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[GALAXY VIP FUND LOGO]
[PHOTO]
GALAXY VARIABLE ANNUITY REPORT
SEMI-ANNUAL
REPORT
FOR THE PERIOD ENDED
JUNE 30, 1997
<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 include The Galaxy VIP Fund Money Market, Equity, Asset
Allocation and High Quality Bond Portfolios. This report relates to The Galaxy
VIP Fund only.
<PAGE> 3
CHAIRMAN'S
MESSAGE FOR THE
GALAXY VIP FUND
Dear Variable Annuity Policyholder:
The enclosed semi-annual report for The Galaxy VIP Fund covers the six
months ended June 30, 1997. The Market Overview in the report describes the
economic and market environment during this time and how stocks and bonds
performed in this climate. The Portfolio Reviews explain how Fleet Investment
Advisors Inc. managed Fund assets under these conditions.
Uncertainty about the economy, inflation and interest rates remained a
dominant theme in the first four months of 1997. Between February and April,
this uncertainty caused price weakness in both stocks and bonds. Stock prices
gave up nearly all of their advance since the beginning of the year, and bond
prices fell enough to send the yield for long-term Treasury securities to a
nine-month high.
From mid-April on, however, investors realized they had the "best of all
worlds." Economic growth slowed to a more sustainable pace, helping inflation
and interest rates to decline. Meanwhile, employment growth remained strong,
income growth increased, consumer confidence soared, and corporate earnings
delivered more positive surprises. As investors recognized these strong
fundamentals, bond prices regained most of the ground they had lost and stock
prices advanced sharply to new highs.
Once again, investors were rewarded for maintaining their long-term
portfolio strategies. Taking a long-term approach is particularly important for
investors in variable annuities. To make the most of the tax-deferred growth
that variable annuities offer, you must keep your money invested in the annuity
for extended periods of time. Over time, fluctuations like those the markets
experienced in recent months tend to become less important to your overall
returns. By maintaining your investments during those periods, and maximizing
the benefits of tax deferral, you should find it easier to reach your
longer-term financial goals.
We hope you will find the following report helpful in understanding how
your investments have performed in the past six months. If you have any
questions about this report or The Galaxy VIP Fund, please call the Galaxy
Service Center at 800-628-0414.
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 OBLIGATIONS OF FLEET BANK
- - ARE NOT GUARANTEED 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, 1997
<TABLE>
<CAPTION>
Six Months 1 Year 3 Years Life of Account
<S> <C> <C> <C> <C>
GALAXY VIP MONEY MARKET FUND 2.41% 4.87% 4.98% 4.39%
Inception Date 2/2/93
GALAXY VIP EQUITY FUND 17.80% 31.81% 23.63% 16.20%
Inception Date 1/11/93
GALAXY VIP ASSET ALLOCATION FUND 10.47% 19.64% 18.70% 12.73%
Inception Date 2/6/93
GALAXY VIP HIGH QUALITY BOND FUND 2.55% 7.22% 8.61% 5.73%
Inception Date 1/21/93
</TABLE>
*Six Month returns are unannualized total returns.
MARKET OVERVIEW
By Fleet Investment Advisors Inc.
In the first half of 1997, the economy continued a seven-year period of
expansion. Unlike the latter stages of most expansions, inflation and interest
rates remained relatively low. Despite some jitters between February and April,
when it looked like inflation might rise, stocks and bonds performed relatively
well in this environment.
Returns were especially strong for stocks. The Standard & Poor's 500
Composite Stock Index (the "S&P 500 Index") earned a total return of 20.60% for
the six months ended June 30, 1997 -- which is more than double the average
annual return stocks have earned historically. Bond returns were more modest,
with the Lehman Brothers Government/ Corporate Bond Index producing a total
return of 2.76%.
During the period, the Galaxy VIP Funds earned returns that were
competitive with other funds having similar investment objectives (as measured
by Lipper Analytical Services and as noted on pages 4, 5 and 7 of this report).
The Galaxy VIP equity portfolios benefited by emphasizing larger companies with
reliable earnings -- which led the stock market advance. In the Galaxy VIP
fixed-income portfolios, we enhanced returns by adjusting maturities for new
market conditions and taking advantage of changes in the spreads between yields
of different securities.
THE EXPANSION CONTINUES
When 1997 began, the economy was growing strongly, and corporate earnings
were exceeding expectations. With inflation still moderate, and cash flows into
mutual funds still strong, stock prices climbed nearly 10% by the middle of
March. Eventually, however, investors began to worry that strong growth would
force the Federal Reserve (the "Fed") to raise interest rates. Concerned by the
prospect of higher inflation and by an "irrational exuberance" in stock prices,
the Fed fulfilled these expectations at the end of March -- raising its Fed
Funds rate 25 basis points to 5.50%.
The anticipation of additional rate hikes pushed long-term Treasury yields
to 7.17% by the middle of April -- a nine-month high. As investors worried that
higher rates might eventually end the expansion, stock prices gave back nearly
all the gains they'd earned earlier in the year. Then, in the weeks that
followed, there were signs that economic growth was slowing and inflation was
actually inching downward. This allowed the Fed to leave interest rates
unchanged in May. Meanwhile, Federal tax receipts well above expectations
provided the foundation for a balanced budget amendment -- increasing
expectations that interest rates would fall.
Priced for rates to rise, bonds began to rally. By the end of June, the
yield for long-term Treasuries had dropped to 6.78% -- its level at the end of
February. Falling bond yields, combined with stronger-than-expected reports on
first-quarter earnings, drove stock prices sharply higher. When June closed, the
S&P 500 Index had gained more than twice what it had lost in March and April.
2
<PAGE> 5
MARKET OVERVIEW
PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of June 30, 1997
Variable Account B, Class E
Inception 1/8/93
<TABLE>
<CAPTION>
Six Months 1 Year 3 years Life of Account
<S> <C> <C> <C> <C>
GALAXY VIP MONEY MARKET FUND 2.13% 4.30% 4.40% 3.81%
Inception Date 2/2/93
GALAXY VIP EQUITY FUND 17.48% 31.09% 22.93% 15.55%
Inception Date 1/11/93
GALAXY VIP ASSET ALLOCATION FUND 10.17% 18.98% 18.03% 12.11%
Inception Date 2/6/93
GALAXY VIP HIGH QUALITY BOND FUND 2.27% 6.63% 8.00% 5.15%
Inception Date 1/21/93
</TABLE>
*Six Month returns are unannualized total returns.
These results reflect the experience of the sub-accounts of Variable Account B,
Class 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 for
the Galaxy VIP Money Market Fund and Galaxy VIP High Quality Bond Fund. Without
such waivers, performance would be lower. An investment in the Galaxy VIP Money
Market Fund is neither insured nor guaranteed by the U.S. Government. There can
be no assurance that the Galaxy VIP Money Market Fund will be able to maintain a
stable net asset value of $1.00 per share.
SEIZING MARKET OPPORTUNITIES
As stock prices grew increasingly expensive, we traded issues whose prices
had met our expectations for issues whose prices were more attractive versus
company earnings. For the most part, we focused on stocks of larger firms --
whose strong liquidity and more visible earnings continued to attract investors.
Although the spreads between yields for corporate and Treasury securities
remained relatively narrow during the period, corporate yields became more
attractive in the second quarter. We used this opportunity to add high-quality
corporates to our fixed-income portfolios, which enhanced portfolio yields. We
boosted returns further by emphasizing shorter-term investments when we believed
bond yields were likely to rise, and longer-term investments when we believed
yields were likely to fall. This helped us to optimize portfolio yields and
price gains, while minimizing price losses.
PREPARING FOR STRONGER GROWTH
High employment, healthy consumer confidence, and new wealth from stock
investments could spark stronger growth in the second half of 1997. After
slowing from an annual rate of 5.9% in the first quarter of 1997 to 1.8% in the
second quarter, GDP growth could accelerate to 3.2% in the third. If growth
strengthens, and inflation rises, we would expect the Fed to raise interest
rates another 25 basis points.
Because fixed-income markets have not fully accounted for such a move,
yields may rise in the third quarter. We believe such a move would be relatively
modest, however. If inflation stays below 3%, as we expect, bonds should remain
attractive to U. S investors -- who typically favor bonds when real
(inflation-adjusted) yields are near 4%. In addition, U.S. interest rates remain
competitive with rates overseas. For these reasons, we expect the yield for
30-year Treasuries to stay between 6.25% and 7.25%. As long as it looks like
yields may rise, we plan to keep the average maturities and durations of our
fixed-income portfolios near those of their market benchmarks.
Rising bond yields and higher inflation could also weaken stock prices in
coming months. With prices at record highs again, it has even become difficult
to justify valuations of companies whose prices are most attractive. As in the
first half of 1997, therefore, we expect to maintain strong cash reserves in our
equity portfolios. In addition to buffering the portfolios from a price
correction, these reserves should help us make the most of new investment
opportunities that a correction would bring.
3
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PORTFOLIO REVIEWS
[PHOTO]
GALAXY VIP MONEY MARKET FUND
Distribution of Total Net Assets
as of June 30, 1997
<TABLE>
<S> <C>
Commercial Paper 49%
U.S. Agency Obligations 44%
Repurchase Agreement and Net Other Assets & Liabilities 7%
</TABLE>
GALAXY VIP MONEY MARKET FUND
Investment Managers
Karen Arneil and Thomas DeMarco
The Galaxy VIP Money Market Fund seeks as high a level of current income
as is consistent with liquidity and stability of principal.
In the first half of 1997, money market yields traded in a relatively
narrow range. Within that range, however, there were significant changes in the
direction of money market yields and in the spreads between yields of different
securities. By making the most of these changes, we helped the Galaxy VIP Money
Market Fund earn a total return of 2.41% for the six months ended June 30, 1997
as compared to 2.38% total return for average money market fund tracked by
Lipper Analytical Services.
STAYING FLEXIBLE
When 1996 closed, money market yields were inching lower. With signs of
slower economic growth and moderate inflation, investors believed that interest
rates had stabilized. As the economy picked up steam in the first quarter of
1997, and the Federal Reserve raised short-term interest rates to stem
inflation, money market yields moved higher. Having lengthened the average
maturity of the Fund's investments earlier in the quarter, when yields were more
stable, we gave greater attention to shorter-term instruments as yields rose.
GALAXY VIP MONEY MARKET FUND
7-day Average Yields
[GRAPH]
JANUARY 1, 1997 JUNE 30, 1997
An investment in the Galaxy VIP Money Market Fund is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Galaxy VIP
Money Market Fund will be able to maintain a stable net asset value of $1.00 per
share.
As it became clear that economic growth was slowing in the second quarter,
and inflation and interest rates edged lower, money market yields began to fall.
Because investors remained uncertain about inflation and interest rates, we
continued to keep the Fund's average maturity on the short side. We felt it was
important to keep the Fund's portfolio flexible in case new inflation fears
pushed money market yields higher again.
Throughout this time, we tried to enhance the Fund's returns by making the
most of changing yield spreads between various money market securities. In the
second quarter, for example, yield spreads between agencies and commercial paper
were wide, so we took advantage of this by investing more in commercial paper.
As always, we kept the Fund well diversified in terms of the types of money
market securities it held and the maturities of its investments. As of June 30,
1997, the Galaxy VIP Money Market Fund had an average maturity of 31 days, an
SEC 7-day effective yield of 5.05% and an SEC 30-day effective yield of 5.03%.
THE MONTHS AHEAD
If the economy strengthens in the second half of the year, pushing
inflation and interest rates higher, we would expect money market yields to
rise, too. As a result, we plan to maintain the Fund's emphasis on shorter-term
securities. Should economic growth slow, and interest rates continue to fall, we
might selectively add longer-term investments.
In the meantime, we'll continue to search for changes in yield spreads
that provide new opportunities to enhance Fund returns. As always, we will
maintain a well-diversified mix of portfolio securities with good credit quality
and strong liquidity.
Karen Arneil and Tom DeMarco have managed the Galaxy VIP Money Market Fund since
September 1996. They have managed money market investments since 1993.
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 believes have the potential for
above-average total return.
4
<PAGE> 7
PORTFOLIO REVIEWS
Harold A. Mackinney
[PIE CHART]
GALAXY VIP EQUITY FUND
Distribution of Total Net Assets
as of June 30, 1997
Repurchase Agreement and Net
Other Assets & Liabilities 10%
U.S. Agency Obligations 10%
Consumer Staples 19%
Basic Materials 5%
Energy 6%
Capital Goods 10%
Consumer Cyclical 11%
Technology 17%
Finance 10%
Transportation 2%
As stock prices established new highs in the first half of 1997, the Fund
enjoyed outstanding gains from many of its investments. By emphasizing stocks
whose prices were more reasonable compared to their prospective earnings, the
Fund outperformed other funds with similar objectives as measured by Lipper
Analytical Services -- even though the fund's cash reserves were quite large
during the period. Its large reserves clearly held back performance, however.
For the six months ended June 30, 1997, the Fund had a total return of
17.80%. That compares with returns of 20.60% for the S&P 500 Index and 14.28%
for the average growth fund tracked by Lipper Analytical Services.
FOCUS ON CONSUMER STAPLES, TECHNOLOGY, AND FINANCE
As stock prices rose in the first quarter of 1997, the Fund benefited from
the strong performance of investments in financial and consumer staples firms --
especially the drug companies. These gains more than offset disappointments from
some of the technology, airline and auto shares. During the quarter, we added to
existing positions in consumer staples and financial firms that were
attractively priced -- as well as to positions in energy and aircraft companies.
[GRAPH]
GALAXY VIP EQUITY FUND
Growth of $10,000 investment*
Galaxy VIP Equity Fund
S&P 500 Index
*Since the Fund's 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.
When stock prices became more attractive between February and April, we
again added to shares of existing positions in these same industries -- which
continued to perform well in the second quarter.
Throughout the first half of the year, we kept about 20% of the Fund's
assets in cash. With stocks at extraordinary valuations, we believed the market
was frequently vulnerable to a correction. When weakness occurred at the end of
the first quarter, these reserves allowed us to take advantage of attractive
prices that became available.
NEW OPPORTUNITIES
As long as stocks are at record valuation levels, we plan to keep the
Fund's cash reserves near 20% in the months to come. If the market does correct,
we will put the Fund's cash to work at prices that are more attractive.
While we believe the Fund is well-positioned by industry sector, we will
search for other attractive investments that are reasonably priced compared to
their earnings potential.
Harold A. Mackinney has managed the Galaxy VIP Equity Fund since its inception.
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 the income 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 short-term obligations.
With further gains in stock prices, we continued to trade shares that had
performed well for shares that we felt had better promise. As investors combed
the market for stocks with greater potential, these new investments enjoyed
relatively strong gains. This helped the Fund deliver a total return of 10.47%
for the six months ended June 30, 1997. During the same time, the S&P 500 Index
returned 20.60%, and the average flexible portfolio fund tracked by Lipper
Analytical Services returned 10.25%.
5
<PAGE> 8
PORTFOLIO REVIEWS
[PHOTO]
Don Jones
[PIE CHART]
GALAXY VIP ASSET ALLOCATION FUND
Distribution of Total Net Assets
as of June 30, 1997
Corporate Notes and Bonds,
Mortgage-Backed Securities
and Asset-Backed Securities 25%
Repurchase Agreement and
Net Other Assets
& Liabilities 15%
U.S. Government &
Agency Obligations 12%
Common Stocks 48%
ADDING POTENTIAL
As stock prices rose in the first months of 1997, we traded into
consumer-related companies with better potential and took profits in certain
banking and technology shares that had reached our price objectives. With the
proceeds from these sales, we added shares of selected capital goods, telephone,
basic materials and technology-services firms.
Concerned that stock prices were ripe for a correction, the Fund's bond
allocation moved to about 40% during the first half of the year. In adding
income-oriented securities, we looked for opportunities in selected corporate
bonds with high credit quality and attractive yields.
We maintained a weighting of approximately 40% in bonds during the second
quarter of 1997, when falling interest rates pushed bond prices higher. As
slower economic growth raised concerns about company earnings, making prices for
corporate bonds more attractive, we increased the Fund's weighting in corporate
issues. With investors still confused about where inflation and interest rates
might head, we kept the average maturity of the Fund's income investments near
the average maturity for its market benchmark. During the second quarter we
traded consumer staples and gas stocks that had performed well for shares of
technology, energy and insurance firms with better potential. We also swapped
stocks of smaller regional banks for others in the group with greater promise.
GALAXY VIP ASSET ALLOCATION FUND
Growth of $10,000 investment*
[GRAPH]
- - S&P 500 Index
- - Galaxy VIP Asset Allocation Fund
* Since the Fund's inception on 2/6/93. 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.
SELECTIVITY STILL KEY
Unless bond prices weaken significantly, we expect to keep the Fund's
fixed income allocation at or near 40% -- boosting corporate securities as we
find new opportunities in that sector. Although the economy may strengthen in
the second half of 1997, moderate inflation should help to keep a lid on
interest rates.
With stock prices again at record highs, and vulnerable to correction, we
also plan to keep the Fund's cash reserves at 20% of the portfolio. This should
give us the resources to take advantage of new investment opportunities that a
correction might bring.
In the meantime, we expect to stay overweighted in shares of technology
firms -- believing the sector continues to offer strong potential for growth
over time. As in previous periods, we will remain highly selective in our
investments. Although we may add smaller companies that are particularly
attractive, we plan to stay focused on larger firms with strong management,
reliable earnings and good growth potential.
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 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 U.S.
government securities and high-quality corporate issues rated in the three
highest rating categories by Moody's or Standard & Poor's.
In the first half of 1997, we continued to emphasize longer-maturity
investments when bond yields were near the high end of their current trading
range and shorter-maturity investments when yields were low and rising. With
this "active duration" strategy, which positioned the Fund for optimal yield and
price performance, we typically gave greater attention to longer-term issues
when the yield for 30-year Treasury bonds was near 7%.
6
<PAGE> 9
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield
For the six months ended June 30, 1997, the Fund had a total return of
2.55%. That compares to 2.76% for the Lehman Brothers Government/Corporate Bond
Index. During the same period, the average A-rated corporate bond fund tracked
by Lipper Analytical Services had a total return of 2.68%. On June 30, the Fund
had a 30-day SEC yield of 5.88%.
MANAGING MATURITIES
As 1996 ended, long-term yields were rising and we'd set the Fund's
duration slightly shorter than that of its market benchmark. We maintained this
position through the first quarter of 1997. To reduce the Fund's sensitivity to
rising interest rates, we adopted a "barbelled" maturity structure -- replacing
some intermediate-term issues with securities maturing in less than three years
and more than 20 years. As the spreads between yields for mortgage-backed
securities and Treasury issues narrowed to the tightest levels in two years,
mortgage-backed investments were replaced with government issues.
With the shift to a tighter Fed policy and new concern about corporate
earnings, the spread between yields for corporate bonds and Treasury securities
widened in the beginning of the second quarter. Finding corporate bonds more
attractive, we traded short-term and intermediate-term Treasury issues for
intermediate and longer-term corporate bonds -- concentrating on high quality
debt of industrial and financial firms. These included dollar-denominated
"Yankee" bonds and issues with putable features.
As Treasury yields rose above 7% in April, we gave greater attention to
longer-term securities. We reduced the Fund's barbelled maturity structure
slightly -- giving greater emphasis to issues maturing in 5, 10 and 30 years.
With these changes the Fund's duration was about a half year longer than that of
its benchmark.
GALAXY VIP HIGH QUALITY BOND FUND
Distribution of Total Net Assets
as of June 30, 1997
[PIE CHART]
Repurchase Agreements & Net Other Assets & Liabilities 2%
Asset-Backed Securities, Foreign Bonds & Mortgage-Backed Securities 16%
U.S. Government and Agency Obligations 40%
Corporate Notes & Bonds 42%
PREPARING FOR HIGHER INTEREST RATES
With the continued decline in interest rates, we have recently reduced the
Fund's duration to slightly above its benchmark. Should economic growth and
inflationary pressures pick up in the third quarter, we may shorten duration and
again adopt a more defensive posture.
We have also added select mortgage-backed securities to the portfolio, as
their yield advantage has recently become more attractive. Now that long-term
corporate yields have moved closer to Treasury yields again, we're taking
profits in that sector. We plan to continue this strategy of actively managing
our corporate exposure to enhance shareholder value.
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]
- - Lehman Brothers Government/ Corporate Bond Index
- - Galaxy VIP High Quality Bond Fund
$12,786
$12,806
Inception
* Since the Fund's 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
Jylanne Dunne
Vice President &
Assistant Treasurer
INVESTMENT ADVISER
Fleet Investment
Advisors Inc.
75 State Street
Boston, Massachusetts
02109-1810
DISTRIBUTOR
First Data
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
ADMINISTRATOR
First Data Investor
Services Group, Inc.
4400 Computer Drive
Westborough,
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
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
COMMERCIAL PAPER (A) - 48.86%
<C> <S> <C>
FINANCE - 32.75%
$ 600,000 American General Finance Corp.
5.60%, 08/05/97 ..................... $ 596,733
600,000 Associates Corp. of North America
5.60%, 08/05/97 ..................... 596,733
315,000 Ford Motor Credit Co.
5.58%, 07/07/97 ..................... 314,707
600,000 GTE Funding, Inc.
5.56%, 07/17/97 ..................... 598,517
600,000 General Electric Capital Corp.
5.55%, 07/16/97 ..................... 598,613
500,000 Morgan (J.P.) & Co., Inc.
5.50%, 07/02/97 ..................... 499,924
370,000 National Rural Utilities
Cooperative Finance Corp.
5.57%, 07/14/97 ..................... 369,256
400,000 Pitney Bowes Credit Corp.
5.52%, 07/18/97 ..................... 398,957
600,000 Toyota Motor Credit Corp.
5.52%, 07/15/97 ..................... 598,712
300,000 USAA Capital Corp.
5.54%, 08/26/97 ..................... 297,415
---------
4,869,567
---------
CONSUMER STAPLES - 12.07%
600,000 Anheuser Busch Cos., Inc.
5.50%, 07/28/97 ..................... 597,525
600,000 The McGraw-Hill Cos., Inc.
5.58%, 07/02/97 ..................... 599,907
600,000 Warner Lambert Co
5.52%, 08/01/97 ..................... 597,148
---------
1,794,580
---------
TECHNOLOGY - 4.04%
600,000 Lucent Technologies, Inc.
5.50%, 07/01/97 ..................... 600,000
---------
TOTAL COMMERCIAL PAPER .............. 7,264,147
---------
(Cost $7,264,147)
U.S. AGENCY OBLIGATIONS (A) - 44.40%
FEDERAL HOME LOAN BANK - 16.66%
500,000 5.50%, 07/31/97 ..................... 497,688
1,000,000 5.42%, 09/03/97 ..................... 990,364
1,000,000 5.43%, 09/12/97 ..................... 988,989
---------
2,477,041
---------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 13.32%
$1,000,000 5.00%, 08/29/97 ..................... $991,068
1,000,000 5.49%, 09/04/97 ..................... 990,069
---------
1,981,137
---------
FEDERAL FARM CREDIT BANK - 11.08%
850,000 5.50%, 07/09/97 ..................... 848,961
800,000 5.41%, 07/14/97 ..................... 798,437
---------
1,647,398
---------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 3.34%
500,000 5.54%, 08/21/97 ..................... 496,076
---------
TOTAL U.S. AGENCY OBLIGATIONS ....... 6,601,652
---------
(Cost $6,601,652)
REPURCHASE AGREEMENT - 6.95%
1,032,004 Chase Manhattan Bank
5.55%, 07/01/97, dated 6/30/97
Repurchase Price $1,032,163
(Collateralized by U.S. Treasury Bond
8.88%, due 08/15/17;
Total Par $845,000;
Market Value $1,060,024) ............ 1,032,004
---------
TOTAL REPURCHASE AGREEMENT .......... 1,032,004
---------
(Cost $1,032,004)
TOTAL INVESTMENTS - 100.21% ........................... 14,897,803
(Cost $14,897,803)
NET OTHER ASSETS AND LIABILITIES - (0.21)% ............ (30,526)
-----------
NET ASSETS - 100.00% .................................. $14,867,277
===========
</TABLE>
- ------------------
(A) Annualized yields at time of purchase.
See Notes to Financial Statements.
9
<PAGE> 12
VIP EQUITY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
---------- ---------
COMMON STOCKS - 80.10%
<C> <S> <C>
CONSUMER STAPLES - 19.14%
12,000 Anheuser-Busch Cos., Inc. ........... $ 503,250
20,000 Bristol-Myers Squibb Co. ............ 1,619,998
14,000 Gillette Co. ........................ 1,326,500
18,000 Johnson & Johnson ................... 1,158,750
14,000 Merck & Co., Inc. ................... 1,449,000
40,000 PepsiCo, Inc. ....................... 1,502,500
10,000 Pfizer, Inc. ........................ 1,195,000
7,000 Procter & Gamble Co. ................ 988,750
20,000 Sara Lee Corp. ...................... 832,500
20,000 Sysco Corp. ......................... 730,000
----------
11,306,248
----------
TECHNOLOGY - 17.33%
16,000 AMP, Inc. .......................... 668,000
17,000 Applied Materials, Inc. * .......... 1,203,813
22,000 Automatic Data Processing, Inc...... 1,034,000
16,000 Corning, Inc. ...................... 890,000
20,000 Hewlett-Packard Co. ................ 1,120,000
17,000 Intel Corp. ........................ 2,410,813
14,000 Microsoft Corp. * .................. 1,769,250
15,000 Motorola, Inc. ..................... 1,140,000
----------
10,235,876
----------
CONSUMER CYCLICAL - 10.94%
10,000 Armstrong World Industries, Inc. 733,750
21,000 Dayton-Hudson Corp. ................ 1,116,938
9,000 Disney (Walt) Co. .................. 722,250
20,000 Ford Motor Co. ..................... 755,000
14,000 Home Depot, Inc. ................... 965,125
27,000 McDonald's Corp. ................... 1,304,438
28,000 Sherwin-Williams Co. ............... 864,500
----------
6,462,001
----------
CAPITAL GOODS - 10.39%
24,000 Boeing Co. ........................ 1,273,500
13,000 Caterpillar, Inc. ................. 1,395,875
25,000 Deere & Co. ....................... 1,371,875
18,000 General Electric Co. .............. 1,176,750
27,000 Thermo Electron Corp. *............ 918,000
---------
6,136,000
---------
FINANCE - 9.83%
9,000 American International Group, Inc... 1,344,375
18,000 Barnett Banks, Inc. ................ 945,000
16,000 Crestar Financial Corp. ............ 622,000
30,000 Fannie Mae ......................... 1,308,750
35,000 Hibernia Corp., Class A ............ 487,813
20,000 SunTrust Banks, Inc. ............... 1,101,250
---------
5,809,188
---------
ENERGY - 5.68%
8,000 Atlantic Richfield Co............... $564,000
14,000 Exxon Corp. ........................ 861,000
12,000 Halliburton Co. .................... 951,000
14,000 Mobil Corp. ........................ 978,250
---------
3,354,250
---------
BASIC MATERIALS - 4.58%
9,000 Air Products & Chemicals, Inc....... 731,250
11,000 Consolidated Papers, Inc. .......... 594,000
7,000 Dow Chemical Co. ................... 609,875
9,000 Georgia-Pacific Corp. .............. 768,375
---------
2,703,500
---------
TRANSPORTATION - 2.21%
8,000 AMR Corp.* ......................... 740,000
8,000 Union Pacific Corp.................. 564,000
---------
1,304,000
---------
TOTAL COMMON STOCKS 47,311,063
---------
(Cost $25,780,478)
<CAPTION>
PAR VALUE
----------
U.S. AGENCY OBLIGATIONS (A) - 9.99%
<S> <C> <C>
STUDENT LOAN MARKETING
ASSOCIATION - 9.99%
$5,900,000 6.00%, 07/01/97 ..................... 5,900,000
---------
TOTAL U.S. AGENCY OBLIGATIONS ....... 5,900,000
---------
(Cost $5,900,000)
REPURCHASE AGREEMENT - 9.99%
5,900,111 Chase Manhattan Bank
5.55%, 07/01/97, dated 6/30/97
Repurchase Price $5,901,021
(Collateralized by U.S. Treasury Bond
8.88%, due 08/15/17;
Total Par $4,825,000;
Market Value $6,060,105) ............ 5,900,111
---------
TOTAL REPURCHASE AGREEMENT .......... 5,900,111
---------
(Cost $5,900,111)
TOTAL INVESTMENTS - 100.08% ........................... 59,111,174
----------
(Cost $37,580,589)
NET OTHER ASSETS AND LIABILITIES - (0.08)% ............ (48,681)
----------
NET ASSETS - 100.00% .................................. $59,062,493
===========
</TABLE>
- ------------------
* Non income producing security.
(A) Annualized yields at time of purchase.
See Notes to Financial Statements.
10
<PAGE> 13
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
---------- ---------
COMMON STOCKS - 47.77%
CONSUMER STAPLES - 11.30%
<C> <S> <C>
4,000 American Home Products Corp. ...... $ 306,000
4,000 CPC International, Inc. ........... 369,250
4,000 Gillette Co. ...................... 379,000
5,000 Johnson & Johnson ................. 321,875
3,000 Lilly (Eli) & Co. ................. 327,937
3,500 Merck & Co., Inc. ................. 362,250
13,000 PepsiCo, Inc. ..................... 488,313
4,000 Pfizer, Inc. ...................... 478,000
2,500 Procter & Gamble Co. .............. 353,125
500 Warner-Lambert Co. ................ 62,125
----------
3,447,875
----------
TECHNOLOGY - 8.33%
8,000 Automatic Data Processing, Inc. ... 376,000
3,000 Boston Scientific Corp. * ......... 184,313
5,500 Cisco Systems, Inc.* .............. 369,188
3,000 Electronic Data Systems Corp. ..... 123,000
7,000 Hewlett-Packard Co. ............... 392,000
3,000 Intel Corp. ....................... 425,437
4,500 Maxim Integrated Products, Inc. * . 255,937
2,000 Oracle Corp. ...................... 100,750
4,000 Xerox Corp. ....................... 315,500
----------
2,542,125
----------
FINANCE - 7.36%
3,000 American International Group, Inc. 448,125
5,000 Barnett Banks, Inc. ............... 262,500
4,000 Beacon Properties Corp., REIT ..... 133,500
1,000 Chase Manhattan Corp. ............. 97,062
1,500 Citicorp .......................... 180,844
4,000 Crestar Financial Corp. ........... 155,500
9,000 Fannie Mae ........................ 392,625
3,500 Hartford Financial Services Group . 289,625
4,000 Norwest Corp. ..................... 225,000
1,000 Washington Mutual, Inc. ........... 59,750
----------
2,244,531
----------
CONSUMER CYCLICAL - 5.18%
10,500 Ford Motor Co. .................... 396,375
8,000 Home Depot, Inc. .................. 551,500
5,400 McDonald's Corp. .................. 260,887
12,000 Sherwin-Williams Co. .............. 370,500
----------
1,579,262
----------
ENERGY - 4.95%
1,000 Amoco Corp. ....................... $ 86,938
2,000 Anadarko Petroleum Corp. .......... 120,000
1,000 Baker Hughes, Inc. ................ 38,688
3,000 Exxon Corp. ....................... 184,500
5,000 Halliburton Co. ................... 396,250
8,000 Mobil Corp. ....................... 559,000
1,000 Schlumberger, Ltd. ................ 125,000
----------
1,510,376
----------
CAPITAL GOODS - 4.35%
8,000 Boeing Co. ........................ 424,500
5,000 Dresser Industries, Inc. .......... 186,250
6,000 General Electric Co. .............. 392,250
9,500 Thermo Electron Corp. * ........... 323,000
----------
1,326,000
----------
BASIC MATERIALS - 3.59%
3,000 Minnesota Mining & Manufacturing Co. 306,000
11,000 Monsanto Co. ...................... 473,687
5,500 Nucor Corp. ....................... 314,875
----------
1,094,562
----------
UTILITIES - 1.55%
3,000 SBC Communications, Inc. 185,625
9,000 WorldCom, Inc. 288,000
----------
473,625
----------
TRANSPORTATION - 1.16%
5,000 Union Pacific Corp. ............... 352,500
----------
TOTAL COMMON STOCKS ............... 14,570,856
----------
(Cost $9,604,033)
</TABLE>
<TABLE>
PAR VALUE
- ---------
CORPORATE NOTES AND BONDS - 23.95%
<C> <S> <C>
FINANCE - 8.39%
$ 155,000 American General Finance Corp.
Senior Note
8.25%, 01/15/98 ................... 157,114
100,000 Aristar, Inc., Senior Note
6.75%, 05/15/99 ................... 100,750
100,000 Associates Corp. of North America, MTN
6.00%, 03/15/99 ................... 99,625
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
<C> <S> <C>
FINANCE (CONTINUED)
$ 100,000 CIT Group Holdings, Inc.
Senior Note, MTN
6.20%, 06/17/99 ...................... $99,875
100,000 Caterpillar Financial Services Corp.
Series E, MTN
6.87%, 11/30/99 ...................... 101,125
250,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00 ...................... 251,250
100,000 Crown Cork & Seal Finance
Guaranteed: Crown Cork & Seal Co., Inc.
7.00%, 12/15/06 ...................... 99,250
100,000 Deere (John) Capital Corp.
6.30%, 06/01/99 ...................... 100,000
250,000 Ford Motor Credit Co.
6.38%, 12/15/05 ...................... 238,750
100,000 General Motors Acceptance Corp., MTN
6.35%, 06/18/98 ...................... 100,446
150,000 Household Finance Corp.
7.63%, 06/15/99 ...................... 153,375
200,000 International Lease Finance Corp.
6.20%, 05/01/00 ...................... 198,250
100,000 International Lease Finance Corp.
8.13%, 01/15/98 ...................... 101,231
200,000 Norwest Financial, Inc.
Senior Note
7.75%, 08/15/01 ...................... 208,500
250,000 PACCAR Financial Corp.
Senior Notes, Series H, MTN
6.39%, 06/15/00 ...................... 249,375
100,000 Pitney Bowes Credit Corp., Series C, MTN
6.54%, 07/15/99 ...................... 100,625
100,000 Sears Roebuck Acceptance Corp.
Series II, MTN
6.38%, 02/16/99 ...................... 100,250
100,000 Transamerica Finance Corp.
Subordinated Note
6.75%, 01/15/98 ...................... 100,397
---------
2,560,188
---------
BANKING - 2.98%
100,000 Banc One Corp., Subordinated Note
8.00%, 04/29/27 ...................... 103,250
100,000 Bank One Milwaukee, N.A., MTN
6.35%, 03/19/01 ...................... 98,875
200,000 Citicorp, Senior Note, MTN
8.63%, 11/01/04 ...................... 208,000
250,000 First Union Corp., Senior Note
6.60%, 06/15/00 ...................... 250,313
250,000 Wachovia Bank
6.30%, 03/15/01 ...................... 247,187
---------
907,625
---------
UTILITIES - 2.80%
$ 200,000 Duke Power Co.
8.75%, 03/01/21 ...................... $206,250
250,000 Hydro-Quebec
Yankee Debenture, Series IU
Guaranteed: Province of Quebec
7.50%, 04/01/16 ...................... 247,500
250,000 Southern California Edison Co.
First Refunding Mortgage, Series 92B
7.50%, 04/15/99 ...................... 254,688
140,000 Virginia Electric & Power Co.
Series B, MTN
9.35%, 06/22/98 ...................... 144,375
---------
852,813
---------
OIL, GAS AND PETROLEUM - 2.07%
200,000 Occidental Petroleum Corp., MTN
6.75%, 09/16/99 ...................... 201,000
200,000 Phillips Petroleum Co., Debenture
9.375%, 02/15/11 ..................... 234,750
100,000 Union Oil Co. of California, MTN
Guaranteed: Unocal Corp.
6.70%, 10/15/07 ...................... 97,125
100,000 Union Pacific Resources Group, Inc.
7.00%, 10/15/06 ...................... 99,625
---------
632,500
---------
MERCHANDISING AND RETAIL - 1.48%
100,000 May Department Stores Co.
7.45%, 10/15/16 ...................... 100,125
100,000 Penney (J.C.) & Co., Inc., Debenture
7.95%, 04/01/17 ...................... 103,125
250,000 Rite Aid Corp.
6.70%, 12/15/01 ...................... 249,063
---------
452,313
---------
EQUIPMENT - 1.16%
250,000 Baker Hughes, Inc.
7.63%, 02/15/99 ...................... 255,312
100,000 Xerox Corp., MTN
7.20%, 04/01/16 ...................... 98,250
---------
353,562
---------
INDUSTRIAL - 1.15%
250,000 Coca-Cola Enterprises, Inc.
6.70%, 10/15/36 ...................... 250,625
100,000 Parker Hannifin Corp.
7.30%, 05/15/11 ...................... 101,000
---------
351,625
---------
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 15
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
TELECOMMUNICATIONS - 0.94%
<C> <S> <C>
$ 300,000 Northern Telecom, Ltd.
Yankee Note
6.00%, 09/01/03 ...................... $ 287,625
---------
PROCESSED FOODS - 0.83%
250,000 Sysco Corp.
7.25%, 04/15/07 ...................... 254,687
---------
AEROSPACE - 0.66%
200,000 Lockheed Martin Corp.
Guaranteed: Lockheed Martin
Tactical Systems, Inc.
7.25%, 05/15/06 ...................... 202,500
---------
HEALTH CARE - 0.66%
100,000 Allegiance Corp.
7.30%, 10/15/06 ...................... 100,000
100,000 Columbia/HCA Healthcare Corp., MTN
6.87%, 09/15/03 ...................... 100,000
---------
200,000
---------
CONSUMER PRODUCTS - 0.49%
150,000 Pepsico, Inc.
6.13%, 01/15/98 ...................... 150,169
---------
TRANSPORTATION - 0.34%
100,000 Norfolk Southern Corp.
7.80%, 05/15/27 ...................... 102,500
---------
TOTAL CORPORATE NOTES AND BONDS ...... 7,308,107
---------
(Cost $7,292,358)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 12.62%
U.S. TREASURY BONDS - 5.63%
250,000 7.50%, 11/15/16 ...................... 267,255
250,000 8.00%, 11/15/21 ...................... 282,832
450,000 7.25%, 08/15/22 ...................... 469,723
450,000 7.63%, 11/15/22 ...................... 490,482
200,000 7.13%, 02/15/23 ...................... 206,086
---------
1,716,378
---------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 2.31%
$ 100,000 6.40%, 03/25/03 ...................... $ 97,743
150,000 6.31%, 08/25/03, MTN ................. 145,826
248,838 10.00%, 05/01/22, Pool #313544 ....... 271,466
100,000 8.18%, 04/15/24, MTN ................. 100,472
94,205 6.50%, 10/01/25 ...................... 90,172
---------
705,679
---------
U.S. TREASURY NOTES - 1.64%
100,000 5.75%, 12/31/98 ...................... 99,717
200,000 5.88%, 01/31/99 ...................... 199,646
100,000 6.63%, 06/30/01 ...................... 100,990
100,000 6.63%, 07/31/01 ...................... 100,967
---------
501,320
---------
FEDERAL HOME LOAN BANK - 1.13%
100,000 6.41%, 12/29/03 ...................... 97,418
250,000 7.00%, 11/21/05 ...................... 245,635
---------
343,053
---------
FEDERAL FARM CREDIT BANK - 0.81%
250,000 6.40%, 12/11/00, MTN ................. 248,090
---------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 0.80%
247,959 7.00%, 01/01/27, Pool #D77482 ........ 243,542
---------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 0.30%
85,688 9.00%, 12/15/17, Pool #780201 ........ 90,936
---------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS ............... 3,848,998
---------
(Cost $3,824,544)
ASSET-BACKED SECURITIES - 0.66%
100,000 Green Tree Financial Corp.
Class 1997-1, Series A3
6.23%, 03/15/28 ...................... 99,348
100,000 NationsBank Auto Owner Trust
Class 1996-A, Series A3
6.38%, 07/15/00 ...................... 100,790
---------
TOTAL ASSET-BACKED SECURITIES ........ 200,138
---------
(Cost $199,822)
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 16
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
MORTGAGE-BACKED SECURITY - 0.29%
<C> <S> <C>
$ 90,409 Rural Housing Trust
Class 1987-1, Series 1D, CMO
6.33%, 04/01/26 ..................... $ 88,459
-----------
TOTAL MORTGAGE-BACKED SECURITY ...... 88,459
-----------
(Cost $89,208)
REPURCHASE AGREEMENT - 14.32%
4,368,367 Chase Manhattan Bank
5.55%, 07/01/97, dated 6/30/97
Repurchase Price $4,369,040
(Collateralized by U.S. Treasury Bond
8.88%, due 08/15/17;
Total Par $3,575,000;
Market Value $4,486,912) ............ 4,368,367
-----------
TOTAL REPURCHASE AGREEMENT .......... 4,368,367
-----------
(Cost $4,368,367)
TOTAL INVESTMENTS - 99.61% ............................ 30,384,925
-----------
(Cost $25,378,332)
NET OTHER ASSETS AND LIABILITIES - 0.39% .............. 120,296
-----------
NET ASSETS - 100.00% .................................. $30,505,221
===========
</TABLE>
- -------------------
* Non income producing security.
(A) Annualized yields at time of purchase.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
REIT Real Estate Investment Trust
See Notes to Financial Statements.
14
<PAGE> 17
VIP HIGH QUALITY BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
CORPORATE NOTES AND BONDS - 42.28%
<C> <S> <C>
FINANCE - 29.27%
$ 250,000 Associates Corp. of North America
Senior Note
5.60%, 01/15/01 ...................... $242,188
500,000 CIT Group Holdings, Inc.
Senior Note, MTN
6.20%, 06/17/99 ...................... 499,375
500,000 Ford Motor Credit Co.
Senior Note
6.50%, 02/28/02 ...................... 494,375
400,000 Keycorp Institutional Capital Corp.
Coupon Adjusted Pass-Through
Series A
6.63%, 06/15/29 (C) .................. 401,488
500,000 National Rural Utilities
Cooperative Finance Corp.
Collateral Trust
7.30%, 09/15/06 ...................... 509,375
500,000 Norwest Financial, Inc.
Senior Note
8.50%, 08/15/98 ...................... 514,285
500,000 PACCAR Financial Corp., Senior Notes
Series H, MTN
6.06%, 03/15/99 ...................... 498,750
200,000 Pitney Bowes Credit Corp.
Series C, MTN
6.54%, 07/15/99 ...................... 201,250
---------
3,361,086
---------
INDUSTRIAL - 5.28%
400,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99 ...................... 405,500
200,000 Coca-Cola Enterprises, Inc.
6.70%, 10/15/36 ...................... 200,500
---------
606,000
---------
BANKING - 4.31%
500,000 Bank One Milwaukee
6.35%, 03/19/01 ...................... 494,375
---------
UTILITIES - 3.42%
400,000 GTE Florida, Inc.
Debenture, Series A
6.31%, 12/15/02 ...................... 393,000
---------
TOTAL CORPORATE NOTES AND BONDS ...... 4,854,461
---------
(Cost $4,849,446)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 40.17%
U.S. TREASURY BONDS - 20.95%
210,000 12.00%, 08/15/13 ..................... 295,413
150,000 7.50%, 11/15/16 ...................... 160,352
U.S. TREASURY BONDS (CONTINUED)
$ 225,000 7.88%, 02/15/21 ...................... $ 250,927
200,000 8.13%, 08/15/21 ...................... 229,084
400,000 8.00%, 11/15/21 ...................... 452,532
600,000 7.25%, 08/15/22 ...................... 626,298
100,000 7.13%, 02/15/23 ...................... 103,043
300,000 6.50%, 11/15/26 ...................... 287,490
---------
2,405,139
---------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 5.61%
425,815 8.00%, 02/15/08, Pool #780424 ........ 444,843
199,205 7.50%, 04/15/27, Pool #780551 ........ 199,889
---------
644,732
---------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 4.38%
500,000 7.55%, 06/10/04 ...................... 502,544
---------
U.S. GOVERNMENT BACKED BONDS - 4.21%
200,000 State of Israel, Series 7-A
Guaranteed: U.S. Government
5.45%, 02/15/01 ...................... 193,000
300,000 Tennessee Valley Authority Power
Series C
6.13%, 07/15/03 ...................... 291,000
---------
484,000
---------
U.S. TREASURY NOTES - 3.54%
200,000 6.38%, 01/15/99 ...................... 201,218
200,000 7.00%, 07/15/06 ...................... 205,782
---------
407,000
---------
U.S. TREASURY STRIP (A)(B) - 1.48%
500,000 2.30%, 05/15/13, Principal ........... 169,570
---------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS ............... 4,612,985
---------
(Cost $4,543,984)
ASSET-BACKED SECURITIES - 9.08%
400,000 Chemical Master Credit Card Trust I
Class 1995-2, Series A
6.23%, 06/15/03 ...................... 397,876
400,000 Green Tree Financial Corp.
Class 1997-1, Series A-3
6.23%, 03/15/28 ...................... 397,391
250,000 Sears Credit Account Master Trust II
Class 1996-1, Series A
6.20%, 02/16/06 ...................... 247,190
---------
TOTAL ASSET-BACKED SECURITIES ........ 1,042,457
---------
(Cost $1,044,152)
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 18
VIP HIGH QUALITY BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
---------- ---------
MORTGAGE-BACKED SECURITY - 3.85%
<C> <S> <C>
$ 452,043 Rural Housing Trust
Class 1987-1, Series 1-D, CMO
6.33%, 04/01/26 ..................... $ 442,296
-----------
TOTAL MORTGAGE-BACKED SECURITY ...... 442,296
-----------
(Cost $446,039)
FOREIGN BONDS - 2.96%
200,000 Province of Quebec
Debenture
7.00%, 01/30/07 ..................... 198,750
150,000 Province of Quebec
Yankee Debenture, Series NN
7.13%, 02/09/24 ..................... 141,188
-----------
TOTAL FOREIGN BONDS ................. 339,938
-----------
(Cost $334,263)
REPURCHASE AGREEMENT - 0.37%
42,281 Chase Manhattan Bank
5.55%, 07/01/97, dated 6/30/97
Repurchase Price $42,288
(Collateralized by U.S. Treasury Bond
8.88%, due 08/15/17;
Total Par $35,000; Market Value $43,442) 42,281
-----------
TOTAL REPURCHASE AGREEMENT .......... 42,281
-----------
(Cost $42,281)
TOTAL INVESTMENTS - 98.71% ............................ 11,334,418
-----------
(Cost $11,260,165)
NET OTHER ASSETS AND LIABILITIES - 1.29% .............. 147,824
-----------
NET ASSETS - 100.00% .................................. $11,482,242
===========
</TABLE>
(A) Annualized yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of
the payment representing interest only or principal only.
(C) Security exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold, in transactions exempt from
registration, to qualified institutional buyers. At June 30, 1997, this
security amounted to $401,488 or 3.50% of net assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
16
<PAGE> 19
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
THE GALAXY
VIP FUND
<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 .............................. $13,865,799 $31,680,478 $21,009,965 $11,217,884
Repurchase agreements ............................ 1,032,004 5,900,111 4,368,367 42,281
Net unrealized appreciation ...................... -- 21,530,585 5,006,593 74,253
----------- ----------- ----------- -----------
Total investments at value ..................... 14,897,803 59,111,174 30,384,925 11,334,418
Cash ............................................... 4 1,097 -- 8
Receivable for investments sold .................... -- -- -- 193,785
Receivable for shares sold ......................... -- 752 1,802 2,823
Interest and dividend receivables .................. 159 40,930 175,878 171,961
Receivable from Investment Adviser (Notes 3 & 4) ... 509 -- 122 419
Deferred organizational expense (Note 2) ........... 1,938 1,778 1,974 1,831
----------- ----------- ----------- -----------
Total Assets ..................................... 14,900,413 59,155,731 30,564,701 11,705,245
----------- ----------- ----------- -----------
LIABILITIES:
Payable for investments purchased .................. -- -- -- 207,101
Payable for shares repurchased ..................... 11,763 20,742 16,762 434
Advisory fee payable (Notes 3 & 4) ................. 1,851 36,097 18,585 1,419
Payable to FDISG (Notes 3 & 4) ..................... 2,055 2,069 3,554 2,295
Trustees' fees and expenses payable (Note 3) ....... 2,346 2,132 1,803 2,370
Accrued expenses and other payables ................ 15,121 32,198 18,776 9,384
----------- ----------- ----------- -----------
Total Liabilities ............................... 33,136 93,238 59,480 223,003
----------- ----------- ----------- -----------
NET ASSETS ............................................ $14,867,277 $59,062,493 $30,505,221 $11,482,242
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Par value (Note 5) ................................. $ 14,867 $ 3,235 $ 2,091 $ 1,154
Paid-in capital in excess of par value ............. 14,852,232 37,775,187 24,247,861 11,797,424
Undistributed net investment income ................ 284 24,408 46,988 1,077
Accumulated net realized gain (loss)
on investments sold .............................. (106) (270,922) 1,201,688 (391,666)
Net unrealized appreciation of investments ......... -- 21,530,585 5,006,593 74,253
----------- ----------- ----------- -----------
TOTAL NET ASSETS ...................................... $14,867,277 $59,062,493 $30,505,221 $11,482,242
=========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ............. 14,867,099 3,235,353 2,091,384 1,153,558
NET ASSET VALUE:
offering and redemption price per share
(Net Assets (divided by) Shares Outstanding) ....... $ 1.00 $ 18.26 $ 14.59 $ 9.95
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 20
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
MONEY MARKET EQUITY ASSET ALLOCATION HIGH QUALITY
FUND FUND FUND BOND FUND
------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ..................................... $423,817 $ 297,062 $ 454,594 $389,146
Dividends (Note 2) ..................................... -- 302,460 103,420 --
-------- ---------- ---------- --------
Total investment income .............................. 423,817 599,522 558,014 389,146
-------- ---------- ---------- --------
EXPENSES:
Investment advisory fees (Note 3) ...................... 30,979 195,703 101,358 31,854
Administration fees (Note 3) ........................... 12,397 12,397 12,397 12,397
Custody fees ........................................... 10,271 7,099 8,230 6,947
Fund accounting fees (Note 3) .......................... 12,637 14,582 18,166 14,158
Legal fees ............................................. 6,572 15,444 8,005 4,245
Audit fees ............................................. 5,148 5,688 11,620 7,334
Trustees' fees (Note 3) ................................ 223 530 277 147
Amortization of organization costs (Note 2) ............ 1,611 1,611 1,611 1,611
Reports to shareholders ................................ 6,880 39,525 10,540 8,497
Miscellaneous .......................................... 303 330 4,531 128
-------- ---------- ---------- --------
Total expenses before reimbursement/waiver ........... 87,021 292,909 176,735 87,318
Less: reimbursement/waiver (Note 4) .................. (34,667) -- (16,327) (39,972)
-------- ---------- ---------- --------
Total expenses net of reimbursement/waiver ........... 52,354 292,909 160,408 47,346
-------- ---------- ---------- --------
NET INVESTMENT INCOME ..................................... 371,463 306,613 397,606 341,800
-------- ---------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 2):
Net realized gain (loss) on investments sold ........... 2 35,320 1,022,744 (22,887)
Net change in unrealized appreciation (depreciation)
of investments ......................................... -- 8,332,434 1,340,112 (24,264)
-------- ---------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ............................................ 2 8,367,754 2,362,856 (47,151)
-------- ---------- ---------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................. $371,465 $8,674,367 $2,760,462 $294,649
======== ========== ========== ========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 21
STATEMENTS OF CHANGES IN NET ASSETS
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
MONEY MARKET FUND EQUITY FUND
-------------------------------- --------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ........................ $16,295,291 $ 17,925,279 $46,241,851 $30,826,249
----------- ------------ ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ................................. 371,463 852,480 306,613 509,213
Net realized gain (loss) on investments sold .......... 2 92 35,320 (99,373)
Net change in unrealized appreciation
of investments ..................................... -- -- 8,332,434 7,121,725
----------- ------------ ----------- -----------
Net increase in net assets
resulting from operations ....................... 371,465 852,572 8,674,367 7,531,565
----------- ------------ ----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................. (371,463) (852,480) (282,205) (509,213)
In excess of net investment income .................... -- -- -- --
Return of capital ..................................... -- -- -- (3,254)
----------- ------------ ----------- -----------
Total Dividends .................................... (371,463) (852,480) (282,205) (512,467)
----------- ------------ ----------- -----------
SHARE TRANSACTIONS:
Net proceeds from sale of shares ...................... 2,799,328 9,677,376 5,737,035 10,270,161
Issued to shareholders in reinvestment of dividends ... 371,463 852,480 282,205 512,467
Costs of shares repurchased ........................... (4,598,807) (12,159,936) (1,590,760) (2,386,124)
----------- ------------ ----------- -----------
Net increase (decrease) from share transactions .... (1,428,016) (1,630,080) 4,428,480 8,396,504
----------- ------------ ----------- -----------
Net increase (decrease) in net assets .............. (1,428,014) (1,629,988) 12,820,642 15,415,602
----------- ------------ ----------- -----------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ........... $14,867,277 $ 16,295,291 $59,062,493 $46,241,851
=========== ============ =========== ===========
(A) Undistributed net investment income ................. $ 284 $ 284 $ 24,408 $ --
=========== ============ =========== ===========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .................................................. 2,799,328 9,677,376 344,548 728,435
Issued to shareholders in reinvestment of dividends ... 371,463 852,480 16,124 35,280
Repurchased ........................................... (4,598,807) (12,159,936) (94,042) (167,823)
----------- ------------ ----------- -----------
Net increase (decrease) in shares outstanding ...... (1,428,016) (1,630,080) 266,630 595,892
=========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 22
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
---------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
<S> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD .......................... $24,114,119 $17,245,518
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ................................. 397,606 470,807
Net realized gain (loss) on investments sold .......... 1,022,744 1,139,968
Net change in unrealized appreciation
(depreciation) of investments ..................... 1,340,112 1,262,456
----------- -----------
Net increase in net assets
resulting from operations .................... 2,760,462 2,873,231
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................. (350,618) (471,186)
In excess of net investment income .................... -- (102)
Net realized gain on investments ...................... -- (933,720)
----------- -----------
Total Dividends ................................... (350,618) (1,405,008)
----------- -----------
SHARE TRANSACTIONS:
Net proceeds from sale of shares ...................... 5,116,163 6,863,797
Issued to shareholders in reinvestment of dividends ... 350,618 1,405,008
Costs of shares repurchased ........................... (1,485,523) (2,868,427)
----------- -----------
Net increase (decrease) from share transactions ... 3,981,258 5,400,378
----------- -----------
Net increase (decrease) in net assets ............. 6,391,102 6,868,601
----------- -----------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ............. $30,505,221 $24,114,119
=========== ===========
(A) Undistributed net investment income .................... $ 46,988 $ --
=========== ===========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .................................................. 369,105 526,178
Issued to shareholders in reinvestment of dividends ... 24,671 105,729
Repurchased ........................................... (106,413) (220,448)
----------- -----------
Net increase (decrease) in shares outstanding ..... 287,363 411,459
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
HIGH QUALITY BOND FUND
---------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
<S> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD .......................... $11,814,065 $11,066,976
----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ................................. 341,800 646,455
Net realized gain (loss) on investments sold .......... (22,887) (184,947)
Net change in unrealized appreciation
(depreciation) of investments ..................... (24,264) (225,682)
----------- -----------
Net increase in net assets
resulting from operations .................... 294,649 235,826
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................. (341,788) (646,455)
In excess of net investment income .................... -- (12)
Net realized gain on investments ...................... -- --
----------- -----------
Total Dividends ................................... (341,788) (646,467)
----------- -----------
SHARE TRANSACTIONS:
Net proceeds from sale of shares ...................... 697,007 2,301,499
Issued to shareholders in reinvestment of dividends ... 341,788 646,471
Costs of shares repurchased ........................... (1,323,479) (1,790,240)
----------- -----------
Net increase (decrease) from share transactions ... (284,684) 1,157,730
----------- -----------
Net increase (decrease) in net assets ............. (331,823) 747,089
----------- -----------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ............. $11,482,242 $11,814,065
=========== ===========
(A) Undistributed net investment income .................... $ 1,077 $ 1,065
=========== ===========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .................................................. 70,297 229,617
Issued to shareholders in reinvestment of dividends ... 34,569 64,993
Repurchased ........................................... (133,667) (179,711)
----------- -----------
Net increase (decrease) in shares outstanding ..... (28,801) 114,899
=========== ===========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 23
VIP MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1997 --------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(1)
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) ................................. 0.02 0.05 0.05 0.04 0.03
Net realized and unrealized gain (loss) on investments .... -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Operations ........................ 0.02 0.05 0.05 0.04 0.03
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income ...................... (0.02) (0.05) (0.05) (0.04) (0.03)
Dividends from net realized capital gains ................. -- -- -- -- --
------- ------- ------- ------- -------
Total Dividends ......................................... (0.02) (0.05) (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 $ 1.00
======= ======= ======= ======= =======
Total Return ................................................. 2.41%** 4.91% 5.38% 3.89% 2.74%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............................ $14,867 $16,295 $17,925 $13,276 $10,864
Ratios to average net assets:
Net investment income including reimbursement/waiver ...... 4.80%* 4.80% 5.25% 3.85% 3.00%*
Operating expenses including reimbursement/waiver ......... 0.68%* 0.60% 0.63% 0.42% 0.13%*
Operating expenses excluding reimbursement/waiver ......... 1.12%* 1.02% 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 Adviser and/or Administrator were as follows:
<TABLE>
<CAPTION>
Six months ended Years ended December 31,
June 30, 1997 -----------------------------------
(unaudited) 1996 1995 1994 1993(1)
----------- ---- ---- ---- -------
<S> <C> <C> <C> <C>
$0.02 $0.05 $0.05 $0.03 $0.01
</TABLE>
See Notes to Financial Statements
21
<PAGE> 24
VIP EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1997 ------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(1)
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 15.58 $ 12.99 $ 10.40 $ 10.25 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) ............................... 0.10 0.19 0.18 0.20 0.16
Net realized and unrealized gain on investments ......... 2.67 2.59 2.59 0.15 0.25
------- ------- ------- ------- -------
Total from Investment Operations ...................... 2.77 2.78 2.77 0.35 0.41
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income .................... (0.09) (0.19) (0.18) (0.20) (0.16)
Dividends from net realized capital gains ............... -- -- -- --
------- ------- ------- ------- -------
Total Dividends ....................................... (0.09) (0.19) (0.18) (0.20) (0.16)
------- ------- ------- ------- -------
Net increase in net asset value ............................ 2.68 2.59 2.59 0.15 0.25
------- ------- ------- ------- -------
Net Asset Value, End of Period ............................. $ 18.26 $ 15.58 $ 12.99 $ 10.40 $ 10.25
======= ======= ======= ======= =======
Total Return ............................................... 17.80%** 21.49% 26.76% 3.47% 4.15%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $59,062 $46,242 $30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 1.18%* 1.34% 1.55% 2.06% 2.23%*
Operating expenses including reimbursement/waiver ....... 1.12%* 1.10% 1.21% 0.71% 0.20%*
Operating expenses excluding reimbursement/waiver ....... 1.12%* 1.10% 1.24% 1.42% 2.60%*
Portfolio Turnover Rate .................................... 0%** 8% 3% 2% 5%**
Average Commission Rate Paid (B) ........................... $0.0691 $0.0676 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 Adviser and/or Administrator were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1995 1994 1993(1)
---- ---- -------
<S> <C> <C>
$0.18 $0.13 $(0.02)
</TABLE>
(B) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for portfolio
transactions for which commissions are charged.
See Notes to Financial Statements
22
<PAGE> 25
VIP ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1997 --------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(1)
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 13.37 $ 12.38 $ 9.80 $ 10.33 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) ............................... 0.20 0.30 0.28 0.31 0.18
Net realized and unrealized gain (loss) on investments .. 1.19 1.53 2.58 (0.53) 0.35
------- ------- ------- ------- -------
Total from Investment Operations ...................... 1.39 1.83 2.86 (0.22) 0.53
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income .................... (0.17) (0.30) (0.28) (0.31) (0.18)
Dividends from net realized capital gains ............... -- (0.54) -- -- (0.02)
------- ------- ------- ------- -------
Total Dividends ....................................... (0.17) (0.84) (0.28) (0.31) (0.20)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value ................. 1.22 0.99 2.58 (0.53) 0.33
------- ------- ------- ------- -------
Net Asset Value, End of Period ............................. $ 14.59 $ 13.37 $ 12.38 $ 9.80 $ 10.33
======= ======= ======= ======= =======
Total Return ............................................... 10.47%** 14.64% 29.42% (2.15)% 5.33%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $30,505 $24,114 $17,246 $10,572 $11,800
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 2.94%* 2.31% 2.54% 3.02% 3.01%*
Operating expenses including reimbursement/waiver ....... 1.19%* 1.33% 1.37% 0.78% 0.26%*
Operating expenses excluding reimbursement/waiver ....... 1.31%* 1.33% 1.54% 1.68% 3.11%*
Portfolio Turnover Rate .................................... 27%** 45% 46% 28% 10%**
Average Commission Rate Paid (B) ........................... $0.0672 $0.0693 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 Adviser and/or Administrator were as follows:
<TABLE>
<CAPTION>
Six months ended Years ended December 31,
June 30, 1997 -----------------------------
(unaudited) 1995 1994 1993(1)
----------- ----- ----- -------
<S> <C> <C> <C>
$0.19 $0.26 $0.22 $0.01
</TABLE>
(B) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for portfolio
transactions for which commissions are charged.
See Notes to Financial Statements
23
<PAGE> 26
VIP HIGH QUALITY BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE GALAXY
VIP FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1997 ------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(1)
----------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 9.99 $ 10.37 $ 8.97 $10.11 $10.00
------- ------- ------- ------ ------
Income from Investment Operations:
Net investment income (A) ............................... 0.29 0.58 0.57 0.56 0.47
Net realized and unrealized gain (loss) on investments .. (0.04) (0.38) 1.40 (1.14) 0.12
------- ------- ------- ------ ------
Total from Investment Operations ...................... 0.25 0.20 1.97 (0.58) 0.59
------- ------- ------- ------ ------
Less Dividends:
Dividends from net investment income .................... (0.29) (0.58) (0.57) (0.56) (0.47)
Dividends from net realized capital gains ............... -- -- -- -- (0.01)
------- ------- ------- ------ ------
Total Dividends ....................................... (0.29) (0.58) (0.57) (0.56) (0.48)
------- ------- ------- ------ ------
Net increase (decrease) in net asset value ................. (0.04) (0.38) 1.40 (1.14) 0.11
------- ------- ------- ------ ------
Net Asset Value, End of Period ............................. $ 9.95 $ 9.99 $ 10.37 $ 8.97 $10.11
======= ======= ======= ====== ======
Total Return ............................................... 2.55%** 1.57% 22.55% (5.85)% 6.04%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $11,482 $11,814 $11,067 $8,012 $9,802
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 5.90%* 5.78% 5.86% 5.90% 5.30%*
Operating expenses including reimbursement/waiver ....... 0.82%* 0.72% 0.80% 0.57% 0.22%*
Operating expenses excluding reimbursement/waiver ....... 1.51%* 1.38% 1.57% 1.63% 2.92%*
Portfolio Turnover Rate .................................... 74%** 132% 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 Adviser and/or Administrator were as follows:
<TABLE>
<CAPTION>
Six months ended Years ended December 31,
June 30, 1997 -----------------------------------
(unaudited) 1996 1995 1994 1993(1)
----------- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
$0.26 $0.51 $0.50 $0.46 $0.23
</TABLE>
See Notes to Financial Statements
24
<PAGE> 27
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 to fund variable annuity contracts and variable life
insurance policies. Currently, shares of the Trust are offered only to separate
accounts in connection with 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 income 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 Trust 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. Securities traded on over-the-counter
markets are valued at the last sales price. Short-term obligations that mature
in 60 days or less are valued at amortized cost, which approximates 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. 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. 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.
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.
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
recorded.
EXPENSES: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a particular 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.
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE GALAXY
VIP FUND
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 (see Note 4).
The Trust and First Data Investor Services Group, Inc. ("FDISG"), 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, The Chase Manhattan Bank, for its services.
First Data 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.
Certain officers of the Trust may be 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. Each Trustee is
entitled to receive for services as a trustee of the Trust, The Galaxy Fund
("Galaxy") and Galaxy Fund II ("Galaxy II") an aggregate fee of $29,000 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, and the President and Treasurer of the Trust, Galaxy and
Galaxy II are also entitled to additional fees for their services in these
capacities. These fees are allocated among the funds of the Trust, Galaxy and
Galaxy II, based on their relative net assets. Prior to November 1, 1996, each
Trustee was entitled to receive for services as a trustee of the Trust and
Galaxy 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 Galaxy and the President and Treasurer of the Trust and Galaxy were
entitled to additional annual fees for their services in these capacities.
In addition, effective March 1, 1996, each Trustee became eligible to
participate in the Trust's Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified 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. On January 1, 1997, the Plan was merged into a combined
Deferred Compensation Plan for the Trust, Galaxy and Galaxy II.
Expenses for the six months ended June 30, 1997 include legal fees paid
to Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
At June 30, 1997, with the exception of the initial shares, the separate
accounts owned all of the outstanding shares of the Funds as investment accounts
for the variable annuity contracts issued by American Skandia Life Assurance
Corporation.
4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Investment Adviser and Administrator may voluntarily waive all or a
portion of the fees payable to them by the Funds. The Investment Adviser and
Administrator may, at their discretion, revise or discontinue the voluntary
limitations at any time.
For the six months ended June 30, 1997, 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 $19,362 $14,643
High Quality Bond 23,166 14,643
</TABLE>
The Investment Adviser may, from time to time agree to reimburse a Fund
for expenses above a specified percentage of average net assets. For the six
months ended June 30, 1997, the Investment Adviser agreed to reimburse the Money
Market Fund, the Asset Allocation Fund, and the High Quality Bond Fund in the
amounts of $662, $16,327, and $2,163 respectively.
26
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
THE GALAXY
VIP FUND
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.
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, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------------------- ---------------------------
FUND OTHER GOVERNMENT OTHER GOVERNMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $2,834,935 $ -- $ 109,064 $ --
Asset
Allocation 7,741,925 1,943,919 4,165,496 2,174,420
High Quality
Bond 3,516,165 4,908,667 2,116,259 6,479,875
</TABLE>
The aggregate gross unrealized appreciation (depreciation), net
unrealized appreciation (depreciation) and cost for all securities, as computed
on a Federal income tax basis, at June 30, 1997 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND APPRECIATION (DEPRECIATION) NET COST
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money
Market $ -- $ -- $ -- $14,897,803
Equity 21,608,740 (78,155) 21,530,585 37,580,589
Asset
Allocation 5,105,382 (98,789) 5,006,593 25,378,332
High Quality
Bond 116,065 (41,812) 74,253 11,260,165
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, the Funds had capital loss carryforwards as
follows:
<TABLE>
<CAPTION>
Fund Amount Expiration
- ---- ------ ----------
<S> <C> <C>
Money Market $ 79 2002
29 2003
Equity 64,947 2001
124,453 2002
17,469 2003
99,373 2004
High Quality Bond 155,797 2002
26,958 2003
159,052 2004
</TABLE>
27
<PAGE> 30
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<PAGE> 31
[GALAXY VIP FUND LOGO]
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