[Cover]
GALAXY
VARIABLE ANNUITY III
[Picture of two businessmen standing and talking near large columns]
GALAXY VARIABLE ANNUITY III REPORT
SEMI-ANNUAL
REPORT
FOR THE PERIOD ENDED
JUNE 30, 1998
<PAGE>
CHAIRMAN'S
MESSAGE FOR THE
GALAXY VIP FUND
Dear Variable Annuity Policyholder:
The following Semi-Annual Report for The Galaxy VIP Fund covers the six
months ended June 30, 1998. The report includes a Market Overview that describes
the economic and market changes that occurred during this period and how those
changes may have affected your returns. Following the Market Overview, you will
find individual Portfolio Reviews that describe how your Fund assets were
managed in this climate.
To help you diversify your investments more fully, we have added four
portfolios during the period. These include the Growth and Income Fund and the
Small Company Growth Fund, which are managed by Fleet Investment Advisors Inc.
("Fleet"), and the Columbia Real Estate Equity Fund II, and the Columbia High
Yield Fund II, which are managed by Columbia Management Company ("Columbia"), a
Fleet affiliate. Columbia has managed mutual fund accounts for more than 30
years. The firm takes a team approach to investing, identifying attractive
market sectors and themes using a "top-down" analysis of current economic
conditions. We believe the addition of these new funds will broaden both the
management styles and investment objectives available to you.
In the past six months, stocks and bonds continued to break new ground.
With gains in the first and second quarters of 1998, stocks have advanced for 14
consecutive quarters. Over the last three and a half years, the Standard &
Poor's 500 Index of stocks has earned a cumulative total return of 165.36%. This
translates to an average annual return of 32.16%, versus the average annual
return of 18.56% stocks have earned over the past 10 years. In the bond market,
a tug-of war between strong growth and low inflation kept prices in a narrow
range. However, the yield for 30-year Treasury bonds hit its lowest level since
the bonds were introduced in 1977.
In this exceptional investment environment, the time-tested portfolio
strategies of diversification and rebalancing can help preserve the gains you
have earned and reduce future market risk. By dividing your portfolio among
different asset classes, you may significantly reduce fluctuations in your
returns. Today, with stock valuations reaching new highs, many investors are
diversifying into bond funds in an attempt to buffer their portfolios from
market volatility. Your investment professional can help you choose a
diversification strategy that suits your particular financial goals.
If you have long-term diversification strategies, this may be a good
time to check your asset allocations. Recent market changes, especially for
stocks, may have shifted your portfolio away from your original allocation. Many
investment professionals recommend rebalancing a portfolio yearly to keep up
with changing values. In today's rapidly moving market, you may want to
rebalance more frequently. Your investment professional can help restore your
portfolio to the allocations that match your long-term goals.
If you would like more information about any of the Galaxy VIP Funds,
or you have questions about this report, please call the Galaxy Service Center
at 1-800-628-0414.
Sincerely,
/s/ Dwight E. Vicks, Jr.
- ---------------------------------
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
The Galaxy VIP Fund
[sidebar text]
Mutual Funds:
o are not bank
deposits
o are not FDIC
insured
o are not obliga-
tions of Fleet
Bank
o are not guaran-
teed by Fleet
Bank
o are subject to
investment risks
including possible
loss of principal
amount invested
[end sidebar text]
- ------------------
This report relates to the Class 3 Sub-Accounts of American Skandia Life
Assurance Corporation Variable Account B. These Sub-Accounts are distributed
under the name Galaxy Variable Annuity III. The underlying mutual fund
portfolios in which the Sub-Accounts invest are (a) The Galaxy VIP Fund
(Portfolios - Money Market, Equity, Growth and Income, Small Company Growth,
Columbia Real Estate Equity Fund, Asset Allocation, High Quality Bond and
Columbia High Yield); and (b) American Skandia Trust (Portfolios - T. Rowe Price
International Bond, Founders Capital Appreciation, INVESCO Equity Income, and T.
Rowe Price International Equity). The first part of this report, through page
48, relates to The Galaxy VIP Fund only. The second part of this report relates
to the American Skandia Trust (and includes five additional mutual funds that
are offered in connection with the Sub-Accounts).
The Galaxy VIP Fund and the American Skandia Trust portfolios offered in
connection with the Sub-Accounts are separately managed and have different
Boards of Trustees.
<PAGE>
MARKET OVERVIEW
GALAXY VIP FUND
PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of June 30, 1998
[BAR CHARTS]
Money Market Fund
Inception Date 2/2/93
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years 5 Year Life of Fund
<S> <C> <C> <C> <C>
2.60% 5.19% 5.07% 4.66% 4.54%
</TABLE>
Equity Fund
Inception Date 1/11/93
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years 5 Year Life of Fund
<S> <C> <C> <C> <C>
11.19% 20.58% 23.49% 18.81% 16.98%
</TABLE>
Growth and Income Fund
Inception Date 3/4/98
Life of Fund
0.36%
Small Company Growth Fund
Inception Date 4/17/98
Life of Fund
-6.08%
Columbia Real Estate Equity Fund II
Inception Date 3/3/98
Life of Fund
-0.93%
Asset Allocation Fund
Inception Date 2/6/93
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years 5 Year Life of Fund
<S> <C> <C> <C> <C>
9.12% 17.58% 17.93% 14.42% 13.62%
</TABLE>
High Quality Bond Fund
Inception Date 1/21/93
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years 5 Year Life of Fund
<S> <C> <C> <C> <C>
4.26% 11.18% 7.54% 6.68% 6.71%
</TABLE>
Columbia High Yield Fund II
Inception Date 3/3/98
Life of Fund
3.01%
[END BAR CHARTS]
* Not Annualized
MARKET OVERVIEW
By Fleet Investment Advisors Inc.
Economic growth remained solid in the first six months of 1998, but
inflation continued to fall. This allowed the Federal Reserve (the "Fed") to
leave interest rates unchanged. With continued strength in corporate earnings,
stock prices rose sharply in the first quarter of the year and continued to
advance in the second. This left the Standard & Poor's Composite Stock Index
(the "S&P 500 Index") with a total return of 17.71% for the six months ended
June 30, 1998. Bond prices traded in a relatively narrow range, producing a
modest gain in a falling rate environment. During that time the Lehman Brothers
Government/Corporate Bond Index had a total return of 4.17%. After stabilizing
early in the period, the economic crisis in Asia deepened. This increased
expectations for slower U.S. economic growth and intensified the "flight to
quality" started by U.S. and foreign investors in 1997. By emphasizing quality
investments throughout their portfolios, the Galaxy VIP Funds earned returns
that were competitive with other funds tracked by Lipper Analytical Services
that have similar investment objectives. (These comparisons are available on
pages 4 through 11 of this report.)
Positive Fundamentals
At the end of 1997, the gross domestic product ("GDP"), which measures the
production of U.S. goods and services, increased at an annual rate of 3.7%. The
rate of inflation at that time was 1.9%. In the first quarter of 1998, GDP
growth improved to 5.5%. This was one of the best rates in the past 15 years and
may have been due partly to a flood of cash from abroad, and partly to lower
import prices. Although employment continued to tighten -- putting upward
pressure on wages -- competitive pricing, productivity gains and falling oil
prices helped inflation edge even lower. By the end of the first quarter, the
rate of inflation was 1.4%, its lowest level since 1986.
In the first weeks of 1998, a worsening of Asia's economic problems raised
expectations for a cut in interest rates and boosted demand for U.S. Treasury
securities. This drove bond prices high enough to give 30-year Treasuries a
yield of 5.69% -- an all-time low. Although stock prices corrected on concerns
that reduced trade with Asia would slow U.S. growth, investors were soon
heartened by the intervention of the International Monetary Fund and its attempt
to stabilize Asian economies. With strong consumer confidence and healthy
economic fundamentals, demand for stocks surged. At the same time, corporate
consolidations and stock buyback programs continued to trim stock supplies.
Stock prices soon rebounded to break new highs by the middle of March.
What was good news for stocks depressed prices for bonds - as investors
feared the Fed might have to raise interest rates to keep the economy from
overheating. As bond prices fell, the yield for long-term Treasury bonds moved
back over 6%. Soon, however, it was clear that Asia's problems were much worse
than analysts first thought and included a recession in Japan. Meanwhile, U.S.
companies reported a slowdown in profit growth for the first quarter, for the
lowest gain since 1991. This, plus plans for reduced sales of Treasury
2
<PAGE>
MARKET OVERVIEW
GALAXY VIP FUNDS
PRODUCT PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of June 30, 1998
Variable Account B, Class 3
Inception 5/1/95
[BAR CHARTS]
Money Market Fund
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years Life of Account
<S> <C> <C> <C>
2.01% 4.08% 3.99% 3.47%
</TABLE>
Equity Fund
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years Life of Account
<S> <C> <C> <C>
10.64% 19.37% 22.23% 15.81%
</TABLE>
Growth and Income Fund
Life of Account
0.03%
Small Company Growth Fund
Life of Account
-6.39%
Columbia Real Estate Equity Fund II
Life of Account
-1.25%
Asset Allocation Fund
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years Life of Account
<S> <C> <C> <C>
8.58% 16.41% 16.74% 12.46%
</TABLE>
High Quality Bond Fund
<TABLE>
<CAPTION>
6 Months* 1 Year 3 Years Life of Account
<S> <C> <C> <C>
3.74% 10.07% 6.46% 5.64%
</TABLE>
Columbia High Yield Fund II
Life of Account
2.72%
[END BAR CHARTS]
* Not Annualized
bonds due to a projected budget surplus, sent bond prices higher. During
June, long-term Treasury yields hit another all-time low of 5.58%. Stock prices
corrected, but managed a solid gain for late in the second quarter.
Focus on Quality
With ongoing economic uncertainty, investors preferred stocks of companies
with reliable earnings. Even though valuations for large-company shares were
much higher than those for small-company stocks, large-company issues continued
to outperform. The same flight to quality and liquidity favored Treasury
securities over corporate bonds.
In this environment, we continued to take profits in stocks that had
performed well and to look for attractive opportunities in other issues that
arose at times of market weakness. We remained focused on stocks of quality
firms, emphasizing larger companies with proven earnings.
In the bond portfolios, we traded investments in corporate issues for
Treasury securities and focused corporate investments on higher-quality debt. By
extending the maturities of Treasury investments, we captured additional income
and price appreciation when bonds rallied.
Slower Growth Increasingly Likely
The recent developments in Asia indicate that Asia's problems may take
years to resolve and do more harm to U.S. trade and growth. Although inflation
may edge upward with further pressure from wages, slower growth in the second
half of 1998 seems increasingly likely. While this should help keep inflation in
check, slower growth will probably bring additional disappointments in earnings.
Because stock valuations remain higher than ever, we believe that such
disappointments could prompt a significant market correction in coming months.
Given the exceptional returns stocks have earned for more than three years, we
think stock returns for 1998 will probably be near or below historic norms. Over
time, however, the solid foundations of the U.S. economy should help stocks make
further gains.
In the interim, volatility in stock prices and low inflation should draw
investors to the historically attractive returns of bonds. With slower growth,
the Fed is unlikely to raise interest rates and may even cut rates to stimulate
the economy. This, plus strong demand, could help bond prices rally further. For
the most part, however, we expect the fixed-income market to continue trading in
a narrow range -- vacillating between higher yields when investors focus on
economic strength and lower yields when investors see disinflationary pressures
from the economic problems abroad.
These results reflect the experience of the sub-accounts of Variable Account B,
Class 3 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 B, Class 3 sub-accounts purchase shares of The Galaxy VIP Fund.
The sub-accounts are GAL Money Market, GAL Equity, GAL Growth and Income, GAL
Small Company Growth, GAL Columbia REIT, GAL Asset Allocation, GAL High Quality
Bond, and GAL Columbia High Yield. 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 Advisor and the Administrator are presently
waiving fees for the Galaxy VIP Money Market Fund, the Galaxy VIP Growth and
Income Fund, the Galaxy VIP Small Company Growth Fund, the Galaxy VIP Columbia
Real Estate Equity Fund, the Galaxy VIP High Quality Bond Fund. and the Galaxy
VIP Columbia High Yield Fund II. 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.
3
<PAGE>
PORTFOLIO REVIEWS
GALAXY VIP MONEY MARKET FUND
Portfolio Manager
Karen M. Arneil
[Photo: Karen M. Arneil]
Karen M. Arneil
The Galaxy VIP Money Market Fund seeks as high a level of current income
consistent with liquidity and stability of principal.
Short-term yields remained in a narrow range during the first half of 1998.
Within that range, however, there were often yield fluctuations and changes in
spreads between yields of different instruments. By watching for these
opportunities, we helped the Fund earn a total return of 2.60% for the six
months ended June 30, 1998. This compares with a total return of 2.42% for the
average money market fund tracked by Lipper Analytical Services.
Keeping it Short
In the final months of 1997, before the period began, we bought investments
that matured in the early months of 1998. This enabled us to take advantage of
year-end technical pressures that sent yields higher. By the time these issues
matured, expectations for a cut in short-term rates had pushed yields lower.
Because we wanted to remain flexible for any increase in yields that might
occur, and because the yield curve for commercial paper was relatively flat, we
focused on investments with shorter maturities. Where we could, we enhanced
yield through individual investment opportunities. With persistent problems in
Asia causing further turbulence in other foreign economies, we focused primarily
on domestic securities.
In the second quarter of 1998, the yield curve flattened further. This was
due largely to a tug-of-war between stronger growth and expectations for higher
rates on the one hand, and the chance that growth would slow and rates would
fall on the other. With even less advantage for adding longer maturities, we
remained focused on shorter investments. As the trouble in Asia continued to
worsen, we maintained our emphasis on domestically issued securities.
Throughout the period we staggered the maturity dates of Fund holdings to
provide upside potential if the Fed should raise interest rates. On June 30,
1998, the Fund had an average maturity of 33 days, an SEC 7-day effective yield
of 5.17%, and an SEC 30-day effective yield of 5.15%.
Lower Yields Possible
These strategies should continue to serve the Fund in months to come. In
the near-term, while economic growth remains strong with a flat yield curve, we
expect to stay focused on shorter maturities. It appears increasingly likely,
however, that the Asian crisis will eventually slow U.S. growth and keep
inflation and interest rates low.
If we anticipate growth will slow enough for the Fed to cut rates, we will
begin to invest in longer maturities. In the meantime, we will continue to look
for high-quality investments with good value.
Karen M. Arneil has managed the Galaxy VIP Money Market Fund since September
1996. She has managed money market investments since 1993.
[PIE CHART]
Galaxy VIP Money
Market Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
U.S. Agency Obligations 25%
Commercial Paper 75%
</TABLE>
[END PIE CHART]
[MOUNTAIN CHART]
Galaxy VIP Money Market Fund
7-Day Average Yields
<TABLE>
<S> <C>
4.8% 5.3%
July 1, 1997 June 30, 1998
</TABLE>
[END MOUNTAIN CHART]
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.
4
<PAGE>
PORTFOLIO REVIEWS
GALAXY VIP EQUITY FUND
Portfolio Manager
Harold A. Mackinney, Jr.
[Photo: Harold A. Mackinney, Jr.]
Harold A. Mackinney, Jr.
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 earnings.
With investors increasingly concerned about earnings in recent months, and
stock valuations higher than ever, we continued to choose stocks with good
earnings prospects and reasonable prices. As a result, the Fund earned strong
returns from many of its investments. Although we kept large cash reserves as a
buffer against a possible price correction, which caused the Fund to
underperform its benchmarks, the Fund earned a strong return by historic market
standards.
For the six months ended June 30, 1998, the Fund had a total return of
11.19%. That compares with returns of 17.71% for the S&P 500 Index and 15.11%
for the average growth fund tracked by Lipper Analytical Services. The equities
portion of the Fund had a total return of 14.7% during this time.
Drug, Technology, and Banking Shares Lead
Throughout the period the Fund enjoyed outstanding performances from
investments in drug, technology, and banking shares -- as well as from
individual issues that represented large positions in the Fund. Drug companies
benefited from a strong pipeline of new products, a focus on domestic sales, and
an ability to grow earnings even if economic growth slows. Banks benefited from
the low interest rates and further industry consolidation. Shares of technology
firms, though volatile, benefited from the long-term growth potential of their
industry.
These positive contributions offset disappointing returns from energy
stocks, hurt by sharp declines in oil prices, and from stocks whose sales rely
on the economies of Asia.
During the period we used times of market weakness to add shares whose
prices had become particularly attractive. Many of these stocks were energy
issues -- as well as shares of firms in capital goods, automotive,
transportation, and other "cyclical" industries. After technology stocks were
hit by Asian concerns in the first quarter of 1998, we found attractive
investments in that sector.
A Peak in Earnings
Historically, the price-to-earnings ("p/e") ratios for stocks have peaked
when earnings were bottoming. Today, however, p/e ratios are at all-time highs,
as earnings seem to be peaking. With an uncertain economic future for Asia, and
an apparent slowing in European growth, U.S. growth and earnings may soon
seriously disappoint investors. If this happens, we think stocks could
experience a significant market correction in the second half of the year.
Longer term, we believe strong U.S. fundamentals like low inflation and interest
rates will spur additional earnings growth and further stock gains.
As a result, we expect to keep large cash reserves that we can put to work
as individual investment opportunities or broader-market weakness occurs. As
always we will look for stocks whose specific valuations can make them solid
long-term investments.
Harold A. Mackinney, Jr. has managed the Galaxy VIP Equity Fund since its
inception in 1993.
[PIE CHART]
Galaxy VIP
Equity Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
U.S. Agency Obligation 25%
Other Common Stocks 7%
Transportation 4%
Consumer Cyclical 11%
Finance 10%
Technology 19%
Consumer Staples 18%
Energy 6%
</TABLE>
[END PIE CHART]
[MOUNTAIN CHART]
Galaxy VIP Equity Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Inception
12/31/93 6/30/98
<S> <C> <C>
S&P 500 Index $10,000 $32,592
Galaxy VIP Equity Fund $10,000 $23,571
</TABLE>
[END MOUNTAIN CHART]
* 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.
5
<PAGE>
PORTFOLIO REVIEWS
GALAXY VIP GROWTH AND INCOME FUND
Portfolio Manager
Gregory M. Miller
[Photo: Gregory M. Miller]
Gregory M. Miller
The Galaxy VIP Growth and Income Fund seeks a high total return through
long-term capital appreciation and current income. The Fund invests in a
diversified portfolio consisting primarily of common stocks selected through
traditional research techniques. The Fund's modest income orientation is
intended to both enhance returns and dampen share-price volatility.
Between its inception on March 4, 1998 and the end of the reporting period
on June 30, 1998, the Fund earned a total return of 0.36%. For the same period,
the S&P 500 Index had a return of 8.61%, and the average growth and income fund
tracked by Lipper Analytical Services had a return of 4.74%.
Looking for Value
As we launched the Fund, the stock price advance of the last three years
was still intact. To make the most of an increasingly expensive market, we
looked for shares whose prices offered good value. All too soon, however, the
economic problems in Asia deepened. The reduction in trade between Asia and the
U.S. that resulted was particularly harmful to stocks of basic materials and
capital goods firms. At the same time, lower oil prices damaged returns for
energy stocks. Although the Fund's investments in these sectors caused it to lag
its market benchmarks in the recent period, we believe the attractive valuations
of these sectors should contribute positively to returns over time. The Fund
also has sizable investments in consumer firms, which should benefit from strong
consumer demand.
Attention to Quality, Diversification
Although stock valuations remain at record highs, we think equity
investors with diversified portfolios will be rewarded over time. We have built
a well-diversified portfolio of high-quality names that we expect to perform
well over the next year or two. In the health care sector, which is a large part
of the portfolio, we hold shares of broad-based firms whose earnings should be
consistent even if the economy slows. Should new market weakness create
opportunities in financial issues, we may add shares in that sector -- where we
are now slightly underweighted. We believe financial stocks should continue to
perform well in a low interest rate environment.
Gregory M. Miller became manager of the Galaxy VIP Growth and Income Fund in
July 1998. He has managed equity portfolios since 1989.
GALAXY VIP SMALL COMPANY GROWTH FUND
Portfolio Manager
Stephen D. Barbaro
The Galaxy VIP Small Company Growth Fund seeks to provide capital
appreciation by investing primarily in the securities of companies with market
capitalizations of $750 million or less.
In the several months since the Fund's inception, economic uncertainty has
caused stocks of small companies to significantly underperform large-cap shares.
This was particularly true of small-cap growth stocks, where the Fund focuses
its investments. The small-cap sector was also hurt by sharp losses from
technology stocks whose earnings are tied to the economies of Asia.
[PIE CHART]
Galaxy VIP Growth
and Income Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Consumer Staples 18%
Finance 17%
Technology 12%
Capital Goods & Construction 9%
Consumer Cyclical 9%
Other Common Stocks &
Convertible Preferred Stocks 26%
U.S. Agency Obligations &
Net Other Assets & Liabilities 9%
</TABLE>
[END PIE CHART]
[PIE CHART]
Galaxy VIP Small
Company Growth Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Capital Goods & Construction 7%
Other Common Stocks 14%
U.S. Agency Obligations &
Net Other Assets & Liabilities 19%
Technology 30%
Consumer Cyclical 16%
Consumer Staples 14%
</TABLE>
[END PIE CHART]
6
<PAGE>
PORTFOLIO REVIEWS
[Photo: Stephen D. Barbaro]
Stephen D. Barbaro
These factors combined to produce a total return of -6.08% between the
Fund's inception on April 17, 1998 and the end of the reporting period on June
30, 1998. Over the same time, small-company growth funds tracked by Lipper
Analytical Services had an average return of -4.92% and the Russell 2000 Index
had a return of -5.19%.
Building the Portfolio
In building the Fund's portfolio, we looked for stocks with good potential
for earnings growth and reasonable prices. As much as possible, we emphasized
domestically focused companies whose earnings would not be damaged by the
trouble in Asia. Although the small-cap sector as a whole underperformed during
the period, many individual issues we bought earned healthy returns. This was
especially true of certain positions in the transportation and consumer sectors.
During times of market weakness we looked for opportunities to add
high-quality investments in the consumer and technology sectors. Within the
technology sector we focused our purchases on information-service firms.
Focus on Quality, Value
We think the Fund is well positioned to withstand further market
volatility and take advantage of a reversal in small-cap fortunes when it
occurs. If U.S. growth slows, as we expect, prices for stocks of all
capitalizations could face significant corrections. Once growth picks up again,
and investors become more confident about earnings, the more reasonable
valuations of small-cap growth stocks could help them outperform. We think the
Fund should benefit in both environments from emphasizing high-quality companies
with good growth potential and attractive share prices.
Stephen D. Barbaro has managed the Galaxy VIP Small Company Equity Fund since
its inception in April 1998. He has managed small company portfolios for Fleet
Investment Advisors Inc., and its predecessors, since 1977.
GALAXY VIP COLUMBIA
REAL ESTATE EQUITY FUND II
Portfolio Manager
David W. Jellison
The Galaxy VIP Columbia Real Estate Equity Fund II seeks capital
appreciation and above-average current income. The Fund invests primarily in the
equity securities of real estate companies, including real estate investment
trusts (REITs).
From the Fund's inception on March 3, 1998 through June 30, 1998, the Fund
had a total return of -0.93%. That compares to a return of -2.88% for the
National Association of Real Estate Investment Trusts (NAREIT) Index and a
return of -2.91% for the average real estate stock fund tracked by Lipper
Analytical Services over the same time period.
Peak of Cycle Concerns Hurt REITs
REITs lagged the broader equity market in the first half of 1998. As
acquisitions become increasingly expensive, and new development threatened the
balance of real estate supply and demand, investors became concerned that the
industry's recent strong earnings growth could slow sharply. During the
reporting period, performance in the REIT market was led by the more defensive
retail sector, where strong consumer spending bolstered fundamentals. The
high-growth office and lodging sectors lagged
[PIE CHART]
Galaxy VIP Columbia Real Estate
Equity Fund II
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Real Estate Investment Trust 88%
Real Estate 6%
U.S. Government Obligations &
Net Other Assets 5%
Investment Company 1%
</TABLE>
[END PIE CHART]
7
<PAGE>
PORTFOLIO REVIEWS
[Photo: David W. Jellison]
David W. Jellison
during the period -- evidence of investors' concerns about potential
overbuilding or rising vacancy rates for these businesses.
The Fund benefited from a below-market weighting in lodging REITs and an
above-market weighting in industrial REITs, which outperformed the broader REIT
market. Throughout the period, however, we maintained a sizable weighting in the
office sector, believing that the positive prospects for internal growth and
industry consolidation remain intact. Changes in asset allocation within the
portfolio included a modest increase in industrial REITs, offset by a decline in
office holdings. We also increased our emphasis in larger, high-quality
companies.
Attractive Valuations
We believe that the current valuations for REITs reflect an
overdiscounting by investors anticipating slower industry growth. Many REITs, in
fact, are now trading at or below the underlying value of the real estate they
own. We believe that these valuations are attractive and, along with rising
dividend growth rates, may provide the opportunity for better performance in the
months ahead.
Going forward, our focus will center on companies that can improve
earnings even as the real estate cycle matures. With this in mind, we will seek
companies whose managements have demonstrated the ability to sustain healthy
internal growth, while adding value through selective development activity.
David W. Jellison has managed the Galaxy VIP Columbia Real Estate Equity Fund II
since its inception in March 1998. A vice president with Columbia Management
Company, he has served as a financial analyst and portfolio manager there since
1992.
GALAXY VIP ASSET ALLOCATION FUND
Portfolio Manager
Donald 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.
Because stock prices remained very expensive by historic measures, we
continued to hold large investments in bonds and cash over the past six months.
Strong yields from bond investments, plus solid performances by health care
stocks, helped the Fund earn a total return of 9.12% for the six months ended
June 30, 1998. That compares to a return of 10.13% for the average flexible
portfolio fund tracked by Lipper Analytical Services and a return of 17.71% for
the S&P 500 Index, which tracks the performance of stocks only.
Drug Stocks Lead
When stocks rallied in the first part of the year, the Fund enjoyed
exceptional returns from holdings in pharmaceutical firms and other large
companies. These returns offset disappointing performances from energy stocks,
which were hurt by falling oil prices, and certain technology shares. We used
large additions of new cash -- and profits from stocks that became over-
[PIE CHART]
Galaxy VIP Asset
Allocation Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Corporate Notes and Bonds 24%
Asset-Backed and
Mortgage-Backed Securities 1%
U.S. Government &
Agency Obligations 28%
Common Stocks 47%
</TABLE>
[END PIE CHART]
8
<PAGE>
PORTFOLIO REVIEWS
[Photo: Donald Jones]
Donald Jones
valued -- to increase shares of existing positions and introduce new names in
the technology, drug and banking sectors.
Drug stocks continued to outperform in the second quarter, along with some
of the Fund's technology stocks. Other technology stocks continued to suffer, as
did energy shares. With new cash that came into the Fund, we further increased
investments in the drug and technology sectors.
During the period we maintained the Fund's 40% position in bonds that we
had built in 1997. We increased the portion of high-grade corporate bonds, whose
prices and yields became more appealing as investors worried that slower growth
might curb corporate earnings. We further enhanced the Fund's yield with
investments in asset-backed and mortgage-backed securities. Prices for
mortgage-backed securities became attractive as investors appeared to over-react
to the high levels of home loan pre-payments that were encouraged by low
interest rates.
Preparing for Slower Growth
Believing that growth is likely to slow in the months ahead, we are taking
several steps to protect Fund returns. On the stock side, we continue to take
profits in shares that we believe are overvalued. In coming months we may begin
to trim holdings in the drug and technology areas, where returns have been
especially strong. As in the first half of 1998, we will continue to
de-emphasize stocks whose fortunes depend on trade with Asia or strong U.S.
growth. We plan to keep about 25% of the equity portfolio in cash to take
advantage of new opportunities that a market correction might bring.
On the fixed-income side, bonds will continue to represent about 40% of
Fund assets. Bonds should benefit if growth slows, and inflation remains low --
especially if the Fed must cut interest rates to stimulate growth. As in the
stock portfolio, we expect to focus on corporate bonds in economically defensive
sectors with strong balance sheets and good potential for earnings growth.
Donald Jones has managed the Galaxy VIP Asset Allocation Fund since its
inception in 1993. He has managed investment portfolios for Fleet Investment
Advisors Inc., and its predecessors, since 1988.
[MOUNTAIN CHART]
Galaxy VIP Asset Allocation Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Inception
12/31/93 6/30/98
<S> <C> <C>
S&P 500 Index $10,000 $32,272
Galaxy VIP Asset Allocation Fund $10,000 $19,816
</TABLE>
[END MOUNTAIN CHART]
* 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.
GALAXY VIP
HIGH QUALITY BOND FUND
Portfolio Manager
Marie M. Schofield
The Galaxy VIP High Quality Bond Fund seeks a high level of current income
consistent with prudent risk of capital. The Fund invests primarily in U.S.
government securities and corporate issues rated in the three highest rating
categories by Moody's Investors Service Inc. ("Moody's") or Standard & Poor's
Rating Group.
[PIE CHART]
Galaxy VIP High
Quality Bond Fund
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Net Other Assets & Liabilities 1%
Asset-Backed and
Mortgage-Backed Securities 8%
U.S. Government and Agency Obligations 52%
Corporate Notes & Bonds 39%
</TABLE>
[END PIE CHART]
9
<PAGE>
PORTFOLIO REVIEWS
[Photo: Marie M. Schofield]
Marie M. Schofield
During the past six months the Fund maintained its "active duration
discipline." This strategy is based on the real (inflation-adjusted) yields for
U.S. Treasury securities. Historically, a real yield of 4% or more for long-term
Treasuries has represented an attractive opportunity to lock in high-quality
returns with longer-term issues, while a real yield below 3.5% has offered less
value and suggested a shortening of maturities. With inflation below 2% in
recent months, long-term Treasuries have been attractive when yields have ranged
between 5.75% and 6.0%. By adding longer-term issues at these times -- and
buying Treasuries, which outperformed -- we helped the Fund earn a total return
of 4.26% for the six months ended June 30, 1998. That compares to returns of
4.17% for the Lehman Brothers Government/Corporate Bond Index and 3.78% for
average A-rated corporate bond fund tracked by Lipper Analytical Services. On
June 30, 1998, the Fund had a 30-day SEC yield of 5.58%.
Going Long
When the reporting period began, the average duration of investments in the
Fund was about one-quarter year longer than the average duration of the Lehman
Government/Corporate Bank Index. This gave the Fund extra income and price
appreciation as bond yields fell in January. When long-term Treasury yields
topped 6% in April, we added more long-term investments -- putting the Fund's
average duration about one-half year longer than that of its benchmark. This
strategy proved quite helpful in May and June, when gains for long-term bonds
were particularly strong.
The mix of Fund investments also enhanced returns. At the end of 1997, with
the ongoing economic uncertainty that resulted from trouble in Asia, we had
trimmed investments in longer-term corporate bonds and focused on shorter-term
corporates of high credit quality. This let us increase investments in long-term
Treasuries -- which we expected to benefit from an apparent federal budget
surplus that should reduce Treasury supplies. These strategies helped the Fund
take better advantage of the outperformance by Treasuries in the months that
followed. We offset the extra price risk for long-term issues by adding
short-term Treasuries.
When corporate prices became more attractive in January and February, we
traded financial issues for debt of telecommunications, utility, and consumer
firms. In the second quarter of 1998, we traded asset-backed securities for
issues in the financial sector -- which we felt would be less vulnerable to
Asia's problems.
With mortgage interest rates at their lowest levels in years, sustaining a
high level of home-loan prepayments, we reduced mortgage-backed securities to
less than 10% of Fund assets and restructured that part of the portfolio. To
limit prepayment risk, we gave greater attention to seasoned securities and
lower-coupon issues.
Investing for Slower Growth
This investment mix and duration strategy should continue to serve the Fund
in coming months. If inflation and interest rates remain low, long-term issues
could still outperform. If growth slows, Treasuries would probably continue to
outperform corporate bonds -- especially corporates of lower credit quality.
Because the yield curve has flattened substantially, we may focus future
Treasury investments on intermediate-term issues. Should a further decline in
interest rates sustain a high level of home-loan prepayments, we may make
additional cuts in mortgage-backed securities.
Marie M. Schofield became manager of the Galaxy VIP High Quality Bond Fund in
March of 1996. She has managed fixed-income assets since 1975.
[MOUNTAIN CHART]
Galaxy VIP High
Quality Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Inception
12/31/93 6/30/98
<S> <C> <C>
Lehman Brothers Government/Corporate Bond Index $10,000 $14,226
Galaxy VIP High Quality Bond Fund $10,000 $14,238
</TABLE>
[END MOUNTAIN CHART]
* 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.
10
<PAGE>
PORTFOLIO REVIEWS
GALAXY VIP COLUMBIA
HIGH YIELD FUND II
Portfolio Manager
Jeffrey L. Rippey
[Photo: Jeffrey L. Rippey]
Jeffrey L. Rippey
The Galaxy VIP Columbia High Yield Bond Fund II seeks high current income
with a secondary objective of capital appreciation. The Fund invests primarily
in high-yielding corporate bonds rated BB or lower by Standard & Poor's or Ba or
lower by Moody's Investors Service, Inc. ("junk bonds"), with no more than 10%
of its assets in bonds rated below B.
After a strong first quarter, high-yield bonds struggled a bit in the
second quarter, as investors became increasingly concerned about the impact of
the Asian crisis on U.S. economic growth and corporate earnings. In addition,
high-yield bonds were negatively impacted by the large supply of new deals
brought to market during the second quarter. This environment prompted a flight
to quality within the high-yield market and an increase in the demand for junk
bonds with higher credit ratings. This benefited Fund performance, due to the
fact that our investment strategy focuses on higher-rated issues.
From the Fund's inception on March 3, 1998 through June 30, 1998, the Fund
had a total return of 3.01%. That compares to returns of 2.69% for the Lehman
Brothers Aggregate Bond Index and 1.66% for the average high-yield bond fund
tracked by Lipper Analytical Services. On June 30, the Fund had a 30-day SEC
yield of 6.29%.
Investment Opportunities
When news of the Asian crisis first broke in late 1997, prices for all
corporate bonds, including high-yield debt, fell relative to Treasuries. The
high-yield market outperformed the broader fixed-income market early in the new
year, as the turmoil in Asia seemed to stabilize. Once investors realized that
Asia's troubles would take longer to correct than first expected, however, a
flight to quality ensued, and investors bought Treasuries as a safe haven. This
caused prices for corporate bonds, especially high-yield issues, to trade more
cheaply than Treasuries and represented a buying opportunity for many high-yield
investors.
As corporate prices fluctuated during the period, we found attractive
investment opportunities in several new issues. Early in 1998, we purchased
holdings in the aerospace sector. We believe the long-term prospects for the
aerospace industry are favorable, as the aging of airline fleets around the
world and an increase in airline travel boost demand for new aircraft and parts.
We also purchased positions in the cable industry based on several positive
developments. Many cable companies are paying down their debt, clustering their
systems, and upgrading the quality and capacity of plants and equipment -- while
also adding new services.
In the second quarter, we purchased bonds issued by a large movie
exhibitor with a strong competitive position. We also increased holdings in two
large hospital operators that should benefit from an aging population. In
addition, we purchased bonds issued by an office-products distributor and an
equipment-rental firm.
Outlook
Despite the expected slowdown in economic growth, the supply of new
high-yield bonds should remain robust. With little concern about a recession,
however, we believe that high-yield bonds will perform reasonably well in the
near term. In addition to a reduced risk of default, there is increasing demand
for high-yield bonds among both retail and institutional investors.
Jeffery L. Rippey has managed the Galaxy VIP Columbia High Yield Fund II since
its inception in March 1998. A vice president of Columbia Management Company,
Mr. Rippey has managed fixed income portfolios since 1981.
[PIE CHART]
Galaxy VIP Columbia
High Yield Fund II
Distribution of Total Net Assets
as of June 30, 1998
<TABLE>
<S> <C>
Corporate Notes and Bonds 96%
U.S. Government Obligations 2%
Investment Companies &
Net Other Assets & Liabilities 2%
</TABLE>
[END PIE CHART]
11
<PAGE>
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 ADVISORS
Fleet Investment
Advisors Inc.
75 State Street
Boston, Massachusetts
02109-1810
Columbia Management Co.
1300 S.W. Sixth Avenue
PO Box 1350
Portland, OR 97207-1350
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., Columbia Management Co., 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.
[Recycle Symbol]
This report was printed on recycled paper.
<PAGE>
THE GALAXY
VIP FUND
Money Market Fund
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
COMMERCIAL PAPER (A) - 75.43%
<S> <C> <C>
Finance - 42.14%
$ 700,000 American Express Credit Corp.
5.49%, 09/24/98 ............... $ 690,926
700,000 Associates Corp. of North America
5.49%, 08/03/98 ................ 696,477
650,000 Caterpillar Financial Services Corp.
5.35%, 07/14/98 ................ 648,744
700,000 Diageo Capital, Plc
5.49%, 07/09/98 (B).............. 699,146
700,000 Ford Motor Credit Co.
5.50%, 07/28/98 ................ 697,112
700,000 General Electric Capital Corp.
5.49%, 08/24/98 ................ 694,236
700,000 General Re Corp.
5.50%, 08/14/98 ................ 695,294
700,000 PACCAR Financial Corp.
5.50%, 09/04/98 ................ 693,049
700,000 Shell Finance UK, Plc
5.50%, 07/20/98 ................ 697,968
700,000 USAA Capital Corp.
5.48%, 07/10/98 ................ 699,041
----------
6,911,993
----------
Consumer Staples - 12.74%
700,000 Coca-Cola Co.
5.46%, 07/30/98 ................ 696,921
700,000 Gillette Co.
5.47%, 08/24/98 (B).............. 694,256
700,000 Procter & Gamble Co.
5.48%, 07/17/98 ................ 698,295
----------
2,089,472
----------
Industrial - 8.10%
650,000 Emerson Electric Co.
5.55%, 08/06/98 ................ 646,393
685,000 Minnesota Mining & Manufacturing Co.
5.48%, 07/22/98 ................ 682,810
----------
1,329,203
----------
Technology - 4.26%
700,000 Lucent Technologies, Inc.
5.50%, 07/13/98 ................ 698,717
----------
Energy - 4.23%
700,000 Amoco Corp.
5.47%, 08/25/98 ................ 694,150
----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Consumer Cyclical - 3.96%
$ 650,000 Disney (Walt) Co.
5.46%, 07/07/98 ................ $ 649,409
-----------
Total Commercial Paper........... 12,372,944
(Cost $12,372,944) -----------
U.S. AGENCY OBLIGATIONS - 24.69%
Federal Home Loan
Mortgage Corporation (A) - 13.98%
1,295,000 5.85%, 07/01/98 ................ 1,295,000
1,000,000 5.41%, 07/17/98 ................ 997,596
-----------
2,292,596
-----------
Federal National
Mortgage Corporation - 10.71%
767,000 5.47%, 09/22/98 (A).............. 757,327
1,000,000 5.37%, 08/12/98 ................ 999,706
-----------
1,757,033
-----------
Total U.S. Agency Obligations.... 4,049,629
(Cost $4,049,629) -----------
Total Investments - 100.12% ..................... 16,422,573
(Cost $16,422,573) -----------
Net Other Assets and Liabilities - (0.12)%....... (20,104)
-----------
Net Assets - 100.00% ........................... $16,402,469
===========
</TABLE>
- ------------------------------------------
(A) Discount yield at time of purchase.
(B) Securities exempt from registration under Section 4(2) of the Securities
Act of 1933, as amended. These securities may be resold, in transactions
exempt from registration, to qualified institutional buyers. At June 30,
1998, these securities amounted to $1,393,402 or 8.50% of net assets.
See Notes to Financial Statements.
13
<PAGE>
THE GALAXY
VIP FUND
Equity Fund
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCKS - 75.63%
Technology - 19.33%
8,000 AMP, Inc......................... $ 275,000
42,000 Applied Materials, Inc.*......... 1,239,000
24,000 Automatic Data Processing, Inc... 1,749,000
31,000 Boeing Co........................ 1,381,438
30,000 Corning, Inc..................... 1,042,500
18,000 General Electric................. 1,638,000
20,000 Hewlett-Packard Co............... 1,197,500
38,000 Intel Corp....................... 2,816,750
28,000 Microsoft Corp.*................. 3,034,500
16,000 Motorola, Inc.................... 841,000
30,000 Thermo Electron Corp............. 1,025,625
-----------
16,240,313
-----------
Consumer Staples - 18.09%
12,000 Anheuser-Busch Cos., Inc......... 566,250
20,000 Bristol-Myers Squibb Co.......... 2,298,750
28,000 Gillette Co...................... 1,587,250
18,000 Johnson & Johnson................ 1,327,500
14,000 Merck & Co., Inc................. 1,872,500
42,000 PepsiCo, Inc..................... 1,729,875
22,000 Pfizer, Inc...................... 2,391,125
14,000 Procter & Gamble Co.............. 1,274,875
20,000 Sara Lee Corp.................... 1,118,750
40,000 Sysco Corp....................... 1,025,000
-----------
15,191,875
-----------
Consumer Cyclical - 10.85%
10,000 Armstrong World Industries, Inc.. 673,750
42,000 Dayton-Hudson Corp............... 2,037,000
10,000 Disney (Walt) Co................. 1,050,625
25,000 Home Depot, Inc.................. 2,076,563
30,000 McDonald's Corp.................. 2,070,000
8,900 Republic Services, Inc........... 213,600
30,000 Sherwin-Williams Co.............. 993,750
-----------
9,115,288
-----------
Finance - 9.86%
15,000 American International Group, Inc. 2,190,000
16,000 Crestar Financial Corp........... 873,000
30,000 Fannie Mae....................... 1,822,500
50,000 Hibernia Corp., Class A.......... 1,009,375
10,000 NationsBank Corp................. 765,000
20,000 SunTrust Banks, Inc.............. 1,626,250
-----------
8,286,125
-----------
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Energy - 6.58%
20,000 Amoco Corp....................... $ 832,500
11,000 Atlantic Richfield Co............ 859,375
16,000 Exxon Corp. ..................... 1,141,000
33,000 Halliburton Co................... 1,470,562
16,000 Mobil Corp....................... 1,226,000
-----------
5,529,437
-----------
Transportation - 4.29%
22,000 AMR Corp*........................ 1,831,500
30,000 Ford Motor Co.................... 1,770,000
-----------
3,601,500
-----------
Capital Goods - 3.90%
32,000 Caterpillar, Inc................. 1,692,000
30,000 Deere & Co....................... 1,586,250
-----------
3,278,250
-----------
Basic Materials - 2.73%
27,000 Consolidated Papers, Inc......... 735,750
10,000 Dow Chemical Co.................. 966,875
10,000 Georgia-Pacific Co............... 589,375
-----------
2,292,000
-----------
Total Common Stocks.............. 63,534,788
(Cost $31,197,304) -----------
Par Value
---------
U.S. AGENCY OBLIGATION (A) - 25.08%
Federal Home Loan
Mortgage Corporation - 25.08%
$21,064,000 5.85%, 07/01/98.................. 21,064,000
-----------
Total U.S. Agency Obligation..... 21,064,000
(Cost $21,064,000) -----------
Total Investments - 100.71%...................... 84,598,788
(Cost $52,261,304) -----------
Net Other Assets and Liabilities - (0.71)%....... (598,834)
-----------
Net Assets - 100.00%............................. $83,999,954
===========
</TABLE>
- ---------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
See Notes to Financial Statements.
14
<PAGE>
THE GALAXY
VIP FUND
Growth and Income Fund
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCKS - 89.65%
Consumer Staples - 18.17%
800 American Home Products Corp...... $ 41,400
700 Anheuser-Busch Cos., Inc......... 33,031
500 Becton Dickinson & Co. .......... 38,813
1,300 Elan Corp. Plc, ADR*............. 83,606
1,400 Forest Laboratories, Inc.*....... 50,050
2,400 Genzyme Corp.*................... 61,350
850 Hannaford Brothers Co............ 37,400
1,100 Humana, Inc.*.................... 34,306
900 International Flavors &
Fragrances, Inc.................. 39,094
450 Johnson & Johnson Co............. 33,188
250 Merck & Co., Inc................. 33,438
1,100 PepsiCo, Inc. ................... 45,306
270 Pfizer, Inc. .................... 29,346
850 Pharmacia & Upjohn, Inc.......... 39,206
1,400 Stryker Corp.*................... 53,725
700 United HealthCare Corp........... 44,450
-----------
697,709
-----------
Finance - 17.09%
1,100 Banc One Corp.................... 61,394
500 Chase Manhattan Corp............. 37,750
450 Chubb Corp....................... 36,169
700 Countrywide Credit Industries, Inc. 35,525
150 General Re Corp.................. 38,025
300 Hartford Financial Services Group, Inc. 34,312
450 Lincoln National Corp............ 41,119
400 Morgan (J.P.) & Co............... 46,850
800 NationsBank Corp. ............... 61,200
1,597 Standard & Poor's Depository Receipts 180,960
850 Travelers Group, Inc. ........... 51,531
85 Wells Fargo & Co................. 31,365
-----------
656,200
-----------
Technology - 11.91%
850 AMP, Inc. ....................... 29,219
650 Avnet, Inc. ..................... 35,547
420 Cisco Systems, Inc.*............. 38,666
1,400 Compaq Computer Corp............. 39,725
600 Computer Sciences Corp.*......... 38,400
1,300 Electronic Data Systems Corp..... 52,000
1,000 Harris Corp...................... 44,687
850 Hewlett-Packard Co............... 50,894
420 International Business Machines Corp. 48,221
800 Motorola, Inc.................... 42,050
650 Texas Instruments, Inc. ......... 37,903
-----------
457,312
-----------
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Capital Goods and Construction - 9.24%
700 Boeing Co........................ $ 31,194
800 Dresser Industries, Inc.......... 35,250
700 Emerson Electric Co. ............ 42,219
300 General Electric Co.............. 27,300
500 Honeywell, Inc. ................. 41,781
800 Hubbell, Inc., Class A .......... 34,900
1,600 Thermo Electron Corp.*........... 54,700
2,000 U.S. Filter Corp.*............... 56,132
900 Waste Management, Inc. .......... 31,500
-----------
354,976
-----------
Consumer Cyclical - 9.11%
850 Dun & Bradstreet Corp.*.......... 30,705
450 Eastman Kodak Co................. 32,877
1,400 Lowe's Cos., Inc. ............... 56,788
700 McDonald's Corp. ................ 48,300
2,000 Office Depot, Inc.*.............. 63,125
500 Penny (J.C.) Co., Inc............ 36,156
1,400 Sherwin-Williams Co. ............ 46,375
1,500 Toys `R' Us, Inc.*............... 35,344
-----------
349,670
-----------
Basic Materials - 8.01%
850 Crown Cork & Seal, Inc........... 40,375
900 Goodrich (B.F.) Co............... 44,663
1,100 Lubrizol Corp.................... 33,275
550 Minnesota Mining &
Manufacturing Co................. 45,203
1,400 Morton International, Inc........ 35,000
1,600 Pall Corp........................ 32,800
800 Praxair, Inc..................... 37,450
1,100 Sigma Aldrich Corp............... 38,638
-----------
307,404
-----------
Energy - 7.45%
1,000 Amoco Corp....................... 41,625
450 Atlantic Richfield Co............ 35,156
1,650 Baker Hughes, Inc................ 57,028
700 Kerr-McGee Corp.................. 40,513
700 Mobil Corp. ..................... 53,638
850 Schlumberger, Ltd................ 58,066
-----------
286,026
-----------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
THE GALAXY
VIP FUND
Growth and Income Fund
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
<S> <C> <C>
Shares (Note 2)
------ --------
Utilities - 5.93%
1,100 AT&T Corp........................ $ 62,838
900 Century Telephone Enterprises, Inc. 41,287
650 GTE Corp. ....................... 36,156
850 SBC Communications, Inc.......... 34,000
1,100 WorldCom, Inc.*.................. 53,281
-----------
227,562
-----------
Transportation - 2.74%
350 British Airways Plc, ADR......... 37,647
330 Burlington Northern Santa Fe Corp. 32,402
800 Union Pacific Corp............... 35,300
-----------
105,349
-----------
Total Common Stocks.............. 3,442,208
(Cost $3,464,703) -----------
CONVERTIBLE PREFERRED STOCK - 1.18%
600 Loral Space and
Communications. Ltd., 6.00% (B).. 45,300
-----------
Total Convertible Preferred Stock 45,300
(Cost $45,968) -----------
<CAPTION>
Value
Par Value (Note 2)
- --------- --------
<S> <C> <C>
U.S. AGENCY OBLIGATION (A) - 15.03%
Federal Home Loan Mortgage Corporation
$ 577,000 5.98%, 07/01/98.................. $ 577,000
-----------
Total U.S. Agency Obligation..... 577,000
(Cost $577,000) -----------
Total Investments - 105.86%...................... 4,064,508
(Cost $4,087,671) -----------
Net Other Assets and Liabilities - (5.86)%....... (224,992)
-----------
Net Assets - 100.00%............................. $ 3,839,516
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
(B) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. This security may be resold, in
transactions exempt from registration, to qualified institutional buyers.
At June 30, 1998, this security amounted to $45,300, or 1.18% of net
assets.
ADR American Depositary Receipt
See Notes to Financial Statements.
16
<PAGE>
THE GALAXY
VIP FUND
Small Company Growth Fund
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
COMMON STOCKS - 80.71%
<S> <C> <C>
Technology - 30.31%
150 ABR Information Services, Inc.*.. $ 3,562
60 Altron, Inc.*.................... 773
60 Arbor Software Corp.*............ 1,886
110 Asesco Corp.*.................... 447
50 Aspen Technology Inc.*........... 2,525
20 Asyst Technologies, Inc.*........ 253
40 Best Software, Inc.*............. 845
80 Black Box Corp.*................. 2,655
120 California Microwave, Inc.*...... 2,100
200 CerProbe Corp.*.................. 2,625
80 Cognex Corp.*.................... 1,480
120 Cognicase, Inc.*................. 1,785
120 Coherent Communication
Systems Corp.*................... 5,617
100 Concord Communications, Inc.*.... 2,556
200 Condor Technology Solutions, Inc.* 2,950
140 Cree Research, Inc.*............. 2,100
210 Daou Systems, Inc.*.............. 4,804
150 Deltek Systems, Inc.*............ 3,675
160 Excel Technologies, Inc.*........ 1,420
90 Extended Systems, Inc.*.......... 608
90 FactSet Research Systems, Inc.*.. 2,925
120 Forrester Research, Inc.*........ 4,770
150 Global Imaging Systems, Inc.*.... 2,100
120 Great Plains Software, Inc.*..... 4,065
160 Harmonic Lightwaves, Inc.*....... 2,460
120 Helix Technology Corp............ 1,800
260 H.T.E., Inc.*.................... 3,510
170 IDT Corp.*....................... 5,110
120 Information Management
Resources, Inc.*................. 4,058
90 Inso Corp.*...................... 1,232
50 JDA Software Group, Inc.*........ 2,187
160 Kent Electronics Corp.*.......... 2,930
20 Komag, Inc.*..................... 107
80 Legato Systems, Inc.*............ 3,120
210 Lightbridge, Inc.*............... 1,785
160 Macromedia, Inc.*................ 2,990
190 Made2Manage Systems, Inc.*....... 2,209
80 May & Speh, Inc.*................ 1,590
160 Mecon, Inc.*..................... 1,660
190 Melita International Corp.*...... 2,993
30 Mercury Interactive Corp.*....... 1,339
10 Merix Corp.*..................... 99
180 META Group, Inc.*................ 3,983
80 Natural MicroSystems Corp.*...... 1,280
200 Norstan, Inc.*................... 5,013
180 Ortel Corp.*..................... 2,790
140 Pervasive Software, Inc.*........ 1,452
160 PhoneTel Technologies, Inc.*..... 400
130 Powerwave Technologies, Inc.*.... 2,178
90 PRI Automation, Inc.*............ 1,536
50 Prism Solutions, Inc.*........... 225
160 Quad Systems Corp.*.............. 405
70 RadiSys Corp.*................... 1,505
80 Renaissance Worldwide, Inc.*..... 1,740
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Technology (continued)
210 RF Power Products, Inc.*......... $ 604
110 Richey Electronics, Inc.*........ 859
75 Saville Systems Ireland Plc, ADR* 3,759
140 SeaMED Corp.*.................... 2,485
160 Secure Computing Corp.*.......... 1,580
170 SEEC, Inc.*...................... 1,848
1 Siebel Systems, Inc.*............ 22
140 SIPEX Corp.*..................... 3,010
190 SmarTalk TeleServices, Inc.*..... 2,767
110 SpeedFam International, Inc.*.... 2,028
160 SPR, Inc.*....................... 4,980
150 SPSS, Inc.*...................... 3,487
170 Standard Microsystems Corp.*..... 1,498
100 STAR Telecommunications, Inc.*... 2,237
160 STB Systems, Inc.*............... 2,000
90 Tekelec*......................... 4,026
160 Template Software, Inc........... 1,760
240 Tier Technologies, Inc.*......... 4,275
160 Timberline Software Corp.*....... 3,770
80 Total Control Products, Inc.*.... 710
170 TSI International Software, Ltd.* 3,889
140 Unitrode Corp.*.................. 1,610
10 Vantive Corp.*................... 205
50 Veeco Instruments, Inc.*......... 1,244
50 Visio Corp.*..................... 2,387
40 Voice Control Systems, Inc.*..... 130
160 Whittman-Hart, Inc.*............. 7,740
100 World Access, Inc.*.............. 3,000
80 YieldUP International Corp.*..... 420
200 Zygo Corp.*...................... 2,962
-----------
193,504
-----------
Consumer Cyclical - 15.82%
80 Aftermarket Technology Corp.*.... 1,500
80 Ambassadors International, Inc.*. 2,425
50 American Coin Merchandising, Inc.* 987
100 Applied Graphics Technologies, Inc.* 4,575
190 Barbeques Galore, Ltd., ADR*..... 1,520
120 Barnett, Inc.*................... 2,430
140 Brass Eagle, Inc.*............... 2,152
80 Carey International, Inc.*....... 2,240
60 Carriage Services, Inc.*......... 1,508
20 Coldwater Creek, Inc.*........... 550
40 Data Processing Resources Corp.*. 1,243
120 Dura Automotive Systems, Inc.*... 3,855
70 Equity Marketing, Inc.*.......... 1,479
240 Funco, Inc. *.................... 3,390
150 Group Maintenance America Corp.*. 2,700
110 Hall Kinion & Associates, Inc.*.. 736
190 ILX Resorts, Inc.*............... 1,116
170 Jones Intercable, Inc. Class A*.. 4,250
230 Just For Feet, Inc.*............. 6,555
130 Keystone Automotive Industries, Inc.* 3,006
150 Kroll-O'Gara Co.*................ 3,206
100 Lamalie Associates, Inc.*........ 1,838
150 Lifeline Systems, Inc.*.......... 2,775
210 Lo-Jack Corp.*................... 2,612
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
THE GALAXY
VIP FUND
Small Company Growth Fund
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Consumer Cyclical (continued)
100 Metamor Worldwide, Inc.*......... $ 3,519
70 Papa John's International, Inc.*. 2,761
100 Pegasus Systems, Inc.*........... 2,562
60 Penske Motorsports, Inc.*........ 1,751
320 Players International, Inc.*..... 1,590
90 Pre Paid Legal Services, Inc..... 2,841
230 Rentrak Corp.*................... 1,287
90 Rural/ Metro Corp.*.............. 1,170
170 Safety First, Inc.*.............. 1,147
80 Showbiz Pizza Time, Inc.*........ 3,225
90 Silverleaf Resorts, Inc.*........ 1,373
110 Source Information Management Co.* 681
140 SRS Labs, Inc.*.................. 831
200 Stein Mart, Inc.*................ 2,700
360 The First Years, Inc.*........... 6,840
60 The Men's Wearhouse, Inc.*....... 1,980
120 Travis Boats & Motors, Inc.*..... 2,940
175 West Marine, Inc.*............... 3,150
-----------
100,996
-----------
Consumer Staples - 13.71%
150 Anesta Corp.*.................... 2,166
220 ASI Solutions, Inc.*............. 1,760
60 Balance Bar Co.*................. 863
130 Brookdale Living Communities, Inc.* 3,331
190 Casey's General Stores, Inc...... 3,147
90 Coast Dental Services, Inc.*..... 1,271
160 Cytyc Corp.*..................... 2,610
80 Digene Corp.*.................... 780
20 Endocardial Solutions, Inc.*..... 1,575
210 EndoSonics Corp.*................ 1,260
230 FirstService Corp.*.............. 2,932
80 Geltex Pharmaceuticals, Inc.*.... 1,490
210 Hanger Orthopedic Group, Inc.*... 4,279
100 Horizon Health Corp.*............ 1,750
225 King Pharmaceuticals, Inc.*...... 3,150
80 Market Facts, Inc.*.............. 1,740
210 Merge Technologies, Inc.*........ 853
110 National Surgery Centers, Inc.*.. 3,197
260 Nature's Sunshine Products, Inc.. 5,866
80 NCS Healthcare, Inc., Class A*... 2,280
160 NeoPath, Inc.*................... 1,150
200 On Assignment, Inc.*............. 6,988
230 OncorMed, Inc.*.................. 690
59 PMR Corp.*....................... 594
80 Patterson Dental Co.*............ 2,930
30 Penederm, Inc.*.................. 600
200 PharMerica, Inc.*................ 2,412
100 Physician Reliance Network, Inc.* 1,144
410 Physicians' Specialty Corp.*..... 3,536
40 Renal Care Group, Inc.*.......... 1,762
200 Romac International, Inc.*....... 6,075
240 Sheridan Healthcare, Inc.*....... 2,850
100 StaffMark, Inc.*................. 3,662
80 Thomas Group, Inc.*.............. 850
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Consumer Staples (continued)
170 Urologix, Inc.*.................. $ 1,445
230 Weider Nutrition International, Inc. 3,910
10 Whole Foods Market, Inc.*........ 605
-----------
87,503
-----------
Capital Goods and Construction - 6.57%
120 AFC Cable Systems, Inc.*......... 4,260
190 Armor Holdings, Inc.*............ 2,185
40 Aviation Sales Co.*.............. 1,585
110 Cuno, Inc.*...................... 2,379
40 Firearms Training Systems, Inc.*. 100
140 Halter Marine Group, Inc.*....... 2,109
120 Hexcel Corp.*.................... 2,715
180 Motivepower Industries, Inc.*.... 4,410
160 MSC Industrial Co., Class A*..... 4,560
200 Newpark Resources, Inc.*......... 2,225
130 OmniQuip International, Inc...... 2,405
270 PCD, Inc.*....................... 4,624
160 Recycling Industries, Inc.*...... 940
160 Shaw Group, Inc.*................ 4,160
130 Wilmar Industries, Inc.*......... 3,315
-----------
41,972
-----------
Energy - 4.21%
90 Abraxas Petroleum Corp.*......... 821
345 Bellwether Exploration Co.*...... 2,695
160 Cabot Oil & Gas Corp.*........... 3,200
300 Coho Energy, Inc.*............... 2,025
170 Comstock Resources, Inc.*........ 1,264
240 Dawson Production Services, Inc.* 3,600
120 Domain Energy Corp.*............. 1,440
120 KCS Energy, Inc.*................ 1,373
130 Magnum Hunter Resources, Inc.*... 829
80 Nuevo Energy Co.*................ 2,570
120 Offshore Logistics, Inc.*........ 2,130
140 Pride International, Inc.*....... 2,371
160 Swift Energy Co.*................ 2,550
-----------
26,868
-----------
Transportation - 3.22%
170 Aaron Rents, Inc................. 3,273
80 AirNet Systems, Inc.*............ 1,290
20 Alaska Air Group, Inc.*.......... 1,091
90 Atlas Air, Inc.*................. 3,043
285 Dynamex, Inc.*................... 3,456
100 Eagle USA Airfreight, Inc.*...... 3,469
90 Midwest Express Holdings, Inc.... 3,257
100 U.S. Xpress Enterprises, Inc.*... 1,675
-----------
20,554
-----------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
THE GALAXY
VIP FUND
Small Company Growth Fund
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Utilities - 2.47%
80 CoreComm, Inc.*.................. $ 2,100
150 Davel Communication Corp.*....... 3,656
160 Metrocall, Inc.*................. 970
20 Pacific Gateway Exchange, Inc.*.. 801
220 SkyTel Communications, Inc.*..... 5,149
120 Tollgrade Communications, Inc.*.. 3,090
-----------
15,766
-----------
Basic Materials - 2.23%
270 AMCOL International Corp......... 3,257
140 Dunn Computer Corp.*............. 1,155
70 G&K Services, Inc................ 3,054
330 Meridian Resource Corp.*......... 2,331
70 OM Group, Inc.*.................. 2,888
240 U.S. Home & Garden, Inc.*........ 1,545
-----------
14,230
-----------
Finance - 2.17%
230 BankAtlantic Bancorp, Inc., Class A 2,717
190 Credit Acceptance Corp.*......... 1,615
80 Enhance Financial Services Group, Inc. 2,700
110 HCC Insurance Holdings, Inc.*.... 2,420
6 Horizon Group Properties, Inc.*.. 40
10 Meadowbrook Insurance Group, Inc. 272
120 Prime Retail, Inc., REIT......... 1,432
90 Riggs National Corp.............. 2,630
-----------
13,826
-----------
Total Common Stocks.............. 515,219
(Cost $534,003) -----------
<CAPTION>
Value
Par Value (Note 2)
- --------- --------
<S> <C> <C>
U.S. AGENCY OBLIGATION (A) - 19.89%
Federal Home Loan
Mortgage Corporation
$ 127,000 5.98%, 07/01/98.................. $ 127,000
-----------
Total U.S. Agency Obligation..... 127,000
(Cost $127,000) -----------
Total Investments - 100.60%...................... 642,219
(Cost $661,003) -----------
Net Other Assets and Liabilities - (0.60)%....... (3,850)
-----------
Net Assets - 100.00%............................. $ 638,369
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
ADR American Depositary Receipt
REIT Real Estate Investment Trust
See Notes to Financial Statements.
19
<PAGE>
THE GALAXY
VIP FUND
Columbia Real Estate Equity Fund II
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
COMMON STOCKS - 94.38%
<S> <C> <C>
Real Estate Investment Trust - 88.40%
600 Alexandria Real Estate Equities.. $ 17,962
900 Apartment Investment &
Management Co.................... 35,550
407 Avalon Bay Communities, Inc...... 15,376
500 Boston Proerties, Inc............ 17,250
1,100 Cabot Industrial Trust........... 23,788
600 Colonial Properties Trust........ 18,600
800 Duke Realty Investments, Inc..... 18,950
1,100 Equity Office Properties Trust... 31,213
300 Equity Residential Properties Trust 14,231
200 Excel Legacy Corp.*.............. 874
900 Excel Realty Trust, Inc.......... 26,044
600 First Industrial Realty Trust.... 19,050
500 General Growth Properties........ 18,688
300 Kimco Realty Corp................ 12,300
700 Liberty Property Trust........... 17,894
700 Mack-Cali Realty Corp............ 24,063
600 Manufactured Home
Communities, Inc................. 14,475
500 Pan Pacific Retail Properties, Inc. 10,188
500 Prentiss Properties Trust........ 12,156
800 Public Storage, Inc.............. 22,400
600 Reckson Associates Realty Corp... 14,175
700 Security Capital Industrial Trust 17,500
1,000 Security Capital Pacific Trust... 22,500
500 Shurgard Storage Centers, Inc.... 13,875
800 Simon DeBartolo Group, Inc....... 26,000
500 Spieker Properties, Inc.......... 19,374
100 Starwood Hotels & Resorts........ 4,831
300 The Macerich Co.................. 8,793
500 TriNet Corporate Realty Trust, Inc. 17,000
600 Vornado Realty Trust............. 23,812
-----------
538,912
-----------
Real Estate - 5.98%
1,000 Catellus Development Corp. *..... 17,689
40 Reckson Service Industries *..... 132
700 Security Capital Group, Inc. *... 18,638
-----------
36,459
-----------
Total Common Stocks.............. 575,371
(Cost $582,279) -----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATION (A) - 18.04%
U.S. Treasury Bill - 18.04%
$ 110,000 4.65%, 07/02/98.................. $ 109,986
-----------
Total U.S. Government Obligation. 109,986
(Cost $109,986) -----------
<CAPTION>
Shares
- ------
<S> <C> <C>
INVESTMENT COMPANY - 0.88%
5,334 Vista U.S. Government
Money Market..................... 5,334
-----------
Total Investment Company......... 5,334
(Cost $5,334) -----------
Total Investments - 113.30%...................... 690,691
(Cost $697,599) -----------
Net Other Assets and Liabilities - (13.30)%...... (81,102)
-----------
Net Assets - 100.00%............................. $ 609,589
===========
</TABLE>
- ---------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
See Notes to Financial Statements.
20
<PAGE>
THE GALAXY
VIP FUND
Asset Allocation
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCKS - 46.43%
Consumer Staples - 11.35%
8,000 Becton, Dickinson & Co........... $ 621,000
10,000 Bestfoods........................ 580,625
16,000 Coca-Cola Entrerprises, Inc...... 628,000
6,000 Elan Corp., ADR.................. 385,875
8,000 Forest Labs, Inc................. 286,000
14,000 Genzyme Corp..................... 357,875
8,000 Gillette Co...................... 453,500
9,000 Lilly (Eli) & Co................. 594,562
6,000 Merck & Co. Inc.................. 802,500
14,000 PepsiCo, Inc..................... 576,625
7,000 Pfizer, Inc...................... 760,812
5,000 Procter & Gamble Co.............. 455,312
9,000 Warner-Lambert Co................ 624,375
-----------
7,127,061
-----------
Finance - 8.23%
5,000 American International Group, Inc. 730,000
5,000 Associates First Capital Corp.... 384,375
3,000 BankBoston Corp.................. 333,750
4,000 Chase Manhattan Corp............. 302,000
10,000 Fannie Mae....................... 607,500
10,000 First Union Corp................. 582,500
5,000 Hartford Financial Services Group, Inc. 571,875
13,000 Norwest Corp..................... 485,875
6,000 SunAmerica, Inc.................. 344,625
10,500 Washington Mutual, Inc........... 456,094
1,000 Wells Fargo & Co................. 369,000
-----------
5,167,594
-----------
Technology - 7.87%
6,000 Automatic Data Processing, Inc... 437,250
8,000 Boston Scientific Corp.*......... 573,000
11,000 Cisco Systems, Inc.*............. 1,012,687
13,000 Compaq Computer Corp............. 368,875
9,000 EMC Corp.*....................... 403,312
8,000 Hewlett-Packard Co............... 479,000
9,000 Intel Corp....................... 667,125
6,500 Motorola, Inc.................... 341,656
6,500 Xerox Corp....................... 660,563
-----------
4,943,468
-----------
Capital Goods and Construction - 4.01%
13,000 Boeing Co........................ 579,313
5,000 Dresser Industries, Inc.......... 220,312
6,000 General Electric Co.............. 546,000
12,000 Thermo Electron Corp.*........... 410,250
14,000 US Filter Corp.*................. 392,875
4,000 United Technologies Corp......... 370,000
-----------
2,518,750
-----------
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
Consumer Cyclical - 3.77%
12,000 Home Depot, Inc.................. $ 996,750
5,400 McDonald's Corp.................. 372,600
19,000 Sherwin-Williams, Co............. 629,375
9,000 Walgreen Co...................... 371,813
-----------
2,370,538
-----------
Energy - 3.70%
4,000 Baker Hughes, Inc................ 138,250
6,500 Enron Corp....................... 351,406
6,000 Halliburton Co................... 267,375
8,000 Mobil Corp....................... 613,000
9,000 Noble Affiliates, Inc............ 342,000
9,000 Schlumberger, Ltd................ 614,813
-----------
2,326,844
-----------
Utilities - 2.75%
13,000 Frontier Corp.................... 409,500
10,000 SBC Communications, Inc.......... 400,000
19,000 WorldCom, Inc.*.................. 920,313
-----------
1,729,813
-----------
Basic Materials - 2.64%
12,000 Crown Cork & Seal, Inc........... 570,000
7,000 Minnesota Mining &
Manufacturing Co................. 575,313
17,000 Sonoco Products Co............... 514,250
-----------
1,659,563
-----------
Transportation - 2.11%
5,000 AMR Corp.*....................... 416,250
5,000 Burlington Northern Santa Fe Corp. 490,938
14,000 Southwest Airlines Co............ 414,750
-----------
1,321,938
-----------
Total Common Stocks.............. 29,165,569
(Cost $21,411,170) -----------
CONVERTIBLE PREFERRED STOCK - 0.36%
3,000 Loral Space and Communications, Ltd.
Series C (B)..................... 226,500
---------
Total Convertible Preferred Stock 226,500
(Cost $162,775) ---------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
THE GALAXY
VIP FUND
Asset Allocation
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 27.92%
Federal Home Loan
Mortgage Corporation - 13.83%
$ 8,459,000 5.85%, 07/01/98 (A).............. $ 8,459,000
227,119 7.00%, 01/01/27, Pool #D77482.... 230,525
-----------
8,689,525
-----------
U.S. Treasury Bonds - 7.95%
300,000 7.25%, 05/15/16.................. 351,297
725,000 7.50%, 11/15/16.................. 870,478
100,000 7.88%, 02/15/21.................. 126,844
250,000 8.00%, 11/15/21.................. 322,177
450,000 7.25%, 08/15/22.................. 538,767
450,000 7.63%, 11/15/22.................. 560,520
400,000 7.13%, 02/15/23.................. 473,112
1,115,000 6.50%, 11/15/26.................. 1,237,929
465,000 6.38%, 08/15/27.................. 511,426
-----------
4,992,550
-----------
U.S. Treasury Notes - 3.38%
400,000 5.63%, 04/30/00.................. 400,820
200,000 7.25%, 08/15/04.................. 217,534
250,000 7.88%, 11/15/04.................. 280,813
950,000 7.00%, 07/15/06.................. 1,037,685
175,000 6.50%, 10/15/06.................. 185,785
-----------
2,122,637
-----------
Government National
Mortgage Association - 1.45%
64,774 9.00%, 12/15/17, Pool #780201.... 69,631
286,396 6.50%, 05/15/24, Pool #780168.... 286,932
544,500 7.00%, 06/15/28, Pool #466842.... 553,174
-----------
909,737
-----------
Federal National
Mortagage Association - 1.31%
150,000 6.31%, 08/25/03, MTN............. 149,919
232,708 6.00%, 04/01/11, Pool #338365.... 230,381
247,360 6.00%, 04/01/13, Pool #424327.... 244,654
100,000 8.18%, 04/15/24, MTN............. 101,756
95,170 6.50%, 02/01/27, Pool #371680.... 94,783
-----------
821,493
-----------
Total U.S. Government and
Agency Obligations............... 17,535,942
(Cost $16,854,546) -----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
CORPORATE NOTES AND BONDS - 23.84%
Finance - 7.90%
$ 100,000 Aristar, Inc., Senior Note
6.75%, 05/15/99.................. $ 100,640
500,000 Associates Corp. of North America
Senior Note
5.25%, 03/30/00.................. 495,000
100,000 Associates Corp. of North America, MTN
6.13%, 11/12/99.................. 100,136
250,000 Associates Corp. of North America
7.88%, 09/30/01.................. 263,750
100,000 Caterpillar Financial Services Corp.
Series-E, MTN
6.87%, 11/30/99.................. 101,289
250,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00.................. 253,438
500,000 Caterpillar Financial Services
Series F, MTN
6.00%, 05/23/02.................. 500,000
200,000 Commercial Credit Co., Senior Note
6.13%, 03/01/00.................. 200,750
250,000 Commercial Credit Co., Senior Note
5.55%, 02/15/01.................. 247,813
250,000 Ford Motor Credit Co.
7.75%, 10/01/99.................. 255,130
250,000 Ford Motor Credit Co.
6.38%, 12/15/05.................. 252,813
250,000 General Electric Capital Corp.
Series-A, MTN
5.76%, 04/24/00.................. 250,000
450,000 General Motors Acceptance Corp.
7.00%, 03/01/00.................. 457,313
150,000 Household Finance Co.
7.63%, 06/15/99.................. 152,162
200,000 International Lease Finance Corp.
6.20%, 05/01/00.................. 201,250
400,000 Norwest Financial, Inc., Senior Note
7.75%, 08/15/01.................. 420,500
250,000 PACCAR Financial Corp.
Series H, Senior MTN
6.39%, 06/15/00.................. 252,188
100,000 PACCAR Financial Corp.
Series H, Senior MTN
5.86%, 03/15/01.................. 99,625
100,000 Pitney Bowes Credit Corp., Series C, MTN
6.54%, 07/15/99.................. 100,683
250,000 Pitney Bowes Credit Corp., Note
6.63%, 06/01/02.................. 256,563
-----------
4,961,043
-----------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
THE GALAXY
VIP FUND
Asset Allocation
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Banking - 2.82%
$ 100,000 Bank One Milwaukee, N.A., MTN
6.35%, 03/19/01.................. $ 101,000
300,000 Chase Manhattan Corp., MTN
5.50%, 02/15/01.................. 297,000
200,000 Citicorp, Senior MTN
8.63%, 11/01/04.................. 207,500
250,000 First Union Corp., Senior Note
6.60%, 06/15/00.................. 253,125
200,000 Mellon Financial Co., Senior Note
7.63%, 11/15/99.................. 204,624
250,000 NationsBank Corp., Senior Note
5.38%, 04/15/00.................. 248,125
100,000 NationsBank Corp., Senior Note
7.00%, 05/15/03.................. 104,125
100,000 SunTrust Bank of Central Florida, MTN
6.90%, 07/01/07.................. 104,500
250,000 Wachovia Bank NC, N.A.
6.30%, 03/15/01.................. 251,875
-----------
1,771,874
-----------
Consumer Cyclical - 2.65%
250,000 Disney (Walt) Co., MTN
5.60%, 01/13/00.................. 249,375
500,000 Disney (Walt) Co.
6.38%, 03/30/01.................. 507,500
135,000 Hershey Foods Corp.
7.20%, 08/15/27.................. 148,669
250,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08.................. 248,437
500,000 Mead Corp., Senior Note
6.60%, 03/01/02.................. 508,750
-----------
1,662,731
-----------
Utilities - 2.39%
250,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07.................. 255,937
250,000 National Rural Utilities, Collateral Trust
6.20%, 02/01/08.................. 250,625
250,000 National Rural Utilities, Collateral Trust
6.13%, 05/15/05.................. 251,475
500,000 South California Edison
First Mortgage
5.63%, 10/01/02.................. 493,750
250,000 Southern California Edison, Senior Note
5.88%, 01/15/01.................. 250,312
-----------
1,502,099
-----------
Consumer Staples - 2.18%
100,000 Abbott Laboratories, Senior Note
6.00%, 03/15/08.................. 100,650
250,000 Lilly (Eli) & Co., Senior Note
6.75%, 11/15/99.................. 253,437
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Consumer Staples (continued)
$ 250,000 Merck & Co., Senior Note
6.40%, 03/01/28.................. $ 256,790
250,000 PepsiCo, Inc., MTN
5.75%, 01/01/03.................. 248,437
250,000 PepsiCo, Inc., MTN
5.75%, 01/15/08.................. 243,125
250,000 Sysco Corp.
7.25%, 04/15/07.................. 270,000
-----------
1,372,439
-----------
Industrial - 1.60%
280,000 Boeing Co.
8.88%, 09/15/99.................. 290,150
100,000 International Business Machines Corp.
6.22%, 08/01/27.................. 102,750
250,000 International Business Machines Corp.
Senior Note
6.38% 06/15/00................... 252,812
100,000 Parker Hannifan Corp.
7.30%, 05/15/11.................. 108,750
250,000 Sherwin-Williams, Senior Note
6.50%, 02/01/02................. 254,375
-----------
1,008,837
-----------
Telecommunications - 1.01%
325,000 GTE Corp., Debenture
6.84%, 04/15/18.................. 333,125
300,000 Northern Telecom, Ltd.
Yankee Note
6.00%, 09/01/03.................. 300,750
-----------
633,875
-----------
Merchandising and Retail - 0.99%
100,000 The May Department Stores Co.
7.45%, 10/15/16.................. 109,125
250,000 Rite Aid Corp.
6.70%, 12/15/01.................. 255,312
250,000 Wal-Mart Stores, Senior Note
6.75%, 05/15/02.................. 257,812
-----------
622,249
-----------
Oil, Gas, and Petroleum - 0.89%
200,000 Occidental Petroleum Corp., MTN
6.75%, 09/16/99.................. 201,750
200,000 Phillips Petroleum Co., Debenture
9.38%, 02/15/11.................. 252,000
100,000 Union Oil Co. of California, MTN
Guaranteed: Unocal Corp.
6.70%, 10/15/07.................. 103,000
-----------
556,750
-----------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
THE GALAXY
VIP FUND
Asset Allocation
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Basic Materials - 0.57%
$ 100,000 Crown Cork & Seal Finance Plc
7.00%, 12/15/06.................. $ 103,875
250,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28.................. 252,812
-----------
356,687
-----------
Aerospace - 0.34%
200,000 Lockheed Martin Corp.
Guaranteed: Lockheed Martin
Tactical Systems, Inc.
7.25%, 05/15/06.................. 212,750
-----------
Transportation - 0.33%
200,000 Burlington Northern Santa Fe Corp.,
Debenture 6.88%, 02/15/16........ 205,750
-----------
Technology - 0.17%
100,000 Xerox Corp.
7.20%, 04/01/16.................. 108,625
-----------
Total Corporate Notes and Bonds.. 14,975,709
(Cost $15,066,196) -----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES - 1.36%
$ 250,000 American Express Master Trust, ABS
Class 1998-1
5.90%, 04/15/04.................. $ 250,235
200,000 Chase Credit Card Master Trust, ABS
Class 1998-3
6.00%, 08/15/05.................. 201,000
250,000 Discover Card Master Trust
Class 1998-4, Series 1, ABS
5.75%, 10/16/03.................. 248,906
80,098 NationsBank Auto Owner Trust
Class 1996-A
6.38%, 07/15/00.................. 80,273
74,995 Rural Housing Trust, CMO
Class 1987-1, Class 1-D
6.33%, 04/01/26.................. 75,229
-----------
Total Asset-Backed and
Mortgage-Backed Securities....... 855,643
(Cost $852,207) -----------
Total Investments - 99.91%....................... 62,759,363
(Cost $54,346,894) -----------
Net Other Assets and Liabilities - 0.09%......... 58,296
-----------
Net Assets - 100.00%............................. $62,817,659
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
(B) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. This security may be resold, in transactions exempt
from registration, to qualified institutional buyers. At June 30, 1998,
this security amounted to $226,500 or 0.36% of net assets.
CMO Collateralized Mortgaged Obligation
MTN Medium Term Note
See Notes to Financial Statements.
24
<PAGE>
THE GALAXY
VIP FUND
High Quality Bond Fund
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 52.37%
U.S. Treasury Bonds - 27.36%
$ 200,000 6.25%, 08/31/02.................. $ 205,198
300,000 6.63%, 05/15/07.................. 322,110
150,000 13.25%, 05/15/14................. 241,312
415,000 7.50%, 11/15/16.................. 498,274
325,000 7.88%, 02/15/21.................. 412,243
200,000 8.13%, 08/15/21.................. 260,624
400,000 8.00%, 11/15/21.................. 515,484
600,000 7.25%, 08/15/22.................. 718,356
250,000 7.13%, 02/15/23.................. 295,695
350,000 6.50%, 11/15/26.................. 388,587
950,000 6.38%, 08/15/27.................. 1,044,848
-----------
4,902,731
-----------
U.S. Treasury Notes - 8.99%
50,000 5.88%, 10/31/98.................. 50,079
350,000 5.50%, 03/31/00.................. 350,021
70,000 5.63%, 04/30/00.................. 70,143
100,000 6.25%, 08/31/00.................. 101,481
150,000 5.50%, 02/28/03.................. 149,864
450,000 7.00%, 07/15/06.................. 491,535
375,000 6.50%, 10/15/06.................. 398,111
-----------
1,611,234
-----------
Federal National
Mortgage Association - 6.12%
500,000 7.55%, 06/10/04, Series SM-2004-F 508,880
296,832 6.00%, 04/01/13, Pool #424327.... 293,585
292,489 6.50%, 03/01/13, Pool #406727.... 294,133
-----------
1,096,598
-----------
Federal Home Loan
Mortgage Corporation - 3.69%
211,000 5.85%, 07/01/98 (A).............. 211,000
440,000 7.50%, 06/01/28.................. 450,656
-----------
661,656
-----------
Government National
Mortgage Association - 3.41%
400,000 7.00%, 07/20/22, Pool #008022.... 409,376
198,000 7.00%, 06/15/28, Pool #466842.... 201,154
-----------
610,530
-----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Other Government Agency Bonds - 2.80%
$ 200,000 State of Israel, Series 7-A
Guaranteed: U.S. Government
5.45%, 02/15/01.................. $ 199,250
300,000 Tennessee Valley Authority Power
Board 6.13%, 07/15/03............ 302,625
-----------
501,875
-----------
Total U.S. Government and
Agency Obligations............... 9,384,624
(Cost $8,980,144) -----------
CORPORATE NOTES AND BONDS - 38.96%
Finance - 16.13%
250,000 Associates Corp. of North America
Senior Note
6.00%, 03/15/00.................. 250,625
250,000 Associates Corp. of North America
Senior Note
5.60%, 01/15/01.................. 248,125
300,000 Associates Corp. of North America
Senior Note
6.50%, 07/15/02.................. 304,875
500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01.................. 505,000
500,000 Ford Motor Credit Co., Senior Note
6.50%, 02/28/02.................. 508,750
150,000 General Electric Capital Corp., MTN
5.89%, 05/15/00.................. 150,252
400,000 Keycorp Institutional Capital Corp.
Coupon Adusted
Pass-Through, Series A
6.63%, 06/01/99 (B).............. 402,480
200,000 Pitney Bowes Credit Corp.
Series C, MTN
6.54%, 07/15/99.................. 201,366
200,000 Private Export Funding Corp.
6.49%, 07/15/07.................. 211,250
100,000 SunTrust Bank Atlanta
Subordinated Note, MTN
7.25%, 09/15/06.................. 107,000
-----------
2,889,723
-----------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
THE GALAXY
VIP FUND
High Quality Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Consumer Staples - 13.64%
$ 400,000 Abbott Laboratories, Debenture
6.00%, 03/15/08.................. $ 402,600
400,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99.................. 406,000
300,000 Heinz (H.J.) Co.,
Euro-Dollar Debenture
5.75%, 02/03/03.................. 295,980
440,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27.................. 484,550
200,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08.................. 198,750
260,000 Merck & Co., Debenture
6.40%, 03/01/28.................. 267,062
400,000 PepsiCo, Inc., MTN
5.75%, 01/15/08.................. 389,000
-----------
2,443,942
-----------
Utilities - 6.51%
400,000 GTE Florida, Inc., Debenture, Series A
6.31%, 12/15/02.................. 403,000
500,000 National Rural Utilities
Collateral Trust
6.38%, 10/15/04.................. 510,000
100,000 National Rural Utilities
Collateral Trust
6.20%, 02/01/08.................. 100,250
150,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07.................. 153,563
-----------
1,166,813
-----------
Technology - 1.55%
175,000 International Business
Machines Corp., MTN
5.95%, 06/02/03.................. 175,875
100,000 International Business
Machines Corp. Debenture
6.22%, 08/01/27.................. 102,750
-----------
278,625
-----------
Basic Materials - 1.13%
200,000 Minnesota Mining &
Manufacturing Co., Debenture
6.38%, 02/15/28.................. 202,250
-----------
Total Corporate Notes and Bonds.. 6,981,353
(Cost $6,876,196) -----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 7.59%
$ 250,000 American Express Master Trust
Class 1998-1, Series A
5.90%, 04/15/04.................. $ 250,235
250,000 Citibank Credit Card Master Trust
Class 1998-6, Series 1
5.85%, 04/10/03.................. 249,922
150,000 Discover Card Master Trust
Class 1998-4, Series 1
5.75%, 10/16/03.................. 149,344
334,008 Prudential Home Mortgage Securities
Class 1996-97, Series A-1, CMO
6.75%, 06/25/11.................. 334,634
374,975 Rural Housing Trust
Class 1987-1, Series 1-D, CMO
6.33%, 04/01/26.................. 376,144
-----------
Total Asset-Backed and
Mortgage-Backed Securities....... 1,360,279
(Cost $1,353,918) -----------
Total Investments - 98.92%....................... 17,726,256
(Cost $17,210,258) -----------
Net Other Assets and Liabilities - 1.08%......... 194,017
-----------
Net Assets - 100.00%............................. $17,920,273
===========
</TABLE>
- --------------------------------------------------------------------------------
(A) Discount yield at time of purchase.
(B) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. This secruity may be resold, in transactions exempt
from registration, to qualified institutional buyers. At June 30, 1998,
this security amounted to $402,480 or 2.25% or net assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
26
<PAGE>
THE GALAXY
VIP FUND
Columbia High Yield Fund II
PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
CORPORATE NOTES AND BONDS - 96.41%
Communication - 28.09%
$ 35,000 Adelphia Communications
Senior Note
10.50%, 07/15/04................. $ 38,325
15,000 Century Communications
Senior Note
8.64%, 03/15/03 (C).............. 10,200
35,000 Comcast Corp.
Senior Subordinated Debenture
9.50%, 01/15/08.................. 37,450
25,000 Jacor Communications Co.
8.75%, 06/15/07.................. 26,063
25,000 Jones Intercable, Inc., Senior Note
8.87%, 04/01/07.................. 26,688
50,000 Lenfest Communications, Senior Note
8.37%, 11/01/05.................. 53,250
35,000 Level 3 Communications, Inc.
Senior Note
9.13%, 05/01/08 (B).............. 34,125
50,000 Nextlink Communications
Senior Discount Note
9.45%, (0% until 2003) 04/15/08.. 30,750
25,000 Unisys Corp., Senior Note
7.88%, 04/01/08.................. 25,094
25,000 Viacom, Inc.,
Subordinated Debenture
8.00%, 07/07/06.................. 25,812
-----------
307,757
-----------
Capital Goods - 24.60%
15,000 Aviation Sales,
Senior Subordinated Note
8.12%, 02/15/08 (B).............. 14,700
40,000 Federal-Mogul Corp.
7.75%, 07/01/06.................. 40,550
35,000 Hayes Wheels International, Inc.
9.12%, 07/15/07.................. 36,662
40,000 Rental Services Corp.
Senior Subordinated Note
9.00%, 05/15/08.................. 40,000
35,000 Silgan Holdings, Inc.
Senior Subordinated Debenture
9.00%, 06/01/09.................. 36,444
10,000 Titan Wheel International, Inc.
Senior Subordinated Notes
8.75%, 04/01/07.................. 10,350
15,000 United Stationers Supply
Senior Subordinated Note
8.38%, 04/15/08 (B).............. 15,037
50,000 Westpoint Stevens, Inc. Senior Note
7.87%, 06/15/05 (B).............. 50,125
25,000 Wyman-Gordon Co., Senior Note
8.00%, 12/15/07.................. 25,625
-----------
269,493
-----------
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Health Care - 12.20%
$ 10,000 Conmed Corp.
9.00%, 03/15/08.................. $ 10,000
35,000 Healthsouth Corp.,
Senior Subordinated Note
9.50%, 04/01/01.................. 36,837
25,000 Quorum Health Group, Inc.
Senior Subordinated Note
8.75%, 11/01/05.................. 25,844
10,000 Tenet Healthcare Corp., Senior Note
8.63%, 12/01/03.................. 10,563
50,000 Tenet Healthcare Corp.
Senior Subordinated Note
8.12%, 12/01/08 (B).............. 50,375
-----------
133,619
-----------
Consumer Cyclical - 10.56%
40,000 Hollinger International Publishing
8.63%, 03/15/05.................. 41,800
25,000 Lamar Advertising Co.
9.38%, 10/15/06.................. 26,812
25,000 Outdoor Systems, Inc.
9.38%, 10/15/06.................. 26,500
10,000 Specialty Retailers, Inc.
8.50%, 07/15/05.................. 10,325
10,000 Zale Corp., Senior Note
8.50%, 10/01/07.................. 10,250
-----------
115,687
-----------
Utilities - 9.62%
15,000 CMS Energy Corp.
Coupon Pass-Through Certificates
7.00%, 01/15/05.................. 14,681
40,000 Flag, Ltd., Senior Note
8.25%, 01/30/08 (B).............. 40,450
50,000 Niagara Mohawk Power, Senior Note
7.25%, 10/01/02.................. 50,250
-----------
105,381
-----------
Consumer Staples - 7.06%
25,000 Cinemark USA, Inc.
Senior Subordinated Note
9.63%, 08/01/08.................. 25,813
50,000 Purina Mills, Inc., Senior Subordinated Note
9.00%, 03/15/10 (B).............. 51,500
-----------
77,313
-----------
Transportation - 2.36%
25,000 Teekay Shipping Corp., Yankee Note
8.32%, 02/01/08.................. 25,875
-----------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
THE GALAXY
VIP FUND
Columbia High Yield Fund II
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Technology - 0.99%
$ 10,000 Tracor, Inc., Senior Subordinated Note
8.50%, 03/01/07.................. $ 10,900
-----------
Basic Materials - 0.93%
10,000 Webb (Del E.)
Senior Subordinated Debenture
9.00%, 02/15/06.................. 10,150
-----------
Total Corporate Notes and Bonds.. 1,056,175
(Cost $1,051,000) -----------
U.S. GOVERNMENT OBLIGATION (A) - 1.83%
U.S. Treasury Bill
20,000 4.65%, 07/02/98.................. 19,998
-----------
Total U.S. Government Obligation. 19,998
(Cost $19,998) -----------
<CAPTION>
Shares
------
<S> <C> <C>
INVESTMENT COMPANY - 0.30%
3,350 Vista U.S. Government Money Market 3,350
-----------
Total Investment Company......... 3,350
(Cost $3,350) -----------
Total Investments - 98.54%....................... 1,079,523
(Cost $1,074,348) -----------
Net Other Assets and Liabilities - 1.46%......... 16,000
-----------
Net Assets - 100.00%............................. $ 1,095,523
===========
</TABLE>
- --------------------------------------------------------------------------------
(A) Discount yield at time of purchase.
(B) Securities exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold, in transactions
exempt from registration, to qualified institutional buyers. At June 30,
1998, these securities amounted to $287,062 or 26.26% of net assets.
(C) Zero Coupon Bond. Rate shown reflects effective yield to maturity at time
of purchase.
See Notes to Financial Statements.
28
<PAGE>
This page left blank intentionally.
<PAGE>
THE GALAXY
VIP FUND
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Money Market Equity Growth and Income Small Company
Fund Fund Fund Growth Fund
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost.................... $ 16,422,573 $ 52,261,304 $ 4,087,671 $ 661,003
Net unrealized appreciation (depreciation) -- 32,337,484 (23,163) (18,784)
----------------- ----------------- ----------------- ----------------
Total investments at value........... 16,422,573 84,598,788 4,064,508 642,219
Cash..................................... 373 846 -- 1,266
Receivable for investments sold.......... -- 286,430 -- 8,013
Receivable for shares sold............... -- 51,244 -- 606
Interest and dividend receivables........ 20,566 45,780 3,900 14
Receivable from Investment Advisor (Note 4) -- -- 7,879 9,722
----------------- ----------------- ----------------- ----------------
Total Assets........................... 16,443,512 84,983,088 4,076,287 661,840
----------------- ----------------- ----------------- ----------------
LIABILITIES:
Payable for investments purchased........ -- 847,403 216,930 10,382
Payable to custodian..................... -- -- 2,361 --
Payable for shares repurchased........... 6,087 1,147 -- --
Advisory fee payable (Notes 3 & 4)....... 1,975 50,665 1,944 333
Payable to Administrator (Notes 3 & 4)... 372 11,957 8,262 7,020
Trustees' fees and expenses payable (Note 3) 324 1,168 -- --
Accrued expenses and other payables...... 32,285 70,794 7,274 5,736
----------------- ----------------- ----------------- ----------------
Total Liabilities...................... 41,043 983,134 236,771 23,471
----------------- ----------------- ----------------- ----------------
NET ASSETS.................................. $ 16,402,469 $ 83,999,954 $ 3,839,516 $ 638,369
================= ================= ================= ================
NET ASSETS consist of:
Par value (Note 5)....................... $ 16,402 $ 3,860 $ 384 $ 68
Paid-in capital in excess of par value... 16,385,886 50,400,088 3,846,108 665,512
Undistributed (overdistributed) net
investment income...................... 284 44,008 890 (302)
Accumulated net realized gain (loss)
on investments sold.................... (103) 1,214,514 15,297 (8,125)
Net unrealized appreciation (depreciation)
of investments......................... -- 32,337,484 (23,163) (18,784)
----------------- ----------------- ----------------- ----------------
TOTAL NET ASSETS............................ $ 16,402,469 $ 83,999,954 $ 3,839,516 $ 638,369
================= ================= ================= ================
Shares of beneficial interest outstanding... 16,402,288 3,860,437 383,510 68,049
NET ASSET VALUE:
offering and redemption price per
share (Net Assets / Shares
Outstanding)............................. $ 1.00 $ 21.76 $ 10.01 $ 9.38
================= ================= ================= ================
</TABLE>
See Notes to Financial Statements
30
<PAGE>
<TABLE>
<CAPTION>
Columbia Real Estate Asset Allocation High Quality Columbia High
Equity Fund II Fund Bond Fund Yield Fund II
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
$ 697,599 $ 54,346,894 $ 17,210,258 $ 1,074,348
(6,908) 8,412,469 515,998 5,175
----------------- ----------------- ----------------- -----------------
690,691 62,759,363 17,726,256 1,079,523
-- -- 2,783 --
-- 1,089,856 606,780 --
-- 42,919 13,797 7,377
2,892 392,560 267,418 20,167
9,290 -- -- 8,559
----------------- ----------------- ----------------- -----------------
702,873 64,284,698 18,617,034 1,115,626
----------------- ----------------- ----------------- -----------------
73,625 371,820 618,843 --
-- 998,654 -- 460
-- 1,477 52,144 --
354 37,526 2,150 475
8,649 12,612 1,239 9,264
1 689 257 2
10,655 44,261 22,128 9,902
----------------- ----------------- ----------------- -----------------
93,284 1,467,039 696,761 20,103
----------------- ----------------- ----------------- -----------------
$ 609,589 $ 62,817,659 $ 17,920,273 $ 1,095,523
================= ================= ================= =================
$ 62 $ 4,026 $ 1,715 $ 108
614,582 53,435,768 17,586,564 1,089,220
2,951 79,303 5,003 4
(1,098) 886,093 (189,007) 1,016
(6,908) 8,412,469 515,998 5,175
----------------- ----------------- ----------------- -----------------
$ 609,589 $ 62,817,659 $ 17,920,273 $ 1,095,523
================= ================= ================= =================
61,740 4,026,189 1,715,130 108,035
$ 9.87 $ 15.60 $ 10.45 $ 10.14
================= ================= ================= =================
</TABLE>
31
<PAGE>
THE GALAXY
VIP FUND
STATEMENTS OF OPERATIONS
For the Period Ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Money Market Equity Growth and Income Small Company
Fund Fund Fund(1) Growth Fund(2)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ......................... $ 433,993 $ 513,378 $ 9,815 $ 1,619
Dividends (Note 2) ......................... -- 371,133 6,632 132
----------------- ----------------- ----------------- -----------------
Total investment income .................. 433,993 884,511 16,447 1,751
----------------- ----------------- ----------------- -----------------
EXPENSES:
Investment advisory fees (Note 3) .......... 30,948 290,300 3,927 650
Administration fees (Note 3) ............... 6,577 32,901 445 74
Custody fees ............................... 9,839 6,951 3,185 2,232
Fund accounting fees (Note 3) .............. 12,730 18,541 7,774 5,501
Legal fees ................................. 7,031 30,982 2,073 1,296
Audit fees ................................. 6,363 5,959 3,457 2,469
Trustees' fees (Note 3) .................... 173 763 51 32
Amortization of organization costs (Note 2) 293 133 -- --
Reports to shareholders .................... 4,982 22,448 1,819 1,137
Miscellaneous .............................. 233 925 84 52
----------------- ----------------- ----------------- -----------------
Total expenses before reimbursement/waiver 79,169 409,903 22,815 13,443
Less: reimbursement/waiver (Note 4) ...... (34,120) -- (14,960) (12,056)
----------------- ----------------- ----------------- -----------------
Total expenses net of reimbursement/waiver 45,049 409,903 7,855 1,387
----------------- ----------------- ----------------- -----------------
NET INVESTMENT INCOME ......................... 388,944 474,608 8,592 364
----------------- ----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold -- 1,425,081 15,297 (8,125)
Net change in unrealized
appreciation (depreciation) of investments -- 6,196,364 (23,163) (18,784)
----------------- ----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .................... -- 7,621,445 (7,866) (26,909)
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 388,944 $ 8,096,053 $ 726 $ (26,545)
================= ================= ================= =================
</TABLE>
- ------------------------------------------------------
(1) The Fund commenced operations on March 4, 1998.
(2) The Fund commenced operations on April 17, 1998.
(3) The Fund commenced operations on March 3, 1998.
See Notes to Financial Statements
32
<PAGE>
<TABLE>
<CAPTION>
Columbia Real Estate Asset Allocation High Quality Columbia High
Equity Fund II(3) Fund Bond Fund Yield Fund II(3)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
$ 778 $ 899,247 $ 495,348 $ 13,377
6,370 141,719 -- 498
----------------- ----------------- ----------------- -----------------
7,148 1,040,966 495,348 13,875
----------------- ----------------- ----------------- -----------------
899 199,517 43,370 1,166
102 22,612 6,705 165
3,414 10,188 7,568 3,385
8,573 17,724 14,918 8,500
1,748 18,424 6,328 1,733
3,885 5,959 7,016 3,852
44 453 156 43
-- 329 186 --
1,533 13,719 4,636 1,520
69 580 209 69
----------------- ----------------- ----------------- -----------------
20,267 289,505 91,092 20,433
(18,229) -- (46,316) (17,324)
----------------- ----------------- ----------------- -----------------
2,038 289,505 44,776 3,109
----------------- ----------------- ----------------- -----------------
5,110 751,461 450,572 10,766
----------------- ----------------- ----------------- -----------------
(1,098) 897,230 68,386 1,016
(6,908) 2,861,887 146,273 5,175
----------------- ----------------- ----------------- -----------------
(8,006) 3,759,117 214,659 6,191
----------------- ----------------- ----------------- -----------------
$ (2,896) $ 4,510,578 $ 665,231 $ 16,957
================= ================= ================= =================
</TABLE>
33
<PAGE>
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, 1998 December 31, June 30, 1998, December 31,
(unaudited) 1997 (unaudited) 1997
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period ................. $ 15,329,905 $ 16,295,291 $ 69,862,961 $ 46,241,851
---------------- --------------- --------------- ----------------
Increase (decrease) in Net Assets resulting
from operations:
Net investment income .......................... 388,944 753,999 474,608 704,278
Net realized gain (loss) on investments sold ... -- 5 1,425,081 95,675
Net change in unrealized appreciation
(depreciation) of investments ............... -- -- 6,196,364 12,942,969
---------------- --------------- --------------- ----------------
Net increase (decrease) in net assets
resulting from operations ................ 388,944 754,004 8,096,053 13,742,922
---------------- --------------- --------------- ----------------
Dividends to shareholders from:
Net investment income .......................... (388,944) (753,999) (446,960) (687,918)
Net realized gain on investments ............... -- -- -- --
---------------- --------------- --------------- ----------------
Total Dividends ............................. (388,944) (753,999) (446,960) (687,918)
---------------- --------------- --------------- ----------------
Share Transactions:
Net proceeds from sale of shares ............... 5,778,102 7,556,021 7,861,588 13,908,741
Issued to shareholders in reinvestment of
dividends .................................... 388,944 753,997 445,253 687,918
Costs of shares repurchased .................... (5,094,482) (9,275,409) (1,818,941) (4,030,553)
---------------- --------------- --------------- ----------------
Net increase (decrease) from share
transactions 1,072,564 (965,391) 6,487,900 10,566,106
---------------- --------------- --------------- ----------------
Net increase (decrease) in net assets ....... 1,072,564 (965,386) 14,136,993 23,621,110
---------------- --------------- --------------- ----------------
NET ASSETS at end of period (including line A) .... $ 16,402,469 $ 15,329,905 $ 83,999,954 $ 69,862,961
================ =============== =============== ================
(A) Undistributed (overdistributed) net
investment income ........................... $ 284 $ 284 $ 44,008 $ 16,360
================ =============== =============== ================
OTHER INFORMATION:
Share Transactions:
Sold ........................................... 5,778,102 7,556,021 374,612 765,837
Issued to shareholders in reinvestment of
dividends .................................... 388,944 753,997 21,101 37,145
Repurchased .................................... (5,094,482) (9,275,409) (85,727) (221,254)
---------------- --------------- --------------- ----------------
Net increase (decrease) in shares outstanding 1,072,564 (965,391) 309,986 581,728
================ =============== =============== ================
</TABLE>
- -----------------------------------------------------
(1) The Fund commenced operations on March 4, 1998.
(2) The Fund commenced operations on April 17, 1998.
(3) The Fund commenced 0perations on March 3, 1998.
(a) Amount represents initial seed money.
See Notes to Financial Statements
34
<PAGE>
<TABLE>
<CAPTION>
Growth and Income Small Company Columbia Real Estate Asset Allocation
Fund(1) Growth Fund(2) Equity Fund II(3) Fund
--------------------- -------------- -------------------- -----------------------------------
Period ended Period ended Period ended Six months ended Year ended
June 30, 1998 June 30, 1998 June 30, 1998 June 30, 1998 December 31,
(unaudited) (unaudited) (unaudited) (unaudited) 1997
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 10(a) $ 10(a) $ 250,000(a) $ 42,535,206 $ 24,114,119
--------------- --------------- --------------- --------------- ---------------
8,592 364 5,110 751,461 912,010
15,297 (8,125) (1,098) 897,230 2,548,910
(23,163) (18,784) (6,908) 2,861,887 1,884,101
--------------- --------------- --------------- --------------- ---------------
726 (26,545) (2,896) 4,510,578 5,345,021
--------------- --------------- --------------- --------------- ---------------
(7,702) (666) (2,159) (686,626) (897,607)
-- -- -- (286,189) (2,452,737)
--------------- --------------- --------------- --------------- ---------------
(7,702) (666) (2,159) (972,815) (3,350,344)
--------------- --------------- --------------- --------------- ---------------
3,838,881 665,340 381,854 17,075,033 15,999,740
7,702 666 2,159 972,815 3,350,344
(101) (436) (19,369) (1,303,158) (2,923,674)
--------------- --------------- --------------- --------------- ---------------
3,846,482 665,570 364,644 16,744,690 16,426,410
--------------- --------------- --------------- --------------- ---------------
3,839,506 638,359 359,589 20,282,453 18,421,087
--------------- --------------- --------------- --------------- ---------------
$ 3,839,516 $ 638,369 $ 609,589 $ 62,817,659 $ 42,535,206
=============== =============== =============== =============== ===============
$ 890 $ (302) $ 2,951 $ 79,303 $ 14,468
=============== =============== =============== =============== ===============
382,743 68,022 38,496 1,122,360 1,090,906
776 73 226 63,491 232,254
(10) (47) (1,982) (84,966) (201,877)
--------------- --------------- --------------- --------------- ---------------
383,509 68,048 36,740 1,100,885 1,121,283
=============== =============== =============== =============== ===============
</TABLE>
35
<PAGE>
THE GALAXY
VIP FUND
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
High Quality Columbia High
Bond Fund Yield Fund II(1)
----------------------------------- ------------------
Six months ended Year ended Period ended
June 30, 1998 December 31, June 30, 1998
(unaudited) 1997 (unaudited)
---------------- --------------- ------------------
<S> <C> <C> <C>
NET ASSETS at beginning of period............................. $ 14,457,126 $ 11,814,065 $ 250,000(a)
---------------- --------------- ------------------
Increase in Net Assets resulting from operations:
Net investment income.................................... 450,572 698,478 10,766
Net realized gain on investments sold.................... 68,386 115,244 1,016
Net change in unrealized appreciation of investments..... 146,273 271,208 5,175
---------------- --------------- ------------------
Net increase in net assets
resulting from operations....................... 665,231 1,084,930 16,957
---------------- --------------- ------------------
Dividends to shareholders from:
Net investment income.................................... (450,503) (698,466) (10,762)
In excess of net investment income....................... -- -- --
Net realized gain on investments......................... -- -- --
---------------- --------------- ------------------
Total Dividends...................................... (450,503) (698,466) (10,762)
---------------- --------------- ------------------
Share Transactions:
Net proceeds from sale of shares......................... 3,374,127 3,442,357 860,362
Issued to shareholders in reinvestment of dividends...... 450,467 698,466 10,762
Costs of shares repurchased.............................. (576,175) (1,884,226) (31,796)
---------------- --------------- ------------------
Net increase from share transactions................. 3,248,419 2,256,597 839,328
---------------- --------------- ------------------
Net increase in net assets........................... 3,463,147 2,643,061 845,523
---------------- --------------- ------------------
NET ASSETS at end of period (including line A)................ $ 17,920,273 $ 14,457,126 $ 1,095,523
================ =============== ==================
(A) Undistributed net investment income....................... $ 5,003 $ 4,934 $ 4
================ =============== ==================
OTHER INFORMATION:
Share Transactions:
Sold..................................................... 325,676 338,747 85,109
Issued to shareholders in reinvestment of dividends...... 43,465 69,508 1,063
Repurchased.............................................. (55,702) (188,923) (3,137)
---------------- --------------- ------------------
Net increase in shares outstanding................... 313,439 219,332 83,035
================ =============== ==================
</TABLE>
- ---------------------------------------------------
(1) The Fund commenced operations on March 3, 1998.
(a) Amount represents initial seed money.
See Notes to Financial Statements
36
<PAGE>
THE GALAXY
VIP FUND
Money Market Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, 1998 ----------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993(1)
------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ---------- ---------- ---------- ---------- -----------
Income from Investment Operations:
Net investment income (A) ............ 0.03 0.05 0.05 0.05 0.04 0.03
Net realized and unrealized
gain (loss) on investments ......... -- -- -- -- -- --
------------- ---------- ---------- ---------- ---------- -----------
Total from Investment Operations ... 0.03 0.05 0.05 0.05 0.04 0.03
------------- ---------- ---------- ---------- ---------- -----------
Less Dividends:
Dividends from net investment income.. (0.03) (0.05) (0.05) (0.05) (0.04) (0.03)
Dividends from net realized capital
gains .............................. -- -- -- -- -- --
------------- ---------- ---------- ---------- ---------- -----------
Total Dividends .................... (0.03) (0.05) (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 $ 1.00
============= ========== ========== ========== ========== ===========
Total Return ............................ 2.60%** 4.99% 4.91% 5.38% 3.89% 2.74%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $ 16,402 $ 15,330 $ 16,295 $ 17,925 $ 13,276 $ 10,864
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............... 5.03%* 4.88% 4.80% 5.25% 3.85% 3.00%*
Operating expenses including
reimbursement/waiver ............... 0.58%* 0.67% 0.60% 0.63% 0.42% 0.13%*
Operating expenses excluding
reimbursement/waiver ............... 1.02%* 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 Advisor and/or Administrator for the six months ended June
30, 1998 (unaudited), the years ended December 31, 1997, 1996, 1995 and
1994 and for the period ended December 31, 1993 was $0.02, $0.05, $0.05,
$0.05, $0.03 and $0.01, respectively.
See Notes to Financial Statements
37
<PAGE>
THE GALAXY
VIP FUND
Equity Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, 1998 ----------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993(1)
------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 19.68 $ 15.58 $ 12.99 $ 10.40 $ 10.25 $ 10.00
------------- ---------- ---------- ---------- ---------- -----------
Income from Investment Operations:
Net investment income (A) ............ 0.13 0.21 0.19 0.18 0.20 0.16
Net realized and unrealized
gain on investments ................ 2.07 4.10 2.59 2.59 0.15 0.25
------------- ---------- ---------- ---------- ---------- -----------
Total from Investment Operations ... 2.20 4.31 2.78 2.77 0.35 0.41
------------- ---------- ---------- ---------- ---------- -----------
Less Dividends:
Dividends from net investment income (0.12) (0.21) (0.19) (0.18) (0.20) (0.16)
Dividends from net realized capital gains -- -- -- -- -- --
------------- ---------- ---------- ---------- ---------- -----------
Total Dividends .................... (0.12) (0.21) (0.19) (0.18) (0.20) (0.16)
------------- ---------- ---------- ---------- ---------- -----------
Net increase in net asset value ......... 2.08 4.10 2.59 2.59 0.15 0.25
------------- ---------- ---------- ---------- --------- ---------
Net Asset Value, End of Period .......... $ 21.76 $ 19.68 $ 15.58 $ 12.99 $ 10.40 $ 10.25
============= ========== ========== ========== ========== ===========
Total Return ............................ 11.19%** 27.74% 21.49% 26.76% 3.47% 4.15%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $ 84,000 $ 69,863 $ 46,242 $ 30,826 $ 19,391 $ 12,909
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............... 1.23%* 1.20% 1.34% 1.55% 2.06% 2.23%*
Operating expenses including
reimbursement/waiver ............... 1.06%* 1.08% 1.10% 1.21% 0.71% 0.20%*
Operating expenses excluding
reimbursement/waiver ............... 1.06%* 1.08% 1.10% 1.24% 1.42% 2.60%*
Portfolio Turnover Rate ................. 5%** 1% 8% 3% 2% 5%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on January 11, 1993.
(A) Net investment income (loss) per share before reimbursement/waiver of
fees by the Investment Advisor and/or Administrator for the six months
ended June 30, 1998 (unaudited), the years ended December 31, 1997, 1996,
1995 and 1994 and for the period ended December 31, 1993 was $0.13,
$0.21, $0.19, $0.18, $0.13 and $(0.02), respectively.
See Notes to Financial Statements
38
<PAGE>
THE GALAXY
VIP FUND
Growth and Income Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
June 30, 1998(1)
(unaudited)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
--------------
Income from Investment Operations:
Net investment income (A).................................. 0.05(2)
Net realized and unrealized gain (loss) on investments..... (0.01)
--------------
Total from Investment Operations......................... 0.04
--------------
Less Dividends:
Dividends from net investment income....................... (0.03)
Dividends from net realized capital gains.................. --
--------------
Total Dividends.......................................... (0.03)
--------------
Net increase (decrease) in net asset value.................... 0.01
--------------
Net Asset Value, End of Period................................ $ 10.01
==============
Total Return ................................................. 0.36%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $ 3,840
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 1.64%*
Operating expenses including reimbursement/waiver.......... 1.50%*
Operating expenses excluding reimbursement/waiver.......... 4.36%*
Portfolio Turnover Rate....................................... 38%**
</TABLE>
- -------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 4, 1998.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(A) Net investment (loss) per share before reimbursement/waiver of fees by
the Investment Advisor and/or Adminstrator for the period ended June 30,
1998 (unaudited) was $(0.04).
See Notes to Financial Statements
39
<PAGE>
THE GALAXY
VIP FUND
Small Company Growth Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
June 30, 1998(1)
(unaudited)
---------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
--------------
Income from Investment Operations:
Net investment income (A).................................. 0.01
Net realized and unrealized gain (loss) on investments..... (0.62)
--------------
Total from Investment Operations......................... (0.61)
--------------
Less Dividends:
Dividends from net investment income....................... (0.01)
Dividends from net realized capital gains.................. --
--------------
Total Dividends.......................................... (0.01)
--------------
Net (decrease) in net asset value............................. (0.62)
--------------
Net Asset Value, End of Period................................ $ 9.38
==============
Total Return ................................................. (6.08)%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $ 638
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 0.42%*
Operating expenses including reimbursement/waiver.......... 1.60%*
Operating expenses excluding reimbursement/waiver.......... 15.51%*
Portfolio Turnover Rate....................................... 14%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on April 17, 1998.
(A) Net investment (loss) per share before reimbursement/waiver of fees by
the Investment Advisor and/or Adminstrator for the period ended June 30,
1998 (unaudited) was $(0.32).
See Notes to Financial Statements
40
<PAGE>
THE GALAXY
VIP FUND
Columbia Real Estate Equity Fund II
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
June 30, 1998
(unaudited)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
--------------
Income from Investment Operations:
Net investment income (A).................................. 0.09
Net realized and unrealized gain (loss) on investments..... (0.18)
--------------
Total from Investment Operations......................... (0.09)
--------------
Less Dividends:
Dividends from net investment income....................... (0.04)
Dividends from net realized capital gains.................. --
--------------
Total Dividends.......................................... (0.04)
--------------
Net (decrease) in net asset value............................. (0.13)
--------------
Net Asset Value, End of Period................................ $ 9.87
==============
Total Return ................................................. (0.93)%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $ 610
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 4.26%*
Operating expenses including reimbursement/waiver.......... 1.70%*
Operating expenses excluding reimbursement/waiver.......... 16.91%*
Portfolio Turnover Rate....................................... 3%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 3, 1998.
(A) Net investment (loss) per share before reimbursement/waiver of fees by
the Investment Advisor and/or Adminstrator for the period ended June 30,
1998 (unaudited) was $(0.23).
See Notes to Financial Statements
41
<PAGE>
THE GALAXY
VIP FUND
Asset Allocation Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, 1998 ----------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993(1)
------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 14.54 $ 13.37 $ 12.38 $ 9.80 $ 10.33 $ 10.00
------------- ---------- ---------- ---------- ---------- -----------
Income from Investment Operations:
Net investment income (A) ............ 0.20 0.40 0.30 0.28 0.31 0.18
Net realized and unrealized
gain (loss) on investments ......... 1.12 2.11 1.53 2.58 (0.53) 0.35
------------- ---------- ---------- ---------- ---------- -----------
Total from Investment Operations ... 1.32 2.51 1.83 2.86 (0.22) 0.53
------------- ---------- ---------- ---------- ---------- -----------
Less Dividends:
Dividends from net investment income (0.19) (0.40) (0.30) (0.28) (0.31) (0.18)
Dividends from net realized capital gains (0.07) (0.94) (0.54) -- -- (0.02)
------------- ---------- ---------- ---------- ---------- -----------
Total Dividends .................... (0.26) (1.34) (0.84) (0.28) (0.31) (0.20)
------------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) in net asset value 1.06 1.17 0.99 2.58 (0.53) 0.33
------------- ---------- ---------- ---------- ---------- -----------
Net Asset Value, End of Period .......... $ 15.60 $ 14.54 $ 13.37 $ 12.38 $ 9.80 $ 10.33
============= ========== ========== ========== ========== ===========
Total Return ............................ 9.12%** 19.03% 14.64% 29.42% (2.15)% 5.33%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $ 62,818 $ 42,535 $ 24,114 $ 17,246 $ 10,572 $ 11,800
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............... 2.82%* 2.90% 2.31% 2.54% 3.02% 3.01%*
Operating expenses including
reimbursement/waiver ............... 1.09%* 1.19% 1.33% 1.37% 0.78% 0.26%*
Operating expenses excluding
reimbursement/waiver ............... 1.09%* 1.25% 1.33% 1.54% 1.68% 3.11%*
Portfolio Turnover Rate ................. 50%** 74% 45% 46% 28% 10%**
</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 for the six months ended June
30, 1998 (unaudited), for the years ended December 31, 1997, 1996, 1995
and 1994 and for the period ended December 31, 1993 was $0.20, $0.39,
$0.30, $0.26, $0.22 and $0.01, respectively.
See Notes to Financial Statements
42
<PAGE>
THE GALAXY
VIP FUND
High Quality Bond Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six months
ended Years ended December 31,
June 30, 1998 ----------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993(1)
------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 10.31 $ 9.99 $ 10.37 $ 8.97 $ 10.11 $ 10.00
------------- ---------- ---------- ---------- ---------- -----------
Income from Investment Operations:
Net investment income (A) ............ 0.29 0.58 0.58 0.57 0.56 0.47
Net realized and unrealized
gain (loss) on investments ......... 0.14 0.32 (0.38) 1.40 (1.14) 0.12
------------- ---------- ---------- ---------- ---------- -----------
Total from Investment Operations ... 0.43 0.90 0.20 1.97 (0.58) 0.59
------------- ---------- ---------- ---------- ---------- -----------
Less Dividends:
Dividends from net investment income (0.29) (0.58) (0.58) (0.57) (0.56) (0.47)
Dividends from net realized capital gains -- -- -- -- -- (0.01)
------------- ---------- ---------- ---------- ---------- -----------
Total Dividends .................... (0.29) (0.58) (0.58) (0.57) (0.56) (0.48)
------------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) in net asset value 0.14 0.32 (0.38) 1.40 (1.14) 0.11
------------- ---------- ---------- ---------- ---------- -----------
Net Asset Value, End of Period .......... $ 10.45 $ 10.31 $ 9.99 $ 10.37 $ 8.97 $ 10.11
============= ========== ========== ========== ========== ===========
Total Return ............................ 4.26%** 9.36% 1.57% 22.55% (5.85)% 6.04%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $ 17,920 $ 14,457 $ 11,814 $ 11,067 $ 8,012 $ 9,802
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............... 5.71%* 5.82% 5.78% 5.86% 5.90% 5.30%*
Operating expenses including
reimbursement/waiver ............... 0.57%* 0.77% 0.72% 0.80% 0.57% 0.22%*
Operating expenses excluding
reimbursement/waiver ............... 1.15%* 1.44% 1.38% 1.57% 1.63% 2.92%*
Portfolio Turnover Rate ................. 113%** 160% 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 Advisor and/or Administrator for the six months ended June
30, 1998 (unaudited), for the years ended December 31, 1997, 1996, 1995
and 1994 and for the period ended December 31, 1993 was $0.26, $0.51,
$0.51, $0.50, $0.46 and $0.23, respectively.
See Notes to Financial Statements
43
<PAGE>
THE GALAXY
VIP FUND
Columbia High Yield Fund II
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
June 30, 1998
(unaudited)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
--------------
Income from Investment Operations:
Net investment income (A).................................. 0.16
Net realized and unrealized gain (loss) on investments..... 0.14
--------------
Total from Investment Operations......................... 0.30
--------------
Less Dividends:
Dividends from net investment income....................... (0.16)
Dividends from net realized capital gains.................. --
--------------
Total Dividends.......................................... (0.16)
--------------
Net increase in net asset value............................... 0.14
--------------
Net Asset Value, End of Period................................ $ 10.14
==============
Total Return ................................................. 3.01**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $ 1,096
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 5.54%*
Operating expenses including reimbursement/waiver.......... 1.60%*
Operating expenses excluding reimbursement/waiver.......... 10.51%*
Portfolio Turnover Rate....................................... 14%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 3, 1998.
(A) Net investment (loss) per share before reimbursement/waiver of fees by
the Investment Advisor and/or Adminstrator for the period ended June 30,
1998 (unaudited) was $(0.09).
See Notes to Financial Statements
44
<PAGE>
THE GALAXY
VIP FUND
NOTES TO FINANCIAL STATEMENTS (unaudited)
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 Fund, Equity Fund, Growth and Income Fund, Small Company Growth
Fund, Columbia Real Estate Equity Fund II, Asset Allocation Fund, High Quality
Bond Fund and Columbia High Yield Fund II (individually a "Fund,"collectively,
the "Funds"), the eight 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
Fund, High Quality Bond Fund and Columbia High Yield Fund II, and declared and
paid quarterly with respect to the Equity Fund, Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Fund II, and Asset Allocation Fund.
Net realized capital gains, if any, are distributed at least annually.
Income dividends 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.
45
<PAGE>
THE GALAXY
VIP FUND
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
3. Investment Advisory, Administration and Other
Related Party Transactions
The Trust has entered into separate investment advisory agreements with Fleet
Investment Advisors Inc. (Fleet) and Columbia Management Co. ("Columbia"). Fleet
and Columbia (the "Investment Advisors") are indirect wholly-owned subsidiaries
of Fleet Financial Group, Inc. Under the terms of its agreement with the Trust,
Fleet provides services for a fee, computed daily and paid monthly, at an annual
rate based upon the following percentage of average daily net asset value: 0.40%
for the Money Market Fund, 0.75% for the Equity, Growth and Income, Small
Company Growth and Asset Allocation Funds and 0.55% for the High Quality Bond
Fund. Under the terms of its agreement with the Trust, Columbia provides
services for a fee computed daily and paid monthly at an annual rate based upon
the following percentage of average daily net asset value: 0.75% for the
Columbia Real Estate Equity Fund II and 0.60% for the Columbia High Yield Fund
II (see Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (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, Investor Services Group also provides certain fund accounting and
custody administration services pursuant to certain fee arrangements. Pursuant
to these fee arrangements, Investor Services Group compensates the Trust's
custodian bank, The Chase Manhattan Bank, for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Investor Services Group 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. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisors serves as an
officer, trustee or employee of the Trust. Effective March 5, 1998, 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 $40,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to March 5,
1998, each Trustee was entitled to receive for services as a trustee of the
Trust, Galaxy and 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.
Each Trustee is eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II 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.
Expenses for the six months ended June 30, 1998 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Investment Advisors and Administrator may voluntarily waive all or a
portion of the fees payable to them by the Funds. The Investment Advisors and
Administrator may, at their discretion, revise or discontinue the voluntary
limitations at any time.
For the period ended June 30, 1998, Fleet and the Administrator voluntarily
waived advisory, fund accounting and custody fees as follows:
<TABLE>
<CAPTION>
Fees waived by Fees waived by
Fund Fleet Administrator
- ------------------------------------------------------------
<S> <C> <C>
Money Market $ 19,343 $ 14,777
High Quality Bond 31,539 14,777
</TABLE>
The Investment Advisors may, from time to time agree to reimburse a Fund for
expenses above a specified percentage of average net assets. For the period
ended June 30, 1998, the Investment Advisors agreed to reimburse the Growth and
Income Fund, the Small Company Growth Fund, the Columbia High Yield Fund II and
the Columbia Real Estate Equity Fund II in the amounts of $14,960, $12,056,
$18,229 and $17,324, respectively.
46
<PAGE>
THE GALAXY
VIP FUND
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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 eight classes of
shares including: Class A - Money Market Fund; Class B - Equity Fund; Class C -
Asset Allocation Fund; Class D - High Quality Bond Fund; Class E - Small Company
Growth Fund; Class F - Growth and Income Fund; Class G - Columbia Real Estate
Equity Fund II; and Class H - Columbia High Yield Fund II. 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 costs of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
Fund Other Government Other Government
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $ 5,027,436 $ -- $ 3,043,968 $ --
Growth and Income 4,389,417 -- 894,043 --
Small Company Growth 603,306 -- 61,178 --
Columbia Real Estate Equity II 593,299 -- 10,083
Asset Allocation 19,926,531 17,980,727 7,021,915 15,599,404
High Quality Bond 6,460,386 14,264,263 4,836,840 12,596,568
Columbia High Yield II 1,131,632 -- 81,882 --
</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, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation) Net Cost
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $32,864,344 $ (526,860) $ 32,337,484 $52,261,304
Growth and Income 105,938 (129,101) (23,163) 4,087,671
Small Company Growth 24,362 (43,146) (18,784) 661,003
Columbia Real Estate Equity II 8,091 (14,999) (6,908) 697,599
Asset Allocation 8,932,194 (519,725) 8,412,469 54,346,894
High Quality Bond 525,138 (9,140) 515,998 17,210,258
Columbia High Yield II 7,536 (2,361) 5,175 1,074,348
</TABLE>
7. Capital Loss Carryforward
At December 31, 1997, the Funds had capital loss carry forwards as follows:
<TABLE>
<CAPTION>
Fund Amount Expiration
---- ------ ----------
<S> <C> <C>
Money Market $ 74 2002
29 2003
Equity 93,725 2002
17,469 2003
99,373 2004
High Quality Bond 50,568 2002
26,958 2003
159,052 2004
</TABLE>
47
<PAGE>
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<PAGE>
[Back Cover]
GALAXY
Variable Annuity III
4400 Computer Drive
Box 5108
Westborough, MA 01581-5108
BULK RATE
U.S. POSTAGE PAID
BOSTON, MA
PERMIT NO. 54201
