645
--------------- ---------------
Net Decrease from Share Transactions (11,403,216) (5,539,121)
--------------- ---------------
Total Decrease in Net Assets (10,887,428) (2,897,359)
NET ASSETS:
Beginning of period 162,822,359 165,719,718
--------------- ---------------
End of period (including undistributed (overdistributed) net investment income of
$3,227,173 and $(1,431,078), respectively) $ 151,934,931 $ 162,822,359
=============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 213,865 471,285
Issued for distributions reinvested -- 799,774
Redemptions (1,172,220) (2,175,844)
--------------- ---------------
Net Decrease (958,355) (904,785)
--------------- ---------------
Class B:
Subscriptions 209,776 862,989
Issued for distributions reinvested -- 457,136
Redemptions (404,650) (965,905)
--------------- ---------------
Net Increase (Decrease) (194,874) 354,220
--------------- ---------------
</Table>
See Accompanying Notes to Financial Statements.
32
<Page>
NOTES TO FINANCIAL STATEMENTS
Colonial Strategic Income Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Strategic Income Fund, Variable Series (the "Fund"), a series of
Liberty Variable Investment Trust (the "Trust") is a diversified portfolio. The
Trust is a Massachusetts business trust registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks current income consistent with prudent risk.
The Fund also seeks maximum total return.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Debt securities generally are valued by pricing services
approved by the Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 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 have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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
33
<Page>
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
MORTGAGE DOLLAR ROLL TRANSACTIONS--The Fund may enter into mortgage dollar
roll transactions. A mortgage dollar roll transaction involves a sale by the
Fund of investments from its portfolio with an agreement by the Fund to
repurchase similar, but not identical, securities at an agreed upon price and
date. During the period between the sale and repurchase, the Fund will not be
entitled to accrue interest and receive principal payment on the securities
sold. Mortgage dollar 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
34
<Page>
to federal excise tax. Therefore, no federal income or excise tax provision is
recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
--------------
Distributions paid from:
Ordinary income $ 12,514,247
Long-term capital gains --
</Table>
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 9,345,946
Unrealized depreciation (4,386,900)
--------------
Net unrealized appreciation $ 4,959,046
==============
</Table>
The following capital loss carryforwards, determined as of December 31, 2004,
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>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.60%
$500 million to $1 billion 0.55%
$1 billion to $1.5 billion 0.52%
Over $1.5 billion 0.49%
</Table>
For the six months ended June 30, 2005, as a result of the settlement with the
New York Attorney General discussed in Note 6, the Fund's annualized effective
investment advisory fee rate was 0.59%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received to State Street under the Outsourcing
Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund.
For the six months ended June 30, 2005, the annualized effective pricing and
bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was
0.059%.
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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was less than 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) will not exceed 1.00% annually of the Fund's average daily net assets.
The Distributor will first reimburse the Class B distribution fee up to 0.25%
annually to reach the 1.00% limit on Class B expenses. If additional
reimbursement is needed to meet the limit for each class, Columbia will then
reimburse other expenses to the extent
35
<Page>
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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$831 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $28,102,128 and
$33,374,307 of which $51,187 was U.S. Government securities.
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
HIGH-YIELD SECURITIES--Investing in high-yield securities may involve greater
credit risk and considerations not typically associated with investing in U.S.
government bonds and other higher quality fixed income securities. These
securities are non-investment grade securities, often referred to as "junk
bonds." Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. Moreover, high-yield securities may be less liquid to the extent
that there is no established secondary market.
INDUSTRY FOCUS--The Fund may focus its investments in certain industries,
subjecting it to greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS--On February 9, 2005, Columbia 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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be
36
<Page>
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. At this time,
the distribution plan is still under development. As such, any gain to the Fund
or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $1,939 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
37
<Page>
FINANCIAL HIGHLIGHTS
Colonial Strategic Income Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
---------- ---------- ---------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.80 $ 8.89 $ 8.91 $ 9.41 $ 10.24
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.29 0.59 0.60 0.63 0.79(c) 0.56
Net realized and unrealized gain (loss)
on investments and foreign currency (0.26) 0.38 1.04 0.09 (0.46)(c) (0.37)
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.03 0.97 1.64 0.72 0.33 0.19
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income -- (0.82) (0.73) (0.72) (0.81) (0.99)
Return of capital -- -- -- (0.02) (0.02) (0.03)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions Declared
to Shareholders -- (0.82) (0.73) (0.74) (0.83) (1.02)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 9.95 $ 9.80 $ 8.89 $ 8.91 $ 9.41
========== ========== ========== ========== ========== ==========
Total return (d)(e)(f) 0.30%(g) 9.85% 18.43% 8.08% 3.54% 1.92%(g)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 0.97%(i) 1.00% 1.00% 1.00% 1.00% 1.00%(i)
Net investment income (h) 5.78%(i) 5.88% 6.17% 6.92% 8.27%(c) 9.39%(i)
Waiver/reimbursement -- 0.05% 0.05% 0.01% 0.10% 0.03%(i)
Portfolio turnover rate 19%(g) 103% 61% 62% 62% 31%
Net assets, end of period (000's) $ 58,455 $ 60,210 $ 55,825 $ 32,407 $ 19,481 $ 3,579
</Table>
(a) For the period from commencement of operations on June 1, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
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 8.55% to 8.27%. Per share data and ratios for
periods prior to December 31, 2001 have not been restated to reflect this
change in presentation.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
38
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia High Yield Fund, Variable Series / June 30, 2005
Columbia High Yield Fund, Variable Series seeks a high level of current income
by investing primarily in lower-rated fixed income securities. Capital
appreciation is a secondary goal when consistent with the goal of high current
income.
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 March 1998.
Mr. Havnaer has co-managed the fund and its predecessor since September 2000.
During the six-month period ended June 30, 2005, the bond market remained
relatively stable though there were some slight gains to be seen. Even though
the Federal Reserve increased the federal funds rate by one percentage point to
3.25% during this period, long-term interest rates dropped by about three-tenths
of one percentage point. The high-yield sector showed modest gains, with higher
quality securities slightly outperforming lower quality credits. This pattern
strengthened during the second quarter and was favorable to the fund, which
finished the first half of the year roughly in line with its benchmark, the
Merrill Lynch US High Yield, Cash Pay Only Index(1).
MIXED RESULTS FROM SECTOR ALLOCATIONS
The fund's performance relative to its benchmark was dependent not only on
specific securities held during the period, but also on what sectors were
underweighted. Some of these underweight sectors posted weak returns and
therefore the fund wasn't affected as much by their poor performance. For
instance, the fund had no exposure to air transportation, which underperformed
during the six-month period. Record high fuel prices continue to plague the
airlines. The fund was also underweight in the auto sector. While auto sales
have held reasonably firm despite the high cost of oil, the deteriorating
finances at Ford Motor and General Motors caused both companies to suffer credit
downgrades in May and accelerated a flight to quality within the high-yield
market. The fund had no exposure to either Ford Motor or General Motors.
The fund's underweight position in the telecommunications sector, on the
other hand, represented a missed opportunity. Many telecom companies have made
demonstrable improvements to their balance sheets, and investors have responded
by bidding up the prices for their bonds.
FOCUS ON INDIVIDUAL HOLDINGS
Individual companies from many different industries aided the fund with their
strong performance over the past six months. Bonds of HCA (Hospital Corporation
of America) performed well as the company's efforts to pay down its debt
surpassed market expectations (1.4% of net assets). TECO Energy (a diversified
holding company that includes Tampa Electric) performed well due in part to its
success in divesting merchant power assets and returning to its core utility
business (1.0% of net assets). Rogers Wireless advanced upon entering into an
attractive merger (1.0% of net assets). Leading drill pipe supplier Grant
Prideco benefited from the strong upturn in the energy sector (0.7% of net
assets). As a result, Grant Prideco called one of its two bonds that the fund
owned, at favorable terms.
The portfolio also contained some disappointments. Cinemark USA, one of the
country's largest movie exhibitors, suffered from reduced theater attendance
(1.1% of net assets). Finlay Enterprises, which operates jewelry departments for
several major retail chains, has been viewed cautiously by investors following
the announcement that one of its larger clients is being acquired. More than 50%
of Finlay's sales derive from its relationship with this retail chain, and the
fate of that business once the retailer has been acquired is uncertain. We
eliminated our position in Finlay by the end of the period. Finally, containers
sector declined amid sluggish demand for corrugated boxes and declining prices
for containerboards (1.4% of net assets).
ENCOURAGED BY CURRENT ECONOMIC CLIMATE
The fund did not make any fundamental changes to its portfolio structure during
the period. We continue to believe that the current economic environment of
stable growth and relatively low interest rates is favorable for the high-yield
market. Steady growth has enabled many companies to improve their balance sheets
and credit ratings. Within the high-yield market, the recent leadership of
higher quality issues is an encouraging sign, because the average credit quality
of our holdings is high relative to our peer group. While this stance caused our
performance to lag somewhat in 2004, we are encouraged by the increasing number
of portfolio holdings drawing closer to investment-grade status.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence. The opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
An investment in the Columbia High Yield Fund, Variable Series may involve
certain risks, including the credit quality of individual issuers, possible
prepayments, market or economic developments and yield and share price
fluctuations due to changes in interest rates. When interest rates go up, bond
prices typically drop, and vice versa.
Investing in high yield securities or "junk bonds" offers the potential for
higher current income and attractive total return but involves certain risks.
Changes in economic conditions or other circumstances may adversely affect a
high-yield bond issuer's ability to make timely principal and interest payments.
Holdings are disclosed as of June 30, 2005, and are subject to change.
(1) The Merrill Lynch US High Yield, Cash Pay Only Index is an unmanaged index
that tracks the performance of non-investment-grade corporate bonds.
39
<Page>
PERFORMANCE INFORMATION
Columbia High Yield Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
6-MONTH
(CUMULATIVE) 1-YEAR 5-YEAR LIFE
- -------------------------------------------------------------------
Class B (04/14/03) 1.15 8.03 6.41 5.85
Merrill Lynch US
High Yield, Cash
Pay Only Index(1) 1.22 10.64 7.83 5.62
</Table>
Inception date of share class is in parentheses.
<Table>
<Caption>
NET ASSET VALUE PER SHARE($) 12/31/04 06/30/05
- -------------------------------------------------------------
Class B 9.56 9.67
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 03/03/98(2) - 06/30/05
<Table>
<Caption>
MERRILL LYNCH US HIGH YIELD,
CLASS B SHARES CASH PAY ONLY 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 $ 13,442 $ 12,270
7/31/2003 $ 13,212 $ 12,095
8/31/2003 $ 13,240 $ 12,253
9/30/2003 $ 13,540 $ 12,580
10/31/2003 $ 13,704 $ 12,837
11/30/2003 $ 13,831 $ 13,014
12/31/2003 $ 14,000 $ 13,316
1/31/2004 $ 14,133 $ 13,524
2/29/2004 $ 14,195 $ 13,518
3/31/2004 $ 14,335 $ 13,613
4/30/2004 $ 14,193 $ 13,515
5/31/2004 $ 13,919 $ 13,299
6/30/2004 $ 14,040 $ 13,493
7/31/2004 $ 14,238 $ 13,678
8/31/2004 $ 14,495 $ 13,925
9/30/2004 $ 14,710 $ 14,119
10/31/2004 $ 14,938 $ 14,387
11/30/2004 $ 14,953 $ 14,532
12/31/2004 $ 14,995 $ 14,749
1/31/2005 $ 14,963 $ 14,737
2/28/2005 $ 15,152 $ 14,945
3/31/2005 $ 14,728 $ 14,538
4/30/2005 $ 14,697 $ 14,387
5/31/2005 $ 14,963 $ 14,652
6/30/2005 $ 15,168 $ 14,930
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the index. The Index is unmanaged and returns for the index and the fund
include reinvested dividends and capital gains. It is not possible to invest
directly in an index. Investment earnings, if any, are income tax-deferred until
distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. The Merrill Lynch US High Yield, Cash Pay Only 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Index performance for the life of the fund is from March 3, 1998.
(2) Inception date of class A shares (oldest existing share class) is
March 3, 1998.
40
<Page>
UNDERSTANDING YOUR EXPENSES
Columbia High Yield Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- -------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 1,011.50 1,021.52 3.29 3.31 0.66
</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 365.
Had the investment advisor and its affiliates not waived/reimbursed a portion of
expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
41
<Page>
INVESTMENT PORTFOLIO
Columbia High Yield Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
PAR VALUE
------------- -------------
CORPORATE FIXED-INCOME
BONDS & NOTES--90.4%
BASIC MATERIALS--4.1%
CHEMICALS--1.8%
CHEMICALS - DIVERSIFIED--0.3%
EquiStar Chemicals LP
10.125% 09/01/08 $ 155,000 $ 167,788
10.625% 05/01/11 180,000 199,800
-------------
367,588
-------------
CHEMICALS - SPECIALTY--0.5%
Nalco Co.
7.750% 11/15/11 625,000 664,844
-------------
INDUSTRIAL - GASES--1.0%
Airgas, Inc.
6.250% 07/15/14 785,000 800,700
9.125% 10/01/11 350,000 378,437
-------------
1,179,137
-------------
FOREST PRODUCTS & PAPER--1.2%
PAPER & RELATED PRODUCTS--1.2%
Boise Cascade LLC
7.125% 10/15/14 (a) 1,445,000 1,419,713
-------------
IRON/STEEL--1.1%
STEEL - PRODUCERS--1.1%
Russel Metals, Inc.
6.375% 03/01/14 850,000 813,875
United States Steel Corp.
9.750% 05/15/10 500,000 538,750
-------------
1,352,625
-------------
COMMUNICATIONS--12.8%
ADVERTISING--1.8%
ADVERTISING SALES--1.8%
Lamar Media Corp.
7.250% 01/01/13 2,050,000 2,173,000
-------------
MEDIA--8.6%
CABLE TV--4.3%
DirecTV Holdings LLC
6.375% 06/15/15 (a) 115,000 114,281
8.375% 03/15/13 1,476,000 1,630,980
EchoStar DBS Corp.
5.750% 10/01/08 605,000 603,488
6.625% 10/01/14 1,075,000 1,061,562
Rogers Cable, Inc.
6.250% 06/15/13 625,000 623,438
7.875% 05/01/12 1,110,000 1,207,125
-------------
5,240,874
-------------
MULTIMEDIA--0.5%
Emmis Operating Co.
6.875% 05/15/12 675,000 669,938
-------------
PUBLISHING - PERIODICALS--2.9%
Dex Media West LLC
5.875% 11/15/11 $ 1,730,000 $ 1,704,050
R.H. Donnelley Finance Corp.
10.875% 12/15/12 (a) 510,000 594,150
10.875% 12/15/12 1,100,000 1,281,500
-------------
3,579,700
-------------
TELEVISION--0.9%
LIN Television Corp.
6.500% 05/15/13 1,125,000 1,071,562
-------------
TELECOMMUNICATIONS--2.4%
CELLULAR TELECOMMUNICATIONS--2.4%
Nextel Communications, Inc.
5.950% 03/15/14 960,000 997,200
6.875% 10/31/13 60,000 64,200
7.375% 08/01/15 625,000 675,000
Rogers Wireless, Inc.
7.500% 03/15/15 210,000 227,850
8.000% 12/15/12 940,000 1,010,500
-------------
2,974,750
-------------
CONSUMER CYCLICAL--21.1%
AUTO PARTS & EQUIPMENT--0.5%
AUTO/TRUCK PARTS & EQUIPMENT - ORIGINAL--0.5%
Accuride Corp.
8.500% 02/01/15 275,000 268,813
TRW Automotive, Inc.
9.375% 02/15/13 320,000 355,200
-------------
624,013
-------------
ENTERTAINMENT--2.7%
MUSIC--0.6%
Warner Music Group
7.375% 04/15/14 775,000 784,688
-------------
RACETRACKS--1.0%
Speedway Motorsports, Inc.
6.750% 06/01/13 1,190,000 1,234,625
-------------
THEATERS--1.1%
Cinemark USA, Inc.
9.000% 02/01/13 1,285,000 1,329,975
-------------
HOME BUILDERS--2.6%
BUILDING - RESIDENTIAL/COMMERCIAL--2.6%
K. Hovnanian Enterprises, Inc.
6.000% 01/15/10 315,000 309,488
6.375% 12/15/14 270,000 266,625
6.500% 01/15/14 400,000 400,000
KB Home
5.875% 01/15/15 750,000 740,625
7.750% 02/01/10 250,000 261,875
8.625% 12/15/08 250,000 273,125
Toll Corp.
8.250% 02/01/11 325,000 344,500
8.250% 12/01/11 600,000 646,500
-------------
3,242,738
-------------
</Table>
See Accompanying Notes to Financial Statements.
42
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
LEISURE TIME--3.0%
CRUISE LINES--1.9%
Royal Caribbean Cruises Ltd.
6.750% 03/15/08 $ 145,000 $ 151,162
6.875% 12/01/13 550,000 585,750
8.750% 02/02/11 1,390,000 1,601,975
-------------
2,338,887
-------------
LEISURE & RECREATIONAL PRODUCTS--1.1%
K2, Inc.
7.375% 07/01/14 410,000 430,500
Leslie's Poolmart
7.750% 02/01/13 850,000 858,500
-------------
1,289,000
-------------
LODGING--8.7%
CASINO HOTELS--7.8%
Caesars Entertainment, Inc.
7.875% 03/15/10 1,080,000 1,196,100
8.875% 09/15/08 960,000 1,060,800
9.375% 02/15/07 100,000 107,500
Kerzner International Ltd.
8.875% 08/15/11 1,365,000 1,460,550
MGM Mirage
6.000% 10/01/09 1,450,000 1,459,062
8.500% 09/15/10 815,000 900,575
Station Casinos, Inc.
6.500% 02/01/14 1,795,000 1,837,631
6.875% 03/01/16 570,000 587,100
Wynn Las Vegas LLC
6.625% 12/01/14 965,000 938,463
-------------
9,547,781
-------------
HOTELS & MOTELS--0.9%
Starwood Hotels & Resorts
Worldwide, Inc.
7.375% 05/01/07 200,000 209,000
7.875% 05/01/12 810,000 913,275
-------------
1,122,275
-------------
RETAIL--3.6%
RETAIL - AUTOMOBILES--1.6%
AutoNation, Inc.
9.000% 08/01/08 1,420,000 1,554,900
Group 1 Automotive, Inc.
8.250% 08/15/13 450,000 454,500
-------------
2,009,400
-------------
RETAIL - CONVENIENCE STORE--1.1%
Couche-Tard
7.500% 12/15/13 1,235,000 1,306,012
-------------
RETAIL - PROPANE DISTRIBUTORS--0.3%
Suburban Propane Partners LP
6.875% 12/15/13 415,000 394,250
-------------
RETAIL - RESTAURANTS--0.6%
Domino's, Inc.
8.250% 07/01/11 650,000 698,750
-------------
CONSUMER NON-CYCLICAL--17.1%
BEVERAGES--3.0%
BEVERAGES - NON-ALCOHOLIC--1.8%
Cott Beverages, Inc.
8.000% 12/15/11 $ 2,010,000 $ 2,140,650
-------------
BEVERAGES - WINE/SPIRITS--1.2%
Constellation Brands, Inc.
8.000% 02/15/08 575,000 613,813
8.125% 01/15/12 825,000 880,687
8.625% 08/01/06 25,000 26,500
-------------
1,521,000
-------------
COMMERCIAL SERVICES--4.4%
COMMERCIAL SERVICES--1.6%
Iron Mountain, Inc.
7.750% 01/15/15 530,000 535,300
8.625% 04/01/13 1,420,000 1,469,700
-------------
2,005,000
-------------
FUNERAL SERVICES & RELATED ITEMS--0.6%
Stewart Enterprises, Inc.
6.250% 02/15/13 (a) 785,000 779,113
-------------
PRIVATE CORRECTIONS--1.4%
Corrections Corp. of America
6.250% 03/15/13 700,000 694,750
7.500% 05/01/11 950,000 988,000
-------------
1,682,750
-------------
RENTAL AUTO/EQUIPMENT--0.8%
United Rentals, Inc.
7.000% 02/15/14 125,000 119,375
7.750% 11/15/13 835,000 818,300
-------------
937,675
-------------
FOOD--0.7%
FOOD - MISCELLANEOUS/DIVERSIFIED--0.7%
Del Monte Corp.
6.750% 02/15/15 (a) 860,000 872,900
-------------
HEALTHCARE SERVICES--6.3%
MEDICAL - HMO--1.2%
Coventry Health Care, Inc.
5.875% 01/15/12 1,445,000 1,470,287
-------------
MEDICAL - HOSPITALS--2.8%
HCA, Inc.
6.950% 05/01/12 1,660,000 1,766,887
Triad Hospitals, Inc.
7.000% 05/15/12 525,000 551,250
7.000% 11/15/13 1,100,000 1,133,000
-------------
3,451,137
-------------
MEDICAL - NURSING HOMES--0.5%
Extendicare Health Services, Inc.
6.875% 05/01/14 640,000 635,200
9.500% 07/01/10 45,000 48,713
-------------
683,913
-------------
MEDICAL - OUTPATIENT/HOME MEDICAL--0.7%
Select Medical Corp.
7.625% 02/01/15 (a) 820,000 807,700
-------------
</Table>
See Accompanying Notes to Financial Statements.
43
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
MEDICAL PRODUCTS--1.1%
Fisher Scientific International, Inc.
6.750% 08/15/14 $ 1,310,000 $ 1,372,225
-------------
HOUSEHOLD PRODUCTS/WARES--1.2%
CONSUMER PRODUCTS - MISCELLANEOUS--1.2%
Scotts Co.
6.625% 11/15/13 1,375,000 1,430,000
-------------
PHARMACEUTICALS--1.5%
MEDICAL - WHOLESALE DRUG DISTRIBUTION--0.4%
AmerisourceBergen Corp.
8.125% 09/01/08 505,000 548,556
-------------
PHARMACY SERVICES--1.1%
Omnicare, Inc.
6.125% 06/01/13 945,000 935,550
8.125% 03/15/11 370,000 390,813
-------------
1,326,363
-------------
ENERGY--14.6%
COAL--3.5%
COAL--3.5%
Arch Western Finance LLC
6.750% 07/01/13 1,900,000 1,961,750
Peabody Energy Corp.
5.875% 04/15/16 375,000 375,000
6.875% 03/15/13 1,905,000 2,028,825
-------------
4,365,575
-------------
OIL & GAS SERVICES--2.4%
OIL - FIELD SERVICES--1.7%
Hornbeck Offshore Services, Inc.
6.125% 12/01/14 875,000 881,563
Universal Compression, Inc.
7.250% 05/15/10 1,195,000 1,245,787
-------------
2,127,350
-------------
OIL FIELD MACHINERY & EQUIPMENT--0.7%
Grant Prideco, Inc.
9.000% 12/15/09 725,000 793,875
-------------
OIL & GAS--6.8%
OIL & GAS DRILLING--0.9%
Pride International, Inc.
7.375% 07/15/14 1,025,000 1,121,094
-------------
OIL COMPANIES - EXPLORATION & PRODUCTION--5.9%
Chesapeake Energy Corp.
6.375% 06/15/15 (a) 815,000 833,337
7.500% 09/15/13 735,000 790,125
7.750% 01/15/15 550,000 594,000
Newfield Exploration Co.
6.625% 09/01/14 1,800,000 1,881,000
Plains Exploration & Production Co.
7.125% 06/15/14 1,020,000 1,091,400
Pogo Producing Co.
6.625% 03/15/15 (a) 345,000 355,350
8.250% 04/15/11 455,000 483,438
Vintage Petroleum, Inc.
7.875% 05/15/11 $ 650,000 $ 685,750
8.250% 05/01/12 465,000 502,200
-------------
7,216,600
-------------
PIPELINES--1.9%
PIPELINES--1.9%
MarkWest Energy Partners LP
6.875% 11/01/14 (a) 545,000 539,550
Williams Companies, Inc.
7.125% 09/01/11 565,000 611,612
8.125% 03/15/12 1,060,000 1,213,700
-------------
2,364,862
-------------
FINANCIALS--1.5%
REAL ESTATE INVESTMENT TRUSTS--1.5%
REITS - DIVERSIFIED--0.9%
iStar Financial, Inc.
5.125% 04/01/11 965,000 965,531
7.000% 03/15/08 85,000 89,863
-------------
1,055,394
-------------
REITs - HOTELS--0.6%
Host Marriott LP
6.375% 03/15/15 (a) 745,000 737,550
-------------
INDUSTRIALS--14.3%
AEROSPACE & DEFENSE--2.2%
AEROSPACE/DEFENSE - EQUIPMENT--0.9%
TransDigm, Inc.
8.375% 07/15/11 1,025,000 1,078,812
-------------
ELECTRONICS - MILITARY--1.3%
L-3 Communications Corp.
6.125% 07/15/13 655,000 658,275
7.625% 06/15/12 960,000 1,022,400
-------------
1,680,675
-------------
ENVIRONMENTAL CONTROL--1.2%
NON-HAZARDOUS WASTE DISPOSAL--1.2%
Allied Waste North America, Inc.
6.375% 04/15/11 825,000 787,875
6.500% 11/15/10 560,000 551,600
Series B,
9.250% 09/01/12 67,000 72,025
-------------
1,411,500
-------------
HAND/MACHINE TOOLS--0.5%
MACHINE TOOLS & RELATED PRODUCTS--0.5%
Kennametal, Inc.
7.200% 06/15/12 490,000 546,727
-------------
MACHINERY - DIVERSIFIED--1.3%
MACHINERY - GENERAL INDUSTRY--1.3%
Manitowoc Co., Inc.
7.125% 11/01/13 435,000 451,856
Westinghouse Air Brake
Technologies Corp.
6.875% 07/31/13 1,135,000 1,160,538
-------------
1,612,394
-------------
</Table>
See Accompanying Notes to Financial Statements.
44
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
PACKAGING & CONTAINERS--6.1%
CONTAINERS - METAL/GLASS--4.7%
Ball Corp.
6.875% 12/15/12 $ 2,030,000 $ 2,136,575
7.750% 08/01/06 100,000 103,625
Owens-Brockway Glass Container
6.750% 12/01/14 125,000 127,031
8.875% 02/15/09 290,000 309,575
Owens-Illinois, Inc.
7.500% 05/15/10 1,275,000 1,338,750
Silgan Holdings, Inc.
6.750% 11/15/13 1,735,000 1,774,038
-------------
5,789,594
-------------
CONTAINERS - PAPER/PLASTIC--1.4%
Jefferson Smurfit Corp.
8.250% 10/01/12 400,000 403,000
Smurfit-Stone Container Corp.
8.375% 07/01/12 535,000 540,350
Stone Container Finance
7.375% 07/15/14 875,000 822,500
-------------
1,765,850
-------------
TRANSPORTATION--3.0%
TRANSPORTATION - MARINE--2.2%
Overseas Shipholding Group
8.250% 03/15/13 590,000 616,550
Teekay Shipping Corp.
8.875% 07/15/11 1,835,000 2,087,312
-------------
2,703,862
-------------
TRANSPORTATION - SERVICES--0.8%
Offshore Logistics, Inc.
6.125% 06/15/13 1,070,000 1,031,213
-------------
TECHNOLOGY--1.0%
SEMICONDUCTORS--1.0%
ELECTRONIC COMPONENTS - SEMICONDUCTORS--1.0%
Freescale Semiconductor, Inc.
6.875% 07/15/11 1,165,000 1,237,812
-------------
UTILITIES--3.9%
ELECTRIC--3.9%
ELECTRIC - GENERATION--2.5%
AES Corp.
7.750% 03/01/14 1,680,000 1,818,600
Texas Genco LLC
6.875% 12/15/14 (a) 1,200,000 1,263,000
-------------
3,081,600
-------------
ELECTRIC - INTEGRATED--1.4%
Nevada Power Co.
5.875% 01/15/15 (a) 275,000 275,000
6.500% 04/15/12 200,000 208,000
NorthWestern Corp.
5.875% 11/01/14 (a) 50,000 50,750
TECO Energy, Inc.
6.750% 05/01/15 (a) $ 575,000 $ 608,063
7.000% 05/01/12 595,000 641,112
-------------
1,782,925
-------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $110,912,670) 111,150,658
-------------
<Caption>
UNITS
-------------
WARRANTS (b)--0.0%
COMMUNICATIONS--0.0%
TELECOMMUNICATIONS--0.0%
CELLULAR TELECOMMUNICATIONS--0.0%
UbiquiTel, Inc.
Expires 04/15/10(a) 50 1
-------------
INDUSTRIALS--0.0%
TRANSPORTATION--0.0%
TRANSPORTATION - TRUCKS--0.0%
QDI LLC
Expires 01/15/07 (a)(c) 153 588
-------------
TOTAL WARRANTS
(cost of $2,500) 589
-------------
<Caption>
PAR
-------------
SHORT-TERM OBLIGATION--8.4%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/05, due 07/01/05
at 2.700%, collateralized by a
U.S. Treasury Bond maturing
04/15/10, market value of
$10,511,100 (repurchase
proceeds $10,303,773) $ 10,303,000 10,303,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $10,303,000) 10,303,000
-------------
TOTAL INVESTMENTS--98.8%
(cost of $121,218,170) (d) 121,454,247
-------------
OTHER ASSETS & LIABILITIES, NET--1.2% 1,533,259
-------------
NET ASSETS--100.0% $ 122,987,506
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
June 30, 2005, these securities, which do not include illiquid securities,
amounted to $9,251,046, which represents 7.5% of net assets.
(b) Non-income producing security.
(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 $121,634,235.
See Accompanying Notes to Financial Statements.
45
<Page>
At June 30, 2005, the asset allocation of the Fund is as follows:
<Table>
<Caption>
% OF
ASSET ALLOCATION NET ASSETS
- ---------------- ----------
Corporate Fixed-Income Bonds & Notes 90.4%
Warrants 0.0
Short-Term Obligation 8.4
Other Assets & Liabilities, Net 1.2
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
46
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia High Yield Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 121,218,170
--------------
Investments, at value $ 121,454,247
Cash 435
Receivable for:
Fund shares sold 159,636
Interest 2,040,803
Expense reimbursement/waiver due from Investment Advisor/Distributor 20,989
Deferred Trustees' compensation plan 3,368
--------------
TOTAL ASSETS 123,679,478
--------------
LIABILITIES:
Payable for:
Investments purchased 527,787
Fund shares repurchased 83,678
Investment advisory fee 56,645
Transfer agent fee 396
Pricing and bookkeeping fees 2,773
Audit fee 11,377
Custody fee 976
Deferred Trustees' fees 3,368
Other liabilities 4,972
--------------
TOTAL LIABILITIES 691,972
--------------
NET ASSETS $ 122,987,506
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 129,379,452
Undistributed net investment income 2,412,870
Accumulated net realized loss (9,040,893)
Net unrealized appreciation on investments 236,077
--------------
NET ASSETS $ 122,987,506
==============
CLASS A:
Net assets $ 8,571,566
Shares outstanding 887,322
==============
Net asset value per share $ 9.66
==============
CLASS B:
Net assets $ 114,415,940
Shares outstanding 11,835,758
==============
Net asset value per share $ 9.67
==============
</Table>
See Accompanying Notes to Financial Statements.
47
<Page>
STATEMENT OF OPERATIONS
Columbia High Yield Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 3,068,705
--------------
EXPENSES:
Investment advisory fee 294,839
Distribution fee--Class B 111,645
Transfer agent fee 2,480
Pricing and bookkeeping fees 17,356
Trustees' fees 3,533
Custody fee 4,854
Non-recurring costs (See Note 6) 1,155
Other expenses 25,964
--------------
Total Expenses 461,826
Fees and expenses waived or reimbursed by Investment Advisor (53,329)
Fee waived by Distributor--Class B (84,850)
Non-recurring costs assumed by Investment Advisor (See Note 6) (1,155)
Custody earnings credit (858)
--------------
Net Expenses 321,634
--------------
Net Investment Income 2,747,071
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 210,688
Net change in unrealized appreciation (depreciation) on investments (1,474,954)
--------------
Net Loss (1,264,266)
--------------
Net Increase in Net Assets from Operations $ 1,482,805
==============
</Table>
See Accompanying Notes to Financial Statements.
48
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia High Yield Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 2,747,071 $ 3,093,238
Net realized gain on investments and foreign currency transactions 210,688 375,783
Net change in unrealized appreciation (depreciation) on investments
and foreign currency translations (1,474,954) 698,623
-------------- --------------
Net Increase from Operations 1,482,805 4,167,644
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (566,446)
Class B -- (2,926,406)
-------------- --------------
Total Distributions Declared to Shareholders -- (3,492,852)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 335,694 3,321,916
Distributions reinvested -- 566,446
Redemptions (1,574,232) (6,454,849)
-------------- --------------
Net Decrease (1,238,538) (2,566,487)
-------------- --------------
Class B:
Subscriptions 44,718,336 48,472,376
Distributions reinvested -- 2,926,406
Redemptions (3,459,291) (8,511,450)
-------------- --------------
Net Increase 41,259,045 42,887,332
-------------- --------------
Net Increase from Share Transactions 40,020,507 40,320,845
-------------- --------------
Total Increase in Net Assets 41,503,312 40,995,637
NET ASSETS:
Beginning of period 81,484,194 40,488,557
-------------- --------------
End of period (including undistributed (overdistributed) net
investment income of $2,412,870 and $(334,201), respectively) $ 122,987,506 $ 81,484,194
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 35,169 352,089
Issued for distributions reinvested -- 59,622
Redemptions (165,486) (682,101)
-------------- --------------
Net Decrease (130,317) (270,390)
-------------- --------------
Class B:
Subscriptions 4,694,965 5,089,040
Issued for distributions reinvested -- 306,985
Redemptions (362,834) (902,982)
-------------- --------------
Net Increase 4,332,131 4,493,043
-------------- --------------
</Table>
See Accompanying Notes to Financial Statements.
49
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia High Yield Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Columbia High Yield Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks a high level of current income by investing
primarily in lower-rated fixed income securities. Capital appreciation is a
secondary goal when consistent with the goal of high current income.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Debt securities generally are valued by pricing services
approved by the Fund's Board of Trustees, based upon market transactions for
normal, institutional-size trading units of similar securities. The services may
use various pricing techniques which take into account appropriate factors such
as yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Events affecting the
values of such foreign securities and such exchange rates may occur between the
times at which they are determined and the close of the customary trading
session of the NYSE, which would not be reflected in the computation of the
Fund's net asset value. If events materially affecting the values of such
foreign securities occur and it is determined that market quotations are not
reliable, then these foreign securities will be valued at their fair value using
procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a 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
50
<Page>
default or insolvency of the counterparty. These risks include possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities
and a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis. Premium
and discount are amortized and accreted, respectively, on all debt securities.
Corporate actions and dividend income are recorded on the ex-date.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations) and realized
and unrealized gains (losses) are allocated to each class of the Fund on a daily
basis for purposes of determining the net asset value of each class. Income and
expenses are allocated to each class based on the settled shares method, while
realized and unrealized gains (losses) are allocated based on the relative net
assets of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income $ 3,492,852
Long-term capital gains --
</Table>
Unrealized appreciation at June 30, 2005, based on cost of investments for
federal income tax purposes was:
<Table>
Unrealized appreciation $ 1,245,901
Unrealized depreciation (1,425,889)
------------
Net unrealized depreciation $ (179,988)
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2004,
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>
Of the capital loss carryforwards attributable to the Fund, $7,971,674
($1,027,358 expiring 12/31/07, $2,734,633 expiring 12/31/08, $4,075,815 expiring
12/31/09 and $133,868 expiring 12/31/10) remain from the Fund's merger with
Colonial High Yield Securities Fund, Variable Series. Utilization of these
losses could be subject to limitations imposed by the Internal Revenue Code.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $1 billion 0.60%
Next $500 million 0.55%
Over $1.5 billion 0.50%
</Table>
51
<Page>
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.60%.
ADMINISTRATION FEE--Columbia provides administrative and other services to
the Fund. The Fund is not charged a fee for these services.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
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
$50 million to $200 million $ 35,000
$200 million to $500 million $ 50,000
$500 million to $1 billion $ 85,000
Over $1 billion $ 125,000
</Table>
The Fund also pays additional fees for pricing services based on the number of
securities held by the Fund.
For the six months ended June 30, 2005, the annualized effective pricing and
bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was
0.035%.
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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Effective January 1, 2005, Columbia has voluntarily agreed to
waive fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) will not exceed 0.60% annually of the Fund's
average daily net assets. Prior to January 1, 2005, Columbia voluntarily
reimbursed certain fees of the Fund at an annual rate up to 0.27% of the Fund's
average daily net assets. For the six months ended June 30, 2005, fees
reimbursed by Columbia amounted to 0.11% of the Fund's average daily net assets.
In addition, the Distributor has voluntarily agreed to waive Class B
distribution fees at an annual rate of 0.19% of the Class B average daily net
assets. Columbia or the Distributor, at their discretion, may revise or
discontinue these arrangements any time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$790 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $51,641,599 and
$13,414,041, 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
52
<Page>
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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds and Columbia. The lawsuit alleges that defendants violated common
law duties to fund shareholders as well as
53
<Page>
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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $1,155 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
54
<Page>
FINANCIAL HIGHLIGHTS
Columbia High Yield Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2005 2004 2003 (a)
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $ 9.42 $ 9.12
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.26 0.53 0.41
Net realized and unrealized gain (loss) on
investments and foreign currency (0.15) 0.13 0.34
------------ ------------ ------------
Total from Investment Operations 0.11 0.66 0.75
------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.52) (0.43)
From net realized gains -- -- (0.02)
------------ ------------ ------------
Total Distributions Declared to Shareholders -- (0.52) (0.45)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 9.67 $ 9.56 $ 9.42
============ ============ ============
Total return (c)(d)(e) 1.15%(f) 7.11% 8.44%(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (g) 0.66%(h) 0.66% 0.76%(h)
Net investment income (g) 5.57%(h) 5.56% 6.21%(h)
Waiver/reimbursement 0.30%(h) 0.35% 0.46%(h)
Portfolio turnover rate 15%(f) 38% 112%(f)
Net assets, end of period (000's) $ 114,416 $ 71,762 $ 28,356
</Table>
(a) For the period from commencement of operations on April 14, 2003 to
December 31, 2003.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(e) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
55
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Columbia International Fund, Variable Series / June 30, 2005
Columbia International Fund, Variable Series seeks long-term growth.
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.
International equity markets produced mixed returns during the first half of
2005, as investors came to terms with rising oil prices and the potential for a
slowdown in global economic growth. In this environment, the portfolio had
relatively strong returns in Europe, Singapore and Hong Kong. The portfolio
suffered, however, from investments in Japan, a market that performed poorly.
Underexposure to Australia also held back results. In addition, the portfolio
had no exposure to Royal Dutch and missed out on the stock's strong returns, the
result of higher oil prices. Performance was also negatively affected by the
appreciation of the US dollar, which eroded investment returns that were
denominated in local currencies and then converted to the dollar.
ENERGY STOCKS DROVE PERFORMANCE
Oil prices rose 35% during this six-month period, and the portfolio's overweight
position in the energy sector made a positive contribution to performance.
Returns were enhanced by OMV AG, an Austria-based oil and gas producer that is
gaining access to central and Eastern Europe through acquisitions (0.4% of net
assets). The portfolio also benefited from Canada's EnCana Corp., one of the
largest oil and gas exploration companies in North America (0.9% of net assets).
EnCana's reported annual production growth and operating margins are
significantly above its industry peers.
TWO PRIMARY THEMES INFLUENCED STOCK SELECTION
We emphasized companies that we believed were likely to raise their dividend
payouts and/or benefit from increased capital expenditures. As a result, we were
overweight in the industrials sector, and the fund's investment in Vinci SA, a
French construction company, was one of the top stocks in the portfolio (1.3% of
net assets). We also added investments in health care, favoring beaten down
pharmaceuticals that were selling at attractive valuations and that had solid
prospects for growth. We added to AstraZeneca (United Kingdom), which had been
an underperformer, and invested in Sanofi-Aventis (France) (1.6% and 1.2% of net
assets, respectively). Both companies rose in value.
We sold some long-term holdings that had been leaders for more than a year.
We eliminated Alpha Bank, a financial services company located in Greece, due to
slower lending growth and rising costs. We also sold Erste Bank, an Austrian
bank facing increased competition from western European banks. We were concerned
that Erste Bank would not be able to sustain its high level of earnings growth
in a softening economy.
A BIGGER PRESENCE IN ASIA ADDED TO RETURNS
We significantly boosted the weight in Singapore from 0.3% of net assets at the
end of December 2004 to 2.6% of net assets at the end of June 2005. We favored
Singapore because its economy appeared to be more resilient than other Asian
economies. We felt that consumers were poised to increase their spending and
believed that many Singaporean companies had the potential to increase their
earnings and dividend payouts. In addition, valuations were attractive, with
many stocks selling at significant discounts to their peers. The fund's
companies in Singapore were some of the best performers. We also raised exposure
to Hong Kong, an area that benefited from a stronger economy and a particularly
vibrant real estate sector.
EUROPE AND JAPAN REMAIN ATTRACTIVE
Moving into the second half of 2005, we plan to continue seeking large companies
that have the potential to increase their dividend payouts. We will also
maintain our emphasis on companies that we believe will benefit from capital
spending. Despite the forecasts for a slower economy in Europe, we believe there
are opportunities in several markets. We are also fairly optimistic about Japan.
Economic data, such as rising consumer confidence and higher bank loan demand,
we believe favors Japan. We intend to keep at least a benchmark weight in the
country.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence. The opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
An investment in the Columbia International Fund, Variable Series may present
certain risks, including stock market fluctuations that occur in response to
economic and business developments. International investing may involve certain
risks, including foreign taxation, currency fluctuations, risks associated with
possible differences in financial standards and other monetary and political
risks.
Since the fund may invest a greater percentage of its total assets in a single
issuer, it may have increased risk compared to a similar diversified fund.
Holdings are disclosed as of June 30, 2005 and are subject to change.
56
<Page>
PERFORMANCE INFORMATION
Columbia International Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------
Class B (06/01/00) -2.63 7.94 -2.41 3.57
MSCI EAFE Index -1.17 13.65 -0.55 5.22
MSCI All Country
World ex
US Index 0.32 16.95 0.76 5.82
</Table>
Inception date of share class is in parenthesis.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- -----------------------------------------------------
Class B 1.90 1.85
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 07/01/95(1) - 06/30/05
<Table>
<Caption>
MSCI ALL COUNTRY
CLASS B SHARES WORLD EX US INDEX MSCI EAFE INDEX
7/1/1995 $ 10,000 $ 10,000 $ 10,000
7/31/1995 $ 10,552 $ 10,568 $ 10,623
8/31/1995 $ 10,552 $ 10,201 $ 10,218
9/30/1995 $ 10,718 $ 10,376 $ 10,418
10/31/1995 $ 10,552 $ 10,099 $ 10,137
11/30/1995 $ 10,717 $ 10,336 $ 10,419
12/31/1995 $ 10,994 $ 10,744 $ 10,839
1/31/1996 $ 10,938 $ 10,891 $ 10,883
2/29/1996 $ 10,938 $ 10,891 $ 10,920
3/31/1996 $ 11,161 $ 11,094 $ 11,152
4/30/1996 $ 11,775 $ 11,430 $ 11,476
5/31/1996 $ 11,663 $ 11,259 $ 11,265
6/30/1996 $ 11,719 $ 11,316 $ 11,328
7/31/1996 $ 11,272 $ 10,940 $ 10,998
8/31/1996 $ 11,440 $ 11,005 $ 11,022
9/30/1996 $ 11,552 $ 11,278 $ 11,315
10/31/1996 $ 11,273 $ 11,165 $ 11,200
11/30/1996 $ 11,719 $ 11,596 $ 11,645
12/31/1996 $ 11,611 $ 11,462 $ 11,495
1/31/1997 $ 11,671 $ 11,251 $ 11,093
2/28/1997 $ 11,790 $ 11,457 $ 11,275
3/31/1997 $ 11,790 $ 11,433 $ 11,315
4/30/1997 $ 11,731 $ 11,529 $ 11,375
5/31/1997 $ 12,620 $ 12,241 $ 12,116
6/30/1997 $ 13,271 $ 12,917 $ 12,783
7/31/1997 $ 13,331 $ 13,178 $ 12,990
8/31/1997 $ 12,404 $ 12,141 $ 12,020
9/30/1997 $ 12,879 $ 12,797 $ 12,693
10/31/1997 $ 11,751 $ 11,708 $ 11,717
11/30/1997 $ 11,395 $ 11,562 $ 11,598
12/31/1997 $ 11,232 $ 11,695 $ 11,698
1/31/1998 $ 11,611 $ 12,045 $ 12,233
2/28/1998 $ 12,178 $ 12,848 $ 13,018
3/31/1998 $ 12,936 $ 13,293 $ 13,419
4/30/1998 $ 13,188 $ 13,388 $ 13,525
5/31/1998 $ 13,188 $ 13,146 $ 13,459
6/30/1998 $ 12,873 $ 13,096 $ 13,561
7/31/1998 $ 13,251 $ 13,220 $ 13,698
8/31/1998 $ 11,313 $ 11,356 $ 12,001
9/30/1998 $ 10,807 $ 11,117 $ 11,633
10/31/1998 $ 11,628 $ 12,282 $ 12,845
11/30/1998 $ 12,260 $ 12,941 $ 13,503
12/31/1998 $ 12,686 $ 13,388 $ 14,035
1/31/1999 $ 12,686 $ 13,373 $ 13,992
2/28/1999 $ 12,433 $ 13,073 $ 13,659
3/31/1999 $ 12,877 $ 13,705 $ 14,229
4/30/1999 $ 13,638 $ 14,390 $ 14,805
5/31/1999 $ 13,003 $ 13,714 $ 14,043
6/30/1999 $ 13,764 $ 14,345 $ 14,590
7/31/1999 $ 14,272 $ 14,682 $ 15,024
8/31/1999 $ 14,399 $ 14,733 $ 15,079
9/30/1999 $ 14,462 $ 14,833 $ 15,232
10/31/1999 $ 14,843 $ 15,385 $ 15,803
11/30/1999 $ 15,794 $ 16,001 $ 16,351
12/31/1999 $ 17,833 $ 17,527 $ 17,820
1/31/2000 $ 16,747 $ 16,575 $ 16,688
2/29/2000 $ 17,387 $ 17,023 $ 17,137
3/31/2000 $ 17,642 $ 17,663 $ 17,802
4/30/2000 $ 16,300 $ 16,677 $ 16,865
5/31/2000 $ 15,980 $ 16,250 $ 16,454
6/30/2000 $ 16,044 $ 16,943 $ 17,097
7/31/2000 $ 15,533 $ 16,273 $ 16,381
8/31/2000 $ 15,724 $ 16,475 $ 16,523
9/30/2000 $ 15,224 $ 15,561 $ 15,719
10/31/2000 $ 14,640 $ 15,066 $ 15,348
11/30/2000 $ 14,253 $ 14,389 $ 14,772
12/31/2000 $ 14,540 $ 14,880 $ 15,297
1/31/2001 $ 14,088 $ 15,103 $ 15,289
2/28/2001 $ 13,033 $ 13,907 $ 14,142
3/31/2001 $ 11,979 $ 12,924 $ 13,199
4/30/2001 $ 12,581 $ 13,803 $ 14,116
5/31/2001 $ 12,205 $ 13,422 $ 13,618
6/30/2001 $ 11,979 $ 12,906 $ 13,061
7/31/2001 $ 11,603 $ 12,620 $ 12,823
8/31/2001 $ 11,528 $ 12,307 $ 12,499
9/30/2001 $ 10,774 $ 11,001 $ 11,233
10/31/2001 $ 10,774 $ 11,309 $ 11,520
11/30/2001 $ 10,925 $ 11,826 $ 11,945
12/31/2001 $ 11,000 $ 11,979 $ 12,016
1/31/2002 $ 10,473 $ 11,466 $ 11,378
2/28/2002 $ 10,548 $ 11,548 $ 11,458
3/31/2002 $ 10,850 $ 12,224 $ 12,132
4/30/2002 $ 11,001 $ 12,255 $ 12,157
5/31/2002 $ 10,926 $ 12,388 $ 12,311
6/30/2002 $ 10,775 $ 11,853 $ 11,821
7/31/2002 $ 9,796 $ 10,697 $ 10,654
8/31/2002 $ 9,871 $ 10,698 $ 10,630
9/30/2002 $ 9,193 $ 9,564 $ 9,488
10/31/2002 $ 9,419 $ 10,077 $ 9,998
11/30/2002 $ 9,570 $ 10,562 $ 10,452
12/31/2002 $ 9,510 $ 10,221 $ 10,100
1/31/2003 $ 9,057 $ 9,862 $ 9,679
2/28/2003 $ 9,132 $ 9,662 $ 9,458
3/31/2003 $ 9,132 $ 9,474 $ 9,272
4/30/2003 $ 9,736 $ 10,388 $ 10,181
5/31/2003 $ 10,415 $ 11,049 $ 10,798
6/30/2003 $ 10,490 $ 11,355 $ 11,059
7/31/2003 $ 10,641 $ 11,657 $ 11,327
8/31/2003 $ 10,793 $ 12,005 $ 11,600
9/30/2003 $ 11,172 $ 12,341 $ 11,957
10/31/2003 $ 11,852 $ 13,141 $ 12,702
11/30/2003 $ 12,002 $ 13,427 $ 12,984
12/31/2003 $ 12,857 $ 14,451 $ 13,998
1/31/2004 $ 13,086 $ 14,684 $ 14,195
2/29/2004 $ 13,313 $ 15,057 $ 14,523
3/31/2004 $ 13,465 $ 15,150 $ 14,605
4/30/2004 $ 13,009 $ 14,679 $ 14,275
5/31/2004 $ 12,856 $ 14,726 $ 14,323
6/30/2004 $ 13,161 $ 15,046 $ 14,637
7/31/2004 $ 12,553 $ 14,608 $ 14,161
8/31/2004 $ 12,553 $ 14,725 $ 14,223
9/30/2004 $ 12,799 $ 15,199 $ 14,595
10/31/2004 $ 13,181 $ 15,728 $ 15,092
11/30/2004 $ 14,019 $ 16,819 $ 16,123
12/31/2004 $ 14,591 $ 17,541 $ 16,831
1/31/2005 $ 14,207 $ 17,239 $ 16,523
2/28/2005 $ 14,821 $ 18,089 $ 17,237
3/31/2005 $ 14,437 $ 17,599 $ 16,804
4/30/2005 $ 14,206 $ 17,164 $ 16,409
5/31/2005 $ 14,129 $ 17,272 $ 16,417
6/30/2005 $ 14,206 $ 17,599 $ 16,637
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the indexes. The Indexes are unmanaged and returns for the indexes and the
fund include reinvested dividends and capital gains. It is not possible to
invest directly in an index. Investment earnings, if any, are income
tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. Beginning in 2005, the Fund's benchmark was changed to MSCI EAFE
Index. The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far
East (EAFE) Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US and
Canada. The MSCI All Country World ex US Index is an unmanaged index of global
stock market performance that includes developed and emerging markets but
excludes the 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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Inception date of class A shares (oldest existing share class) is May 2,
1994.
57
<Page>
UNDERSTANDING YOUR EXPENSES
Columbia International Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- -------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 973.72 1,018.84 5.87 6.01 1.20
</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 365.
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 funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
58
<Page>
INVESTMENT PORTFOLIO
Columbia International Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
SHARES VALUE
---------- -------------
COMMON STOCKS--97.2%
CONSUMER DISCRETIONARY--13.2%
AUTO COMPONENTS--1.1%
Continental AG 6,500 $ 466,795
Denso Corp. 13,700 311,521
-------------
778,316
-------------
AUTOMOBILES--2.5%
Nissan Motor Co., Ltd. 26,000 255,998
Renault SA 6,300 553,070
Toyota Motor Corp. 24,800 886,819
-------------
1,695,887
-------------
HOTELS, RESTAURANTS & LEISURE--1.1%
Accor SA 3,600 167,978
Carnival Corp. 4,700 256,385
City Development Ltd. 36,000 159,603
Compass Group PLC 31,500 132,132
-------------
716,098
-------------
HOUSEHOLD DURABLES--3.2%
Daiwa House Industry Co., Ltd. 20,000 228,078
Koninklijke (Royal) Phillips
Electronics NV 23,900 600,375
Matsushita Electric Industrial
Co., Ltd. 35,000 531,166
Pioneer Corp. 12,100 181,936
Sekisui Chemical Co., Ltd. 29,000 198,952
Sharp Corp. 19,000 295,808
Sony Corp. 3,700 127,440
-------------
2,163,755
-------------
LEISURE EQUIPMENT & PRODUCTS--0.9%
Fuji Photo Film Co., Ltd. 14,000 455,542
Sega Sammy Holdings, Inc. 3,100 189,350
-------------
644,892
-------------
MEDIA--3.1%
British Sky Broadcasting Group PLC 35,600 335,462
JC Decaux SA (a) 8,800 222,498
News Corp., Class B 22,650 381,879
Pearson PLC 61,200 717,866
Reed Elsevier PLC 14,200 135,558
Vivendi Universal SA 9,700 303,453
-------------
2,096,716
-------------
SPECIALTY RETAIL--0.4%
Kingfisher PLC 22,700 99,494
Yamada Denki Co., Ltd. 3,300 188,857
-------------
288,351
-------------
TEXTILES, APPAREL & LUXURY GOODS--0.9%
Burberry Group PLC 47,300 340,468
Swatch Group AG, Registered Shares 8,500 242,093
-------------
582,561
-------------
CONSUMER STAPLES--10.6%
BEVERAGES--2.0%
Diageo PLC 67,143 986,512
SABMiller PLC 9,166 142,604
Scottish & Newcastle PLC 27,909 $ 230,984
-------------
1,360,100
-------------
FOOD & STAPLES RETAILING--0.9%
FamilyMart Co., Ltd. 3,500 100,196
Lawson, Inc. 2,800 97,589
Tesco PLC 72,602 413,491
-------------
611,276
-------------
FOOD PRODUCTS--3.7%
Cadbury Schweppes PLC 17,400 165,619
Nestle SA, Registered Shares 5,811 1,483,044
Royal Numico NV (a) 8,712 347,086
Unilever PLC 55,840 536,631
-------------
2,532,380
-------------
HOUSEHOLD PRODUCTS--1.9%
Kao Corp. 19,000 447,736
Reckitt Benckiser PLC 27,627 811,642
-------------
1,259,378
-------------
TOBACCO--2.1%
British American Tobacco PLC 21,460 414,471
Imperial Tobacco Group PLC 21,689 582,419
Japan Tobacco, Inc. 34 453,212
-------------
1,450,102
-------------
ENERGY--9.4%
ENERGY EQUIPMENT & SERVICES--0.7%
Saipem S.p.A 17,100 229,623
Stolt Offshore SA (a) 27,400 247,683
-------------
477,306
-------------
OIL, GAS & CONSUMABLE FUELS--8.7%
BG Group PLC 54,771 448,811
BP PLC 153,300 1,593,946
EnCana Corp. 15,800 622,190
ENI S.p.A. 40,300 1,033,581
OMV AG 700 304,163
Shell Transport & Trading Co., PLC 77,100 746,803
Total SA 5,100 1,193,095
-------------
5,942,589
-------------
FINANCIALS--22.8%
CAPITAL MARKETS--1.3%
Credit Suisse Group,
Registered Shares 7,000 274,256
Deutsche Bank AG,
Registered Shares 4,369 340,301
Nomura Holdings, Inc. 22,000 261,266
-------------
875,823
-------------
COMMERCIAL BANKS--15.3%
ABN AMRO Holding NV 17,023 417,565
Anglo Irish Bank Corp., PLC 28,800 356,727
Australia & New Zealand Banking
Group Ltd. 29,200 481,534
Banco Bilbao Vizcaya Argentaria SA 26,700 410,395
Banco de Sabadell SA 15,762 405,537
Banco Popolare di Verona e Novara 23,100 392,864
</Table>
See Accompanying Notes to Financial Statements.
59
<Page>
<Table>
<Caption>
SHARES VALUE
---------- -------------
Banco Popular Espanol SA 40,850 $ 492,125
Bank of Ireland 22,949 368,569
Barclays PLC 88,170 874,758
BNP Paribas SA 6,591 450,155
DNB NOR ASA 46,600 482,879
HBOS PLC 19,100 293,899
HSBC Holdings PLC 66,900 1,066,136
KBC Group NV 2,159 169,969
Mitsubishi Tokyo Financial
Group, Inc. 49 413,700
Mitsui Trust Holdings, Inc. 10,000 102,038
Mizuho Financial Group, Inc. 103 463,933
National Bank of Greece SA 8,155 277,884
Resona Holdings, Inc. (a) 71,000 131,897
Royal Bank of Scotland Group PLC 33,420 1,006,296
Skandinaviska Enskilda Banken AB,
Class A 16,800 278,587
Sumitomo Mitsui Financial
Group, Inc. 71 478,431
UFJ Holdings, Inc. (a) 26 134,825
United Overseas Bank Ltd. 56,000 471,397
-------------
10,422,100
-------------
CONSUMER FINANCE--0.9%
Aiful Corp. 3,200 237,659
ORIX Corp. 1,400 209,377
Takefuji Corp. 2,600 175,561
-------------
622,597
-------------
DIVERSIFIED FINANCIAL SERVICES--1.3%
Fortis 7,747 214,122
ING Groep NV 15,557 437,221
Suncorp-Metway Ltd. 12,500 190,825
-------------
842,168
-------------
INSURANCE--2.5%
Aegon NV 11,271 145,152
Allianz AG, Registered Shares 2,452 280,383
AXA 11,300 280,735
Irish Life & Permanent PLC 12,109 211,652
Mitsui Sumitomo Insurance Co., Ltd. 42,000 376,557
QBE Insurance Group Ltd. 15,500 188,578
Sampo Oyj, Class A 15,500 241,280
-------------
1,724,337
-------------
REAL ESTATE--1.5%
Sun Hung Kai Properties Ltd. 33,000 324,588
Swire Pacific Ltd., Class A 52,000 457,957
United Overseas Land Ltd. 5,600 7,571
Wharf Holdings Ltd. 57,000 198,987
-------------
989,103
-------------
HEALTH CARE--10.8%
HEALTH CARE EQUIPMENT & SUPPLIES--1.7%
GN Store Nord A/S 18,000 203,131
Smith & Nephew PLC 58,866 579,334
Synthes, Inc. 1,800 196,984
Terumo Corp. 5,600 160,884
-------------
1,140,333
-------------
PHARMACEUTICALS--9.1%
Astellas Pharma, Inc. 5,000 $ 170,662
AstraZeneca PLC 25,855 1,068,293
Eisai Co., Ltd. 6,200 207,692
GlaxoSmithKline PLC 60,889 1,468,945
Novartis AG, Registered Shares 17,620 835,755
Roche Holding AG, Genusschein 3,519 443,174
Sanofi-Aventis 9,990 817,023
Schering AG 2,200 134,593
Shire Pharmaceuticals Group PLC 23,200 253,987
Takeda Pharmaceutical Co., Ltd. 9,600 474,729
Teva Pharmaceutical Industries
Ltd., ADR 11,200 348,768
-------------
6,223,621
-------------
INDUSTRIALS--11.2%
AEROSPACE & DEFENSE--0.3%
Singapore Technologies
Engineering Ltd. 152,000 218,061
-------------
AIR FREIGHT & LOGISTICS--0.3%
Deutsche Post AG, Registered Shares 8,600 200,598
-------------
BUILDING PRODUCTS--0.9%
Nippon Sheet Glass Co., Ltd. 49,000 191,067
Wienerberger AG 9,591 444,458
-------------
635,525
-------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Randstad Holding NV 10,000 343,779
Securitas AB, Class B 10,400 173,101
-------------
516,880
-------------
CONSTRUCTION & ENGINEERING--1.9%
Shimizu Corp. 95,000 440,142
Vinci SA 10,580 879,205
-------------
1,319,347
-------------
ELECTRICAL EQUIPMENT--0.9%
ABB Ltd. (a) 39,200 255,080
Mitsubishi Electric Corp. 62,000 326,983
-------------
582,063
-------------
INDUSTRIAL CONGLOMERATES--2.2%
Hutchison Whampoa Ltd. 46,000 413,411
Keppel Corp., Ltd. 24,000 177,632
SembCorp Industries Ltd. 123,140 194,715
Siemens AG, Registered Shares 3,349 243,213
Smiths Group PLC 28,491 468,488
-------------
1,497,459
-------------
MACHINERY--1.0%
Atlas Copco AB, Class B 19,800 284,089
Komatsu Ltd. 55,000 424,701
-------------
708,790
-------------
MARINE--0.3%
Kawasaki Kisen Kaisha Ltd. 39,000 229,782
-------------
ROAD & RAIL--1.8%
Canadian National Railway Co. 6,173 355,502
Canadian Pacific Railway Ltd. 8,400 290,130
</Table>
See Accompanying Notes to Financial Statements.
60
<Page>
<Table>
<Caption>
SHARES VALUE
---------- -------------
ComfortDelGro Corp., Ltd. 263,000 $ 262,890
East Japan Railway Co. 54 276,881
-------------
1,185,403
-------------
TRADING COMPANIES & DISTRIBUTORS--0.8%
Mitsubishi Corp. 41,000 554,706
-------------
INFORMATION TECHNOLOGY--6.2%
COMMUNICATIONS EQUIPMENT--1.6%
Nokia Oyj 32,400 538,638
Tandberg ASA 13,800 147,207
Telefonaktiebolaget
LM Ericsson, ADR 12,100 386,595
-------------
1,072,440
-------------
COMPUTERS & PERIPHERALS--0.4%
Toshiba Corp. 73,000 289,327
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.6%
HOYA Corp. 1,800 206,818
TDK Corp. 3,100 210,396
-------------
417,214
-------------
INTERNET SOFTWARE & SERVICES--0.3%
NIWS Co., Ltd. (a) 132 172,982
-------------
OFFICE ELECTRONICS--0.7%
Canon, Inc. 9,000 471,499
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.3%
ARM Holdings PLC 90,700 183,255
Marvell Technology Group Ltd. (a) 5,200 197,808
Samsung Electronics Co., Ltd.,
Registered Shares, GDR 1,443 343,154
Taiwan Semiconductor Manufacturing
Co., Ltd., ADR 21,000 191,520
-------------
915,737
-------------
SOFTWARE--1.3%
Sage Group PLC 100,300 400,356
SAP AG 2,912 505,288
-------------
905,644
-------------
MATERIALS--2.9%
CHEMICALS--2.9%
BASF AG 3,084 204,197
Novozymes A/S, Class B 4,150 205,038
Shin-Etsu Chemical Co., Ltd. 7,900 298,612
Solvay SA 1,800 184,606
Sumitomo Chemical Co., Ltd. 101,000 462,428
Syngenta AG (a) 4,100 419,375
Teijin Ltd. 45,000 208,465
-------------
1,982,721
-------------
TELECOMMUNICATION SERVICES--5.2%
DIVERSIFIED TELECOMMUNICATION SERVICES--2.9%
BT Group PLC 65,529 268,861
Deutsche Telekom AG,
Registered Shares 24,548 453,195
France Telecom SA 13,949 $ 404,825
Koninklijke (Royal) KPN NV 17,078 142,894
Nippon Telegraph & Telephone Corp. 50 214,342
Portugal Telecom, SGPS, SA,
Registered Shares 22,000 209,384
Singapore Telecommunications Ltd. 146,000 240,170
-------------
1,933,671
-------------
WIRELESS TELECOMMUNICATION SERVICES--2.3%
China Mobile Hong Kong Ltd. 100,000 369,738
NTT DoCoMo, Inc. 130 191,140
Vodafone Group PLC 418,800 1,017,530
-------------
1,578,408
-------------
UTILITIES--4.9%
ELECTRIC UTILITIES--2.9%
E.ON AG 4,474 396,792
Enel S.p.A. 61,675 535,499
Fortum Oyj 25,400 406,894
Scottish & Southern Energy PLC 9,900 178,986
Tokyo Electric Power Co., Inc. 18,700 446,445
-------------
1,964,616
-------------
GAS UTILITIES--0.4%
Tokyo Gas Co., Ltd. 78,000 291,278
-------------
MULTI-UTILITIES--1.6%
National Grid Transco PLC 40,350 390,141
Veolia Environnement 17,800 665,676
-------------
1,055,817
-------------
TOTAL COMMON STOCKS
(cost of $57,331,683) 66,139,757
-------------
INVESTMENT COMPANIES--0.8%
iShares MSCI Malaysia Index Fund 24,800 171,616
iShares MSCI Taiwan Index Fund 30,200 365,420
-------------
TOTAL INVESTMENT COMPANIES
(cost of $538,158) 537,036
-------------
PREFERRED STOCK--0.6%
CONSUMER DISCRETIONARY--0.6%
AUTOMOBILES--0.6%
Porsche AG 526 393,912
-------------
TOTAL PREFERRED STOCK
(cost of $335,521) 393,912
-------------
</Table>
See Accompanying Notes to Financial Statements.
61
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
SHORT-TERM OBLIGATION--1.0%
Repurchase agreement with State Street
Bank & Trust Co., dated 06/30/05, due
07/01/05 at 2.700%, collateralized by a
U.S. Treasury Bond maturing 05/15/17,
market value of $699,613 (repurchase
proceeds $685,051) $ 685,000 $ 685,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $685,000) 685,000
-------------
TOTAL INVESTMENTS--99.6%
(cost of $58,890,362) (b) 67,755,705
-------------
OTHER ASSETS & LIABILITIES, NET--0.4% 296,845
-------------
NET ASSETS--100.0% $ 68,052,550
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $58,890,362.
The Fund was invested in the following countries at June 30, 2005:
<Table>
<Caption>
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY VALUE INVESTMENTS
- --------------------- ------------- -------------
United Kingdom $ 18,354,179 27.1%
Japan 14,857,404 21.9
France 5,937,713 8.8
Switzerland 3,952,777 5.8
Germany 3,619,267 5.3
Netherlands 2,434,072 3.6
Italy 2,191,567 3.2
United States* 1,998,707 3.0
Hong Kong 1,764,681 2.6
Singapore 1,732,039 2.6
Spain 1,308,057 1.9
Canada 1,267,822 1.9
Finland 1,186,812 1.7
Sweden 1,122,372 1.7
Ireland 936,948 1.4
Australia 860,937 1.3
Austria 748,621 1.1
Norway 630,086 0.9
Belgium 568,697 0.8
Denmark 408,169 0.6
Israel 348,768 0.5
South Korea 343,154 0.5
Greece 277,884 0.4
Panama 256,385 0.4
Luxembourg 247,683 0.4
Portugal 209,384 0.3
Taiwan 191,520 0.3
------------- -----
$ 67,755,705 100.0%
============= =====
</Table>
* Includes Short-Term Obligation.
Certain securities are listed by country of underlying exposure but may trade
predominately on other exchanges.
At June 30, 2005, the Fund held investments in the following sectors:
<Table>
<Caption>
% OF
SECTOR NET ASSETS
- ------ ----------
Financials 22.8%
Consumer Discretionary 13.8
Industrials 11.2
Health Care 10.8
Consumer Staples 10.6
Energy 9.4
Information Technology 6.2
Telecommunication Services 5.2
Utilities 4.9
Materials 2.9
Investment Companies 0.8
Short-Term Obligation 1.0
Other Assets & Liabilities, Net 0.4
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
GDR Global Depositary Receipt
</Table>
See Accompanying Notes to Financial Statements.
62
<Page>
STATEMENT OF ASSETS & LIABILITIES
Columbia International Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 58,890,362
--------------
Investments, at value $ 67,755,705
Cash 804
Foreign currency (cost of $244,607) 244,187
Receivable for:
Investments sold 42,158
Fund shares sold 118,096
Interest 51
Dividends 104,321
Foreign tax reclaim 43,829
Expense reimbursement due from Investment Advisor 10,251
Deferred Trustees' compensation plan 6,543
--------------
TOTAL ASSETS 68,325,945
--------------
LIABILITIES:
Payable for:
Investments purchased 169,675
Fund shares repurchased 16,703
Investment advisory fee 49,579
Transfer agent fee 363
Pricing and bookkeeping fees 1,659
Trustees' fees 583
Audit fee 9,939
Custody fee 11,346
Distribution fee--Class B 1,641
Deferred Trustees' fees 6,543
Other liabilities 5,364
--------------
TOTAL LIABILITIES 273,395
--------------
NET ASSETS $ 68,052,550
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 66,155,158
Undistributed net investment income 814,929
Accumulated net realized loss (7,778,472)
Net unrealized appreciation (depreciation) on:
Investments 8,865,343
Foreign currency translations (4,408)
--------------
NET ASSETS $ 68,052,550
==============
CLASS A:
Net assets $ 62,163,820
Shares outstanding 33,360,892
==============
Net asset value per share $ 1.86
==============
CLASS B:
Net assets $ 5,888,730
Shares outstanding 3,174,740
==============
Net asset value per share $ 1.85
==============
</Table>
See Accompanying Notes to Financial Statements.
63
<Page>
STATEMENT OF OPERATIONS
Columbia International Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 1,158,856
Interest 14,495
--------------
Total Investment Income (net of foreign taxes withheld of $125,812) 1,173,351
--------------
EXPENSES:
Investment advisory fee 310,456
Distribution fee--Class B 7,642
Transfer agent fee 3,507
Pricing and bookkeeping fees 19,024
Trustees' fees 4,282
Custody fee 39,228
Non-recurring costs (See Note 6) 902
Other expenses 24,438
--------------
Total Expenses 409,479
Fees and expenses waived or reimbursed by Investment Advisor (57,674)
Non-recurring costs assumed by Investment Advisor (See Note 6) (902)
Custody earnings credit (149)
--------------
Net Expenses 350,754
--------------
Net Investment Income 822,597
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY:
Net realized gain (loss) on:
Investments 4,607,997
Foreign currency transactions (92,770)
--------------
Net realized gain 4,515,227
--------------
Net change in unrealized appreciation (depreciation) on:
Investments (6,840,388)
Foreign currency translations (7,846)
--------------
Net change in unrealized appreciation (depreciation) (6,848,234)
--------------
Net Loss (2,333,007)
--------------
Net Decrease in Net Assets from Operations $ (1,510,410)
==============
</Table>
See Accompanying Notes to Financial Statements.
64
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Columbia International Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 822,597 $ 736,608
Net realized gain on investments, foreign currency transactions
and foreign capital gains tax 4,515,227 12,851,838
Net change in unrealized appreciation (depreciation) on investments,
foreign currency translations and foreign capital gains tax (6,848,234) (3,993,415)
-------------- --------------
Net Increase (Decrease) from Operations (1,510,410) 9,595,031
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (812,607)
Class B -- (62,958)
-------------- --------------
Total Distributions Declared to Shareholders -- (875,565)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,547,895 2,715,897
Distributions reinvested -- 812,607
Redemptions (8,408,946) (16,270,373)
-------------- --------------
Net Decrease (6,861,051) (12,741,869)
-------------- --------------
Class B:
Subscriptions 201,420 504,785
Distributions reinvested -- 62,958
Redemptions (961,221) (1,363,336)
-------------- --------------
Net Decrease (759,801) (795,593)
-------------- --------------
Net Decrease from Share Transactions (7,620,852) (13,537,462)
-------------- --------------
Total Decrease in Net Assets (9,131,262) (4,817,996)
NET ASSETS:
Beginning of period 77,183,812 82,001,808
-------------- --------------
End of period (including undistributed (overdistributed) net
investment income of $814,929 and $(7,668), respectively) $ 68,052,550 $ 77,183,812
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 823,549 1,543,162
Issued for distributions reinvested -- 432,171
Redemptions (4,464,656) (9,365,532)
-------------- --------------
Net Decrease (3,641,107) (7,390,199)
-------------- --------------
Class B:
Subscriptions 107,487 302,309
Issued for distributions reinvested -- 33,751
Redemptions (514,847) (790,682)
-------------- --------------
Net Decrease (407,360) (454,622)
-------------- --------------
</Table>
See Accompanying Notes to Financial Statements.
65
<Page>
NOTES TO FINANCIAL STATEMENTS
Columbia International Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Columbia International Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a non-diversified portfolio. The
Trust is a Massachusetts business trust registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities and securities of certain investment
companies are valued at the last sale price on the principal exchange on which
they trade, except for securities traded on the NASDAQ, which are valued at the
NASDAQ official close price. Unlisted securities or listed securities for which
there were no sales during the day are valued at the closing bid price on such
exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 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 have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--Forward foreign currency
exchange contracts are agreements to exchange one currency for another at a
future date at a specified price. These contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of 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
66
<Page>
the change in value of the contract (in U.S. dollars) over the period it remains
open. The Fund could also be exposed to risk if the counterparties of the
contracts are unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date, except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such, net of non-reclaimable tax withholdings.
FOREIGN CURRENCY TRANSACTIONS--The values of all assets and liabilities
quoted in foreign currencies are translated into U.S. dollars at that day's
exchange rates. Net realized and unrealized gains (losses) on foreign currency
transactions include gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES--All income, expenses (other than
class-specific expenses, as shown on the Statement of Operations), and realized
and unrealized gains (losses), are allocated to each class of the Fund on a
daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
FEDERAL INCOME TAX STATUS--The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
as amended, and will distribute substantially all of its taxable income, if any,
for its tax year, and as such will not be subject to federal income taxes. In
addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
such that the Fund should not be subject to federal excise tax. Therefore, no
federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income $ 875,565
Long-term capital gains --
</Table>
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 10,446,002
Unrealized depreciation (1,580,659)
------------
Net unrealized appreciation $ 8,865,343
============
</Table>
The following capital loss carryforwards, determined as of December 31, 2004,
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. Utilization of these losses could be subject to
limitations imposed by the Internal Revenue Code.
67
<Page>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.87%
$500 million to $1 billion 0.82%
$1 billion to $1.5 billion 0.77%
$1.5 billion to $3 billion 0.72%
$3 billion to $6 billion 0.70%
Over $6 billion 0.68%
</Table>
For the six months ended June 30, 2005, as a result of the settlement with the
New York Attorney General discussed in Note 6, the Fund's annualized effective
investment advisory fee rate was 0.86%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received to State Street under the Outsourcing
Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund.
For the six months ended June 30, 2005, the annualized effective pricing and
bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was
0.053%.
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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Effective February 1, 2005, Columbia has voluntarily agreed to
waive fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of service and distribution fees, brokerage commissions, interest,
and extraordinary expenses, if any) will not exceed 0.95%. 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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$779 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $22,712,504 and
$29,572,568, respectively.
68
<Page>
NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES--There are certain additional risks involved when
investing in foreign securities that are not inherent with investments in
domestic securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of currency exchange or other foreign governmental laws or
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to
69
<Page>
federal court in Massachusetts and the federal Judicial Panel has conditionally
ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $902 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
70
<Page>
FINANCIAL HIGHLIGHTS
Columbia International Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, --------------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
----------- -------- -------- -------- -------- ------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.90 $ 1.69 $ 1.26 $ 1.46 $ 1.93 $ 2.50
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (b) 0.02 0.01 0.03 0.01 --(c) (0.01)
Net realized and
unrealized gain (loss)
on investments, foreign
currency and foreign
capital gains tax (0.07) 0.22 0.41 (0.21) (0.47) (0.22)
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.05) 0.23 0.44 (0.20) (0.47) (0.23)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS:
From net investment
income -- (0.02) (0.01) --(c) -- (0.04)
In excess of net
investment income -- -- -- -- -- --(c)
From net realized
gains -- -- -- -- -- (0.30)
In excess of net
realized gains -- -- -- -- -- --(c)
-------- -------- -------- -------- -------- --------
Total Distributions
Declared to
Shareholders -- (0.02) (0.01) -- -- (0.34)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD $ 1.85 $ 1.90 $ 1.69 $ 1.26 $ 1.46 $ 1.93
======== ======== ======== ======== ======== ========
Total return (d)(e) (2.63)%(f)(g) 13.48%(g)(h) 35.21%(g) (13.56)% (24.35)% (9.01)%(f)
RATIOS TO AVERAGE
NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i) 1.20%(j) 1.20% 1.22% 1.38% 1.48% 1.33%(j)
Net investment income
(loss) (i) 2.05%(j) 0.72% 1.71% 0.37% 0.16% (0.43)%(j)
Waiver/reimbursement 0.16%(j) 0.21% 0.18% -- -- --
Portfolio turnover rate 32%(f) 101% 104% 39% 34% 76%
Net assets, end of
period (000's) $ 5,889 $ 6,792 $ 6,817 $ 1 $ 1 $ 1
</Table>
(a) For the period from commencement of operations on June 1, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(f) Not annualized.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) 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.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
71
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Growth & Income Fund, Variable Series / June 30, 2005
Liberty Growth & Income Fund, Variable Series seeks long-term growth and income.
During the six-month period ended June 30, 2005, the fund was co-managed by
Brian Cunningham, Gregory M. Miller and Richard Dahlberg. As of June 30, 2005,
the fund's lead manager is Lori J. Ensinger and co-managers are David I.
Hoffman, Noah J. Petrucci and Diane L. Sobin. Ms. Ensinger has been with
Columbia Management Advisors, Inc. ("Columbia") or its affiliates since 2001.
Mr. Hoffman has been with Columbia or its affiliates since August 2001. Mr.
Petrucci has been with Columbia or its affiliates since February 2002. Ms. Sobin
has been with Columbia or its affiliates since August 2001.
The fund delivered a modest but positive return for the first half of the year,
reflecting a market that was generally directionless but one in which value
stocks outpaced growth. Corporate profits continued their vigorous expansion.
Yet, stock market returns were muted because of indications that the economy
might be slowing under the weight of high energy prices and repeated interest
rate hikes. Beginning in 2005, the fund's benchmark was changed from the S&P 500
Index to the Russell 1000 Value Index ("Russell")(1). We believe that the
Russell, with its greater emphasis on companies with lower price-to-book ratios
and lower forecasted growth rates, more accurately reflects the type of
securities in which the fund invests.
UTILITIES, ENERGY AND HEALTH CARE WERE OUT FRONT
Rising prices for natural gas and continued progress in restructuring put
further impetus behind the shares of TXU, the portfolio's best-performing
utility (0.8% of net assets). TXU also sold off certain assets, allaying fears
of dividend cuts and boosting its stock further.
Five of the fund's energy holdings ranked among the fund's top ten performers
during the period. Soaring prices for crude oil boosted shares of
ConocoPhillips, Exxon Mobil, BP PLC, and Marathon Oil (3.2%, 4.4%, 2.0% and 0.7%
of net assets, respectively). Halliburton, a leading provider of products and
services to the energy industry, benefited from increased activity on the global
energy market (0.5% of net assets).
Health care stocks benefited as investors sought sectors that might do well
in a slower growth environment. The fund enjoyed good results in Aetna and
CIGNA, two leading health maintenance organizations (1.2% and 0.6% of net
assets, respectively). Bausch & Lomb, maker of a broad line of eye care products
and a recent addition to the portfolio, moved higher (0.3% of net assets).
Health care giant Johnson & Johnson, which markets products for consumers and
medical professionals, also rode renewed interest in the segment (0.8% of net
assets).
TECHNOLOGY, FINANCIALS AND MATERIALS DECLINED
Technology stocks delivered some of the period's worst returns. International
Business Machines saw shares fall sharply in April after earnings fell shy of
investor expectations (0.9% of net assets). Printer maker Lexmark International
suffered from slow sales of supplies (0.8% of net assets). Lexmark International
and its competitors rely on continued revenue from ink cartridge sales to
compensate for the narrow margins earned on printers. In addition, Hewlett
Packard (not in the portfolio) is regaining market share it had lost to Lexmark.
Technology has suffered primarily for two reasons. First, businesses seem to
lack confidence in the durability of the current expansion and, second, a
slowing of growth overseas. Consequently, firms that might otherwise be
investing in technology have been holding back on capital expenditures,
preferring to build up cash as they watch developments unfold. Financials also
underperformed as capital markets and commercial lending remained relatively
quiet.
Dramatic growth in 2004 from China and India had created shortages and pushed
up prices of materials and metals that year. Global demand has now eased, prices
have slumped, and stocks of producers have followed. MeadWestvaco fell amid
concerns that a slowing economy would shrink demand for its containerboard and
cardboard boxes (1.2% of net assets). Weakness in the automotive industry hurt
results at PPG Industries, a new holding for the fund, as sales of auto glass
and paint pigments sank (0.4% of net assets).
FOCUSING ON VALUE AND RISING PROFITS
The fund is positioned to focus on attractively valued companies that offer
earnings growth through margin expansion and revenue growth. We continue to seek
out companies that produce rising returns on capital, and that return capital to
shareholders through rising dividends and share repurchases.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue or commence. The opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in
response to economic and business developments.
Value stocks are stocks of companies that may have experienced adverse business
or industry developments or may be subject to special risks that have caused the
stocks to be out of favor and, in the advisor's opinion, undervalued. If the
advisor's assessment of a company's prospects is wrong, the price of the
company's stock may fall or may not approach the value the advisor has placed on
it.
Holdings are disclosed as of June 30, 2005, and are subject to change.
(1) The Standard & Poor's (S&P) 500 Index is an unmanaged index that tracks the
performance of 500 widely held, large-capitalization US stocks. The Russell
1000 Value Index is an unmanaged index that measures the performance of
those Russell 1000 Index companies with lower price-to-book ratios and
lower forecasted growth values.
72
<Page>
PERFORMANCE INFORMATION
Liberty Growth & Income Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------
Class B (06/01/00) 0.51 9.54 2.12 10.03
Russell 1000 Value Index 1.76 14.06 6.56 12.03
S&P 500 Index -0.81 6.32 -2.37 9.94
</Table>
Inception date of share class is in parenthesis.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- ------------------------------------------------------------
Class B 15.80 15.88
</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 CHARGES, IT WOULD BE LOWER.
[CHART]
VALUE OF A $10,000 INVESTMENT, 07/01/95(1) - 06/30/05
<Table>
<Caption>
CLASS B SHARES S&P 500 INDEX RUSSELL 1000 VALUE INDEX
7/1/1995 $ 10,000 $ 10,000 $ 10,000
7/31/1995 $ 10,346 $ 10,332 $ 10,348
8/31/1995 $ 10,305 $ 10,358 $ 10,494
9/30/1995 $ 10,651 $ 10,795 $ 10,874
10/31/1995 $ 10,609 $ 10,756 $ 10,766
11/30/1995 $ 11,012 $ 11,228 $ 11,311
12/31/1995 $ 10,972 $ 11,445 $ 11,595
1/31/1996 $ 11,265 $ 11,834 $ 11,957
2/29/1996 $ 11,487 $ 11,944 $ 12,047
3/31/1996 $ 11,549 $ 12,059 $ 12,252
4/30/1996 $ 11,975 $ 12,236 $ 12,299
5/31/1996 $ 12,259 $ 12,552 $ 12,453
6/30/1996 $ 11,993 $ 12,599 $ 12,462
7/31/1996 $ 11,416 $ 12,043 $ 11,991
8/31/1996 $ 11,797 $ 12,297 $ 12,334
9/30/1996 $ 12,374 $ 12,989 $ 12,825
10/31/1996 $ 12,684 $ 13,347 $ 13,322
11/30/1996 $ 13,590 $ 14,357 $ 14,287
12/31/1996 $ 13,367 $ 14,072 $ 14,105
1/31/1997 $ 14,344 $ 14,952 $ 14,789
2/28/1997 $ 14,334 $ 15,068 $ 15,006
3/31/1997 $ 13,761 $ 14,449 $ 14,466
4/30/1997 $ 14,494 $ 15,312 $ 15,073
5/31/1997 $ 15,322 $ 16,244 $ 15,916
6/30/1997 $ 15,904 $ 16,972 $ 16,599
7/31/1997 $ 17,173 $ 18,323 $ 17,847
8/31/1997 $ 16,581 $ 17,297 $ 17,212
9/30/1997 $ 17,437 $ 18,245 $ 18,251
10/31/1997 $ 16,638 $ 17,635 $ 17,742
11/30/1997 $ 17,315 $ 18,452 $ 18,526
12/31/1997 $ 17,675 $ 18,769 $ 19,067
1/31/1998 $ 17,870 $ 18,978 $ 18,796
2/28/1998 $ 19,106 $ 20,346 $ 20,061
3/31/1998 $ 20,071 $ 21,388 $ 21,289
4/30/1998 $ 20,061 $ 21,604 $ 21,432
5/31/1998 $ 19,562 $ 21,232 $ 21,115
6/30/1998 $ 20,311 $ 22,094 $ 21,385
7/31/1998 $ 19,909 $ 21,860 $ 21,009
8/31/1998 $ 16,666 $ 18,699 $ 17,882
9/30/1998 $ 17,435 $ 19,897 $ 18,909
10/31/1998 $ 18,923 $ 21,515 $ 20,374
11/30/1998 $ 20,073 $ 22,819 $ 21,324
12/31/1998 $ 21,235 $ 24,133 $ 22,049
1/31/1999 $ 21,790 $ 25,142 $ 22,225
2/28/1999 $ 20,920 $ 24,360 $ 21,912
3/31/1999 $ 21,598 $ 25,335 $ 22,365
4/30/1999 $ 22,196 $ 26,315 $ 24,454
5/31/1999 $ 21,903 $ 25,694 $ 24,185
6/30/1999 $ 23,180 $ 27,120 $ 24,887
7/31/1999 $ 22,603 $ 26,274 $ 24,158
8/31/1999 $ 22,355 $ 26,145 $ 23,261
9/30/1999 $ 21,586 $ 25,429 $ 22,449
10/31/1999 $ 22,445 $ 27,038 $ 23,743
11/30/1999 $ 22,739 $ 27,587 $ 23,557
12/31/1999 $ 23,785 $ 29,212 $ 23,670
1/31/2000 $ 22,503 $ 27,746 $ 22,899
2/29/2000 $ 21,735 $ 27,221 $ 21,197
3/31/2000 $ 23,881 $ 29,884 $ 23,783
4/30/2000 $ 23,857 $ 28,984 $ 23,508
5/31/2000 $ 23,737 $ 28,390 $ 23,754
6/30/2000 $ 23,403 $ 29,091 $ 22,669
7/31/2000 $ 23,571 $ 28,637 $ 22,952
8/31/2000 $ 25,080 $ 30,416 $ 24,228
9/30/2000 $ 24,495 $ 28,810 $ 24,451
10/31/2000 $ 24,669 $ 28,689 $ 25,053
11/30/2000 $ 23,465 $ 26,428 $ 24,123
12/31/2000 $ 24,604 $ 26,558 $ 25,332
1/31/2001 $ 24,441 $ 27,500 $ 25,428
2/28/2001 $ 24,265 $ 24,992 $ 24,721
3/31/2001 $ 23,336 $ 23,408 $ 23,849
4/30/2001 $ 23,740 $ 25,227 $ 25,017
5/31/2001 $ 24,183 $ 25,396 $ 25,580
6/30/2001 $ 23,618 $ 24,778 $ 25,012
7/31/2001 $ 24,305 $ 24,536 $ 24,960
8/31/2001 $ 24,157 $ 23,000 $ 23,959
9/30/2001 $ 23,186 $ 21,141 $ 22,272
10/31/2001 $ 23,304 $ 21,545 $ 22,080
11/30/2001 $ 24,243 $ 23,198 $ 23,363
12/31/2001 $ 24,444 $ 23,402 $ 23,915
1/31/2002 $ 24,036 $ 23,060 $ 23,731
2/28/2002 $ 23,784 $ 22,615 $ 23,769
3/31/2002 $ 24,870 $ 23,465 $ 24,893
4/30/2002 $ 23,973 $ 22,043 $ 24,039
5/31/2002 $ 23,941 $ 21,880 $ 24,159
6/30/2002 $ 21,392 $ 20,322 $ 22,772
7/31/2002 $ 19,629 $ 18,739 $ 20,655
8/31/2002 $ 19,880 $ 18,861 $ 20,812
9/30/2002 $ 17,031 $ 16,811 $ 18,497
10/31/2002 $ 18,479 $ 18,290 $ 19,868
11/30/2002 $ 19,896 $ 19,368 $ 21,120
12/31/2002 $ 19,053 $ 18,231 $ 20,203
1/31/2003 $ 18,367 $ 17,753 $ 19,714
2/28/2003 $ 17,331 $ 17,487 $ 19,188
3/31/2003 $ 17,282 $ 17,656 $ 19,220
4/30/2003 $ 18,542 $ 19,111 $ 20,912
5/31/2003 $ 20,072 $ 20,118 $ 22,263
6/30/2003 $ 20,534 $ 20,376 $ 22,541
7/31/2003 $ 20,454 $ 20,735 $ 22,877
8/31/2003 $ 20,789 $ 21,139 $ 23,234
9/30/2003 $ 20,390 $ 20,915 $ 23,006
10/31/2003 $ 21,124 $ 22,099 $ 24,414
11/30/2003 $ 21,331 $ 22,293 $ 24,746
12/31/2003 $ 22,797 $ 23,461 $ 26,270
1/31/2004 $ 23,118 $ 23,893 $ 26,733
2/29/2004 $ 23,747 $ 24,225 $ 27,305
3/31/2004 $ 23,649 $ 23,859 $ 27,065
4/30/2004 $ 23,084 $ 23,485 $ 26,404
5/31/2004 $ 23,100 $ 23,806 $ 26,674
6/30/2004 $ 23,729 $ 24,268 $ 27,303
7/31/2004 $ 23,294 $ 23,465 $ 26,918
8/31/2004 $ 23,553 $ 23,559 $ 27,300
9/30/2004 $ 23,918 $ 23,813 $ 27,723
10/31/2004 $ 24,143 $ 24,178 $ 28,184
11/30/2004 $ 25,159 $ 25,157 $ 29,610
12/31/2004 $ 25,861 $ 26,012 $ 30,602
1/31/2005 $ 25,419 $ 25,377 $ 30,057
2/28/2005 $ 26,222 $ 25,910 $ 31,052
3/31/2005 $ 25,829 $ 25,452 $ 30,626
4/30/2005 $ 25,470 $ 24,968 $ 30,078
5/31/2005 $ 25,880 $ 25,762 $ 30,803
6/30/2005 $ 25,997 $ 25,792 $ 31,138
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the indexes. The Indexes are unmanaged and returns for the indexes and the
fund include reinvested dividends and capital gains. It is not possible to
invest directly in an index. Investment earnings, if any, are income
tax-deferred until distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. The fund's primary benchmark was changed to the Russell 1000
Value Index. Previously, the fund's returns were compared to the S&P 500 Index.
The Russell 1000 Value Index is an unmanaged index that measures the performance
of those Russell 1000 Index companies with lower price-to-book ratios and lower
forecasted growth values. The Standard & Poor's (S&P) 500 Index is an unmanaged
index that tracks the performance of 500 widely held, large-capitalization U.S.
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.
Class B shares (newer class shares) performance information includes returns of
the fund's class A shares (the oldest existing fund class) for periods prior to
the inception of the newer class shares. These class A share returns were not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
class A shares and the newer class shares. If differences in expenses were
reflected, the returns for the periods prior to the inception of the new class
of shares would be lower.
(1) Inception date of class A shares (oldest existing share class) is July 5,
1994.
73
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty Growth & Income Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- -----------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 1,005.11 1,019.69 5.12 5.16 1.03
</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 365.
Had the investment advisor and its affiliates not waived/reimbursed a portion of
expenses, account values at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
74
<Page>
INVESTMENT PORTFOLIO
Liberty Growth & Income Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
SHARES VALUE
------------- -------------
COMMON STOCKS--99.6%
CONSUMER DISCRETIONARY--9.0%
HOTELS, RESTAURANTS & LEISURE--1.4%
Harrah's Entertainment, Inc. 12,778 $ 920,910
McDonald's Corp. 82,621 2,292,733
-------------
3,213,643
-------------
MEDIA--3.4%
Clear Channel Communications, Inc. 18,172 562,060
Comcast Corp., Class A (a) 35,767 1,098,047
McGraw-Hill Companies, Inc. 63,796 2,822,973
Time Warner, Inc. (a) 152,211 2,543,446
Viacom, Inc., Class A 28,751 926,357
-------------
7,952,883
-------------
MULTILINE RETAIL--2.1%
Federated Department Stores, Inc. 43,204 3,165,989
J.C. Penney Co., Inc. 32,613 1,714,792
-------------
4,880,781
-------------
SPECIALTY RETAIL--2.1%
Home Depot, Inc. 71,708 2,789,441
Limited Brands, Inc. 56,485 1,209,909
Sherwin-Williams Co. 19,700 927,673
-------------
4,927,023
-------------
CONSUMER STAPLES--10.1%
BEVERAGES--2.4%
Diageo PLC, ADR 25,857 1,533,320
PepsiCo, Inc. 74,602 4,023,286
-------------
5,556,606
-------------
FOOD PRODUCTS--1.8%
Hershey Co. 32,980 2,048,058
Kraft Foods, Inc., Class A 63,925 2,033,454
-------------
4,081,512
-------------
HOUSEHOLD PRODUCTS--2.4%
Clorox Co. 41,167 2,293,825
Kimberly-Clark Corp. 35,658 2,231,834
Procter & Gamble Co. 21,394 1,128,534
-------------
5,654,193
-------------
PERSONAL PRODUCTS--1.2%
Gillette Co. 54,482 2,758,424
-------------
TOBACCO--2.3%
Altria Group, Inc. 65,416 4,229,798
UST, Inc. 22,530 1,028,720
-------------
5,258,518
-------------
ENERGY--12.8%
ENERGY EQUIPMENT & SERVICES--1.1%
Halliburton Co. 25,724 1,230,122
Schlumberger Ltd. 16,930 1,285,664
-------------
2,515,786
-------------
OIL, GAS & CONSUMABLE FUELS--11.7%
BP PLC, ADR 74,682 $ 4,658,663
ChevronTexaco Corp. 36,120 2,019,831
ConocoPhillips 126,886 7,294,676
Exxon Mobil Corp. 176,894 10,166,098
Marathon Oil Corp. 31,333 1,672,242
Royal Dutch Petroleum Co., N.Y. Registered Shares 19,271 1,250,688
-------------
27,062,198
-------------
FINANCIALS--29.0%
CAPITAL MARKETS--5.0%
A.G. Edwards, Inc. 13,642 615,936
Bank of New York Co., Inc. 100,491 2,892,131
Franklin Resources, Inc. 16,830 1,295,573
Goldman Sachs Group, Inc. 27,451 2,800,551
Janus Capital Group, Inc. 74,250 1,116,720
Merrill Lynch & Co., Inc. 30,064 1,653,821
Morgan Stanley 21,950 1,151,717
-------------
11,526,449
-------------
COMMERCIAL BANKS--7.6%
Marshall & Ilsley Corp. 14,681 652,570
National City Corp. 34,401 1,173,762
North Fork Bancorporation, Inc. 20,761 583,177
PNC Financial Services Group, Inc. 21,090 1,148,561
U.S. Bancorp 161,209 4,707,303
Wachovia Corp. 89,105 4,419,608
Wells Fargo & Co. 79,305 4,883,601
-------------
17,568,582
-------------
CONSUMER FINANCE--0.8%
MBNA Corp. 72,263 1,890,400
-------------
DIVERSIFIED FINANCIAL SERVICES--6.3%
Citigroup, Inc. 213,755 9,881,894
JPMorgan Chase & Co. 133,792 4,725,533
-------------
14,607,427
-------------
INSURANCE--6.6%
Allstate Corp. 23,517 1,405,141
Ambac Financial Group, Inc. 24,176 1,686,518
American International Group, Inc. 30,996 1,800,867
Chubb Corp. 17,000 1,455,370
Hartford Financial Services Group, Inc. 30,065 2,248,261
Lincoln National Corp. 63,436 2,976,417
Willis Group Holdings Ltd. 32,795 1,073,052
XL Capital Ltd., Class A 35,233 2,622,040
-------------
15,267,666
-------------
REAL ESTATE--2.1%
Archstone-Smith Trust, REIT 42,408 1,637,797
AvalonBay Communities, Inc., REIT 19,585 1,582,468
Kimco Realty Corp., REIT 28,873 1,700,908
-------------
4,921,173
-------------
</Table>
See Accompanying Notes to Financial Statements.
75
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
THRIFTS & MORTGAGE FINANCE--0.6%
Countrywide Financial Corp. 33,342 $ 1,287,335
-------------
HEALTH CARE--6.2%
HEALTH CARE EQUIPMENT & SUPPLIES--0.3%
Bausch & Lomb, Inc. 8,312 689,896
-------------
HEALTH CARE PROVIDERS & SERVICES--1.8%
Aetna, Inc. 32,588 2,698,938
CIGNA Corp. 13,911 1,488,894
-------------
4,187,832
-------------
PHARMACEUTICALS--4.1%
GlaxoSmithKline PLC, ADR 24,323 1,179,909
Johnson & Johnson 28,668 1,863,420
Merck & Co., Inc. 62,340 1,920,072
Novartis AG, ADR 29,243 1,387,288
Pfizer, Inc. 110,005 3,033,938
-------------
9,384,627
-------------
INDUSTRIALS--12.8%
AEROSPACE & DEFENSE--3.4%
General Dynamics Corp. 29,522 3,233,840
United Technologies Corp. 88,380 4,538,313
-------------
7,772,153
-------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
Cendant Corp. 53,697 1,201,202
Republic Services, Inc. 20,959 754,734
Waste Management, Inc. 87,837 2,489,300
-------------
4,445,236
-------------
INDUSTRIAL CONGLOMERATES--6.1%
General Electric Co. 275,788 9,556,054
Textron, Inc. 58,913 4,468,551
-------------
14,024,605
-------------
MACHINERY--1.4%
Deere & Co. 25,050 1,640,524
Eaton Corp. 27,314 1,636,109
-------------
3,276,633
-------------
INFORMATION TECHNOLOGY--5.9%
COMMUNICATIONS EQUIPMENT--0.8%
Cisco Systems, Inc. (a) 33,501 640,204
Nokia Oyj, ADR 77,644 1,291,996
-------------
1,932,200
-------------
COMPUTERS & PERIPHERALS--1.7%
International Business Machines Corp. 26,851 1,992,344
Lexmark International, Inc., Class A (a) 28,863 1,871,189
-------------
3,863,533
-------------
IT SERVICES--1.6%
Accenture Ltd., Class A (a) 115,183 2,611,198
Automatic Data Processing, Inc. 27,377 1,149,013
-------------
3,760,211
-------------
OFFICE ELECTRONICS--0.7%
Xerox Corp. (a) 110,678 $ 1,526,250
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--0.3%
Intel Corp. 25,675 669,091
-------------
SOFTWARE--0.8%
Microsoft Corp. 72,372 1,797,720
-------------
MATERIALS--4.2%
CHEMICALS--2.2%
Air Products & Chemicals, Inc. 69,327 4,180,418
PPG Industries, Inc. 13,597 853,348
-------------
5,033,766
-------------
PAPER & FOREST PRODUCTS--2.0%
MeadWestvaco Corp. 94,931 2,661,865
Weyerhaeuser Co. 31,155 1,983,016
-------------
4,644,881
-------------
TELECOMMUNICATION SERVICES--4.5%
DIVERSIFIED TELECOMMUNICATION SERVICES--4.5%
BellSouth Corp. 69,709 1,852,168
SBC Communications, Inc. 202,285 4,804,269
Verizon Communications, Inc. 108,845 3,760,595
-------------
10,417,032
-------------
UTILITIES--5.1%
ELECTRIC UTILITIES--3.8%
American Electric Power Co., Inc. 34,677 1,278,541
Entergy Corp. 34,619 2,615,466
Exelon Corp. 42,758 2,194,768
FPL Group, Inc. 31,570 1,327,834
PG&E Corp. 38,830 1,457,678
-------------
8,874,287
-------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--0.8%
TXU Corp. 20,853 1,732,676
-------------
MULTI-UTILITIES--0.5%
Dominion Resources, Inc. 16,301 1,196,330
-------------
TOTAL COMMON STOCKS
(cost of $196,299,151) 230,159,558
-------------
INVESTMENT COMPANY--0.3%
iShares Russell 1000 Value Index Fund 10,917 727,509
-------------
TOTAL INVESTMENT COMPANY
(cost of $709,929) 727,509
-------------
</Table>
See Accompanying Notes to Financial Statements.
76
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
SHORT-TERM OBLIGATION--0.1%
Repurchase agreement with State Street Bank & Trust
Co., dated 06/30/05, due 07/01/05 at 2.700%,
collateralized by a U.S. Treasury Bond maturing
05/15/17, market value of $173,100 (repurchase
proceeds $169,013) $ 169,000 $ 169,000
-------------
TOTAL SHORT-TERM OBLIGATION
(cost of $169,000) 169,000
-------------
TOTAL INVESTMENTS--100.0%
(cost of $197,178,080) (b) 231,056,067
-------------
OTHER ASSETS & LIABILITIES, NET--0.0% 11,885
-------------
NET ASSETS--100.0% $ 231,067,952
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $197,178,080.
At June 30, 2005, the Fund held investments in the following sectors:
<Table>
<Caption>
% OF
SECTOR NET ASSETS
- ------ ----------
Financials 29.0%
Energy 12.8
Industrials 12.8
Consumer Staples 10.1
Consumer Discretionary 9.0
Health Care 6.2
Information Technology 5.9
Utilities 5.1
Telecommunication Services 4.5
Materials 4.2
Investment Company 0.3
Short-Term Obligation 0.1
Other Assets & Liabilities, Net 0.0
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
77
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Growth & Income Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 197,178,080
--------------
Investments, at value $ 231,056,067
Cash 49
Receivable for:
Fund shares sold 23,423
Interest 13
Dividends 396,882
Expense reimbursement due from Investment Advisor/Distributor 9,381
Deferred Trustees' compensation plan 19,719
--------------
TOTAL ASSETS 231,505,534
--------------
LIABILITIES:
Payable for:
Fund shares repurchased 212,160
Investment advisory fee 149,353
Transfer agent fee 595
Pricing and bookkeeping fees 5,409
Distribution fee--Class B 9,945
Deferred Trustees' fees 19,719
Other liabilities 40,401
--------------
TOTAL LIABILITIES 437,582
--------------
NET ASSETS $ 231,067,952
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 238,582,700
Undistributed net investment income 1,934,808
Accumulated net realized loss (43,327,543)
Net unrealized appreciation on investments 33,877,987
--------------
NET ASSETS $ 231,067,952
==============
CLASS A:
Net assets $ 187,141,158
Shares outstanding 11,755,869
==============
Net asset value per share $ 15.92
==============
CLASS B:
Net assets $ 43,926,794
Shares outstanding 2,765,523
==============
Net asset value per share $ 15.88
==============
</Table>
See Accompanying Notes to Financial Statements.
78
<Page>
STATEMENT OF OPERATIONS
Liberty Growth & Income Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 2,959,771
Interest 2,378
--------------
Total Investment Income (net of foreign taxes withheld of $26,195) 2,962,149
--------------
EXPENSES:
Investment advisory fee 910,752
Distribution fee--Class B 56,035
Transfer agent fee 3,720
Pricing and bookkeeping fees 33,899
Trustees' fees 5,391
Custody fee 11,254
Non-recurring costs (See Note 6) 2,981
Other expenses 41,802
--------------
Total Expenses 1,065,834
Fees and expenses waived or reimbursed by Investment Advisor (47,751)
Fees waived by Distributor--Class B (4,483)
Non-recurring costs assumed by Investment Advisor (See Note 6) (2,981)
--------------
Net Expenses 1,010,619
--------------
Net Investment Income 1,951,530
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 15,748,919
Net change in unrealized appreciation (deprecation) on investments (16,357,186)
--------------
Net Loss (608,267)
--------------
Net Increase in Net Assets from Operations $ 1,343,263
==============
</Table>
See Accompanying Notes to Financial Statements.
79
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Growth & Income Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 1,951,530 $ 4,158,446
Net realized gain on investments 15,748,919 15,629,602
Net change in unrealized appreciation (depreciation) on investments (16,357,186) 12,488,990
-------------- --------------
Net Increase from Operations 1,343,263 32,277,038
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (3,575,650)
Class B -- (703,626)
-------------- --------------
Total Distributions Declared to Shareholders -- (4,279,276)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,911,167 4,999,188
Distributions reinvested -- 3,575,650
Redemptions (22,589,900) (41,791,870)
-------------- --------------
Net Decrease (20,678,733) (33,217,032)
-------------- --------------
Class B:
Subscriptions 1,096,590 2,762,038
Distributions reinvested -- 703,626
Redemptions (3,784,421) (6,672,090)
-------------- --------------
Net Decrease (2,687,831) (3,206,426)
-------------- --------------
Net Decrease from Share Transactions (23,366,564) (36,423,458)
-------------- --------------
Total Decrease in Net Assets (22,023,301) (8,425,696)
NET ASSETS:
Beginning of period 253,091,253 261,516,949
-------------- --------------
End of period (including undistributed (overdistributed) net investment income of
$1,934,808 and $(16,722), respectively) $ 231,067,952 $ 253,091,253
============== ==============
CHANGES IN SHARES:
Class A:
Subscriptions 121,047 341,822
Issued for distributions reinvested -- 226,127
Redemptions (1,430,346) (2,834,667)
-------------- --------------
Net Decrease (1,309,299) (2,266,718)
-------------- --------------
Class B:
Subscriptions 69,312 189,109
Issued for distributions reinvested -- 44,566
Redemptions (239,617) (452,411)
-------------- --------------
Net Decrease (170,305) (218,736)
-------------- --------------
</Table>
See Accompanying Notes to Financial Statements.
80
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Growth & Income Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Liberty Growth & Income Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth and income.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities and securities of certain investment
companies are valued at the last sale price on the principal exchange on which
they trade, except for securities traded on the NASDAQ, which are valued at the
NASDAQ official close price. Unlisted securities or listed securities for which
there were no sales during the day are valued at the closing bid price on such
exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date. 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.
81
<Page>
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income $ 4,279,276
Long-term capital gains --
</Table>
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 39,917,559
Unrealized depreciation (6,039,572)
-------------
Net unrealized appreciation $ 33,877,987
=============
</Table>
The following capital loss carryforwards, determined as of December 31, 2004,
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. Utilization of these
losses could be subject to limitations imposed by the Internal Revenue Code.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.77%
$500 million to $1 billion 0.72%
$1 billion to $1.5 billion 0.67%
$1.5 billion to $3 billion 0.62%
$3 billion to $6 billion 0.60%
Over $6 billion 0.58%
</Table>
For the six months ended June 30, 2005, as a result of the settlement with the
New York Attorney General discussed in Note 6, the Fund's annualized effective
investment advisory fee rate was 0.76%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received to State Street under the Outsourcing
Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund.
For the six months ended June 30, 2005, the annualized 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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was less than 0.01%
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Effective January 1, 2005, Columbia has voluntarily agreed to
waive fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) will not exceed 0.80% annually of the Fund's
average daily net assets. Prior to January 1, 2005, Columbia voluntarily
reimbursed certain fees of the Fund at the annual rate of 0.11% of the Fund's
average daily net assets. In addition, the Distributor has voluntarily agreed to
waive Class B distribution fees at the annual rate of 0.02% of the Class B
average daily net assets. Columbia or the Distributor, at their discretion, may
revise or discontinue these arrangements any time.
82
<Page>
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 six months ended on June 30, 2005, 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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$876 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $50,537,904 and
$72,506,949, 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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
83
<Page>
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $2,981 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
84
<Page>
FINANCIAL HIGHLIGHTS
Liberty Growth & Income Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ------------------------------------------ DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
------------ -------- -------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.80 $ 14.14 $ 11.95 $ 15.53 $ 18.26 $ 19.82
------------ -------- -------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.11 0.21 0.18 0.13 0.15 0.08
Net realized and unrealized gain (loss) on
investments (0.03) 1.69 2.17 (3.56) (0.35) 0.65
------------ -------- -------- -------- -------- ------------
Total from Investment Operations 0.08 1.90 2.35 (3.43) (0.20) 0.73
------------ -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- (0.24) (0.16) (0.15) (0.15) (0.17)
In excess of net investment income -- -- -- -- -- --(c)
From net realized gains -- -- -- -- (2.34) (2.12)
Return of capital -- -- -- -- (0.04) --
------------ -------- -------- -------- -------- ------------
Total Distributions Declared to Shareholders -- (0.24) (0.16) (0.15) (2.53) (2.29)
------------ -------- -------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 15.88 $ 15.80 $ 14.14 $ 11.95 $ 15.53 $ 18.26
============ ======== ======== ======== ======== ============
Total return (d)(e)(f) 0.51%(g) 13.46% 19.66% (22.06)% (0.65)% 3.64%(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (h) 1.03%(i) 0.99% 1.00% 1.00% 1.00% 1.00%(i)
Net investment income (h) 1.44%(i) 1.45% 1.46% 0.96% 0.88% 0.71%(i)
Waiver/reimbursement 0.06%(i) 0.13% 0.14% 0.13% 0.21% 0.13%(i)
Portfolio turnover rate 21%(g) 37% 73% 69% 53% 120%
Net assets, end of period (000's) $ 43,927 $ 46,396 $ 44,594 $ 27,756 $ 25,742 $ 4,318
</Table>
(a) For the period from commencement of operations on June 1, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
85
<Page>
PORTFOLIO MANAGER'S DISCUSSION
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005
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(SSgA), is the portfolio
manager of the fund.
Effective August 22, 2005, Vikram J. Kurian, PhD, will begin managing the fund,
replacing James May, a principal of SSgA. Dr. Kurian is a portfolio manager of
Columbia Management and has been associated with Columbia Management or its
predecessors since January 2000.
Large-company stocks ended the first half of 2005 in negative territory. Despite
a strong second quarter, US stocks were driven down by investor concern over
historically high oil prices and rising interest rates. The S&P 500 Index(1)
returned negative 0.81% for the six-month period ended June 30, 2005, and the
fund's performance was comparable to the index for the period.
Mid-cap stocks outperformed both large- and small-cap stocks during the first
half of the year as measured by the Russell indices. Value stocks gained ground
relative to growth as the six-month period wore on. The S&P 500/Barra Value
Index rose 0.09% while the S&P 500/Barra Growth Index returned negative
1.73%(2).
ENERGY AND UTILITY SECTORS WERE TOP PERFORMERS
Sector performance within the S&P 500 was mixed during this reporting period.
Energy and utilities were the top performing sectors. Energy companies enjoyed
ample pricing power. Utility stocks attracted investors because of their
increasing income potential.
Most sectors in the index turned in negative performances for the first half
of the year. Materials and consumer discretionary stocks were the most
disappointing. Higher energy costs and a challenging pricing environment
adversely affected many companies in the materials sector. Aluminum giant Alcoa
and steelmaker Nucor (0.2% and 0.1% of net assets, respectively) both slipped at
the end of the period. Downturns in Time Warner (0.7% of net assets) and the
major auto stocks were the primary cause of the decline in consumer
discretionary sector. Technology and industrial stocks also fell during the
period. Declines in Microsoft and International Business Machines (2.2% and 1.1%
of net assets, respectively) hurt the technology sector. Among the industrials,
General Electric (3.3% of net assets) was a notable loser, stumbling on a
disappointing profits forecast. Several transportation companies also fell as a
result of their inability to pass on higher energy costs to customers.
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 opinions expressed here are
strictly those of Columbia Management and are subject to change without notice.
Other divisions of Bank of America and/or affiliates of Columbia Management may
have opinions that are inconsistent with these opinions.
Equity funds are subject to stock market fluctuations that occur in response to
economic and business developments.
The primary risks involved with investing in the fund include equity risk,
market risk and tracking error risk. Unlike the S&P 500 Index, the fund incurs
administrative expenses and transaction costs in trading stocks. The composition
of the S&P 500 Index and the stocks held by the fund may occasionally diverge.
Holdings are disclosed as of June 30, 2005, and are subject to change.
(1) The Standard & Poor's (S&P) 500 Index is an unmanaged index that tracks the
performance of 500 widely held, large-capitalization US stocks.
(2) The S&P 500/Barra Value Index is an unmanaged index that tracks the
performance of companies in the S&P 500 Index with lower price-to-book
ratios. The S&P 500/Barra Growth Index is an unmanaged index that tracks
the performance of companies in the S&P 500 Index with higher price-to-book
ratios.
86
<Page>
PERFORMANCE INFORMATION
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- ----------------------------------------------------------------------------
Class B (05/30/00) -1.15 5.55 -2.82 -2.18
S&P 500 Index(1) -0.81 6.32 -2.37 -1.27
</Table>
Inception date of share class is in parenthesis.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- ------------------------------------------------------------------
Class B 10.43 10.31
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 05/30/00 - 06/30/05
<Table>
<Caption>
CLASS B SHARES S&P 500 INDEX
5/30/2000 $ 10,000 $ 10,000
5/31/2000 $ 10,008 $ 10,312
6/30/2000 $ 10,316 $ 10,567
7/31/2000 $ 10,167 $ 10,402
8/31/2000 $ 10,784 $ 11,048
9/30/2000 $ 10,225 $ 10,464
10/31/2000 $ 10,201 $ 10,421
11/30/2000 $ 9,417 $ 9,599
12/31/2000 $ 9,471 $ 9,646
1/31/2001 $ 9,806 $ 9,989
2/28/2001 $ 8,935 $ 9,078
3/31/2001 $ 8,357 $ 8,502
4/30/2001 $ 8,994 $ 9,163
5/31/2001 $ 9,053 $ 9,224
6/30/2001 $ 8,826 $ 9,000
7/31/2001 $ 8,742 $ 8,912
8/31/2001 $ 8,190 $ 8,354
9/30/2001 $ 7,536 $ 7,679
10/31/2001 $ 7,679 $ 7,826
11/30/2001 $ 8,265 $ 8,426
12/31/2001 $ 8,327 $ 8,500
1/31/2002 $ 8,201 $ 8,376
2/28/2002 $ 8,041 $ 8,214
3/31/2002 $ 8,335 $ 8,523
4/30/2002 $ 7,822 $ 8,007
5/31/2002 $ 7,763 $ 7,948
6/30/2002 $ 7,207 $ 7,382
7/31/2002 $ 6,643 $ 6,807
8/31/2002 $ 6,677 $ 6,851
9/30/2002 $ 5,953 $ 6,106
10/31/2002 $ 6,467 $ 6,644
11/30/2002 $ 6,846 $ 7,035
12/31/2002 $ 6,434 $ 6,622
1/31/2003 $ 6,264 $ 6,448
2/28/2003 $ 6,170 $ 6,352
3/31/2003 $ 6,222 $ 6,413
4/30/2003 $ 6,732 $ 6,942
5/31/2003 $ 7,081 $ 7,308
6/30/2003 $ 7,166 $ 7,401
7/31/2003 $ 7,293 $ 7,531
8/31/2003 $ 7,429 $ 7,678
9/30/2003 $ 7,344 $ 7,597
10/31/2003 $ 7,752 $ 8,027
11/30/2003 $ 7,812 $ 8,097
12/31/2003 $ 8,216 $ 8,522
1/31/2004 $ 8,361 $ 8,679
2/29/2004 $ 8,473 $ 8,799
3/31/2004 $ 8,344 $ 8,666
4/30/2004 $ 8,207 $ 8,530
5/31/2004 $ 8,310 $ 8,647
6/30/2004 $ 8,472 $ 8,815
7/31/2004 $ 8,181 $ 8,523
8/31/2004 $ 8,206 $ 8,557
9/30/2004 $ 8,292 $ 8,650
10/31/2004 $ 8,412 $ 8,782
11/30/2004 $ 8,746 $ 9,138
12/31/2004 $ 9,046 $ 9,448
1/31/2005 $ 8,821 $ 9,218
2/28/2005 $ 9,002 $ 9,411
3/31/2005 $ 8,838 $ 9,245
4/30/2005 $ 8,664 $ 9,069
5/31/2005 $ 8,933 $ 9,358
6/30/2005 $ 8,940 $ 9,370
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the index. The Index is unmanaged and returns for the index and the fund
include reinvested dividends and capital gains. It is not possible to invest
directly in an index. Investment earnings, if any, are income tax-deferred until
distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. The Standard & Poor's (S&P) 500 Index is an unmanaged index that
tracks the performance of 500 widely held, large capitalization US stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index. Performance numbers
reflect all fund expenses, but do not include any insurance charges imposed by
your insurance company's separate accounts. If performance included the effect
of these additional charges, it would be lower.
(1) Index performance for the life of the fund is from May 30, 2000.
87
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- -----------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 988.50 1,021.57 3.20 3.26 0.65
</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 365.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
88
<Page>
INVESTMENT PORTFOLIO
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
SHARES VALUE
------------- -------------
COMMON STOCKS--97.5%
CONSUMER DISCRETIONARY--11.2%
AUTO COMPONENTS--0.2%
Cooper Tire & Rubber Co. 300 $ 5,571
Dana Corp. 657 9,862
Delphi Corp. 2,741 12,746
Goodyear Tire & Rubber Co. (a) 731 10,892
Johnson Controls, Inc. 932 52,499
Visteon Corp. (a) 646 3,895
-------------
95,465
-------------
AUTOMOBILES--0.5%
Ford Motor Co. 8,650 88,576
General Motors Corp. 2,729 92,786
Harley-Davidson, Inc. 1,396 69,241
-------------
250,603
-------------
DISTRIBUTORS--0.1%
Genuine Parts Co. 845 34,721
-------------
DIVERSIFIED CONSUMER SERVICES--0.2%
Apollo Group, Inc., Class A (a) 768 60,073
H&R Block, Inc. 832 48,547
-------------
108,620
-------------
HOTELS, RESTAURANTS & LEISURE--1.5%
Carnival Corp. 2,524 137,684
Darden Restaurants, Inc. 671 22,130
Harrah's Entertainment, Inc. 819 59,025
Hilton Hotels Corp. 1,761 42,000
International Game Technology 1,597 44,955
Marriott International, Inc., Class A 926 63,172
McDonald's Corp. 6,091 169,025
Starbucks Corp. (a) 1,813 93,660
Starwood Hotels & Resorts
Worldwide, Inc. 1,031 60,386
Wendy's International, Inc. 540 25,731
Yum! Brands, Inc. 1,363 70,985
-------------
788,753
-------------
HOUSEHOLD DURABLES--0.6%
Black & Decker Corp. 378 33,963
Centex Corp. 584 41,271
D.R. Horton, Inc. 100 3,761
Fortune Brands, Inc. 693 61,539
KB Home 380 28,967
Leggett & Platt, Inc. 916 24,347
Maytag Corp. 351 5,497
Newell Rubbermaid, Inc. 1,350 32,184
Pulte Homes, Inc. 540 45,495
Snap-On, Inc. 238 8,163
Stanley Works 381 17,351
Whirlpool Corp. 295 20,683
-------------
323,221
-------------
INTERNET & CATALOG RETAIL--0.3%
eBay, Inc. (a) 5,780 190,798
-------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Brunswick Corp. 491 21,270
Eastman Kodak Co. 1,357 36,435
Hasbro, Inc. 772 $ 16,050
Mattel, Inc. 2,025 37,058
-------------
110,813
-------------
MEDIA--3.6%
Clear Channel Communications, Inc. 2,466 76,273
Comcast Corp., Class A (a) 10,594 325,236
Dow Jones & Co., Inc. 347 12,301
Gannett Co., Inc. 1,165 82,867
Interpublic Group of
Companies, Inc. (a) 1,972 24,019
Knight-Ridder, Inc. 312 19,138
McGraw-Hill Companies, Inc. 1,822 80,624
Meredith Corp. 257 12,608
New York Times Co., Class A 707 22,023
News Corp., Class A 13,800 223,284
Omnicom Group, Inc. 915 73,072
Time Warner, Inc. (a) 22,338 373,268
Tribune Co. 1,451 51,046
Univision Communications, Inc.,
Class A (a) 1,445 39,810
Viacom, Inc., Class B 7,866 251,869
Walt Disney Co. 9,785 246,386
-------------
1,913,824
-------------
MULTILINE RETAIL--1.3%
Big Lots, Inc. (a) 501 6,633
Dillard's, Inc., Class A 322 7,541
Dollar General Corp. 1,464 29,807
Family Dollar Stores, Inc. 812 21,193
Federated Department Stores, Inc. 824 60,383
J.C. Penney Co., Inc. 1,276 67,092
Kohl's Corp. (a) 1,571 87,835
May Department Stores Co. 1,391 55,863
Nordstrom, Inc. 620 42,141
Sears Holdings Corp. (a) 515 77,183
Target Corp. 4,185 227,706
-------------
683,377
-------------
SPECIALTY RETAIL--2.3%
Autonation, Inc. (a) 1,104 22,654
AutoZone, Inc. (a) 288 26,628
Bed Bath & Beyond, Inc. (a) 1,377 57,531
Best Buy Co., Inc. 1,461 100,152
Circuit City Stores, Inc. 972 16,806
Gap, Inc. 3,536 69,836
Home Depot, Inc. 10,219 397,519
Limited Brands, Inc. 1,879 40,248
Lowe's Companies, Inc. 3,707 215,822
Office Depot, Inc. (a) 1,476 33,712
OfficeMax, Inc. 350 10,419
RadioShack Corp. 806 18,675
Sherwin-Williams Co. 618 29,102
Staples, Inc. 3,541 75,494
Tiffany & Co. 689 22,572
TJX Companies, Inc. 2,306 56,151
Toys "R" Us, Inc. (a) 1,046 27,698
-------------
1,221,019
-------------
</Table>
See Accompanying Notes to Financial Statements.
89
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
TEXTILES, APPAREL & LUXURY GOODS--0.4%
Coach, Inc. (a) 1,800 $ 60,426
Jones Apparel Group, Inc. 631 19,586
Liz Claiborne, Inc. 506 20,119
NIKE, Inc., Class B 1,081 93,615
Reebok International Ltd. 285 11,921
V.F. Corp. 453 25,921
-------------
231,588
-------------
CONSUMER STAPLES--9.8%
BEVERAGES--2.2%
Anheuser-Busch Companies, Inc. 3,671 167,948
Brown-Forman Corp., Class B 462 27,932
Coca-Cola Co. 10,771 449,689
Coca-Cola Enterprises, Inc. 1,705 37,527
Molson Coors Brewing Co., Class B 329 20,398
Pepsi Bottling Group, Inc. 932 26,665
PepsiCo, Inc. 7,977 430,200
-------------
1,160,359
-------------
FOOD & STAPLES RETAILING--2.8%
Albertson's, Inc. 1,814 37,514
Costco Wholesale Corp. 2,272 101,831
CVS Corp. 3,790 110,175
Kroger Co. (a) 3,600 68,508
Safeway, Inc. 2,172 49,065
SUPERVALU, Inc. 629 20,512
Sysco Corp. 3,031 109,692
Wal-Mart Stores, Inc. 15,935 768,067
Walgreen Co. 4,861 223,557
-------------
1,488,921
-------------
FOOD PRODUCTS--1.1%
Archer-Daniels-Midland Co. 3,028 64,739
Campbell Soup Co. 1,541 47,416
ConAgra Foods, Inc. 2,406 55,723
General Mills, Inc. 1,691 79,122
H.J. Heinz Co. 1,714 60,710
Hershey Co. 1,056 65,578
Kellogg Co. 1,679 74,615
McCormick & Co., Inc. 613 20,033
Sara Lee Corp. 3,746 74,208
Wm. Wrigley Jr. Co. 884 60,854
-------------
602,998
-------------
HOUSEHOLD PRODUCTS--1.7%
Clorox Co. 726 40,453
Colgate-Palmolive Co. 2,474 123,477
Kimberly-Clark Corp. 2,236 139,951
Procter & Gamble Co. 11,810 622,978
-------------
926,859
-------------
PERSONAL PRODUCTS--0.7%
Alberto-Culver Co. 378 16,379
Avon Products, Inc. 2,296 86,904
Gillette Co. 4,721 239,024
-------------
342,307
-------------
TOBACCO--1.3%
Altria Group, Inc. 9,857 $ 637,353
Reynolds American, Inc. 500 39,400
UST, Inc. 824 37,624
-------------
714,377
-------------
ENERGY--8.6%
ENERGY EQUIPMENT & SERVICES--1.2%
Baker Hughes, Inc. 1,562 79,912
BJ Services Co. 756 39,675
Halliburton Co. 2,411 115,294
Nabors Industries Ltd. (a) 634 38,433
National-Oilwell Varco, Inc. (a) 800 38,032
Noble Corp. 617 37,952
Rowan Companies, Inc. 540 16,043
Schlumberger Ltd. 2,846 216,125
Transocean, Inc. (a) 1,537 82,952
-------------
664,418
-------------
OIL, GAS & CONSUMABLE FUELS--7.4%
Amerada Hess Corp. 442 47,077
Anadarko Petroleum Corp. 1,155 94,883
Apache Corp. 1,544 99,742
Ashland, Inc. 276 19,836
Burlington Resources, Inc. 1,862 102,857
ChevronTexaco Corp. 9,998 559,088
ConocoPhillips 6,610 380,009
Devon Energy Corp. 2,286 115,855
El Paso Corp. 3,064 35,297
EOG Resources, Inc. 1,090 61,912
Exxon Mobil Corp. 30,380 1,745,939
Kerr-McGee Corp. 586 44,718
Kinder Morgan, Inc. 546 45,427
Marathon Oil Corp. 1,620 86,459
Occidental Petroleum Corp. 1,875 144,244
Sunoco, Inc. 339 38,538
Unocal Corp. 1,314 85,476
Valero Energy Corp. 1,200 94,932
Williams Companies, Inc. 2,658 50,502
XTO Energy, Inc. 1,700 57,783
-------------
3,910,574
-------------
FINANCIALS--19.8%
CAPITAL MARKETS--2.7%
Bank of New York Co., Inc. 3,757 108,126
Bear Stearns Companies, Inc. 537 55,816
Charles Schwab Corp. 5,530 62,378
E*TRADE Financial Corp. (a) 1,700 23,783
Federated Investors, Inc., Class B 428 12,844
Franklin Resources, Inc. 933 71,822
Goldman Sachs Group, Inc. 2,152 219,547
Janus Capital Group, Inc. 1,108 16,664
Lehman Brothers Holdings, Inc. 1,291 128,171
Mellon Financial Corp. 1,986 56,978
Merrill Lynch & Co., Inc. 4,456 245,125
</Table>
See Accompanying Notes to Financial Statements.
90
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Morgan Stanley 5,178 $ 271,690
Northern Trust Corp. 972 44,314
State Street Corp. 1,616 77,972
T. Rowe Price Group, Inc. 531 33,241
-------------
1,428,471
-------------
COMMERCIAL BANKS--5.7%
AmSouth Bancorp 1,645 42,770
Bank of America Corp. (b) 19,172 874,435
BB&T Corp. 2,620 104,721
Comerica, Inc. 788 45,546
Compass Bancshares, Inc. 600 27,000
Fifth Third Bancorp 2,487 102,489
First Horizon National Corp. 567 23,927
Huntington Bancshares, Inc. 1,061 25,613
KeyCorp 1,890 62,654
M&T Bank Corp. 500 52,580
Marshall & Ilsley Corp. 1,030 45,784
National City Corp. 2,849 97,208
North Fork Bancorporation, Inc. 2,268 63,708
PNC Financial Services Group, Inc. 1,306 71,125
Regions Financial Corp. 2,227 75,451
SunTrust Banks, Inc. 1,642 118,618
Synovus Financial Corp. 1,516 43,464
U.S. Bancorp 8,772 256,142
Wachovia Corp. 7,547 374,331
Wells Fargo & Co. 8,001 492,702
Zions Bancorporation 440 32,353
-------------
3,032,621
-------------
CONSUMER FINANCE--1.3%
American Express Co. 5,532 294,468
Capital One Financial Corp. 1,221 97,692
MBNA Corp. 6,117 160,021
Providian Financial Corp. (a) 1,446 25,493
SLM Corp. 1,967 99,924
-------------
677,598
-------------
DIVERSIFIED FINANCIAL SERVICES--3.5%
CIT Group, Inc. 1,000 42,970
Citigroup, Inc. 24,766 1,144,932
JPMorgan Chase & Co. 16,755 591,787
Moody's Corp. 1,212 54,491
Principal Financial Group, Inc. 1,448 60,671
-------------
1,894,851
-------------
INSURANCE--4.3%
Ace Ltd. 1,333 59,785
AFLAC, Inc. 2,415 104,521
Allstate Corp. 3,208 191,678
Ambac Financial Group, Inc. 536 37,391
American International Group, Inc. 12,386 719,627
Aon Corp. 1,531 38,336
Chubb Corp. 966 82,699
Cincinnati Financial Corp. 842 33,310
Hartford Financial Services
Group, Inc. 1,395 104,318
Jefferson-Pilot Corp. 645 32,521
Lincoln National Corp. 817 38,334
Loews Corp. 763 $ 59,133
Marsh & McLennan Companies, Inc. 2,533 70,164
MBIA, Inc. 646 38,314
MetLife, Inc. 3,540 159,088
Progressive Corp. 940 92,881
Prudential Financial, Inc. 2,494 163,756
SAFECO Corp. 555 30,159
St. Paul Travelers Companies, Inc. 3,239 128,038
Torchmark Corp. 487 25,421
UnumProvident Corp. 1,414 25,904
XL Capital Ltd., Class A 678 50,457
-------------
2,285,835
-------------
REAL ESTATE--0.6%
Apartment Investment &
Management Co., Class A, REIT 500 20,460
Archstone-Smith Trust, REIT 900 34,758
Equity Office Properties Trust, REIT 1,962 64,942
Equity Residential, REIT 1,381 50,849
Plum Creek Timber Co., Inc., REIT 881 31,980
ProLogis Trust, REIT 900 36,216
Simon Property Group, Inc., REIT 1,000 72,490
-------------
311,695
-------------
THRIFTS & MORTGAGE FINANCE--1.7%
Countrywide Financial Corp. 2,734 105,560
Fannie Mae 4,612 269,341
Freddie Mac 3,236 211,084
Golden West Financial Corp. 1,286 82,792
MGIC Investment Corp. 413 26,936
Sovereign Bancorp, Inc. 1,700 37,978
Washington Mutual, Inc. 4,194 170,654
-------------
904,345
-------------
HEALTH CARE--13.1%
BIOTECHNOLOGY--1.2%
Amgen, Inc. (a) 5,909 357,258
Applera Corp. - Applied
Biosystems Group 1,004 19,749
Biogen Idec, Inc. (a) 1,616 55,671
Chiron Corp. (a) 740 25,819
Genzyme Corp. (a) 1,142 68,623
Gilead Sciences, Inc. (a) 2,100 92,379
MedImmune, Inc. (a) 1,206 32,224
-------------
651,723
-------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.2%
Bausch & Lomb, Inc. 279 23,157
Baxter International, Inc. 2,918 108,258
Becton, Dickinson & Co. 1,199 62,911
Biomet, Inc. 1,217 42,157
Boston Scientific Corp. (a) 3,654 98,658
C.R. Bard, Inc. 526 34,984
Fisher Scientific International, Inc. (a) 500 32,450
Guidant Corp. 1,526 102,700
Hospira, Inc. (a) 745 29,055
Medtronic, Inc. 5,798 300,278
</Table>
See Accompanying Notes to Financial Statements.
91
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Millipore Corp. (a) 201 $ 11,403
PerkinElmer, Inc. 537 10,149
St. Jude Medical, Inc. (a) 1,692 73,788
Stryker Corp. 1,830 87,035
Thermo Electron Corp. (a) 777 20,878
Waters Corp. (a) 539 20,035
Zimmer Holdings, Inc. (a) 1,169 89,043
-------------
1,146,939
-------------
HEALTH CARE PROVIDERS & SERVICES--2.7%
Aetna, Inc. 1,412 116,942
AmerisourceBergen Corp. 451 31,187
Cardinal Health, Inc. 2,085 120,054
Caremark Rx, Inc. (a) 2,193 97,632
CIGNA Corp. 665 71,175
Express Scripts, Inc. (a) 800 39,984
HCA, Inc. 1,987 112,603
Health Management Associates, Inc.,
Class A 1,126 29,479
Humana, Inc. (a) 717 28,493
IMS Health, Inc. 1,167 28,907
Laboratory Corp. of America
Holdings (a) 600 29,940
Manor Care, Inc. 458 18,196
McKesson Corp. 1,449 64,901
Medco Health Solutions, Inc. (a) 1,330 70,969
Quest Diagnostics, Inc. 942 50,180
Tenet Healthcare Corp. (a) 2,180 26,683
UnitedHealth Group, Inc. 6,064 316,177
WellPoint, Inc. (a) 2,862 199,310
-------------
1,452,812
-------------
PHARMACEUTICALS--7.0%
Abbott Laboratories 7,351 360,273
Allergan, Inc. 652 55,576
Bristol-Myers Squibb Co. 9,370 234,063
Eli Lilly & Co. 5,386 300,054
Forest Laboratories, Inc. (a) 1,624 63,092
Johnson & Johnson 14,117 917,605
King Pharmaceuticals, Inc. (a) 1,127 11,743
Merck & Co., Inc. 10,478 322,722
Mylan Laboratories, Inc. 1,300 25,012
Pfizer, Inc. 35,469 978,235
Schering-Plough Corp. 7,057 134,506
Watson Pharmaceuticals, Inc. (a) 562 16,613
Wyeth 6,339 282,086
-------------
3,701,580
-------------
INDUSTRIALS--10.9%
AEROSPACE & DEFENSE--2.2%
Boeing Co. 3,928 259,248
General Dynamics Corp. 995 108,992
Goodrich Corp. 585 23,961
Honeywell International, Inc. 4,114 150,696
L-3 Communications Holdings, Inc. 500 38,290
Lockheed Martin Corp. 1,933 125,394
Northrop Grumman Corp. 1,680 92,820
Raytheon Co. 2,165 $ 84,695
Rockwell Collins, Inc. 873 41,625
United Technologies Corp. 4,800 246,480
-------------
1,172,201
-------------
AIR FREIGHT & LOGISTICS--0.9%
FedEx Corp. 1,395 113,009
Ryder System, Inc. 264 9,662
United Parcel Service, Inc., Class B 5,293 366,064
-------------
488,735
-------------
AIRLINES--0.1%
Delta Air Lines, Inc. (a) 600 2,256
Southwest Airlines Co. 3,539 49,298
-------------
51,554
-------------
BUILDING PRODUCTS--0.2%
American Standard Companies, Inc. 820 34,374
Masco Corp. 2,060 65,426
-------------
99,800
-------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Allied Waste Industries, Inc. (a) 1,470 11,657
Avery Dennison Corp. 481 25,474
Cendant Corp. 5,051 112,991
Cintas Corp. 682 26,325
Equifax, Inc. 696 24,854
Monster Worldwide, Inc. (a) 500 14,340
Pitney Bowes, Inc. 1,152 50,170
R.R. Donnelley & Sons Co. 1,081 37,305
Robert Half International, Inc. 800 19,976
Waste Management, Inc. 2,715 76,943
-------------
400,035
-------------
CONSTRUCTION & ENGINEERING--0.0%
Fluor Corp. 409 23,554
-------------
ELECTRICAL EQUIPMENT--0.4%
American Power Conversion Corp. 893 21,066
Cooper Industries Ltd., Class A 399 25,496
Emerson Electric Co. 1,984 124,258
Rockwell Automation, Inc. 809 39,406
-------------
210,226
-------------
INDUSTRIAL CONGLOMERATES--4.4%
3M Co. 3,634 262,738
General Electric Co. 50,539 1,751,177
Textron, Inc. 665 50,440
Tyco International Ltd. 9,629 281,167
-------------
2,345,522
-------------
MACHINERY--1.4%
Caterpillar, Inc. 1,592 151,734
Cummins, Inc. 180 13,430
Danaher Corp. 1,292 67,623
Deere & Co. 1,197 78,392
Dover Corp. 940 34,197
Eaton Corp. 766 45,883
Illinois Tool Works, Inc. 1,333 106,213
Ingersoll-Rand Co., Class A 778 55,510
ITT Industries, Inc. 481 46,960
Navistar International Corp. (a) 371 11,872
</Table>
See Accompanying Notes to Financial Statements.
92
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Paccar, Inc. 819 $ 55,692
Pall Corp. 600 18,216
Parker Hannifin Corp. 556 34,478
-------------
720,200
-------------
ROAD & RAIL--0.5%
Burlington Northern Santa Fe Corp. 1,803 84,885
CSX Corp. 1,063 45,348
Norfolk Southern Corp. 1,862 57,648
Union Pacific Corp. 1,239 80,287
-------------
268,168
-------------
TRADING COMPANIES & DISTRIBUTORS--0.0%
W.W. Grainger, Inc. 425 23,286
-------------
INFORMATION TECHNOLOGY--14.8%
COMMUNICATIONS EQUIPMENT--2.5%
ADC Telecommunications, Inc. (a) 537 11,690
Andrew Corp. (a) 787 10,042
Avaya, Inc. (a) 2,298 19,119
CIENA Corp. (a) 2,719 5,683
Cisco Systems, Inc. (a) 30,435 581,613
Comverse Technology, Inc. (a) 921 21,782
Corning, Inc. (a) 6,609 109,842
JDS Uniphase Corp. (a) 6,993 10,629
Lucent Technologies, Inc. (a) 20,798 60,522
Motorola, Inc. 11,708 213,788
QUALCOMM, Inc. 7,790 257,148
Scientific-Atlanta, Inc. 705 23,455
Tellabs, Inc. (a) 1,991 17,322
-------------
1,342,635
-------------
COMPUTERS & PERIPHERALS--3.5%
Apple Computer, Inc. (a) 3,872 142,528
Dell, Inc. (a) 11,579 457,486
EMC Corp. (a) 11,392 156,184
Gateway, Inc. (a) 1,545 5,098
Hewlett-Packard Co. 13,709 322,299
International Business Machines Corp. 7,710 572,082
Lexmark International, Inc.,
Class A (a) 595 38,574
NCR Corp. (a) 860 30,203
Network Appliance, Inc. (a) 1,684 47,607
QLogic Corp. (a) 455 14,046
Sun Microsystems, Inc. (a) 15,975 59,587
-------------
1,845,694
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.3%
Agilent Technologies, Inc. (a) 2,073 47,720
Jabil Circuit, Inc. (a) 915 28,118
Molex, Inc. 815 21,223
Sanmina-SCI Corp. (a) 2,403 13,144
Solectron Corp. (a) 4,686 17,760
Symbol Technologies, Inc. 1,094 10,798
Tektronix, Inc. 387 9,006
-------------
147,769
-------------
INTERNET SOFTWARE & SERVICES--0.4%
Yahoo!, Inc. (a) 6,188 214,414
-------------
IT SERVICES--1.1%
Affiliated Computer Services, Inc.,
Class A (a) 600 $ 30,660
Automatic Data Processing, Inc. 2,800 117,516
Computer Sciences Corp. (a) 841 36,752
Convergys Corp. (a) 680 9,670
Electronic Data Systems Corp. 2,391 46,027
First Data Corp. 3,679 147,675
Fiserv, Inc. (a) 964 41,404
Paychex, Inc. 1,759 57,238
Sabre Holdings Corp., Class A 708 14,124
SunGard Data Systems, Inc. (a) 1,423 50,047
Unisys Corp. (a) 1,537 9,729
-------------
560,842
-------------
OFFICE ELECTRONICS--0.1%
Xerox Corp. (a) 4,609 63,558
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.2%
Advanced Micro Devices, Inc. (a) 1,837 31,854
Altera Corp. (a) 1,817 36,013
Analog Devices, Inc. 1,808 67,456
Applied Materials, Inc. 7,830 126,689
Applied Micro Circuits Corp. (a) 1,304 3,338
Broadcom Corp., Class A (a) 1,441 51,170
Freescale Semiconductor, Inc.,
Class B (a) 1,881 39,840
Intel Corp. 29,409 766,398
KLA-Tencor Corp. 913 39,898
Linear Technology Corp. 1,423 52,210
LSI Logic Corp. (a) 1,791 15,206
Maxim Integrated Products, Inc. 1,587 60,639
Micron Technology, Inc. (a) 2,915 29,762
National Semiconductor Corp. 1,690 37,231
Novellus Systems, Inc. (a) 642 15,864
NVIDIA Corp. (a) 780 20,842
PMC-Sierra, Inc. (a) 798 7,445
Teradyne, Inc. (a) 876 10,486
Texas Instruments, Inc. 7,963 223,521
Xilinx, Inc. 1,626 41,463
-------------
1,677,325
-------------
SOFTWARE--3.7%
Adobe Systems, Inc. 2,386 68,287
Autodesk, Inc. 1,100 37,807
BMC Software, Inc. (a) 1,062 19,063
Citrix Systems, Inc. (a) 793 17,176
Computer Associates International, Inc. 2,548 70,019
Compuware Corp. (a) 1,836 13,201
Electronic Arts, Inc. (a) 1,428 80,839
Intuit, Inc. (a) 913 41,185
Mercury Interactive Corp. (a) 407 15,613
Microsoft Corp. 47,939 1,190,805
Novell, Inc. (a) 1,736 10,763
Oracle Corp. (a) 21,042 277,754
Parametric Technology Corp. (a) 1,191 7,599
Siebel Systems, Inc. 2,348 20,897
</Table>
See Accompanying Notes to Financial Statements.
93
<Page>
<Table>
<Caption>
SHARES VALUE
------------- -------------
Symantec Corp. (a) 3,432 $ 74,612
VERITAS Software Corp. (a) 1,994 48,654
-------------
1,994,274
-------------
MATERIALS--2.8%
CHEMICALS--1.5%
Air Products & Chemicals, Inc. 1,092 65,848
Dow Chemical Co. 4,510 200,830
E.I. du Pont de Nemours & Co. 4,724 203,179
Eastman Chemical Co. 367 20,240
Ecolab, Inc. 1,020 33,007
Engelhard Corp. 584 16,673
Great Lakes Chemical Corp. 255 8,025
Hercules, Inc. (a) 483 6,834
International Flavors &
Fragrances, Inc. 416 15,068
Monsanto Co. 1,255 78,902
PPG Industries, Inc. 821 51,526
Praxair, Inc. 1,540 71,764
Rohm and Haas Co. 881 40,826
Sigma-Aldrich Corp. 301 16,868
-------------
829,590
-------------
CONSTRUCTION MATERIALS--0.1%
Vulcan Materials Co. 522 33,925
-------------
CONTAINERS & PACKAGING--0.2%
Ball Corp. 480 17,261
Bemis Co., Inc. 496 13,164
Pactiv Corp. (a) 772 16,660
Sealed Air Corp. (a) 390 19,418
Temple-Inland, Inc. 526 19,541
-------------
86,044
-------------
METALS & MINING--0.6%
Alcoa, Inc. 4,182 109,276
Allegheny Technologies, Inc. 382 8,427
Freeport-McMoRan Copper &
Gold, Inc., Class B 880 32,947
Newmont Mining Corp. 2,089 81,534
Nucor Corp. 788 35,948
Phelps Dodge Corp. 414 38,295
United States Steel Corp. 509 17,494
-------------
323,921
-------------
PAPER & FOREST PRODUCTS--0.4%
Georgia-Pacific Corp. 1,245 39,591
International Paper Co. 2,320 70,087
Louisiana-Pacific Corp. 570 14,011
MeadWestvaco Corp. 811 22,740
Weyerhaeuser Co. 1,157 73,643
-------------
220,072
-------------
TELECOMMUNICATION SERVICES--3.1%
DIVERSIFIED TELECOMMUNICATION SERVICES--2.8%
ALLTEL Corp. 1,543 96,098
AT&T Corp. 3,820 72,733
BellSouth Corp. 8,782 233,338
CenturyTel, Inc. 689 23,860
Citizens Communications Co. 1,579 $ 21,222
Qwest Communications
International, Inc. (a) 8,256 30,630
SBC Communications, Inc. 15,651 371,711
Sprint Corp. 7,018 176,081
Verizon Communications, Inc. 13,205 456,233
-------------
1,481,906
-------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Nextel Communications, Inc.,
Class A (a) 5,409 174,765
-------------
UTILITIES--3.4%
ELECTRIC UTILITIES--2.1%
Allegheny Energy, Inc. (a) 767 19,344
Ameren Corp. 964 53,309
American Electric Power Co., Inc. 1,832 67,546
CenterPoint Energy, Inc. 1,393 18,402
Cinergy Corp. 878 39,352
Consolidated Edison, Inc. 1,160 54,334
DTE Energy Co. 804 37,603
Edison International 1,506 61,068
Entergy Corp. 1,028 77,665
Exelon Corp. 3,198 164,153
FirstEnergy Corp. 1,532 73,704
FPL Group, Inc. 1,850 77,811
PG&E Corp. 1,722 64,644
Pinnacle West Capital Corp. 412 18,313
PPL Corp. 857 50,889
Progress Energy, Inc. 1,229 55,600
Southern Co. 3,559 123,391
TECO Energy, Inc. 900 17,019
Xcel Energy, Inc. 1,857 36,249
-------------
1,110,396
-------------
GAS UTILITIES--0.2%
KeySpan Corp. 769 31,298
Nicor, Inc. 245 10,087
NiSource, Inc. 1,209 29,899
Peoples Energy Corp. 152 6,606
-------------
77,890
-------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--0.6%
AES Corp. (a) 3,026 49,566
Calpine Corp. (a) 1,926 6,548
Constellation Energy Group 887 51,171
Duke Energy Corp. 4,486 133,369
Dynegy Holdings, Inc., Class A (a) 1,600 7,776
TXU Corp. 1,128 93,726
-------------
342,156
-------------
MULTI-UTILITIES--0.5%
CMS Energy Corp. (a) 1,000 15,060
Dominion Resources, Inc. 1,645 120,726
Public Service Enterprise Group, Inc. 1,100 66,902
Sempra Energy 1,180 48,746
-------------
251,434
-------------
TOTAL COMMON STOCKS
(cost of $46,080,334) 51,833,976
-------------
</Table>
See Accompanying Notes to Financial Statements.
94
<Page>
<Table>
<Caption>
PAR VALUE
------------- -------------
SHORT-TERM OBLIGATIONS--2.4%
U.S. GOVERNMENT AGENCY & OBLIGATION--0.1%
United States Treasury Bill
2.940% 09/08/05 (c)(d) $ 80,000 $ 79,549
-------------
REPURCHASE AGREEMENT--2.3%
Repurchase agreement with State Street Bank & Trust
Co., dated 06/30/05, due 07/01/05 at 2.700%,
collateralized by a U.S. Treasury Note maturing
02/15/10, market value of $1,246,556
(repurchase proceeds $1,220,092) 1,220,000 1,220,000
-------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $1,299,549) 1,299,549
-------------
TOTAL INVESTMENTS--99.9%
(cost of $47,379,883) (e) 53,133,525
-------------
OTHER ASSETS & LIABILITIES, NET--0.1% 51,731
-------------
NET ASSETS--100.0% $ 53,185,256
=============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Investments in affiliates during the six months ended June 30, 2005:
<Table>
Security name: Bank of America Corp.
Shares as of 12/31/04: 19,372
Shares purchased: 500
Shares sold: (700)
Shares as of 06/30/05: 19,172
Net realized gain: $ 2,260
Dividend income earned: $ 17,300
Value at end of period: $ 874,435
</Table>
(c) Security pledged as collateral for open futures contracts.
(d) The rate shown represents the annualized yield at the date of purchase.
(e) Cost for federal income tax purposes is $47,379,883.
At June 30, 2005, the Fund held the following open long futures contracts:
<Table>
<Caption>
NUMBER OF AGGREGATE EXPIRATION UNREALIZED
TYPE CONTRACTS VALUE FACE VALUE DATE DEPRECATION
---- --------- ------------- ----------- ---------- -----------
S&P Mini 500 24 $ 1,434,600 $ 1,452,131 Sep-05 $ (17,531)
</Table>
At June 30, 2005, the Fund held investments in the following sectors:
<Table>
<Caption>
% OF
SECTOR NET ASSETS
- ------ --------------
Financials 19.8%
Information Technology 14.8
Health Care 13.1
Consumer Discretionary 11.2
Industrials 10.9
Consumer Staples 9.8
Energy 8.6
Utilities 3.4
Telecommunication Services 3.1
Materials 2.8
Short-Term Obligations 2.4
Other Assets & Liabilities, Net 0.1
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
95
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Unaffiliated investments, at cost $ 46,792,066
Affiliated investments, at cost 587,817
--------------
Unaffiliated investments, at value $ 52,259,090
Affiliated investments, at value 874,435
Cash 914
Receivable for:
Fund shares sold 47,957
Interest 92
Dividends 62,320
Expense reimbursement due from Investment Advisor 1,092
Deferred Trustees' compensation plan 3,886
Other assets 648
--------------
TOTAL ASSETS 53,250,434
--------------
LIABILITIES:
Payable for:
Investments purchased 3,772
Fund shares repurchased 185
Futures variation margin 8,880
Investment advisory fee 8,771
Transfer agent fee 595
Audit fee 16,985
Custody fee 1,858
Reports to shareholders 8,412
Distribution fee--Class B 11,834
Deferred Trustees' fees 3,886
--------------
TOTAL LIABILITIES 65,178
--------------
NET ASSETS $ 53,185,256
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 51,151,601
Undistributed net investment income 315,034
Accumulated net realized loss (4,017,490)
Net unrealized appreciation (depreciation) on:
Investments 5,753,642
Futures contracts (17,531)
--------------
NET ASSETS $ 53,185,256
==============
CLASS A:
Net assets $ 90,013
Shares outstanding 8,695
==============
Net asset value per share $ 10.35
==============
CLASS B:
Net assets $ 53,095,243
Shares outstanding 5,149,120
==============
Net asset value per share $ 10.31
==============
</Table>
See Accompanying Notes to Financial Statements.
96
<Page>
STATEMENT OF OPERATIONS
Liberty S&P 500 Index Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 456,589
Dividends from affiliates 17,300
Interest 14,492
--------------
Total Investment Income 488,381
--------------
EXPENSES:
Investment advisory fee 52,284
Distribution fee--Class B 66,121
Transfer agent fee 3,720
Pricing and bookkeeping fees 22,392
Trustees' fees 3,436
Custody fee 10,663
Audit fee 12,985
Non-recurring costs (See Note 6) 653
--------------
Total Expenses 172,254
Non-recurring costs assumed by Investment Advisor (See Note 6) (653)
Custody earnings credit (14)
--------------
Net Expenses 171,587
--------------
Net Investment Income 316,794
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURE CONTRACTS:
Net realized gain (loss) on:
Unaffiliated investments (359,152)
Affiliated investments 2,260
Futures contracts 2,531
--------------
Net realized loss (354,361)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments (541,211)
Futures contracts (26,511)
--------------
Net change in unrealized appreciation (depreciation) (567,722)
--------------
Net Loss (922,083)
--------------
Net Decrease in Net Assets from Operations $ (605,289)
==============
</Table>
See Accompanying Notes to Financial Statements.
97
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty S&P 500 Index Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- -------------- --------------
OPERATIONS:
Net investment income $ 316,794 $ 659,754
Net realized loss on investments and futures contracts (354,361) (297,579)
Net change in unrealized appreciation (depreciation) on investments and futures
contracts (567,722) 4,701,061
-------------- --------------
Net Increase (Decrease) from Operations (605,289) 5,063,236
-------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (1,243)
Class B -- (677,613)
-------------- --------------
Total Distributions Declared to Shareholders -- (678,856)
-------------- --------------
SHARE TRANSACTIONS:
Class A:
Distributions reinvested -- 1,243
-------------- --------------
Class B:
Subscriptions 1,773,823 6,819,068
Distributions reinvested -- 677,613
Redemptions (2,720,054) (5,669,755)
-------------- --------------
Net Increase (Decrease) (946,231) 1,826,926
-------------- --------------
Net Increase(Decrease) from Share Transactions (946,231) 1,828,169
-------------- --------------
Total Increase (Decrease) in Net Assets (1,551,520) 6,212,549
NET ASSETS:
Beginning of period 54,736,776 48,524,227
-------------- --------------
End of period (including undistributed (overdistributed) net investment income of
$315,034 and $(1,760), respectively) $ 53,185,256 $ 54,736,776
============== ==============
CHANGES IN SHARES
Class A:
Issued for distributions reinvested -- 119
-------------- --------------
Class B:
Subscriptions 172,955 700,537
Issued for distributions reinvested -- 64,905
Redemptions (265,400) (573,226)
-------------- --------------
Net Increase (Decrease) (92,445) 192,216
-------------- --------------
</Table>
See Accompanying Notes to Financial Statements.
98
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty S&P 500 Index Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Liberty S&P 500 Index Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks capital appreciation by matching the
performance of a benchmark index that measures the investment returns of stocks
of large U.S. companies.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under general supervision of the Board of Trustees. If a
security is valued at a "fair value" such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
FUTURES CONTRACTS--The Fund may invest in municipal and U.S. Treasury futures
contracts. The Fund will invest in these instruments to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and/or market conditions, for duration management, or
when the transactions are economically appropriate to the reduction of risk
inherent in the management of the Fund and not for trading purposes. The use of
futures contracts involves certain risks, which include: (1) imperfect
correlation between the price movement of the instruments and the underlying
securities, (2) inability to close out positions due to differing trading hours,
or the temporary absence of a liquid market, for either the instrument or the
underlying securities, or (3) an inaccurate prediction by Columbia Management
Advisors, Inc. of the future direction of interest rates. Any of these risks may
involve amounts exceeding the variation margin recorded in the Fund's Statement
of Assets and Liabilities at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities with
the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin 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
99
<Page>
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.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income $ 678,856
Long-term capital gains --
</Table>
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 10,905,269
Unrealized depreciation (5,151,627)
-------------
Net unrealized appreciation $ 5,753,642
=============
</Table>
The following capital loss carryforwards, determined as of December 31, 2004,
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>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee at the annual rate
of 0.20%.
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.20%.
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>
Effective August 22, 2005, SSgA will no longer sub-advise the Fund. Columbia
will run the Fund's day to day business including placing orders for the
purchase and sales of the Fund's portfolio securities.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
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
100
<Page>
of $10,000 paid monthly, and in any month that the Fund's average daily net
assets exceed $50 million, an additional monthly fee. The additional fee rate is
calculated by taking into account the fees payable to State Street under the
Outsourcing Agreement. This rate is applied to the average daily net assets of
the Fund for that month. The Fund also pays additional fees for pricing services
based on the number of securities held by the Fund.
For the six months ended June 30, 2005, the annualized effective pricing and
bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was
0.085%.
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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was 0.01%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) will not exceed 0.75% annually of the Fund's average daily net assets.
The Distributor will first reimburse the Class B distribution fee up to 0.25%
annually to reach the 0.75% limit on Class B expenses. If additional
reimbursement is needed to meet the limit for each class, Columbia will then
reimburse other expenses to the extent necessary. If additional reimbursement is
still needed in order to reach the expense limit, Columbia will then waive a
portion of its investment advisory fee to the extent necessary. Columbia or the
Distributor, at their discretion, may revise or discontinue this arrangement any
time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
FEES PAID TO OFFICERS AND TRUSTEES--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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$777 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $1,515,622 and
$2,853,987, 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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an
101
<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 funds management fees collectively by $32
million per year for five years, for a projected total of $160 million in
management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $653 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
102
<Page>
FINANCIAL HIGHLIGHTS
Liberty S&P 500 Index Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, -------------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
------------ -------- -------- -------- -------- ------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.43 $ 9.59 $ 7.57 $ 9.89 $ 11.31 $ 12.00
------------ -------- -------- -------- -------- ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (b) 0.06 0.13(c) 0.09 0.08 0.07 0.07
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.18) 0.84 2.01 (2.33) (1.43) (0.70)
------------ -------- -------- -------- -------- ------------
Total from Investment
Operations (0.12) 0.97 2.10 (2.25) (1.36) (0.63)
------------ -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income -- (0.13) (0.08) (0.06) (0.06) (0.06)
Return of capital -- -- -- (0.01) -- --
------------ -------- -------- -------- -------- ------------
Total Distributions Declared
to Shareholders -- (0.13) (0.08) (0.07) (0.06) (0.06)
------------ -------- -------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.31 $ 10.43 $ 9.59 $ 7.57 $ 9.89 $ 11.31
============ ======== ======== ======== ======== ============
Total return (d)(e) (1.15)%(f) 10.12%(g) 27.68%(g) (22.75)%(g) (12.07)%(g) (5.29)%(f)(g)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 0.65%(i) 0.75% 0.75% 0.75% 0.75% 0.75%(i)
Net investment income (h) 1.20%(i) 1.29% 1.05% 0.88% 0.72% 0.89%(i)
Waiver/reimbursement -- 0.14% 0.22% 0.14% 0.53% 0.61%(i)
Portfolio turnover rate 3%(f) 6% 3% 17% 7% 2%(f)
Net assets, end of period (000's) $ 53,095 $ 54,646 $ 48,442 $ 28,762 $ 28,835 $ 12,098
</Table>
(a) For the period from commencement of operations on May 30, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Net investment income per share reflects a special dividend. The effect of
this dividend 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) Not annualized.
(g) Had the Investment Advisor and/or Distributor 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%.
(i) Annualized.
103
<Page>
PORTFOLIO MANAGERS' DISCUSSION
Liberty Select Value Fund, Variable Series / June 30, 2005
Liberty Select Value Fund, Variable Series seeks long-term growth.
Diane L. Sobin, the lead manager, along with David I. Hoffman, Lori J. Ensinger
and Noah J. Petrucci co-manage the fund. Ms. Sobin, Mr. Hoffman and Ms. Ensinger
have been with Columbia Management Advisors, Inc. or its predecessors or
affiliate organizations since 2001. Mr. Petrucci has been affiliated with the
advisor or its affiliates since 2002.
Mid-cap value stocks were among the best-performing asset classes during the
six-month period ended June 30, 2005. The fund's investments in energy, health
care and utility stocks drove performance during the period. However, a lack of
exposure to refiners in the energy sector detracted from performance relative to
the fund's benchmark. The fund's position in stocks that are sensitive to
economic activity, including industrial and materials stocks, also detracted
from performance. Investor concerns that the economy was slowing translated into
weak performance for both sectors. However, we remain confident in the global
economy's potential to expand and the fund remains overweight in industrial and
materials stocks relative to the index.
POSITIVE RETURNS FROM ENERGY, UTILITIES, HEALTH CARE AND CONSUMER POSITIONS
As the price of oil climbed above $60 during the period, energy stocks rose
strongly. The fund's positions in XTO Energy (1.2% of net assets), a US-based
natural gas company, and Amerada Hess (1.2% of net assets), an integrated oil
company, were the fund's strongest performers. The defensive utilities sector,
with its rising cash flow and excellent dividend growth during the period, was
another stand-out and we added to the fund's utility positions. Constellation
Energy Group (1.6% of net assets), advanced on the strength of its exposure to
rising power prices. Exelon (1.4% of net assets), a nuclear power generator,
also benefited from rising power prices as the company's cost structure was
lower than competitive gas and coal electric generators and its share price
reflected this advantage. Within health care, HCA (0.9% of net assets), a
national hospital company, made a solid contribution to the fund's performance.
The fund's position in Federated Department Stores ("Federated") (1.2% of net
assets) also did well. Despite higher gasoline prices, which took a bite out of
consumer pocketbooks, spending remained strong and Federated enjoyed sales
growth that beat expectations.
CYCLICAL INDUSTRIES TOOK A BREATHER
The fund's exposure to cyclical companies detracted from performance as
investors move away from sectors that rely on economic growth for their
earnings. Georgia-Pacific (0.9% of net assets), a leading manufacturer of paper
and building products, was hurt by rising energy prices, which increased the
company's operating costs and lowered near term earnings prospects. In the
industrial sector, industrial equipment manufacturers Parker Hannifin and
Ingersoll-Rand (0.8% and 0.9% of net assets, respectively) reported weaker order
trends for the first half of 2005, and both stocks lost some ground. We reduced
the fund's exposure to industrials and to consumer cyclicals. However, the fund
remains overweight in industrials relative to the index because we believe that
they have the potential to do well if the global economy continues to expand.
LOOKING AHEAD
We believe that the fund is well positioned to take advantage of the
opportunities in mid-cap stocks. We plan to continue to focus on
attractively-valued companies that offer earnings growth potential through sales
growth and profit margin expansion. In addition, we plan to seek companies that
produce rising returns on capital and that return a portion of earnings to
shareholders in the form of dividend payments. Companies that repurchase their
own shares are also attractive candidates for the portfolio.
Economic and market conditions frequently change. There is no assurance that the
trends described here will continue. The opinions expressed here are strictly
those of Columbia Management and are subject to change without notice. Other
divisions of Bank of America and/or affiliates of Columbia Management may have
opinions that are inconsistent with these opinions.
Equity investments are affected by stock market fluctuations that occur in
response to economic and business developments.
Investing in mid-cap stocks may present special risks, including possible
illiquidity and greater price volatility than stocks of larger, more established
companies.
Value stocks are stocks of companies that may have experienced adverse business
or industry developments or may be subject to special risks that have caused the
stocks to be out of favor and, in the advisor's opinion, undervalued. If the
advisor's assessment of a company's prospects is wrong, the price of the
company's stock may fall or may not approach the value the advisor has placed on
it.
Holdings are disclosed as of June 30, 2005, and are subject to change.
104
<Page>
PERFORMANCE INFORMATION
Liberty Select Value Fund, Variable Series / June 30, 2005
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 2005 (%)
<Table>
<Caption>
(CUMULATIVE)
6-MONTH 1-YEAR 5-YEAR LIFE
- --------------------------------------------------------------------------------------
Class B (05/30/00) 3.46 10.76 9.10 9.08
Russell Midcap Value Index(1) 5.51 21.80 14.86 14.14
</Table>
Inception date of share class is in parenthesis.
<Table>
<Caption>
NET ASSET VALUE PER SHARE ($) 12/31/04 06/30/05
- -------------------------------------------------------------------------
Class B 17.64 18.25
</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.
[CHART]
VALUE OF A $10,000 INVESTMENT, 05/30/00 - 06/30/05
<Table>
<Caption>
RUSSELL MIDCAP
CLASS B SHARES 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 $ 12,098 $ 12,315
6/30/2001 $ 11,862 $ 12,151
7/31/2001 $ 11,962 $ 12,102
8/31/2001 $ 11,660 $ 11,881
9/30/2001 $ 10,221 $ 10,747
10/31/2001 $ 10,423 $ 10,804
11/30/2001 $ 11,062 $ 11,561
12/31/2001 $ 11,525 $ 12,040
1/31/2002 $ 11,618 $ 12,162
2/28/2002 $ 11,812 $ 12,359
3/31/2002 $ 12,361 $ 12,991
4/30/2002 $ 12,395 $ 12,981
5/31/2002 $ 12,437 $ 12,962
6/30/2002 $ 11,744 $ 12,384
7/31/2002 $ 10,908 $ 11,171
8/31/2002 $ 10,984 $ 11,301
9/30/2002 $ 9,819 $ 10,160
10/31/2002 $ 10,021 $ 10,483
11/30/2002 $ 10,603 $ 11,143
12/31/2002 $ 10,232 $ 10,878
1/31/2003 $ 9,970 $ 10,577
2/28/2003 $ 9,742 $ 10,401
3/31/2003 $ 9,717 $ 10,436
4/30/2003 $ 10,334 $ 11,230
5/31/2003 $ 10,925 $ 12,218
6/30/2003 $ 11,001 $ 12,303
7/31/2003 $ 11,322 $ 12,686
8/31/2003 $ 11,686 $ 13,136
9/30/2003 $ 11,466 $ 13,034
10/31/2003 $ 12,236 $ 13,991
11/30/2003 $ 12,506 $ 14,396
12/31/2003 $ 13,041 $ 15,018
1/31/2004 $ 13,269 $ 15,415
2/29/2004 $ 13,693 $ 15,795
3/31/2004 $ 13,701 $ 15,821
4/30/2004 $ 13,430 $ 15,151
5/31/2004 $ 13,642 $ 15,539
6/30/2004 $ 14,048 $ 16,094
7/31/2004 $ 13,430 $ 15,658
8/31/2004 $ 13,346 $ 15,910
9/30/2004 $ 13,718 $ 16,373
10/31/2004 $ 13,803 $ 16,751
11/30/2004 $ 14,598 $ 17,884
12/31/2004 $ 15,039 $ 18,577
1/31/2005 $ 14,758 $ 18,145
2/28/2005 $ 15,286 $ 18,778
3/31/2005 $ 15,175 $ 18,722
4/30/2005 $ 14,637 $ 18,227
5/31/2005 $ 15,123 $ 18,980
6/30/2005 $ 15,559 $ 19,602
</Table>
The graph compares the results of a hypothetical $10,000 investment in the fund
with the index. The Index is unmanaged and returns for the index and the fund
include reinvested dividends and capital gains. It is not possible to invest
directly in an index. Investment earnings, if any, are income tax-deferred until
distribution, at which time taxes will become due.
Total return performance includes changes in share price and reinvestment of all
distributions. The Russell Midcap Value Index is an unmanaged index that
measures the performance of those Russell Midcap Index companies with lower
price-to-book ratios and lower forecasted growth values. Indices are not
investments, do not incur fees or expenses and are not professionally managed.
It is not possible to invest directly in an index. Securities in the fund may
not match those in an index.
(1) Index performance for the life of the fund is from May 30, 2000.
105
<Page>
UNDERSTANDING YOUR EXPENSES
Liberty Select Value Fund, Variable Series / June 30, 2005
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 ongoing costs, which generally
include investment advisory, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare this cost with the ongoing costs of
investing in other mutual funds.
ANALYZING YOUR FUND'S EXPENSES
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in the fund during the reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period and held
for the entire period. Expense information is calculated two ways and each
method provides you with different information. The amount listed in the
"actual" column is calculated using actual operating expenses and total return
for the period. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and includes the actual expense ratio.
You should not use the hypothetical account value and expenses to estimate
either your actual account balance at the end of the period or the expenses you
paid during this reporting period.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period:
1. Divide your ending account balance by $1,000.00. For example, if an account
balance was $8,600.00 at the end of the period, the result would be 8.6
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you paid on your
account during the period
<Table>
<Caption>
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED
01/01/05 - 06/30/05 BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%)
- ----------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ----------------------------------------------------------------------------------------------------------------------------
Class B 1,000.00 1,000.00 1,034.61 1,019.34 5.55 5.51 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 365.
Had the distributor not waived/reimbursed a portion of expenses, account values
at the end of the period would have been reduced.
It is important to note that the expense amounts shown in the table are meant to
highlight only ongoing costs of investing in the share class of the fund. As a
shareholder of the fund, you do not incur any transaction costs, such as sales
charges, redemption or exchange fees. Expenses paid during the period do not
include any insurance charges imposed by your insurance company's separate
accounts.
The hypothetical examples provided are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds whose shareholders may incur transaction costs.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical
examples of other funds, it is important to note that hypothetical examples are
meant to highlight the continuing cost of investing in a fund and do not reflect
any transactional costs, such as sales charges, redemption or exchange fees,
that may be incurred by shareholders of other funds. Expenses paid during the
period do not include any insurance charges imposed by your insurance company's
separate accounts.
106
<Page>
INVESTMENT PORTFOLIO
Liberty Select Value Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
<Caption>
SHARES VALUE
-------------- --------------
COMMON STOCKS--97.9%
CONSUMER DISCRETIONARY--9.4%
AUTO COMPONENTS--1.3%
BorgWarner, Inc. 4,200 $ 225,414
Johnson Controls, Inc. 5,700 321,081
--------------
546,495
--------------
HOTELS, RESTAURANTS & LEISURE--1.9%
Brinker International, Inc. (a) 8,300 332,415
Harrah's Entertainment, Inc. 5,500 396,385
Outback Steakhouse, Inc. 2,400 108,576
--------------
837,376
--------------
MEDIA--0.7%
Dow Jones & Co., Inc. 1,819 64,483
Knight-Ridder, Inc. 2,279 139,794
New York Times Co., Class A 2,864 89,214
--------------
293,491
--------------
MULTILINE RETAIL--3.4%
Dollar General Corp. 14,500 295,220
Federated Department Stores, Inc. 6,800 498,304
J.C. Penney Co., Inc. 6,200 325,996
May Department Stores Co. 8,200 329,312
--------------
1,448,832
--------------
SPECIALTY RETAIL--1.6%
OfficeMax, Inc. 8,500 253,045
TJX Companies, Inc. 17,200 418,820
--------------
671,865
--------------
TEXTILES, APPAREL & LUXURY GOODS--0.5%
Reebok International Ltd. 4,900 204,967
--------------
CONSUMER STAPLES--5.0%
BEVERAGES--0.8%
Pepsi Bottling Group, Inc. 12,000 343,320
--------------
FOOD & STAPLES RETAILING--1.5%
Kroger Co. (a) 17,300 329,219
SUPERVALU, Inc. 9,800 319,578
--------------
648,797
--------------
FOOD PRODUCTS--1.7%
Dean Foods Co. (a) 12,200 429,928
TreeHouse Foods, Inc. (a) 2,440 69,565
Tyson Foods, Inc., Class A 12,300 218,940
--------------
718,433
--------------
TOBACCO--1.0%
UST, Inc. 8,900 406,374
--------------
ENERGY--9.4%
ENERGY EQUIPMENT & SERVICES--4.5%
BJ Services Co. 4,800 251,904
National-Oilwell Varco, Inc. (a) 6,300 299,502
Noble Corp. 6,700 412,117
Technip SA, ADR 6,000 279,600
Transocean, Inc. (a) 7,650 412,871
Weatherford International Ltd. (a) 4,400 255,112
--------------
1,911,106
--------------
OIL, GAS & CONSUMABLE FUELS--4.9%
Amerada Hess Corp. 4,900 $ 521,899
Ashland, Inc. 5,000 359,350
EOG Resources, Inc. 3,800 215,840
Murphy Oil Corp. 2,400 125,352
Williams Companies, Inc. 18,400 349,600
XTO Energy, Inc. 14,788 502,644
--------------
2,074,685
--------------
FINANCIALS--24.4%
CAPITAL MARKETS--2.4%
Bear Stearns Companies, Inc. 4,200 436,548
Janus Capital Group, Inc. 25,800 388,032
Lehman Brothers Holdings, Inc. 2,200 218,416
--------------
1,042,996
--------------
COMMERCIAL BANKS--5.2%
City National Corp. 4,500 322,695
Cullen/Frost Bankers, Inc. 7,200 343,080
Marshall & Ilsley Corp. 10,700 475,615
North Fork Bancorporation, Inc. 11,639 326,939
TD Banknorth, Inc. 6,272 186,906
UnionBanCal Corp. 4,900 327,908
Zions Bancorporation 2,900 213,237
--------------
2,196,380
--------------
DIVERSIFIED FINANCIAL SERVICES--0.8%
CIT Group, Inc. 8,200 352,354
--------------
INSURANCE--7.7%
Ace Ltd. 6,700 300,495
Ambac Financial Group, Inc. 6,450 449,952
Cincinnati Financial Corp. 5,843 231,149
Endurance Specialty Holdings Ltd. 9,400 355,508
Genworth Financial, Inc., Class A 7,900 238,817
Hartford Financial Services
Group, Inc. 4,800 358,944
Lincoln National Corp. 6,800 319,056
Loews Corp. 5,500 426,250
Nationwide Financial Services, Inc.,
Class A 7,400 280,756
Old Republic International Corp. 12,800 323,712
--------------
3,284,639
--------------
REAL ESTATE--3.5%
Archstone-Smith Trust, REIT 6,100 235,582
Boston Properties, Inc., REIT 3,100 217,000
Equity Office Properties Trust, REIT 10,600 350,860
Host Marriott Corp., REIT 27,200 476,000
ProLogis Trust, REIT 4,954 199,349
--------------
1,478,791
--------------
THRIFTS & MORTGAGE FINANCE--4.8%
Golden West Financial Corp. 10,000 643,800
PMI Group, Inc. 11,400 444,372
Sovereign Bancorp, Inc. 23,700 529,458
Webster Financial Corp. 9,100 424,879
--------------
2,042,509
--------------
</Table>
See Accompanying Notes to Financial Statements.
107
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
HEALTH CARE--5.9%
HEALTH CARE EQUIPMENT & SUPPLIES--1.5%
Millipore Corp. (a) 6,900 $ 391,437
Varian, Inc. (a) 6,700 253,193
--------------
644,630
--------------
HEALTH CARE PROVIDERS & SERVICES--3.4%
CIGNA Corp. 3,000 321,090
Community Health Systems, Inc. (a) 7,100 268,309
HCA, Inc. 6,800 385,356
Medco Health Solutions, Inc. (a) 4,100 218,776
WellPoint, Inc. (a) 3,400 236,776
--------------
1,430,307
--------------
PHARMACEUTICALS--1.0%
IVAX Corp. (a) 11,000 236,500
Shire Pharmaceuticals Group
PLC, ADR 6,500 213,200
--------------
449,700
--------------
INDUSTRIALS--12.6%
AEROSPACE & DEFENSE--1.7%
Goodrich Corp. 10,000 409,600
Northrop Grumman Corp. 6,000 331,500
--------------
741,100
--------------
BUILDING PRODUCTS--0.7%
American Standard Companies, Inc. 7,100 297,632
--------------
COMMERCIAL SERVICES & SUPPLIES--2.4%
Avery Dennison Corp. 5,300 280,688
Brink's Co. 1,711 61,596
Manpower, Inc. 5,000 198,900
Pitney Bowes, Inc. 4,900 213,395
Waste Management, Inc. 10,500 297,570
--------------
1,052,149
--------------
CONSTRUCTION & ENGINEERING--0.7%
Fluor Corp. 3,800 218,842
Jacobs Engineering Group, Inc. (a) 1,285 72,294
--------------
291,136
--------------
ELECTRICAL EQUIPMENT--1.2%
AMETEK, Inc. 8,000 334,800
Hubbell, Inc., Class B 3,900 171,990
--------------
506,790
--------------
MACHINERY--3.7%
AGCO Corp. (a) 11,400 217,968
Dover Corp. 5,800 211,004
Eaton Corp. 3,500 209,650
Ingersoll-Rand Co., Class A 5,200 371,020
Kennametal, Inc. 5,300 243,005
Parker Hannifin Corp. 5,200 322,452
--------------
1,575,099
--------------
ROAD & RAIL--1.7%
Burlington Northern Santa Fe Corp. 7,900 371,932
Norfolk Southern Corp. 11,000 340,560
--------------
712,492
--------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
United Rentals, Inc. (a) 10,300 $ 208,163
--------------
INFORMATION TECHNOLOGY--8.0%
COMMUNICATIONS EQUIPMENT--1.0%
Andrew Corp. (a) 31,900 407,044
--------------
COMPUTERS & PERIPHERALS--0.3%
ATI Technologies, Inc. (a) 10,800 127,980
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--5.4%
Agilent Technologies, Inc. (a) 9,100 209,482
Amphenol Corp., Class A 9,900 397,683
Arrow Electronics, Inc. (a) 13,200 358,512
AVX Corp. 13,600 164,832
Flextronics International Ltd. (a) 16,100 212,681
Ingram Micro, Inc., Class A (a) 8,100 126,846
Littelfuse, Inc. (a) 10,000 278,500
Mettler-Toledo International, Inc. (a) 7,000 326,060
Tektronix, Inc. 9,500 221,065
--------------
2,295,661
--------------
IT SERVICES--0.5%
Affiliated Computer Services, Inc.,
Class A (a) 4,300 219,730
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--0.1%
MEMC Electronic Materials, Inc. (a) 2,700 42,579
--------------
SOFTWARE--0.7%
Activision, Inc. (a) 6,300 104,076
Cadence Design Systems, Inc. (a) 7,500 102,450
Electronic Arts, Inc. (a) 2,000 113,220
--------------
319,746
--------------
MATERIALS--10.4%
CHEMICALS--6.5%
Agrium, Inc. 15,400 301,994
Air Products & Chemicals, Inc. 6,800 410,040
Celanese Corp., Series A (a) 11,300 179,557
Eastman Chemical Co. 3,600 198,540
Engelhard Corp. 7,300 208,415
Lubrizol Corp. 9,100 382,291
Nalco Holding Co. (a) 14,600 286,598
PPG Industries, Inc. 6,100 382,836
Rohm and Haas Co. 8,800 407,792
--------------
2,758,063
--------------
CONSTRUCTION MATERIALS--0.9%
Martin Marietta Materials, Inc. 5,800 400,896
--------------
CONTAINERS & PACKAGING--1.1%
Bemis Co., Inc. 9,600 254,784
Crown Holdings, Inc. (a) 13,800 196,374
--------------
451,158
--------------
METALS & MINING--0.5%
Freeport-McMoRan Copper & Gold,
Inc., Class B 5,600 209,664
--------------
</Table>
See Accompanying Notes to Financial Statements.
108
<Page>
<Table>
<Caption>
SHARES VALUE
-------------- --------------
PAPER & FOREST PRODUCTS--1.4%
Georgia-Pacific Corp. 12,400 $ 394,320
MeadWestvaco Corp. 7,534 211,253
--------------
605,573
--------------
TELECOMMUNICATION SERVICES--1.6%
WIRELESS TELECOMMUNICATION SERVICES--1.6%
Telephone & Data Systems, Inc.--
Special Shares 8,500 325,890
Telephone & Data Systems, Inc. 8,500 346,885
--------------
672,775
--------------
UTILITIES--11.2%
ELECTRIC UTILITIES--7.2%
Edison International 10,500 425,775
Entergy Corp. 9,000 679,950
Exelon Corp. 11,800 605,694
FPL Group, Inc. 5,300 222,918
PG&E Corp. 15,300 574,362
PPL Corp. (a) 5,700 338,466
Reliant Energy, Inc. (a) 17,500 216,650
--------------
3,063,815
--------------
GAS UTILITIES--0.5%
AGL Resources, Inc. 5,900 228,035
--------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--2.2%
AES Corp. (a) 14,400 235,872
Constellation Energy Group 12,100 698,049
--------------
933,921
--------------
MULTI-UTILITIES--1.3%
Energy East Corp. 11,300 327,474
Sempra Energy 5,400 223,074
--------------
550,548
--------------
TOTAL COMMON STOCKS
(cost of $33,335,820) 41,699,796
--------------
<Caption>
PAR
--------------
CONVERTIBLE BOND--0.4%
COMMUNICATIONS--0.4%
TELECOMMUNICATIONS--0.4%
Lucent Technologies, Inc., Series B
2.750% 06/15/25 $ 153,600 177,552
--------------
TOTAL CONVERTIBLE BOND
(cost of $175,599) 177,552
--------------
<Caption>
SHARES VALUE
-------------- --------------
CONVERTIBLE PREFERRED STOCK--0.1%
BASIC MATERIALS--0.1%
CHEMICALS--0.1%
Celanese Corp. 1,600 $ 39,200
--------------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost of $40,000) 39,200
--------------
<Caption>
PAR
--------------
SHORT-TERM OBLIGATION--1.8%
Repurchase agreement with State
Street Bank & Trust Co.,
dated 06/30/05, due 07/01/05
at 2.700%, collateralized by a U.S.
Treasury Bond maturing 05/15/17,
market value of $778,950
(repurchase proceeds $757,057) $ 757,000 757,000
--------------
TOTAL SHORT-TERM OBLIGATION
(cost of $757,000) 757,000
--------------
TOTAL INVESTMENTS--100.2%
(cost of $34,308,419) (b) 42,673,548
--------------
OTHER ASSETS & LIABILITIES, NET--(0.2)% (90,506)
--------------
NET ASSETS--100.0% $ 42,583,042
==============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for federal income tax purposes is $34,309,259.
At June 30,2004, the Fund held investments in the following sectors:
<Table>
<Caption>
SECTOR % OF NET ASSETS
- ------ ---------------
Financials 24.4%
Industrials 12.6
Utilities 11.2
Materials 10.5
Consumer Discretionary 9.4
Energy 9.4
Information Technology 8.0
Health Care 5.9
Consumer Staples 5.0
Telecommunication Services 2.0
Short-Term Obligation 1.8
Other Assets & Liabilities, Net (0.2)
-----
100.0%
=====
</Table>
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
REIT Real Estate Investment Trust
</Table>
See Accompanying Notes to Financial Statements.
109
<Page>
STATEMENT OF ASSETS & LIABILITIES
Liberty Select Value Fund, Variable Series / June 30, 2005 (Unaudited)
<Table>
ASSETS:
Investments, at cost $ 34,308,419
--------------
Investments, at value $ 42,673,548
Cash 176,297
Receivable for:
Investments sold 760,266
Fund shares sold 139
Interest 245
Dividends 49,121
Foreign tax reclaim 21
Expense reimbursement due from Distributor 1,805
Deferred Trustees' compensation plan 3,648
--------------
TOTAL ASSETS 43,665,090
--------------
LIABILITIES:
Payable for:
Investments purchased 937,834
Fund shares repurchased 97,752
Investment advisory fee 23,950
Transfer agent fee 748
Pricing and bookkeeping fees 1,027
Trustees' fees 544
Audit fee 7,276
Distribution fee--Class B 8,536
Deferred Trustees' fees 3,648
Other liabilities 733
--------------
TOTAL LIABILITIES 1,082,048
--------------
NET ASSETS $ 42,583,042
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 30,298,891
Undistributed net investment income 96,392
Accumulated net realized gain 3,822,610
Net unrealized appreciation on:
Investments 8,365,129
Foreign currency translations 20
--------------
NET ASSETS $ 42,583,042
==============
CLASS A:
Net assets $ 1,821,952
Shares outstanding 99,582
==============
Net asset value per share $ 18.30
==============
CLASS B:
Net assets $ 40,761,090
Shares outstanding 2,233,479
==============
Net asset value per share $ 18.25
==============
</Table>
See Accompanying Notes to Financial Statements.
110
<Page>
STATEMENT OF OPERATIONS
Liberty Select Value Fund, Variable Series
For the Six Months Ended June 30, 2005 (Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 315,982
Interest 11,352
--------------
Total Investment Income (net of foreign taxes
withheld of $963) 327,334
--------------
EXPENSES:
Investment advisory fee 146,564
Distribution fee--Class B 50,267
Transfer agent fee 3,873
Pricing and bookkeeping fees 5,840
Trustees' fees 3,721
Custody fee 3,725
Non-recurring costs (See Note 6) 517
Other expenses 18,332
--------------
Total Expenses 232,839
Fees reimbursed by the Distributor--Class B (3,889)
Non-recurring costs assumed by Investment
Advisor (See Note 6) (517)
Custody earnings credit (132)
--------------
Net Expenses 228,301
--------------
Net Investment Income 99,033
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 3,899,984
Foreign currency transactions (37)
--------------
Net realized gain 3,899,947
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments (2,559,900)
Foreign currency translations 20
--------------
Net change in unrealized appreciation
(depreciation) (2,559,880)
--------------
Net Gain 1,340,067
--------------
Net Increase in Net Assets from Operations $ 1,439,100
==============
</Table>
See Accompanying Notes to Financial Statements.
111
<Page>
STATEMENT OF CHANGES IN NET ASSETS
Liberty Select Value Fund, Variable Series
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------- ------------ ------------
OPERATIONS:
Net investment income $ 99,033 $ 93,250
Net realized gain on investments 3,899,947 895,509
Net change in unrealized appreciation (depreciation) on investments (2,559,880) 4,793,118
------------ ------------
Net Increase from Operations 1,439,100 5,781,877
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A -- (7,134)
Class B -- (107,354)
From net realized gains:
Class A -- (7,660)
Class B -- (196,158)
------------ ------------
Total Distributions Declared to Shareholders -- (318,306)
------------ ------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 253,098 321,105
Distributions reinvested -- 14,794
Redemptions (102,282) (337,200)
------------ ------------
Net Increase (Decrease) 150,816 (1,301)
------------ ------------
Class B:
Subscriptions 1,201,984 3,272,086
Distributions reinvested -- 303,512
Redemptions (2,945,670) (4,501,454)
------------ ------------
Net Decrease (1,743,686) (925,856)
------------ ------------
Net Decrease from Share Transactions (1,592,870) (927,157)
------------ ------------
Total Increase (Decrease) in Net Assets (153,770) 4,536,414
NET ASSETS:
Beginning of period 42,736,812 38,200,398
------------ ------------
End of period (including undistributed (overdistributed)
net investment income of $96,392 and $(2,641), respectively) $ 42,583,042 $ 42,736,812
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 14,063 19,659
Issued for distributions reinvested -- 837
Redemptions (5,754) (21,172)
------------ ------------
Net Increase (Decrease) 8,309 (676)
------------ ------------
Class B:
Subscriptions 68,225 203,481
Issued for distributions reinvested -- 17,196
Redemptions (166,443) (276,030)
------------ ------------
Net Decrease (98,218) (55,353)
------------ ------------
</Table>
See Accompanying Notes to Financial Statements.
112
<Page>
NOTES TO FINANCIAL STATEMENTS
Liberty Select Value Fund, Variable Series / June 30, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Liberty Select Value Fund, Variable Series (the "Fund"), a series of Liberty
Variable Investment Trust (the "Trust") is a diversified portfolio. The Trust is
a Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
INVESTMENT GOAL--The Fund seeks long-term growth.
FUND SHARES--The Fund may issue an unlimited number of shares and offers two
classes of shares: Class A and Class B. Each share class has its own expense
structure. Shares of the Fund are available exclusively as a pooled funding
vehicle for variable annuity contracts ("VA Contracts") and Variable Life
Insurance Policies ("VLI Policies") offered by the separate accounts of certain
life insurance companies ("Participating Insurance Companies"). The
Participating Insurance Companies and their separate accounts own all the shares
of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION--Equity securities are valued at the last sale price on
the principal exchange on which they trade, except for securities traded on the
NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities
or listed securities for which there were no sales during the day are valued at
the closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation.
SECURITY TRANSACTIONS--Security transactions are accounted for on the trade
date. Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are creditworthy. The Fund, through its custodian, receives delivery of
underlying securities collateralizing a repurchase agreement. Collateral is at
least equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the event
of default or insolvency of the counterparty. These risks include possible
delays or restrictions upon the Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
INCOME RECOGNITION--Interest income is recorded on the accrual basis.
Corporate actions and dividend income are recorded on the ex-date. 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
113
<Page>
net investment income, capital gains and certain other amounts, if any, such
that the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to shareholders are recorded on
ex-date. Dividends from net investment income, if any, are declared and
distributed at least annually. Net realized capital gains, if any, are
distributed at least annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value as of the record date of the
distribution.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended December 31, 2004
was as follows:
<Table>
<Caption>
DECEMBER 31,
2004
------------
Distributions paid from:
Ordinary income $ 119,464
Long-term capital gains 198,842
</Table>
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 9,176,291
Unrealized depreciation (812,002)
-----------
Net unrealized appreciation $ 8,364,289
===========
</Table>
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE--Columbia Management Advisors, Inc. ("Columbia"), an
indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the
investment advisor to the Fund and provides administrative and other services to
the Fund. Columbia receives a monthly investment advisory fee based on the
Fund's average daily net assets at the following annual rates:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------ ---------------
First $500 million 0.70%
$500 million to $1 billion 0.65%
Over $1 billion 0.60%
</Table>
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.70%.
PRICING AND BOOKKEEPING FEES--Columbia is responsible for providing pricing
and bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated
those functions to State Street Corporation ("State Street"). As a result,
Columbia pays the total fees received to State Street under the Outsourcing
Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund.
For the six months ended June 30, 2005, the annualized 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 six months ended June 30, 2005, the Fund's annualized effective transfer
agent fee rate was 0.02%.
DISTRIBUTION FEES--Columbia Funds Distributor, Inc. (the "Distributor"), an
affiliate of Columbia, is the principal underwriter of the Fund. The Fund has
adopted a 12b-1 plan which requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.25% of the average daily net assets
attributable to Class B shares.
FEE WAIVERS--Columbia and the Distributor have voluntarily agreed to waive
fees and reimburse the Fund for certain expenses so that total expenses
(exclusive of brokerage commissions, interest, taxes and extraordinary expenses,
if any) will not exceed 1.10% annually of the Fund's average daily net assets.
The Distributor will first reimburse the Class B distribution fee up to 0.25%
annually to reach the 1.10% limit on Class B expenses. If additional
reimbursement is needed to meet the limit for each class, Columbia will then
reimburse other expenses to the extent necessary. If additional reimbursement is
still needed in order to reach the expense limit, Columbia will then waive a
portion of its investment advisory fee to the extent necessary. Columbia or the
Distributor, at their discretion, may revise or discontinue this arrangement any
time.
CUSTODY CREDITS--The Fund has an agreement with its custodian bank under
which custody fees may be reduced by balance credits. These credits are recorded
as a reduction of total expenses on the Statement of Operations. The Fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangement in an income-producing asset if it had not entered into such
an agreement.
114
<Page>
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. 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 for
the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER--Columbia provides certain services to the Fund related to
Sarbanes-Oxley compliance. For the six months ended June 30, 2005, the Fund paid
$771 to Columbia for such services. This amount is included in "Other expenses"
on the Statement of Operations.
NOTE 5. PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $14,883,152 and
$16,420,592, 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 Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan 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. At this time, the distribution plan is still under
development. As such, any gain to the Fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
115
<Page>
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds 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.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees
and expenses paid by the funds are excessive and that the advisers and their
affiliates inappropriately used fund assets to distribute the funds and for
other improper purpose. On March 2, 2005, the actions were consolidated in the
Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund 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 Fund.
For the six months ended June 30, 2005, Columbia has assumed $517 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
116
<Page>
FINANCIAL HIGHLIGHTS
Liberty Select Value Fund, Variable Series--Class B Shares
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, ----------------------------------------------- DECEMBER 31,
2005 2004 2003 2002 2001 2000 (a)
----------- -------- -------- -------- -------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.64 $ 15.41 $ 12.11 $ 13.65 $ 13.24 $ 12.00
----------- -------- -------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.04 0.04 0.03 0.01 0.05 0.09
Net realized and unrealized gain (loss)
on investments 0.57 2.32 3.29 (1.54) 0.41 1.28
----------- -------- -------- -------- -------- ------------
Total from Investment Operations 0.61 2.36 3.32 (1.53) 0.46 1.37
----------- -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income -- (0.05) (0.02) (0.01) (0.03) (0.07)
From net realized gains -- (0.08) -- -- (0.02) --(c)
Return of capital -- -- -- -- -- (0.06)
----------- -------- -------- -------- -------- ------------
Total Distributions Declared to
Shareholders -- (0.13) (0.02) (0.01) (0.05) (0.13)
----------- -------- -------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $ 18.25 $ 17.64 $ 15.41 $ 12.11 $ 13.65 $ 13.24
=========== ======== ======== ======== ======== ============
Total return (d)(e)(f) 3.46%(g) 15.32% 27.44% (11.21)% 3.47% 11.38%(g)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.10%(i) 1.10% 1.10% 1.10% 1.10% 1.10%(i)
Net investment income (h) 0.47%(i) 0.23% 0.20% 0.09% 0.34% 1.13%(i)
Waiver/reimbursement 0.02%(i) 0.01% 0.10% 0.08% 0.73% 1.56%(i)
Portfolio turnover rate 36%(g) 17% 12% 21% 15% 26%(g)
Net assets, end of period (000's) $ 40,761 $ 41,125 $ 36,782 $ 24,615 $ 16,886 $ 3,762
</Table>
(a) For the period from commencement of operations on May 30, 2000 to December
31, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Investment Advisor and/or Distributor not waived or reimbursed a
portion of expenses, total return would have been reduced.
(f) Total return figure does not include any insurance company charges
associated with a variable annuity. If included, total return would be
reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
117
<Page>
LIBERTY VARIABLE INVESTMENT TRUST
INVESTMENT MANAGER AND ADMINISTRATOR
Columbia Management Advisors, Inc.
100 Federal Street
Boston, MA 02110
TRANSFER AGENT
Columbia Funds Services, Inc.
PO Box 8081
Boston, MA 02266-8081
IMPORTANT INFORMATION
A description of the 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.
118
<Page>
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
<Page>
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: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Liberty Variable Investment Trust
---------------------------------------------------------------
By (Signature and Title) /S/ Christopher L. Wilson
---------------------------------------------------
Christopher L. Wilson, President
Date August 29, 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 August 29, 2005
-----------------------------------------------------------------------
By (Signature and Title) /S/ J. Kevin Connaughton
---------------------------------------------------
J. Kevin Connaughton, Treasurer
Date August 29, 2005
-----------------------------------------------------------------------