<PAGE> 1
[THE GALAXY VIP FUND LOGO]
[PHOTO]
GALAXY VARIABLE ANNUITY REPORT
SEMI-ANNUAL
REPORT
FOR THE SIX MONTHS
ENDED JUNE 30, 1996
<PAGE> 2
This report relates to the Sub-Accounts of American Skandia Life Assurance
Corporation Variable Account E. The underlying mutual fund portfolios in which
the Sub-Accounts invest are The Galaxy VIP Fund Money Market, Equity, Asset
Allocation and High Quality Bond Portfolios. This report relates to The Galaxy
VIP Fund.
<PAGE> 3
CHAIRMAN'S
MESSAGE FOR THE
GALAXY VIP FUND
Dear Variable Annuity Policyowner:
Enclosed is the performance report for The Galaxy
VIP Fund portfolios for the six months ended June 30,
1996. Inside, you'll find a Market Overview that
explains various conditions which affected stock and
bond returns during this time. In addition, there are
individual Portfolio Reviews that describe the
strategies that Fleet Investment Advisors Inc. used to
make the most of these conditions. A look at the future
environment of stocks and bonds is also included.
In the last six months stronger economic growth
sparked fears of inflation and sharp declines in bond
prices. Ongoing strength in corporate earnings and
increased flows of cash into stock funds helped stock
prices advance. But stock prices were far more volatile
than they had been for some time. Even if economic
growth moderates in the months ahead, and inflation
remains unchanged, further market uncertainty may keep
stock and bond prices quite volatile.
While Fleet Investment Advisors tries to take
advantage of current market trends, we also stress
investments that can provide solid returns over the
long term. This means focusing on high-quality
securities with good liquidity and attractive prices.
Such investments tend to perform especially well in
fluctuating markets.
In addition, we try to keep our portfolios
well-diversified. In times of market uncertainty,
diversity may improve the chance that there will be
some good performing investments. Such a strategy can
be useful for the portfolios of individual investors as
well. Because equity and fixed-income markets often
move in different directions, it usually makes sense to
have investments in both markets. Over time, this
diversification can bring you closer to your personal
financial goals.
If you want further information about the
management and performance of the portfolios of The
Galaxy VIP Fund, please call an Investment Specialists
at 800-628-0414. The Investment Specialists can also
provide information on other mutual funds managed by
Fleet Investment Advisors.
Sincerely,
/s/ Dwight E. Vicks, Jr.
------------------------
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
The Galaxy VIP Fund
MUTUAL FUNDS:
- - ARE NOT BANK
DEPOSITS
- - ARE NOT FDIC
INSURED
- - ARE NOT OBLIGA-
TIONS OF FLEET
BANK
- - ARE NOT GUARAN-
TEED BY FLEET
BANK
- - ARE SUBJECT TO
INVESTMENT RISKS
INCLUDING POSSIBLE
LOSS OF PRINCIPAL
AMOUNT INVESTED
<PAGE> 4
MARKET OVERVIEW
PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of June 30, 1996
Variable Account E
[GRAPH]
<TABLE>
<CAPTION>
Six Months* 1 Years 3 Years Life of Fund
----------- ------- ------- ------------
<S> <C> <C> <C> <C>
VIP MONEY MARKET FUND
Inception Date 1/11/93 2.16% 4.57% 3.99% 3.75%
VIP EQUITY FUND
Inception Date 2/6/93 8.27% 17.90% 13.69% 13.39%
VIP ASSET ALLOCATION FUND
Inception Date 1/21/93 8.02% 15.96% 10.90% 11.38%
VIP HIGH QUALITY BOND FUND
Inception Date 2/2/93 (3.14%) 3.72% 4.04% 4.97%
</TABLE>
*Six months results are total returns.
These results reflect the experience of the sub-accounts of Variable Account E
of American Skandia Life Assurance Corporation and include all management fees
and expenses and insurance costs and accordingly will be different from the
performance of the corresponding Galaxy VIP Fund. The Variable Account E
sub-accounts purchase shares of The Galaxy VIP Fund. The sub-accounts are GAL
Money Market, GAL Equity, GAL High Quality Bond, and GAL Asset Allocation. The
performance data quoted represents past performance and the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. The
Administrator and the Advisor are presently waiving fees. Without such waivers,
performance would be lower. An investment in the Money Market Fund is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Money Market Fund will be able to maintain a stable net asset value of $1.00
per share.
MARKET OVERVIEW
By Fleet Investment Advisors Inc.
Following strong rallies in 1995, stock and bond prices became more
volatile in the six months ended June 30, 1996. During this time stronger
economic growth rekindled fears of inflation -- which drove bond prices sharply
lower. As bond yields rose in response, stocks became less attractive to
investors. With continued growth in corporate earnings and strong flows of cash
into stock mutual funds, however, stock prices enjoyed significant gains.
The Galaxy VIP Fund portfolios performed relatively well in this
environment. As the stock market advance slowed, investors abandoned technology
stocks, which had led the 1995 rally, for sectors where prices were more
attractive. The Galaxy VIP equity portfolios tried to anticipate this sector
"rotation" and focused on stocks with good long-term potential. In addition, the
shorter-maturity issues of the Galaxy fixed-income portfolios benefited because
the falling bond prices hurt the value of longer-term securities more than the
value of shorter-term securities.
A CHANGING ECONOMY
At the start of 1996 the economy was growing slowly. This encouraged the
Federal Reserve to reduce short-term interest rates to 5.25% at the end of
January. However, soon investors were disappointed by the failure of Congress to
balance the federal budget and the unexpectedly strong gains in employment.
These factors made additional rate cuts seem unrealistic.
With other signs of accelerating economic growth and a rise in commodity
prices, bond prices moved sharply lower from the end of January to the beginning
of May. Prices then became more stable, as investors saw that inflation was
still under control. Between the beginning of January and the end of June,
however, the slide in bond prices had driven the yield for 30-year Treasury
bonds from 5.94% to 6.89%.
Although rising bond yields made stock prices more volatile, stocks
benefited from record flows of cash into equity mutual funds. Coming largely
from retirement accounts, the net gain in equity fund assets for the first six
months of 1996 was an estimated $138.5 billion. This surpasses the previous
$129.6 billion record for an annual increase in assets set in 1993.
While demand for stocks was rising, corporate mergers and stock buyback
plans reduced market supplies. Stocks also benefited from ongoing growth in
corporate earnings and the prospect for additional earnings growth from a
strengthening economy. This helped the S&P 500 Index earn a total return of
10.1% for the first half of the year.
2
<PAGE> 5
MARKET OVERVIEW
INVESTMENT STRATEGIES
In this time of market uncertainty we used many different strategies to
enhance returns for The Galaxy VIP Fund portfolios. In the equity portfolios we
emphasized high-quality issues with strong potential for long-term growth and
attractive prices. As investors tried to decide where the economy was headed,
these issues enjoyed particularly strong gains.
Early on, when interest rates were still falling, the equity portfolios
earned solid returns from financial stocks and other "interest-sensitive"
sectors -- as well as from stocks in the economically "defensive" consumer
staples groups. As the economy picked up steam, there were good returns from
stocks in "cyclical sectors." During the period the portfolios also benefited
from a rebound in technology shares.
In the fixed-income portfolios, greater attention was given to bonds with
shorter maturities -- which tend to be less sensitive to fears of inflation. To
enhance the portfolios' yields without additional risk, we increased investments
in asset-backed securities, mortgage-backed securities and corporate instruments
as we found prices and yields that were attractive.
MODERATE GROWTH AHEAD
Despite recent signs of stronger economic growth, Fleet Investment
Advisors Inc. believes that growth will moderate in the months to come. As that
happens, we expect increases in the gross domestic product (GDP) that measures
production of U.S. goods and services to slow from an estimated annualized rate
of 7.8% in the second quarter of 1996 to a rate near 5% in the third and fourth
quarters. This should help to keep the annual rate of inflation near 3%.
If this is the case, interest rates should stabilize and may even edge
lower. We've now begun to add longer-term securities to the fixed-income
portfolios, so we can lock in higher yields and make the most of any increases
in bond prices that might occur.
Slower economic growth may cause earnings disappointments and weaken stock
prices temporarily. Once investors see that the current expansion is likely to
continue, however, stock prices should improve once again. Stocks should also
benefit as the presidential election draws near. In 40 years there has been no
significant decline in stock prices during the final months of an election year.
3
<PAGE> 6
PORTFOLIO REVIEWS
[PHOTO]
GALAXY VIP MONEY MARKET FUND
[PIE CHART]
<TABLE>
<CAPTION>
Distribution of Total Net Assets
as of June 30, 1996
<S> <C>
U.S. Government and Agency Obligations 23%
Commercial Paper 74%
Repurchase Agreements 3%
Other Net Assets & Liabilities = (0.49%)
</TABLE>
GALAXY VIP MONEY MARKET FUND
Investment Manager
Pat Galuska
Money market yields became more volatile in the first half of 1996, as
investors grew more concerned that the Fed would raise short-term interest
rates. During this time, we adjusted the maturities and mix of investments in
the Galaxy VIP Money Market Fund to make the most of increases in yields and the
widening of yield spreads. This helped the Fund earn an attractive return that
compared well with funds having similar investment objectives.
For the six months ended June 30, 1996, the Fund had a total return of
2.44%.
ADJUSTING TO CHANGES IN YIELD
At the beginning of 1996, when interest rates and money market yields were
still falling, we exchanged shorter-term investments in the Fund's portfolio for
instruments with longer maturities. This let us lock in higher yields for a
longer time period. Even so, the average maturity of the Fund's portfolio was
still relatively short. When yields began to rise in February and March, we were
able to take advantage of the higher yields more quickly. Our response to rising
yields was further enhanced as we continued to stagger the dates of the Fund's
investments.
In April, when yields fell briefly, we cautiously added some investments
in longer-term issues again. Through June, however, the Fund's average maturity
was still quite short -- letting us make the most of the increases in yields
that followed. At the end of the period the Fund's average maturity was 18 days,
versus 22 days when the period began.
During the period, we found many opportunities to add higher-yielding
instruments to the Fund's portfolio. When their yields were particularly
attractive, we added high-coupon securities issued by U.S. Government agencies
- -- offsetting their premium prices with agencies that sold at a discount. Later
in the period, as increased supplies of corporate securities enhanced their
yields, we added positions in these securities, too.
MOVING FORWARD
Although we expect moderate economic growth to keep inflation in check,
further news of economic strengthening may cause additional increases in money
market yields. As a result, we expect to keep the average maturity of the Galaxy
VIP Money Market Fund relatively short in the months to come.
If concerns about higher interest rates encourage companies to issue more
short-term debt, forcing yields for corporate securities higher, we may add more
of these investments to the Fund's portfolio. We may also increase investments
in government agency issues. With higher money market yields, demand for
agencies may ebb -- which would keep agency yields attractive compared to the
yields for U.S. Treasury securities.
Pat Galuska has managed the Galaxy VIP Money Market Fund since September 1994.
She has managed the Galaxy Tax-Exempt Money Market Fund since 1988.
GALAXY VIP MONEY MARKET FUND
<TABLE>
<CAPTION>
GALAXY-RETAIL
-------------
<S> <C>
6/30/95 5.26
7/31/95 5.13
8/31/95 5.06
9/30/95 5
10/31/95 4.88
11/30/95 4.81
12/31/95 4.74
1/31/96 5.01
2/28/96 4.82
3/31/96 4.8
4/30/96 4.83
5/30/96 4.73
6/30/96 4.8
</TABLE>
<PAGE> 7
PORTFOLIO REVIEWS
[PHOTO]
GALAXY VIP EQUITY FUND
[PIE CHART]
<TABLE>
<CAPTION>
Distribution of Total Net Assets
as of June 30, 1996
<S> <C>
Cash Equivalents & Net
Other Assets &Liabilities 18%
Basic Materials 5%
Consumer Staples 22%
Energy 6%
Capital Goods 8%
Consumer Cyclical 10%
Technology 16%
Financial 11%
Transportation 4%
</TABLE>
GALAXY VIP EQUITY FUND
Investment Manager
Harold A. Mackinney
The Galaxy VIP Equity Fund seeks long-term growth by investing in stocks
of companies that Fleet Investment Advisors Inc. believes have the potential for
above-average total return. Typically this means emphasizing stocks whose prices
are attractive compared to their prospective earnings and to prices for stocks
as a whole.
Throughout the first half of 1996 we kept the Fund's portfolio well
diversified. This helped the Fund earn solid returns as investors moved from one
stock sector to another. For the six months ended June 30, 1996, the Fund had a
total return of 8.58%. That compares with returns of 10.1% for the Standard &
Poor's 500 Index and 10.08% for the average growth fund tracked by Lipper
Analytical Services.
A BROAD SECTOR MIX
At the end of 1995 we added to stocks in cyclical sectors that could
benefit from an improving economy. As the economy picked up steam in the first
quarter of 1996, the Fund realized gains from selected stocks of basic
materials, capital goods and transportation firms. These gains helped offset
disappointing returns from some of the Fund's technology stocks, which were hurt
by slower computer sales, and from its bank stocks, which were hurt by rising
interest rates. Believing that the longer-term outlook for technology and bank
stocks remained sound, we have added to shares in these sectors as their prices
grew more attractive.
In the second quarter of 1996 many of the Fund's technology stocks
rebounded nicely. There were also robust returns from the Fund's retail
holdings, which benefited as signs of economic strengthening encouraged greater
consumer spending. During the quarter we used fluctuations in prices to add to
many of the Fund's holdings. As previously, we continued to emphasize consumer
staples and financial stocks -- with a special focus on drug and banking firms.
NEW OPPORTUNITIES
If economic growth slows, as we expect, and corporate earnings start to
flatten, we believe that consumer staples stocks will outperform cyclical issues
that are tied more closely to the economy. In an environment of slower growth,
stable inflation and declining interest rates, we also look for bank stocks to
outperform.
Because slower growth in earnings should bring lower stock prices and new
investment opportunities, we're keeping the Fund's cash reserves at
approximately 15% of the total portfolio. As we put this cash to work, we will
continue to emphasize companies that are leaders in their industries and have
strong potential for earnings growth over the long term. Such companies should
perform well as ongoing economic growth and stable interest rates draw investors
to stocks once again.
Harold A. Mackinney has managed the Galaxy VIP Equity Fund since its inception.
He has been Chairman of the Fleet Investment Advisors Investment Policy
Committee since 1973.
GALAXY VIP EQUITY FUND
Growth of $10,000 investment*
[GRAPH]
<TABLE>
<S> <C>
- - S&P 500 Index $16,885
- - Galaxy VIP Equity Fund $14,832
</TABLE>
*Since inception on 1/11/93. The S&P 500 Index is an unmanaged index of 500
leading stocks. Results for the S&P 500 Index do not reflect the expenses and
investment management fees incurred by the Fund.
5
<PAGE> 8
PORTFOLIO REVIEWS
[PHOTO]
GALAXY VIP ASSET ALLOCATION FUND
[PIE CHART]
<TABLE>
<CAPTION>
Distribution of Total Net Assets
as of June 30, 1996
<S> <C>
U.S. Government and Agency Obligations 17%
Cash Equivalents and Net Other Assets & Liabilities 12%
Common Stocks 62%
Corporate Notes and Bonds and Asset-Backed Securities 9%
</TABLE>
GALAXY VIP ASSET ALLOCATION FUND
Investment Manager
Don Jones
The Galaxy VIP Asset Allocation Fund seeks a high total return by
providing both current income that is greater than that for popular stock market
averages and long-term growth in the value of its assets. The Fund invests in a
diversified portfolio of equity, bond and money market investments.
Good performance by the Fund's equity portfolio in the first half of 1996,
plus strong yields on the income side, helped offset the effects of falling bond
prices. For the six months ended June 30, 1996, the Fund had a total return of
5.86%. That compares to 5.02% for the average balanced fund tracked by Lipper
Analytical Services and 10.10% for the Standard & Poor's 500 Index.
INVESTMENT STRATEGY
During the period, we kept the balance of equity, fixed income, and cash
investments about the same as they were at the end of 1995.
Within the equity portfolio, we traded stocks within certain sectors that
had performed well for those that we felt had greater potential for long-term
growth. Early in 1996, we increased investments in basic materials firms, whose
prices were especially attractive. We also added shares of technology, capital
goods, and consumer staples companies. In the technology sector we gave
increased attention to electronics firms.
Later in the period, we sold certain electric utility stocks whose prices
had met our expectations and added positions in gas exploration firms. At the
same time, we broadened the Fund's exposure to drug firms.
As bond prices began to slide in the first quarter of 1996, we increased
the Fund's weighting in Treasury securities and U.S. Government agency issues.
We emphasized longer-term issues so we could lock in the higher yields that
became available and increase the potential for capital appreciation if yields
should fall.
When yields continued to rise, we sold some of these longer-term
investments and purchased shorter-maturity corporate bonds, asset-backed
corporates, and mortgage-backed securities. We felt that these issues offered
attractive yields without the price risks of longer-maturity instruments. We
also traded bonds that could be called in by their issuers for those that could
not. In addition to enhancing the Fund's yield, such "call protection" can
improve price performance in uncertain markets. At the end of June, the Fund's
SEC 30-day yield was 2.37%, and its average maturity was 6.7 years.
MAKING THE MOST OF UNCERTAINTY
If corporate earnings disappoint investors in the months to come, causing
a temporary correction in stock prices, the Fund's strong cash position will let
us take advantage of any investment opportunities that might occur. In the
meantime, the Fund is positioned for a variety of economic scenarios -- with
sizable holdings in both defensive and cyclical sectors.
As long as investors remain uncertain about the economy, we will continue
to emphasize higher-coupon bonds with shorter maturities. Once it looks like
yields may be peaking, and prices are set to rise, we expect to purchase
longer-maturity instruments once again.
Don Jones has managed the Galaxy VIP Asset Allocation Fund since its inception.
He has managed investment portfolios for Fleet Investment Advisors Inc., and its
predecessors, since 1988.
GALAXY VIP ASSET ALLOCATION FUND
Growth of $10,000 investment*
[GRAPH]
<TABLE>
<S> <C>
- - S&P 500 Index $16,719
- - Galaxy VIP Asset Allocation Fund $14,155
</TABLE>
*Since inception on 2/6/93. The S&P 500 Index is an unmanaged index of 500
stocks. Results for the S&P 500 Index do not reflect the expenses and
investment management fees incurred by the Fund.
6
<PAGE> 9
PORTFOLIO REVIEWS
[PHOTO]
GALAXY VIP HIGH QUALITY BOND FUND
[PIE CHART]
<TABLE>
<CAPTION>
Distribution of Total Net Assets
as of June 30, 1996
<S> <C>
Net Other Assets & Liabilities 3%
Asset Backed Securities 10%
U.S. Government and Agency Obligations 50%
Corporate Notes & Bonds 37%
</TABLE>
GALAXY VIP HIGH QUALITY BOND FUND
Investment Manager
Marie Schofield
The Galaxy VIP High Quality Bond Fund seeks a high level of current income
consistent with the prudent risk of capital. The Fund invests primarily in
government securities and high-quality corporate issues rated in the two highest
rating categories by Moody's or Standard & Poor's.
As bond prices fell in the first half of 1996, we adjusted maturities of
investments in the Fund to help protect the value of Fund shares. At the same
time, we added securities that would enhance the Fund's yield. This helped the
Fund weather the weak bond market relatively well. For the six months ended June
30, 1996, the Fund had a total return of -2.85%. That compares to -1.88% for the
Lehman Brothers Government/Corporate Bond Index.
SHORTER MATURITIES, STRONGER YIELDS
As interest rates appeared to bottom in the first months of 1996, we sold
issues with longer maturities and greater volatility, including many zero-coupon
bonds, whose prices tend to be more sensitive to changes in interest rates. We
then traded intermediate-term issues for investments that matured in one and a
half to three years and investments that matured in 20 years. This gave the
Fund's securities a shorter average maturity without significantly reducing its
yield.
The shorter-term issues we bought were mostly corporate and asset-backed
securities with top credit ratings. We felt the yields on these securities were
especially attractive compared to yields for Treasury bonds and U.S. Government
agency debt with similar maturities.
We also added positions in the pass-through mortgage-backed securities of
U.S. Government agencies. When rising interest rates slowed home loan
prepayments, investors were drawn to the strong yields these securities offered.
Later in the period, when prices and yields were more attractive, we
extended the average maturity of the portfolio slightly to lock in higher yields
for a longer period of time. We did this by adding longer-term Treasury bonds,
which offered strong liquidity and yields that were close to 7.0%. At the end of
June the Fund had an SEC 30-day yield of 6.32% and an average maturity of 10.1
years. Mortgage-backed securities accounted for 17% of the Fund's portfolio.
Asset-backed securities and other corporate bonds accounted for 47%, up from 27%
at the start of 1996.
FUTURE PLANS
If economic growth and inflation remain moderate, and interest rates
stabilize or start to fall, the Fund should enjoy particularly strong returns
from its holdings in longer-term bonds. Should interest rates climb further, we
would probably maintain our emphasis on higher-coupon asset-backed and
mortgage-backed securities. In addition, the liquidity offered by the Treasury
bonds would help us move into shorter-term issues more easily.
Marie Schofield became manager of the Galaxy VIP High Quality Bond Fund in March
of 1996. She has managed fixed-income assets since 1975.
GALAXY VIP HIGH QUALITY BOND FUND
Growth of $10,000 investment*
[GRAPH]
<TABLE>
<S> <C>
- - Lehman Brothers Government/Corporate Bond Index $11,867
- - Galaxy VIP High Quality Bond Fund $11,944
</TABLE>
*Since inception on 1/21/93. The Lehman Brothers Government/Corporate Bond Index
is an unmanaged index of U.S. Treasury obligations and the debt of U.S.
Government agencies as well as all publicly issued, fixed rate, non-convertible
investment grade dollar-denominated, SEC-registered corporate debt. Results for
the Lehman Brothers Government/Corporate Bond Index do not reflect the expenses
and investment management fees incurred by the Fund.
7
<PAGE> 10
GALAXY VIP FUND
INFORMATION
THE GALAXY VIP FUND
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Neil Forrest
Vice President &
Assistant Treasurer
INVESTMENT ADVISER
Fleet Investment
Advisors Inc.
50 Kennedy Plaza
Providence, Rhode Island
02903
DISTRIBUTOR
440 Financial
Distributors, Inc.
4400 Computer Drive
Westboro,
Massachusetts 01581-5108
ADMINISTRATOR
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro,
Massachusetts 01581-5108
This report is submitted for the general information of shareholders of The
Galaxy VIP Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for The Galaxy VIP
Fund and for American Skandia Life Assurance Corporation Variable Account E,
which contain more information concerning investment policies, fees and expenses
and other pertinent information. Read the prospectuses carefully before you
invest.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by Fleet Financial Group, Inc. or any of its affiliates, Fleet
Investment Advisors Inc., or any Fleet bank. Shares of the Funds are not
federally insured by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment return
and principal value will vary as a result of market conditions or other factors
so that shares of the Funds, when redeemed, may be worth more or less than their
original cost. An investment in the Funds involves investment risks, including
the possible loss of principal.
[RECYCLED LOGO]
This report was printed on recycled paper.
<PAGE> 11
VIP MONEY MARKET FUND
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- --------
<S> <C>
COMMERCIAL PAPER (A) - 74.44%
CONSUMER PRODUCTS - 22.58%
$ 850,000 Campbell Soup Co.
5.33%, 07/10/96 .................................. $ 848,867
900,000 Coca-Cola Co.
5.27%, 07/08/96 .................................. 899,078
800,000 Heinz (H.J.) Co.
5.30%, 07/08/96 .................................. 799,176
800,000 Hershey Foods Corp.
5.29%, 08/12/96 .................................. 795,063
800,000 Kellogg Co.
5.25%, 08/05/96 .................................. 795,917
-----------
4,138,101
-----------
FINANCIAL - 17.43%
900,000 AIG Funding, Inc.,
5.30%, 07/23/96 .................................. 897,085
700,000 Ford Motor Credit Co.
5.26%, 07/05/96 .................................. 699,591
800,000 Unilever Capital Corp.
5.35%, 07/25/96 .................................. 797,147
800,000 USAA Capital Corp.
5.27%, 07/01/96 .................................. 800,000
-----------
3,193,823
-----------
TECHNOLOGY - 13.06%
800,000 Bellsouth Telecommunications Corp.
5.30%, 07/09/96 .................................. 799,058
900,000 Motorola, Inc.
5.33%, 07/22/96 .................................. 897,202
700,000 Xerox Corp.
5.33%, 07/23/96 .................................. 697,720
-----------
2,393,980
-----------
PHARMACEUTICALS - 9.28%
805,000 Abbott Laboratories
5.30%, 07/11/96 .................................. 803,815
900,000 Pfizer, Inc.
5.30%, 07/17/96 .................................. 897,880
-----------
1,701,695
-----------
METALS AND MINING - 4.36%
800,000 Minnesota Mining and
Manufacturing Co.
5.28%, 07/08/96 .................................. 799,179
-----------
CONSUMER STAPLES - 4.08%
750,000 Procter & Gamble Co.
5.30%, 07/15/96 .................................. 748,454
-----------
BASIC MATERIALS - 3.65%
670,000 Weyerhaeuser Co.
5.30%, 07/16/96 .................................. 668,520
-----------
TOTAL COMMERCIAL PAPER ........................... 13,643,752
-----------
(Cost $13,643,752)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.46%
FEDERAL FARM CREDIT BANK - 10.91%
1,000,000 5.75%, 08/01/96 .................................. 1,000,249
1,000,000 5.32%, 09/03/96 .................................. 1,000,000
-----------
2,000,249
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 7.09%
500,000 8.00%, 07/10/96 .................................. 500,256
800,000 5.25%, 07/12/96 (A) .............................. 798,717
-----------
1,298,973
-----------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION - 5.46%
1,000,000 5.28%, 07/02/96 (A) .............................. 999,855
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS ............................... 4,299,077
-----------
(Cost $4,299,077)
REPURCHASE AGREEMENT - 2.59%
475,645 CHASE SECURITIES, INC.
5.15%, 07/01/96, Dated 06/28/96
Repurchase Price $475,849
(Collateralized By U.S. Treasury Note
5.675%, Due 10/31/97, Par Value $485,000,
Market Value $487,425) ........................... 475,645
-----------
TOTAL REPURCHASE AGREEMENT ....................... 475,645
-----------
(Cost $475,645)
TOTAL INVESTMENTS - 100.49% ................................... 18,418,474
-----------
(Cost $18,418,474)
NET OTHER ASSETS AND LIABILITIES - (0.49)% .................... (90,491)
-----------
NET ASSETS - 100.00% .......................................... $18,327,983
===========
</TABLE>
- ---------------------------
(A) Annualized yield at time of purchase.
See Notes to Financial Statements.
9
<PAGE> 12
VIP EQUITY FUND
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS - 81.86%
CONSUMER STAPLES - 22.08%
6,000 Anheuser-Busch Cos., Inc. ........................ $ 450,000
6,000 Bristol-Myers Squibb Co. ......................... 540,000
9,000 General Mills, Inc. .............................. 490,500
14,000 Gillette Co. ..................................... 873,250
16,000 Johnson & Johnson ................................ 792,000
20,000 McDonald's Corp. ................................. 935,000
12,000 Merck & Co., Inc. ................................ 775,500
22,000 PepsiCo, Inc. .................................... 778,250
10,000 Pfizer, Inc. ..................................... 713,750
7,000 Procter & Gamble Co. ............................. 634,375
15,000 Rubbermaid, Inc. ................................. 408,750
15,000 Sara Lee Corp. ................................... 485,625
14,000 Sysco Corp. ...................................... 479,500
-----------
8,356,500
-----------
TECHNOLOGY - 16.37%
8,000 American Telephone & Telegraph Corp. ............. 496,000
12,000 AMP, Inc. ........................................ 481,500
17,000 Applied Materials, Inc.* ......................... 518,500
20,000 Automatic Data Processing, Inc. .................. 772,500
16,000 Corning, Inc. .................................... 614,000
7,000 Dow Chemical Co. ................................. 532,000
17,000 Intel Corp. ...................................... 1,248,437
7,000 Microsoft Corp.* ................................. 840,875
11,000 Motorola, Inc. ................................... 691,625
-----------
6,195,437
-----------
FINANCIAL - 10.37%
9,000 American International Group, Inc. ............... 887,625
9,000 Barnett Banks, Inc. .............................. 549,000
8,000 Crestar Financial Corp. .......................... 427,000
28,000 Federal National Mortgage Association ............ 938,000
35,000 Hibernia Corp., Class A .......................... 380,625
20,000 SunTrust Banks, Inc. ............................. 740,000
-----------
3,922,250
-----------
CONSUMER CYCLICAL - 9.90%
10,000 Armstrong World Industries, Inc. ................. 576,250
7,000 Dayton-Hudson Corp. .............................. 721,875
9,000 Disney (Walt) Co. ................................ 565,875
12,000 Home Depot, Inc. ................................. 648,000
14,000 Sherwin-Williams Co. ............................. 651,000
23,000 Wal-Mart Stores, Inc. ............................ 583,625
-----------
3,746,625
-----------
CAPITAL GOODS - 8.34%
8,000 Boeing Co. ....................................... 697,000
13,000 Caterpillar, Inc. ................................ 880,750
20,000 Deere & Co. ...................................... 800,000
9,000 General Electric Co. ............................. 778,500
-----------
3,156,250
-----------
ENERGY - 6.10%
4,000 Atlantic Richfield Co. ........................... 474,000
7,000 Exxon Corp. ...................................... 608,125
12,000 Halliburton Co. .................................. 666,000
5,000 Mobil Corp. ...................................... 560,625
-----------
2,308,750
-----------
BASIC MATERIALS - 4.58%
9,000 Air Products & Chemicals, Inc. ................... 519,750
11,000 Consolidated Papers, Inc. ........................ 572,000
9,000 Georgia-Pacific Corp. ............................ 639,000
-----------
1,730,750
-----------
TRANSPORTATION - 4.12%
6,000 AMR Corp.* ....................................... 546,000
14,000 Ford Motor Co. ................................... 453,250
8,000 Union Pacific Corp. .............................. 559,000
-----------
1,558,250
-----------
TOTAL COMMON STOCKS .............................. 30,974,812
-----------
(Cost $22,209,114)
PAR VALUE
REPURCHASE AGREEMENT - 18.14%
$ 6,863,547 Chase Securities, Inc.
5.15%, 07/01/96, Dated 06/28/96
Repurchase Price $6,866,493
Collateralized By U.S. Treasury Note
5.675%, Due 10/31/97,
Par Value $7,005,000
Market Value $7,355,250) ......................... 6,863,547
-----------
TOTAL REPURCHASE AGREEMENT ....................... 6,863,547
-----------
(Cost $6,863,547)
TOTAL INVESTMENTS - 100.00% .................................... 37,838,359
-----------
(Cost $29,072,661)
NET OTHER ASSETS AND LIABILITIES - 0.00% ....................... 537
-----------
NET ASSETS - 100.00% ........................................... $37,838,896
===========
</TABLE>
- ---------------------------
* Non income producing security.
See Notes to Financial Statements
10
<PAGE> 13
VIP ASSET ALLOCATION
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS - 62.03%
CONSUMER STAPLES - 16.65%
4,000 CPC International, Inc. .......................... $ 288,000
4,000 Coca-Cola Co. .................................... 195,500
8,000 Gillette Co. ..................................... 499,000
10,000 Johnson & Johnson ................................ 495,000
3,000 Lilly (Eli) & Co. ................................ 194,995
6,000 McDonald's Corp. ................................. 280,500
6,000 Merck & Co., Inc. ................................ 387,750
1,000 Nike, Inc., Class B .............................. 102,750
12,000 PepsiCo, Inc. .................................... 424,500
4,000 Pfizer, Inc. ..................................... 285,500
3,000 Procter & Gamble Co. ............................. 271,875
-----------
3,425,370
-----------
TECHNOLOGY - 11.51%
5,000 American Telephone & Telegraph Corp. ............. 310,000
3,000 AMP, Inc. ........................................ 120,375
8,000 Automatic Data Processing, Inc. .................. 309,000
4,000 Cisco Systems, Inc.* ............................. 226,500
1,500 Dow Chemical Co. ................................. 114,000
3,000 Hewlett-Packard Co. .............................. 298,875
8,000 Intel Corp. ...................................... 587,500
7,500 Xerox Corp. ...................................... 401,250
-----------
2,367,500
-----------
CAPITAL GOODS - 7.95%
4,000 Boeing Co. ....................................... 348,500
12,000 Deere & Co. ...................................... 480,000
5,000 General Electric Co. ............................. 432,500
9,000 Thermo Electron Corp. ............................ 374,625
-----------
1,635,625
-----------
FINANCIAL - 7.05%
3,000 American International Group, Inc. ............... 295,875
3,000 Banc One Corp. ................................... 102,000
2,000 Barnett Banks, Inc. .............................. 122,000
2,000 Citicorp ......................................... 165,250
2,000 Crestar Financial Corp. .......................... 106,750
10,000 Federal National Mortgage Association ............ 335,000
10,000 Hibernia Corp., Class A .......................... 108,750
2,625 Old Kent Financial Corp. ......................... 102,703
3,000 SunTrust Banks, Inc. ............................. 111,000
-----------
1,449,328
-----------
CONSUMER CYCLICAL - 5.31%
2,500 Armstrong World Industries, Inc. ................. 144,063
6,000 Disney (Walt) Co. ................................ 377,250
8,000 Home Depot, Inc. ................................. 432,000
3,000 Sherwin-Williams Co. ............................. 139,500
-----------
1,092,813
-----------
ENERGY - 5.14%
2,000 Amoco Corp. ...................................... 144,750
1,500 Exxon Corp. ...................................... 130,313
6,000 Halliburton Co. .................................. 333,000
4,000 Mobil Corp. ...................................... 448,500
-----------
1,056,563
-----------
BASIC MATERIALS - 3.46%
3,000 Air Products & Chemicals, Inc. ................... 173,250
3,000 Georgia-Pacific Corp. ............................ 213,000
10,000 Monsanto Co. ..................................... 325,000
-----------
711,250
-----------
TRANSPORTATION - 2.93%
10,000 Ford Motor Co. ................................... 323,750
4,000 Union Pacific Corp. .............................. 279,500
-----------
603,250
-----------
UTILITIES - 2.03%
1,500 Ameritech Corp. .................................. 89,063
3,000 SBC Communications, Inc. ......................... 147,750
4,000 Sonat, Inc. ...................................... 180,000
-----------
416,813
-----------
TOTAL COMMON STOCKS .............................. 12,758,512
-----------
(Cost $9,538,948)
<CAPTION>
PAR VALUE
---------
<S> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS - 17.26%
U.S. TREASURY NOTES - 6.33%
$ 150,000 5.50%, 11/15/98 .................................. 147,737
400,000 6.25%, 05/31/00 .................................. 397,784
150,000 5.63%, 02/28/01 .................................. 145,073
350,000 7.50%, 05/15/02 .................................. 366,821
250,000 6.50%, 08/15/05 .................................. 246,602
-----------
1,304,017
-----------
FEDERAL HOME LOAN BANK - 3.34%
150,000 6.00%, 10/30/97 .................................. 149,928
200,000 7.00%, 06/12/00 .................................. 199,984
100,000 6.41%, 12/29/03 .................................. 95,707
250,000 7.00%, 11/21/05 .................................. 241,327
-----------
686,946
-----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
VIP ASSET ALLOCATION
THE GALAXY PORTFOLIO OF INVESTMENTS (CONTINUED)
VIP FUND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- --------
<S> <C>
U.S. TREASURY BONDS - 3.34%
$ 250,000 8.00%, 11/15/21 .................................. $ 278,165
250,000 7.25%, 08/15/22 .................................. 256,508
150,000 7.13%, 02/15/23 .................................. 151,688
-----------
686,361
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.57%
100,000 6.40%, 03/25/03 .................................. 96,393
150,000 6.31%, 08/25/03 .................................. 143,024
200,000 6.49%, 01/19/06 .................................. 188,986
100,000 8.18%, 04/15/24 .................................. 100,817
-----------
529,220
-----------
FEDERAL FARM CREDIT BANK - 1.19%
250,000 6.40%, 12/11/00 .................................. 244,432
-----------
FEDERAL HOME LOAN MORTGAGE CORP. - 0.49%
100,000 7.88%, 04/28/04 .................................. 100,069
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS ............................... 3,551,045
-----------
(Cost $3,606,857)
CORPORATE NOTES AND BONDS - 8.00%
100,000 Associates Corp. of North America
6.00%, 03/15/99 .................................. 98,750
100,000 Bank One Milwaukee, N. A. MTN
6.35%, 03/19/01 .................................. 98,125
100,000 CIT Group Holdings, Inc., MTN
6.20%, 04/15/98 .................................. 99,875
200,000 Citicorp, MTN
8.63%, 11/01/04 .................................. 209,750
200,000 Duke Power Co., Mortgage
8.75%, 03/01/21 .................................. 208,000
250,000 Ford Motor Credit Co.
6.38%, 12/15/05 .................................. 234,688
100,000 General Motors Acceptance Corp., MTN
6.35%, 06/18/98 .................................. 99,875
250,000 Sysco Corp., Note
7.00%, 05/01/06 .................................. 248,438
250,000 Wachovia Bank
6.30%, 03/15/01 .................................. 247,813
100,000 WMX Technologies, Inc., Note
7.13%, 06/15/01 .................................. 101,000
-----------
TOTAL CORPORATE NOTES AND BONDS .................. 1,646,314
-----------
(Cost $1,647,760)
ASSET-BACKED SECURITY - 0.49%
100,000 Premier Auto Trust, 1996-2
6.35%, 01/06/00 .................................. 99,898
-----------
TOTAL ASSET-BACKED SECURITY ...................... 99,898
-----------
(Cost $99,971)
REPURCHASE AGREEMENT - 11.83%
2,432,201 Chase Securities, Inc.
5.15%, 07/01/96 Dated 06/28/96
REPURCHASE PRICE $2,433,245
(Collateralized By U.S. Treasury Note
5.675%, Due 10/31/97,
Par Value $2,485,000
Market Value $2,497,425) ......................... 2,432,201
-----------
TOTAL REPURCHASE AGREEMENT ....................... 2,432,201
-----------
(Cost $2,432,201)
TOTAL INVESTMENTS - 99.61% ..................................... 20,487,970
-----------
(Cost $17,325,737)
NET OTHER ASSETS AND LIABILITIES - 0.39% ....................... 79,914
-----------
NET ASSETS - 100.00% ........................................... $20,567,884
===========
</TABLE>
- ---------------------------
* Non income producing security.
MTN Medium Term Note
See Notes to Financial Statements.
12
<PAGE> 15
VIP HIGH QUALITY BOND FUND
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- --------
<S> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS - 50.25%
U.S. TREASURY BONDS - 24.82%
$ 400,000 9.25%, 02/15/16 .................................. $ 495,180
500,000 7.50%, 11/15/16 .................................. 525,738
100,000 7.88%, 02/15/21 .................................. 109,689
300,000 8.13%, 08/15/21 .................................. 338,064
175,000 8.00%, 11/15/21 .................................. 194,715
1,050,000 7.25%, 08/15/22 .................................. 1,077,332
-----------
2,740,718
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 16.62%
500,000 7.55%, 06/10/04 .................................. 503,480
846,289 6.50%, 12/01/02 .................................. 830,686
500,000 7.50%, 05/01/11 .................................. 501,875
-----------
1,836,041
-----------
U.S. TREASURY NOTES - 4.48%
100,000 6.38%, 08/15/02 .................................. 99,218
300,000 6.25%, 02/15/03 .................................. 295,038
100,000 6.38%, 05/15/99 .................................. 100,236
-----------
494,492
-----------
U.S. GOVERNMENT BACKED BONDS - 4.33%
200,000 State of Israel
Series 7-A Note,
U.S. Government Guaranty
5.45%, 02/15/01 .................................. 190,750
300,000 Tennessee Valley Authority
6.13%, 07/15/03 .................................. 286,875
-----------
477,625
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS ............................... 5,548,876
-----------
(Cost $5,609,258)
CORPORATE NOTES AND BONDS - 37.08%
FINANCIAL -18.42%
250,000 Associates Corp. of
North America, SN
5.60%, 01/15/01 .................................. 238,125
500,000 CIT Group Holdings, Inc., MTN
6.20%, 04/15/98 .................................. 499,375
300,000 General Electric Capital Corp., DEB
5.50%, 11/01/01 .................................. 281,250
500,000 Norwest Financial, Inc., SN
8.50%, 08/15/98 .................................. 521,250
500,000 Paccar Financial Corp., MTN
6.06%, 03/15/99 .................................. 493,750
-----------
2,033,750
-----------
BANKING - 11.58%
$ 500,000 Bank One Milwaukee, N.A., MTN
6.35%, 03/19/01 .................................. $ 490,625
500,000 Swiss Bank Corp.
6.75%, 07/15/05 .................................. 484,375
300,000 Wachovia Bank, N.A. MTN
7.00%, 05/12/99 .................................. 303,375
-----------
1,278,375
-----------
CONSUMER STAPLES - 3.66%
400,000 Coca-Cola Enterprises, Inc., MTN
7.00%, 11/15/99 .................................. 404,000
-----------
UTILITIES - 3.42%
400,000 Pacific Bell
6.25%, 03/01/05 .................................. 377,500
-----------
TOTAL CORPORATE NOTES AND BONDS .................. 4,093,625
-----------
(Cost $4,167,083)
ASSET-BACKED SECURITIES - 9.91%
353,243 Banc One Auto Grantor Trust, 1996-A
6.10%, 10/15/02 .................................. 352,852
500,000 Discover Card Trust, 1993-A
6.25%, 08/16/00 .................................. 498,150
250,000 Sears Credit Account
Master Trust II, 1996-1
6.20%, 02/15/06 .................................. 243,500
-----------
TOTAL ASSET-BACKED SECURITIES .................... 1,094,502
-----------
(Cost $1,099,574)
TOTAL INVESTMENTS - 97.24% ..................................... 10,737,003
-----------
(Cost $10,875,915)
NET OTHER ASSETS AND LIABILITIES - 2.76% ....................... 304,852
-----------
NET ASSETS - 100.00% ........................................... $11,041,855
===========
</TABLE>
- ---------------------------
MTN Medium Term Note
SN Senior Note
DEB Debenture
See Notes to Financial Statements.
13
<PAGE> 16
THE GALAXY
VIP FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET EQUITY ASSET ALLOCATION HIGH QUALITY
FUND FUND FUND BOND FUND
------------ ----------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ......................... $17,942,829 $22,209,114 $14,893,536 $10,875,915
Repurchase agreements ....................... 475,645 6,863,547 2,432,201 --
Net unrealized appreciation (depreciation) .. -- 8,765,698 3,162,233 (138,912)
----------- ----------- ----------- -----------
Total investments at value .................... 18,418,474 37,838,359 20,487,970 10,737,003
Cash .......................................... -- 2,132 3,205 --
Receivable for shares sold .................... -- -- 17,257 4,901
Receivable for investment sold ................ -- -- -- 1,082,394
Interest and dividend receivables ............. 47,179 37,069 87,690 200,838
Deferred organizational expense (Note 2) ...... 5,186 5,026 5,222 5,079
----------- ----------- ----------- -----------
Total Assets ................................ 18,470,839 37,882,586 20,601,344 12,030,215
----------- ----------- ----------- -----------
LIABILITIES:
Payable for investments purchased ............. -- -- -- 950,300
Payable for shares repurchased ................ 125,629 539 10,580 169
Advisory fee payable (Note 3 & 4) ............. 2,260 22,949 12,478 1,354
Payable to FDISG (Note 3 & 4) ................. 4,111 6,230 4,428 1,989
Payable to custodian .......................... -- -- -- 7,521
Trustees' fees and expenses payable (Note 3) .. 2,249 2,099 1,778 2,324
Accrued expenses and other payables ........... 8,607 11,873 4,196 24,703
----------- ----------- ----------- -----------
Total Liabilities .......................... 142,856 43,690 33,460 988,360
----------- ----------- ----------- -----------
NET ASSETS ...................................... $18,327,983 $37,838,896 $20,567,884 $11,041,855
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Par value (Note 5) ........................... $ 18,328 $ 2,698 $ 1,581 $ 1,122
Paid-in capital in excess of par value ....... 18,309,403 29,399,235 17,260,452 11,471,622
Undistributed (overdistributed)
net investment income ...................... 284 12,317 22,750 --
Accumulated net realized gain (loss)
on investments sold ........................ (32) (341,052) 120,868 (291,977)
Net unrealized appreciation (depreciation)
of investments ............................. -- 8,765,698 3,162,233 (138,912)
----------- ----------- ----------- -----------
TOTAL NET ASSETS ................................ $18,327,983 $37,838,896 $20,567,884 $11,041,855
=========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ....... 18,327,731 2,697,971 1,580,732 1,121,766
NET ASSET VALUE:
offering and redemption price per share
(Net Assets divided by Shares Outstanding) ... $ 1.00 $ 14.02 $ 13.01 $ 9.84
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
THE GALAXY
VIP FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET EQUITY ASSET ALLOCATION HIGH QUALITY
FUND FUND FUND BOND FUND
------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ................................. $493,223 $ 144,302 $ 220,859 $ 350,346
Dividends (Note 2) ................................ -- 266,125 113,458 --
-------- ---------- ---------- ---------
Total investment income ......................... 493,223 410,427 334,317 350,346
-------- ---------- ---------- ---------
EXPENSES:
Investment advisory fee (Note 3) .................. 36,486 127,739 70,706 30,054
Administration fee (Note 3) ....................... 12,465 12,465 12,465 12,465
Custody fees ...................................... 8,733 7,290 7,155 5,963
Fund accounting fee (Note 3) ...................... 12,665 13,652 12,992 14,452
Legal fees ........................................ 5,373 9,655 5,687 3,239
Audit fees ........................................ 5,176 5,176 5,176 5,176
Trustees fees (Note 3) ............................ 783 917 280 715
Amortization of organization costs (Note 2) ....... 1,620 1,620 1,620 1,620
Reports to shareholders ........................... 3,655 6,414 4,885 1,456
Insurance fees .................................... 364 246 247 215
Miscellaneous ..................................... 182 181 182 182
-------- ---------- ---------- ---------
Total Expenses before reimbursement/waiver ...... 87,502 185,355 121,395 75,537
Less: Reimbursement/waiver (Note 4) ............. (37,528) -- -- (36,581)
-------- ---------- ---------- ---------
Total Expenses net of reimbursement/waiver ...... 49,974 185,355 121,395 38,956
-------- ---------- ---------- ---------
NET INVESTMENT INCOME ................................ 443,249 225,072 212,922 311,390
-------- ---------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold ...... 168 (134,183) 148,070 (109,222)
Net change in unrealized appreciation (depreciation)
of investments .................................... -- 2,689,272 758,208 (463,111)
-------- ---------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ....................................... 168 2,555,089 906,278 (572,333)
-------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $443,417 $2,780,161 $1,119,200 $(260,943)
======== ========== ========== =========
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 18
THE GALAXY
VIP FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND EQUITY FUND
---------------------------------- ----------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
----------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ...................... $17,925,279 $13,276,092 $30,826,249 $19,391,332
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income ............................... 443,249 768,088 225,072 390,228
Net realized gain (loss) on investments sold ........ 168 (46) (134,183) (17,469)
Net change in unrealized appreciation
(depreciation) of investments .................... -- -- 2,689,272 5,358,237
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ........................ 443,417 768,042 2,780,161 5,730,996
----------- ----------- ----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................... (443,249) (768,088) (212,755) (390,222)
In excess of net investment income .................. -- -- -- (6)
Return of capital ................................... -- -- (245)
----------- ----------- ----------- -----------
Total Dividends ............................... (443,249) (768,088) (212,755) (390,473)
----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Net proceeds from sale of shares .................... 5,099,861 11,069,167 5,116,382 7,425,431
Issued to shareholders in reinvestment of dividends.. 443,249 768,088 212,755 390,473
Costs of shares repurchased ......................... (5,140,574) (7,188,022) (883,896) (1,721,510)
----------- ----------- ----------- -----------
Net increase (decrease) from share transactions .. 402,536 4,649,233 4,445,241 6,094,394
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ............ 402,704 4,649,187 7,012,647 11,434,917
----------- ----------- ----------- -----------
NET ASSETS AT END OF PERIOD ............................ $18,327,983 $17,925,279 $37,838,896 $30,826,249
=========== =========== =========== ===========
Accumulated undistributed (overdistributed)
net investment income ............................... $ 284 $ 284 $ 12,317 $ --
=========== =========== =========== ===========
OTHER INFORMATION:
Share Transactions:
Sold ................................................ 5,099,861 11,069,167 374,436 620,539
Issued to shareholders in reinvestment of dividends.. 443,249 768,088 15,425 31,898
Repurchased ......................................... (5,140,574) (7,188,022) (64,721) (143,620)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding .... 402,536 4,649,233 325,140 508,817
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 19
STATEMENTS OF CHANGES IN NET ASSETS
(CONTINUED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND HIGH QUALITY BOND FUND
---------------------------------- ---------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ...................... $17,245,518 $10,571,573 $11,066,976 $ 8,011,781
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income ............................. 212,922 330,141 311,390 545,367
Net realized gain (loss) on investments sold ...... 148,070 167,752 (109,222) (6,130)
Net change in unrealized appreciation
(depreciation) of investments ................. 758,208 2,731,160 (463,111) 1,313,693
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... 1,119,200 3,229,053 (260,943) 1,852,930
----------- ----------- ----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................. (190,551) (330,141) (311,390) (545,367)
In excess of net investment income ................ -- (1,080) -- --
----------- ----------- ----------- -----------
Total Dividends .......................... (190,551) (331,221) (311,390) (545,367)
----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Net proceeds from sale of shares .................. 3,255,738 5,412,403 1,303,808 2,630,095
Issued to shareholders in reinvestment of
dividends ....................................... 190,551 331,221 311,391 545,367
Costs of shares repurchased ....................... (1,052,572) (1,967,511) (1,067,987) (1,427,830)
----------- ----------- ----------- -----------
Net increase (decrease) from share transactions 2,393,717 3,776,113 547,212 1,747,632
----------- ----------- ----------- -----------
Net increase (decrease) in net assets ......... 3,322,366 6,673,945 (25,121) 3,055,195
----------- ----------- ----------- -----------
NET ASSETS AT END OF PERIOD ............................ $20,567,884 $17,245,518 $11,041,855 $11,066,976
=========== =========== =========== ===========
Accumulated undistributed (overdistributed)
net investment income ............................. $ 22,750 $ 379 $ -- $ --
=========== =========== =========== ===========
OTHER INFORMATION:
Share Transactions:
Sold .............................................. 256,001 469,406 129,482 265,770
Issued to shareholders in reinvestment of dividends 14,921 28,486 31,219 55,441
Repurchased ....................................... (82,752) (184,289) (106,395) (147,001)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding.. 188,170 313,603 54,306 174,210
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 20
VIP MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
FOR SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996 ---------------------------------------
(UNAUDITED) 1995 1994 1993(1)
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) ............................ 0.02 0.05 0.04 0.03
Net realized and unrealized gain (loss) on
investments ........................................ -- -- -- --
------- ------- ------- -------
Total from Investment Operations ................... 0.02 0.05 0.04 0.03
------- ------- ------- -------
Less Dividends:
Dividends from net investment income ................. (0.02) (0.05) (0.04) (0.03)
Dividends from net realized capital gains ............ -- -- -- --
------- ------- ------- -------
Total Dividends .................................... (0.02) (0.05) (0.04) (0.03)
------- ------- ------- -------
Net increase (decrease) in net asset value .............. -- -- -- --
------- ------- ------- -------
Net Asset Value, End of period .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return ............................................ 2.44%** 5.38% 3.89% 2.74%**
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $18,328 $17,925 $13,276 $10,864
Ratios to average net assets:
Net investment income including reimbursement/waiver.. 4.86%* 5.25% 3.85% 3.00%*
Operating expenses including reimbursement/waiver .... 0.55%* 0.63% 0.42% 0.13%*
Operating expenses excluding reimbursement/waiver .... 0.96%* 1.11% 1.21% 2.00%*
</TABLE>
- -------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on February 2, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------
JUNE 30, 1996 1995 1994 1993(1)
---------------- ----- ----- -------
<S> <C> <C> <C>
$0.02 $0.05 $0.03 $0.01
</TABLE>
See Notes to Financial Statements
18
<PAGE> 21
VIP EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
FOR SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------
(UNAUDITED) 1995 1994 1993(1)
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 12.99 $ 10.40 $ 10.25 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income(A) ............................. 0.09 0.18 0.20 0.16
Net realized and unrealized gain (loss) on
investments........................................... 1.02 2.59 0.15 0.25
------- ------- ------- -------
Total from Investment Operations ................... 1.11 2.77 0.35 0.41
------- ------- ------- -------
Less Dividends:
Dividends from net investment income ................. (0.08) (0.18) (0.20) (0.16)
Dividends from net realized capital gains ............ -- -- -- --
------- ------- ------- -------
Total Dividends .................................... (0.08) (0.18) (0.20) (0.16)
------- ------- ------- -------
Net increase (decrease) in net asset value .............. 1.03 2.59 0.15 0.25
------- ------- ------- -------
Net Asset Value, End of period .......................... $ 14.02 $ 12.99 $ 10.40 $ 10.25
======= ======= ======= =======
Total Return ............................................ 8.58 %** 26.76 % 3.47 % 4.15 %**
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $37,839 $30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income including reimbursement/waiver.. 1.32 %* 1.55 % 2.06 % 2.23 %*
Operating expenses including reimbursement/waiver .... 1.09 %* 1.21 % 0.71 % 0.20 %*
Operating expenses excluding reimbursement/waiver .... 1.09 %* 1.24 % 1.42 % 2.60 %*
Portfolio Turnover Rate ................................. 1 %** 3 % 2 % 5 %**
Average Commission Rate Paid(B) ......................... $0.0683 N/A N/A N/A
</TABLE>
- ------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on January 11, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------
JUNE 30, 1996 1995 1994 1993(1)
---------------- ----- ----- -------
<S> <C> <C> <C>
$0.09 $0.18 $0.13 $0.02
</TABLE>
(B) Required disclosure for fiscal years beginning on or after September 1,
1995.
See Notes to Financial Statements
19
<PAGE> 22
VIP ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
FOR SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993(1)
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period $ 12.38 $ 9.80 $ 10.33 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income(A) ............................. 0.14 0.28 0.31 0.18
Net realized and unrealized gain (loss) on
investments........................................... 0.62 2.58 (0.53) 0.35
------- ------- ------- -------
Total from Investment Operations ................... 0.76 2.86 (0.22) 0.53
------- ------- ------- -------
Less Dividends:
Dividends from net investment income ................. (0.13) (0.28) (0.31) (0.18)
Dividends from net realized capital gains ............ -- -- -- (0.02)
------- ------- ------- -------
Total Dividends .................................... (0.13) (0.28) (0.31) (0.20)
------- ------- ------- -------
Net increase (decrease) in net asset value .............. 0.63 2.58 (0.53) 0.33
------- ------- ------- -------
Net Asset Value, End of period .......................... $ 13.01 $ 12.38 $ 9.80 $ 10.33
======= ======= ======= =======
Total Return ............................................ 5.86 %** 29.42 % (2.15)% 5.33 %**
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $20,568 $17,246 $10,572 $11,800
Ratios to average net assets:
Net investment income including reimbursement/waiver.. 2.26 %* 2.54 % 3.02 % 3.01 %*
Operating expenses including reimbursement/waiver .... 1.29 %* 1.37 % 0.78 % 0.26 %*
Operating expenses excluding reimbursement/waiver .... 1.29 %* 1.54 % 1.68 % 3.11 %*
Portfolio Turnover Rate ................................. 19 %** 46 % 28 % 10 %**
Average Commission Rate Paid(B) ......................... $0.0702 N/A N/A N/A
</TABLE>
- ----------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on February 6, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------
JUNE 30, 1996 1995 1994 1993(1)
---------------- ----- ----- -------
<S> <C> <C> <C>
$0.14 $0.26 $0.22 $0.01
</TABLE>
(B) Required disclosure for fiscal years beginning on or after September 1,
1995.
See Notes to Financial Statements
20
<PAGE> 23
VIP HIGH QUALITY BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
FOR SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------
(UNAUDITED) 1995 1994 1993(1)
-------------- ------- ------ --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 10.37 $ 8.97 $10.11 $10.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income(A) ............................. 0.28 0.57 0.56 0.47
Net realized and unrealized gain (loss) on
investments........................................... (0.53) 1.40 (1.14) 0.12
------- ------- ------ ------
Total from Investment Operations ................... (0.25) 1.97 (0.58) 0.59
------- ------- ------ ------
Less Dividends:
Dividends from net investment income ................. (0.28) (0.57) (0.56) (0.47)
Dividends from net realized capital gains ............ -- -- -- (0.01)
------- ------- ------ ------
Total Dividends .................................... (0.28) (0.57) (0.56) (0.48)
------- ------- ------ ------
Net increase (decrease) in net asset value .............. (0.53) 1.40 (1.14) 0.11
------- ------- ------ ------
Net Asset Value, End of period .......................... $ 9.84 $ 10.37 $ 8.97 $10.11
======= ======= ====== ======
Total Return ............................................ (2.85)%** 22.55 % (5.85)% 6.04 %**
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $11,042 $11,067 $8,012 $9,802
Ratios to average net assets: ...........................
Net investment income including reimbursement/waiver.. 5.70 %* 5.86 % 5.90 % 5.30 %*
Operating expenses including reimbursement/waiver .... 0.71 %* 0.80 % 0.57 % 0.22 %*
Operating expenses excluding reimbursement/waiver .... 1.38 %* 1.57 % 1.63 % 2.92 %*
Portfolio Turnover Rate ................................. 79 %** 21 % 32 % 7 %**
</TABLE>
- -------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on January 21, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------
JUNE 30, 1996 1995 1994 1993(1)
---------------- ----- ----- -------
<S> <C> <C> <C>
$0.25 $0.50 $0.46 $0.23
</TABLE>
See Notes to Financial Statements
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
THE GALAXY
VIP FUND
1. ORGANIZATION
The Galaxy VIP Fund, a Massachusetts business trust, (the "Trust"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified, management investment company for the
purpose of providing a vehicle for the investment of assets of various separate
accounts established exclusively for the purpose of providing an investment
vehicle for variable annuity contracts and variable life insurance policies.
Currently, shares of the Trust are offered only to separate accounts funding
variable annuity contracts issued by American Skandia Life Assurance Corporation
and its affiliated life assurance companies. The accompanying financial
statements and financial highlights are those of the Money Market, Equity, Asset
Allocation and High Quality Bond Funds (individually a "Fund,"collectively, the
"Funds"), the four managed investment portfolios offered by the Trust as of the
date of this report.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of Financial Statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies in conformity with
generally accepted accounting principles consistently followed by the Funds in
the preparation of its financial statements.
PORTFOLIO VALUATION: Investments in securities which are traded on a
recognized stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded, or at the last sale
price on the national securities market. Also, securities traded on
over-the-counter markets are valued at the last bid price. Short-term
obligations that mature in 60 days or less are valued at amortized cost, which
constitutes fair value. Corporate debt securities and debt securities of U.S.
issuers (other than short-term investments), including municipal securities, are
valued by an independent pricing service approved by the Board of Trustees.
When, in the judgment of the service, quoted bid prices for securities are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between quoted bid prices and asked prices.
Investments with prices that cannot be readily obtained, if any, are carried at
fair value as determined by the service based on methods which include
consideration of yields or prices of bonds of comparable quality, coupon
maturity and type, indications as to values from dealers, and general market
conditions. The investments of the Money Market Fund are valued utilizing the
amortized cost valuation method permitted in accordance with Rule 2a-7 under the
1940 Act. This method involves valuing a portfolio security initially at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium. All other securities and assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Net realized gains and losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are declared daily and paid monthly with respect to the Money Market and
High Quality Bond Funds, and declared and paid quarterly with respect to the
Equity and Asset Allocation Funds. Net realized capital gains, if any, are
distributed at least annually.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
22
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
THE GALAXY
VIP FUND
FEDERAL INCOME TAXES: The Trust treats each Fund as a separate entity for
Federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Fund will not be subject to Federal
income taxes to the extent it distributes substantially all of its taxable or
tax-exempt income, if any, for the tax year ending December 31. In addition, by
distributing during each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a Federal excise tax. Therefore, no Federal income tax provision is
required.
REPURCHASE AGREEMENTS: Each Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment adviser has
determined are creditworthy pursuant to guidelines established by the Trust's
Board of Trustees. Each repurchase agreement transaction is recorded at cost.
Each Fund requires that the securities purchased in a repurchase agreement
transaction be transferred to the Trust's Custodian in a manner that is intended
to enable the Fund to obtain those securities in the event of a counterparty
default. The value of the collateral securities, including accrued interest is
monitored daily to ensure that the value of the collateral equals or exceeds
101% of amounts due under the repurchase agreement. Repurchase agreement
transactions involve certain risks in the event of default or insolvency of the
counterparty, including possible delays or restrictions upon a 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.
EXPENSES: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one Fund of the
Trust are allocated among the respective Funds.
ORGANIZATION COSTS: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
shares for distribution under Federal and state securities laws. All such costs
are being amortized using the straight-line method over a period of five years
beginning with the commencement of each Fund's operation.
3. INVESTMENT ADVISORY, ADMINISTRATION AND OTHER RELATED PARTY TRANSACTIONS
The Trust and Fleet Investment Advisors Inc. (the "Investment Adviser"), an
indirect subsidiary of Fleet Financial Group, Inc., are parties to an investment
advisory agreement under which the Investment Adviser provides services for a
fee, computed daily and paid monthly, at an annual rate based upon the following
percentages of average daily net asset value: 0.40% for the Money Market Fund,
0.75% for the Equity and Asset Allocation Funds and 0.55% for the High Quality
Bond Fund.
Effective March 31, 1995, the Trust and First Data Investor Services Group,
Inc. ("FDISG"), (formerly known as The Shareholder Services Group, Inc., doing
business as 440 Financial), a wholly-owned subsidiary of First Data Corporation,
are parties to an administration agreement under which FDISG (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate of 0.085% of the first $1 billion of the combined average
daily net assets of the Funds, plus 0.078% of the next $1.5 billion of the
combined average daily net assets of the Funds, plus 0.073% of the combined
average daily net assets of the Funds in excess of $2.5 billion. The minimum
aggregate annual fee payable for administration of the Funds is $100,000. In
addition, FDISG also provides certain fund accounting and custody administration
services pursuant to certain fee arrangements. Pursuant to these fee
arrangements, FDISG compensates the Trust's custodian bank for its services.
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
THE GALAXY
VIP FUND
Prior to March 31, 1995, the administration and fund accounting services
described above were provided by 440 Financial Group of Worcester, Inc., a
wholly-owned subsidiary of State Mutual Life Assurance of America ("State
Mutual"), for the same annual fees. On that date, FDISG acquired substantially
all the assets of 440 Financial Group of Worcester, Inc.
Effective March 31, 1995, 440 Financial Distributors, Inc. ("the
Distributor"), a wholly-owned subsidiary of FDISG and an indirect wholly-owned
subsidiary of First Data Corporation, acts as the exclusive distributor of the
Trust's shares. Prior to March 31, 1995, the Distributor was a wholly-owned
subsidiary of 440 Financial Group of Worcester, Inc. and an indirect
wholly-owned subsidiary of State Mutual. Prior to March 1, 1994, Allmerica
Investments, Inc., a wholly-owned subsidiary of State Mutual, served as the
Trust's distributor.
Certain officers of the Trust are also officers of the Administrator and/or
Distributor. Such officers receive no compensation from the Trust for serving in
their respective roles. No officer, director or employee of the Investment
Adviser serves as an officer, Trustee or employee of the Trust. Effective May
26, 1995, each Trustee is entitled to receive for services as a Trustee of both
the Trust and The Galaxy Fund, an affiliated registered investment company, an
aggregate fee of $18,000 per annum plus certain other fees for attending or
participating in meetings as well as reimbursement for expenses incurred in
attending meetings. The Chairman of the Boards of Trustees of the Trust and The
Galaxy Fund is entitled to an additional annual fee of $4,000, and the President
and Treasurer of the Trust and The Galaxy Fund is entitled to an additional
annual fee of $2,500 for their services in these capacities. These fees are
allocated among the Funds of the Trust and The Galaxy Fund based on their
relative net assets.
In addition, effective March 4, 1996, each Trustee became eligible to
participate in the Trust's Deferred Compensation Plan (the "Plan"), an unfunded,
nonqualified deferred compensation plan. The Plan allows each Trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed. At June 30, 1996, no significant amounts have been deferred.
Expenses for the six months ended June 30, 1996 include legal fees paid to
Drinker Biddle & Reath. A partner of that firm is Secretary to the Trust.
At June 30, 1996 with the exception of the initial shares, the separate
accounts owned all of the outstanding shares of the Funds as investment accounts
for the life assurance policies offered by American Skandia Life Assurance
Corporation.
4. WAIVER OF FEES
The Investment Adviser and Administrator may waive all or a portion of the
fees payable to them by the Funds, either voluntarily or pursuant to applicable
statutory expense limitations. The Investment Adviser and Administrator may, at
their discretion, revise or discontinue the voluntary limitations.
For the six months ended June 30, 1996, the Investment Adviser and
Administrator voluntarily waived advisory, administration, fund accounting and
custody fees as follows:
<TABLE>
<CAPTION>
FEES WAIVED BY FEES WAIVED BY
FUND INVESTMENT ADVISER ADMINISTRATOR
- ------------------------------------------------------------
<S> <C> <C>
Money Market $22,804 $14,724
High Quality Bond 21,857 14,724
</TABLE>
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into four classes of shares
including: Class A - Money Market Fund; Class B - Equity Fund; Class C - Asset
Allocation Fund; and Class D - High Quality Bond Fund. Each share represents an
equal proportionate interest in the respective Fund, bears the same fees and
expenses and is entitled to such dividends and distributions of income earned as
are declared at the discretion of the Trust's Board of Trustees. Shareholders
are entitled to one vote for each full share held and will vote in the aggregate
and not by class, except as otherwise expressly required by law or when the
Board of Trustees determines that the matter to be voted on affects only the
interests of shareholders of a particular class.
24
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
THE GALAXY
VIP FUND
6. PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-----------------------------------------------------
FUND OTHER GOVERNMENT OTHER GOVERNMENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $3,070,283 $ -- $ 254,560 $ --
Asset Allocation 3,809,298 1,141,938 1,842,075 1,366,875
High Quality Bond 4,701,560 5,213,707 2,251,974 5,519,317
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation) and cost for all securities, as computed on a
Federal income tax basis, at June 30, 1996 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND APPRECIATION (DEPRECIATION) NET COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market $ -- $ -- $ -- $18,418,474
Equity 9,089,753 (324,055) 8,765,698 29,072,661
Asset Allocation 3,375,908 (213,675) 3,162,233 17,325,737
High Quality Bond 51,761 (190,673) (138,912) 10,875,915
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1995, the Funds had capital loss carryforwards:
<TABLE>
<CAPTION>
Fund Amount Expiration
---- -------- ----------
<S> <C> <C>
Money Market $ 154 2002
29 2003
Equity 64,947 2001
124,453 2002
17,469 2003
Asset Allocation 27,202 2002
High Quality Bond 155,797 2002
26,958 2003
</TABLE>
25
<PAGE> 28
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<PAGE> 29
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<PAGE> 30
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 31
THE GALAXY
VIP FUND
4400 Computer Drive
Box 5108
Westboro, MA 01581-5108
BULK RATE
U.S. POSTAGE PAID
BOSTON, MA
PERMIT NO. 8048
