<PAGE> 1
GALAXY
VIP FUND
GALAXY VARIABLE ANNUITY REPORT
ANNUAL
REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997
<PAGE> 2
CHAIRMAN'S
MESSAGE FOR THE
GALAXY VIP FUND
Dear Variable Annuity Policyholder:
Enclosed is your annual report for The Galaxy VIP Fund, which covers the
fiscal year ended December 31, 1997. Inside, you will find a Market Overview
explaining the economic and market changes that occurred during this time and
how those changes may have affected your returns. Also included are individual
Portfolio Reviews that describe how Fleet Investment Advisors Inc. managed Fund
assets in this climate.
Investors were well rewarded in 1997. Although it was often unclear where
growth, inflation, and interest rates would head, the environment proved ideal
for investing. Stock returns exceeded 20% for a record third year in a row, as
measured by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500
Index"). Bond returns were also noteworthy, strengthened by a rally that drove
long-term yields to their lowest levels in several years.
A major tax cut allowed many investors to keep more of these investment
returns. Under the Taxpayer Relief Act of 1997 (the "Act"), the top tax rate for
long-term capital gains fell from 28% to 20%, while the rate for investors in
the 15% income tax bracket dropped from 15% to 10%. For sales after July 28,
1997, the new rates apply to investments held more than 18 months. This new
change in tax law helped make investments, particularly those in stocks, more
attractive for many taxpayers.
What do lower capital gains rates mean for variable annuities? Although
annuities are taxed at ordinary income rates, which are higher than the new
rates for capital gains, annuities offer the significant advantage of tax
deferral. By postponing taxes until you withdraw your returns, you keep more of
your money at work. This can greatly improve your returns over time - especially
if your tax rate is high. The ability to defer taxes also lets you reallocate
your investments without worrying about the taxes you will owe.
Annuities still have advantages over other tax-favored accounts -
including the new Roth IRA. Unlike a Roth IRA, annuities have no income or
contribution limits. In addition, annuities offer guaranteed minimum death
benefits that ensure that your heirs will receive what you contributed to the
account, or the account's market value, whichever is greater. With an annuity,
you can also arrange for a steady income stream that you won't outlive.
If you would like more information about making the most of your annuity
investments, or you have questions about this report, please call the Galaxy
Service Center at 800-628-0414.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
The Galaxy VIP Fund
MUTUAL FUNDS:
- - ARE NOT BANK DEPOSITS
- - ARE NOT FDIC INSURED
- - ARE NOT OBLIGATIONS OF FLEET BANK
- - ARE NOT GUARANTEED BY FLEET BANK
- - ARE SUBJECT TO INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED
- -------------------------------------
This report relates to the Sub-Accounts of American Skandia Life Assurance
Corporation Variable Account E. The underlying mutual fund portfolios in which
the Sub-Accounts invest include The Galaxy VIP Fund Money Market, Equity, Asset
Allocation and High Quality Bond Portfolios. This report relates to The Galaxy
VIP Fund only.
<PAGE> 3
MARKET OVERVIEW
FUND PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of December 31, 1997
<TABLE>
<CAPTION>
1 Year 3 Years Life of Account
<S> <C> <C> <C>
GALAXY VIP MONEY MARKET FUND 4.41% 4.14% 2.97%
Inception Date 2/2/93
GALAXY VIP EQUITY FUND 27.04% 16.14% 10.24%
Inception Date 1/11/93
GALAXY VIP ASSET ALLOCATION FUND 18.38% 12.69% 8.63%
Inception Date 2/6/93
GALAXY VIP HIGH QUALITY BOND FUND 8.76% 5.01% 4.14%
Inception Date 1/21/93
</TABLE>
MARKET OVERVIEW
By Fleet Investment Advisors Inc.
In a nearly perfect economic environment of solid growth and low
inflation, stocks and bonds performed well in 1997. Stocks earned more than 20%
for an unprecedented third consecutive year, as measured by the S&P 500 Index.
For the 12 months ended December 31, 1997, the S&P 500 Index enjoyed a total
return of 33.36%. Bonds more than tripled their performance over 1996, with the
Lehman Brothers Government/Corporate Bond Index returning 9.76%.
However, the ride upward was not completely smooth. Although the Federal
Reserve (the "Fed") raised interest rates just once, investors frequently feared
that further rate hikes would be necessary if growth accelerated. This caused
significant volatility in bond prices early in the year and was a factor in
driving stock prices lower in April and August.
Annual returns for the Galaxy VIP Funds were competitive with other funds
having similar investment objectives. During the year, we enhanced returns for
the equity portfolios by selecting companies with reliable earnings and
reasonable valuations. We strengthened returns in the fixed-income portfolios by
adjusting their maturity structures and asset mixes for changes in yields.
MODERATE GROWTH, LOWER INFLATION
At the start of 1997, economic growth was strong, inflation was moderate,
and corporate earnings exceeded expectations. Demand for stocks was rising, as
mergers and corporate buyback programs reduced stock supplies. By the middle of
March, stock prices had risen almost 10%. Concerned about higher inflation and
an "irrational exuberance" in stock prices, the Fed raised its short-term
interest rates by 25 basis points at the end of March.
Stock and bond prices fell in response. By the middle of April, bond
prices had dropped enough to push yields for 30-year Treasury bonds to a
nine-month high of 7.17%, and stock prices had relinquished most year-to-date
gains. However, with signs of moderating growth, lower inflation, and progress
toward balancing the federal budget, stocks and bonds began to rally. By the end
of June, long-term Treasury yields had fallen to their February 1997 levels, and
the S&P 500 Index had regained more than twice what it had lost.
Stock and bond prices continued to improve in the summer, but were
increasingly volatile. Stronger than expected economic growth and simmering
Asian concerns caused stocks and bonds to weaken in August. During October,
currency problems and financial turmoil in Asia were the main catalysts for the
first official 10% correction in the broad stock market averages in six years.
However, once investors saw that inflation was headed lower, and the Fed had
left interest rates unchanged, stocks and bonds quickly rebounded.
2
<PAGE> 4
MARKET OVERVIEW
PERFORMANCE
AT-A-GLANCE
Average Annual Returns
as of December 31, 1997
Variable Account E
Inception 1/8/93
<TABLE>
<CAPTION>
1 Year 3 Years Life of Account
<S> <C> <C> <C>
GALAXY VIP MONEY MARKET FUND 4.41% 4.51% 3.88%
GALAXY VIP EQUITY FUND 27.04% 24.56% 15.67%
GALAXY VIP ASSET ALLOCATION FUND 18.38% 20.27% 12.44%
GALAXY VIP HIGH QUALITY BOND FUND 8.76% 10.37% 5.92%
</TABLE>
These results reflect the experience of the sub-accounts of Variable Account E
of American Skandia Life Assurance Corporation and include all management fees
and expenses and insurance costs and accordingly will be different from the
performance of the corresponding Galaxy VIP Fund. The Variable Account E
sub-accounts purchase shares of The Galaxy VIP Fund. The sub-accounts are GAL
Money Market, GAL Equity, GAL High Quality Bond, and GAL Asset Allocation. The
performance data quoted represents past performance and the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. The
Administrator and the Advisor are presently waiving and/or reimbursing fees for
the Galaxy VIP Money Market Fund, the Galaxy VIP Asset Allocation Fund and
Galaxy VIP High Quality Bond Fund. Without such waivers and/or reimbursements,
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.
The tug-of-war between moderate growth and lower inflation continued in
the fourth quarter of 1997. This, plus worsening problems in Asia, brought
additional volatility. However, the investment climate remained positive. Growth
was solid but annual inflation had dropped from 3.0% in the first quarter to
1.7% in the fourth quarter. Bond prices ended the quarter sharply higher,
spurred by a "flight to quality" among investors. At year's end, long-term
Treasuries were yielding 5.92%. Despite further weakness in October and
December, stocks flirted with their third-quarter highs and ended the quarter
with modest gains.
FOCUS ON PRICE AND YIELD ADVANTAGE
Uncertain whether the strong earnings growth of recent years would
continue, investors quickly punished stocks with earnings disappointments.
However, for the most part, stock prices remained very high compared to
earnings. In this environment, we focused on shares of high-quality companies
with reliable earnings and reasonable prices. Once stocks that we owned had met
our price expectations, we traded them for issues whose prices were more
attractive.
In the fixed income portfolios, we emphasized longer-maturity issues when
inflation-adjusted yields were especially attractive and shorter-maturity issues
when yields were less attractive. Because longer-term issues tend to be more
sensitive to price changes than shorter-term issues, this helped us optimize
yields and price gains while minimizing price losses.
In response to changing yield spreads, we adjusted the mix of income
securities to further enhance returns. Although spreads between corporate issues
and Treasury securities remained relatively narrow, we took advantage of
widening spreads to add corporate bonds in the Spring. We also boosted the
Fund's yield with mortgage-backed securities - until lower interest rates
increased home-loan prepayments.
SLOWER GROWTH AHEAD
In 1998, an aging economic cycle and further trouble in Asia will probably
slow GDP growth to 2% and keep inflation below 3%. This could encourage the Fed
to reduce interest rates by mid-year. With lower budget deficits also cutting
Treasury supplies, bonds should have further room to rally. Although uncertainty
about Asia's influence on U.S. exports may keep bond prices volatile, we expect
30-year Treasury yields to remain between 5.50% and 6.50% during the year. As in
1997, we will use a longer maturity structure when yields are attractive and
make the most of changing yield spreads where possible.
Slower growth will likely bring new earnings disappointments. With stock
prices still high compared to earnings, such disappointments will probably lead
to further market weakness that could be more significant than recent downturns.
As a result, we are holding sizable cash reserves in the equity portfolios that
we can put to work in new investment opportunities. In the meantime, we will
stay focused on high-quality companies with reliable earnings and reasonable
valuations. Because multi-national firms may experience greater earnings
problems, we currently favor firms with strong domestic sales.
3
<PAGE> 5
PORTFOLIO REVIEWS
GALAXY VIP MONEY
MARKET FUND
Distribution of Total Net Assets
as of December 31, 1997
[PIE CHART]
<TABLE>
<S> <C>
Corporate Notes 3%
Commercial Paper 62%
U.S.Agency Obligations 35%
</TABLE>
GALAXY VIP MONEY MARKET FUND
Investment Managers
Karen Arneil and Thomas DeMarco
[PHOTO]
The Galaxy VIP Money Market Fund seeks as high a level of current income
as is consistent with liquidity and stability of principal. Although money
market yields traded in a relatively narrow range in 1997, changing expectations
for economic growth and inflation brought reversals in yield direction as well
as spread changes between yields of different instruments. By anticipating these
developments, we helped the Galaxy VIP Money Market Fund earn a total return of
4.99% for the 12 months ended December 31, 1997. This compares with a total
return of 4.90% for the average money market fund tracked by Lipper Analytical
Services ("Lipper").
ADDRESSING MARKET CHANGES
When 1997 began, economic growth seemed to be slowing and interest rates
were stabilizing. In this environment, we added longer-term investments to the
Fund. Soon, however, growth accelerated. Expecting an increase in yields, we
gave greater attention to shorter-term instruments. This allowed us to take
advantage of higher yields that resulted once the Fed raised short-term interest
rates in March.
In the second quarter, with slower growth and less inflation, money market
yields edged lower. However, investors remained nervous about inflation, so we
kept the average maturity of Fund investments short. To enhance returns, we
selectively added longer term instruments that offered value.
GALAXY VIP MONEY MARKET FUND
7-Day Average Yields
[GRAPH]
JANUARY 1, 1997 DECEMBER 31,1997
An investment in the Galaxy VIP Money Market Fund is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Galaxy VIP
Money Market Fund will be able to maintain a stable net asset value of $1.00 per
share.
As investors waited for growth and inflation to accelerate in the third
quarter, demand for longer-term instruments fell and their yields became more
attractive. We used this opportunity to add investments in securities with
longer maturities which enhanced the Fund's yield.
As the yield curve flattened early in the fourth quarter, we focused again
on shorter-term instruments. We made selective investments in longer-term issues
late in the year, as technical factors improved yields for issues maturing in
1998. As in previous quarters, we staggered the maturity dates of Fund holdings.
As of December 31, 1997, the Galaxy VIP Money Market Fund had an average
maturity of 27 days, an SEC 7-day effective yield of 5.22% and an SEC 30-day
effective yield of 5.20%.
LOOKING AHEAD
U.S. economic growth should slow in coming months as deflationary
international forces continue and debt-laden consumer spending weakens. As long
as inflation is moderate, the Fed will probably not raise interest rates.
However, if strong employment puts upward pressure on wages, inflation and
interest rates could rise. With economic growth slowing, we believe any rate
hike would probably be modest.
Given the uncertainty about inflation and interest rates, and the flatness
of the yield curve, we expect to keep sizable investments in shorter-term money
market issues. In managing the mix of Fund securities, we will continue to
invest in high quality investments with attractive yields and strong liquidity.
As always, we will try to keep the portfolio well diversified.
Karen Arneil and Tom DeMarco have managed the Galaxy VIP Money Market Fund
since September 1996. They have managed money market investments since 1993.
4
<PAGE> 6
PORTFOLIO REVIEWS
GALAXY VIP
EQUITY FUND
Distribution of Total Net Assets
as of December 31, 1997
[PIE CHART]
<TABLE>
<S> <C>
Energy 5%
Consumer Staples 18%
U.S. Agency Obligation 23%
Other Common Stocks 9%
Capital Goods 10%
Consumer Cyclical 9%
Technology 15%
Finance 11%
</TABLE>
GALAXY VIP EQUITY FUND
Investment Manager
Harold A. Mackinney
[PHOTO]
The Galaxy VIP Equity Fund seeks long-term growth by investing in
companies that Fleet Investment Advisors believes have above-average potential.
1997 has proven to be another good year for equities. However, as stock market
indices have more than doubled over the last three years, we have been concerned
about both the huge increase in price times earnings multiples that has occurred
and the lowest yields that these stock indicators have offered in the last 100
years. For that reason, we have kept a good-sized buying reserve, awaiting more
attractive buying opportunities. When the cash reserve is included, the Fund's
total performance came in at 27.74%. That compares with returns of 33.35% for
the S&P 500 Index and 25.18% for the average growth funds tracked by Lipper.
Over the same period, the equity portion of the Fund had a total return of
35.50%.
LOOKING FOR BARGAINS
Early in the year, there were strong performances from the Fund's
financial and consumer staples stocks, with exceptional gains for drug stocks.
Returns from these holdings more than offset disappointing performances from
certain auto, technology and airline stocks. Early in the first quarter, we used
cash to boost positions in financial, energy, aircraft and consumer staples
stocks with attractive prices. We continued to increase these sectors in
February and April, when stock prices weakened. The additional investments
enhanced returns in the second quarter.
In the first quarter, the Fund enjoyed solid returns from its banking
stocks - which continued to benefit from mergers and acquisitions in their
industry. Once again, we used market weakness during the quarter to increase
shares of existing positions that we plan to hold long term. Many of these were
"cyclical" stocks with close ties to economic changes.
With lower inflation and interest rates in the fourth quarter, the Fund's
banking stocks continued to perform well. Shares of drug and retail firms also
improved returns - offsetting poorer returns from multinational firms that trade
with Asia. During market weakness in October and December, we added to positions
whose prices became especially attractive. We again gave attention to cyclical
issues that were oversold on concerns about future growth.
VALUATIONS STILL HIGH
Looking forward to the current year, we continue to be concerned by the
record levels that the stock market has reached. As measured by such fundamental
valuations as price times earnings ratios and yields, the current stock market
is at extremely high levels. A short-term correction, therefore, seems probable.
Current corporate earnings expectations appear to be overly optimistic on Wall
Street. Disappointment over the actual results could cause a decline of moderate
proportions this year. For that reason, we expect to maintain a large cash
reserve in the Fund to use in the event that the level of stock prices becomes
more attractive. On a longer-term basis, the stock market should continue to do
well.
Harold A. Mackinney has managed the Galaxy VIP Equity Fund since its inception.
[GRAPH]
GALAXY VIP EQUITY FUND
Growth of $10,000 investment*
- - S&P 500 Index
- - Galaxy VIP Equity Fund
* 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> 7
PORTFOLIO REVIEWS
GALAXY VIP ASSET
ALLOCATION FUND
Distribution of Total Net Assets
as of December 31, 1997
[PIE CHART]
<TABLE>
<S> <C>
Corporate Notes and Bonds 21%
Asset-Backed and Mortgage-Backed Securities 2%
Common Stocks 44%
U.S. Government & Agency Obligations 33%
</TABLE>
GALAXY VIP ASSET ALLOCATION FUND
Investment Manager
Don Jones
[PHOTO]
The Galaxy VIP Asset Allocation Fund seeks a high total return by
providing both a current level of income that is greater than that produced by
the 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.
As stock prices rose in the past year, the Fund benefited by trading
shares that performed strongly for shares with greater potential. We further
enhanced returns by increasing the allocation to bonds - which rallied sharply
during the year. With these strategies, the Fund earned a total return of 19.03%
for the 12 months ended December 31, 1997. That compares to a return of 18.54%
for the average flexible portfolio fund tracked by Lipper and a return of 33.35%
for the S&P 500 Index and a return of 20.80% for the S&P Balanced Market Index,
an index reflecting 50% of the return of the S&P 500 Index, 40% of the return of
the Lehman Brothers Government/Corporate Bond Index and 10% of the return of the
Solomon Brothers Three-Month Treasury Bill Index.
ADDING INCOME AND GROWTH
We increased the bond allocation to 40% in the first quarter of 1997.
After performing strongly for two years, stocks had valuations that were quite
high by historical standards, and the market was due for correction. We
concentrated our purchases on high-quality asset-backed securities and corporate
bonds with attractive yields. As stock prices rose further, we took profits in
certain technology and banking shares that had met our objectives and bought
shares of selected basic materials, capital goods, telephone and
technology-services firms. We also increased our position in the consumer
sector.
[GRAPH]
GALAXY VIP ASSET ALLOCATION FUND
Growth of $10,000 investment*
S&P 500 Index
Galaxy VIP Asset Allocation Fund
* Since the Fund's inception on 2/6/93. The S&P 500 Index is an unmanaged index
of 500 leading stocks. Results for the S&P 500 Index do not reflect the
expenses and investment management fees incurred by the Fund.
The larger weighting in bonds served the Fund well in the second quarter,
when falling interest rates sent bond prices higher. As slower growth made
prices for corporate bonds more attractive, we continued to add to that sector.
On the stock side, we traded strong performers in the consumer staples and gas
sectors for energy, technology, and insurance shares with appealing values. In
addition, we traded stocks of smaller regional banks for others with better
potential.
We continued to add corporate bonds in the second half of the year. In the
fourth quarter, we also looked for investments in high-quality asset-backed and
mortgage-backed securities. In searching for stocks with the brightest outlooks,
we found opportunities in many "cyclical" companies - which became oversold on
economic concerns - as well as shares of financial, insurance, and technology
firms. In the fourth quarter, when investors worried about earnings for firms
that trade with Asia, we focused on shares of companies with strong U.S. sales.
FUNDING NEW OPPORTUNITIES
As in the third quarter, when stocks reached record highs, we increased
the Fund's cash reserves. When stock prices corrected in the fourth quarter, we
put this cash to work in new investments at attractive prices. We expect to have
similar opportunities in the months ahead, if stocks remain volatile or face
another correction. If stock prices correct substantially, we may reduce bond
investments as well as cash reserves.
6
<PAGE> 8
PORTFOLIO REVIEWS
In the meantime, we will trade stocks that have met our expectations for
shares with unrealized potential. With the prospect of slower growth, lower
inflation, and further gains in bond prices, the Fund should continue to benefit
from its larger bond investments. As we find additional opportunities in
corporate bonds, we may increase the allocation in that sector.
Don Jones has managed the Galaxy VIP Asset Allocation Fund since its inception.
He has managed investment portfolios for Fleet Investment Advisors Inc., and its
predecessors, since 1988.
GALAXY VIP HIGH
QUALITY BOND FUND
Distribution of Total Net Assets
as of December 31, 1997
<TABLE>
<S> <C>
Net Other Assets &Liabilities 2%
Asset-Backed and Mortgage-Backed Securities 11%
U.S. Government and Agency Obligations 54%
Corporate Notes & Bonds 33%
</TABLE>
GALAXY VIP HIGH
QUALITY BOND FUND
Investment Manager
Marie Schofield
[PHOTO]
The Galaxy VIP 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. or Standard & Poor's Rating Group. During the
past year, the Fund used an "active duration discipline," which emphasizes
"real" (inflation-adjusted) yields for U.S. Treasury securities. Historically, a
real yield of 4% or more for long-term Treasuries has represented attractive
value and suggests the addition of longer-term investments. Real long-term
yields lower than 3.5% have less value and would cause us to shorten maturities.
By actively managing and adjusting the mix of maturities within this framework,
and optimizing spreads between yields of different instruments, we helped the
Fund earn a total return of 9.36% for the 12 months ended December 31, 1997.
That compares to returns of 9.76% for the Lehman Brothers Government/Corporate
Bond Index and 9.16% for the average of A-rated corporate bond funds tracked by
Lipper. On December 31, 1997, the Fund had a 30-day SEC yield of 5.71%.
ACTIVE DURATION AT WORK
At the end of 1996, with the real yield for long-term Treasury securities
at an unattractive 3.1%, we shortened the Fund's maturity structure by selling
longer maturities and adding short- to intermediate-term corporate, asset-backed
and mortgage-backed securities. This strategy benefited the Fund in the first
quarter of 1997, when the Fed raised interest rates, long-term yields moved
above 7%, and prices for longer-term issues lost significant ground. Spreads
between Treasuries and corporates widened during this time.
With lower inflation, real long-term yields rose to 4.5% by April. At this
point, we traded short- to intermediate-term Treasuries and mortgage-backed
securities for longer-term corporates and zero-coupon Treasuries. Many of these
corporates performed well in the positive economic climate of the third quarter.
We also added asset-backed securities with longer maturities and purchased bonds
with put features. Put features can limit price risk when interest rates rise
and add upside potential when rates fall.
As economic growth slowed and inflation edged lower, yields declined
through most of the summer and early fall. With real long-term yields still near
4%, we maintained the Fund's exposure to longer maturities. Because yield
spreads for corporates and Treasuries had narrowed to earlier levels, we traded
investments in long-term corporates for "seasoned" mortgage-backed securities
with relatively low prepayment risk.
7
<PAGE> 9
PORTFOLIO REVIEWS
We continued to reduce corporate securities in favor of Treasury
securities at the end of the year, selling issues of domestic companies with
ties to Asia. Because real long-term yields were still attractive, we kept the
Fund's maturity structure on the long side. The Fund's longer-term issues
enjoyed strong returns as interest rates fell and bond prices rose. With lower
interest rates, we gave greater attention to mortgage-backed securities with
coupons near or below market levels.
FUTURE STRATEGIES
Should interest rates continue to fall, we may further reduce the
prepayment sensitivity of the Fund's mortgage holdings. We will also watch for
signs of renewed inflation that might suggest a more neutral or defensive
maturity structure. Although concern about the effect of Asia's problems on U.S.
growth has made corporate bonds more attractive, we do not expect to increase
the Fund's corporate exposure until the earnings outlook for domestic companies
is more clear.
Marie Schofield became manager of the Galaxy VIP High Quality Bond Fund in March
of 1996. She has managed fixed-income assets since 1975.
[GRAPH]
GALAXY VIP HIGH QUALITY BOND FUND
Growth of $10,000 investment*
Lehman Brothers Government/Corporate Bond Index
Galaxy VIP High Quality Bond Fund
*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.
8
<PAGE> 10
THE GALAXY
VIP FUND
VIP MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ---------------- ----------
<S> <C> <C>
COMMERCIAL PAPER (A)- 62.40%
FINANCE - 36.73%
$ 350,000 Cargill Global Funding Plc
5.75%, 01/29/98 (B) ......................... $ 348,435
600,000 Ford Motor Credit Co.
5.50%, 01/12/98 ............................. 598,992
700,000 General Electric Capital Corp.
5.71%, 01/23/98 ............................. 697,557
600,000 IBM Credit Corp.
5.53%, 02/05/98 ............................. 596,774
700,000 National Rural Utilities
Cooperative Finance Corp.
5.66%, 02/10/98 ............................. 695,598
700,000 Novartis Finance Corp.
5.76%, 01/08/98 ............................. 699,216
600,000 Toronto Dominion Holdings USA, Inc.
5.53%, 01/02/98 ............................. 599,908
700,000 Toyota Motor Credit Corp.
5.65%, 01/21/98 ............................. 697,803
700,000 USAA Capital Corp.
5.66%, 01/30/98 ............................. 696,808
----------
5,631,091
----------
TECHNOLOGY - 13.61%
700,000 AT&T Corp.
5.70%, 02/27/98 ............................. 693,683
700,000 BellSouth Telecommunications, Inc.
5.68%, 02/12/98 ............................. 695,361
700,000 Lucent Technologies, Inc.
5.54%, 01/26/98 ............................. 697,307
----------
2,086,351
----------
CONSUMER STAPLES - 12.06%
400,000 Campbell Soup Co.
5.60%, 01/26/98 (B) ......................... 398,444
400,000 Coca-Cola Co.
5.73%, 02/09/98 ............................. 397,517
559,000 Gillette Co.
5.70%, 01/15/98 (B) ......................... 557,761
500,000 Procter & Gamble Co.
5.70%, 03/04/98 ............................. 495,092
----------
1,848,814
----------
TOTAL COMMERCIAL PAPER ...................... 9,566,256
----------
(Cost $9,566,256)
U.S. AGENCY OBLIGATIONS (A) - 34.45%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 27.99%
3,296,000 6.00%, 01/02/98 ............................. 3,295,451
1,000,000 5.39%, 01/30/98 ............................. 995,449
----------
4,290,900
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ---------------- -----------
<S> <C> <C>
FEDERAL HOME LOAN BANK - 6.46%
$ 1,000,000 5.59%, 03/04/98 ............................. $ 990,381
-----------
TOTAL U.S. AGENCY OBLIGATIONS ............... 5,281,281
-----------
(Cost $5,281,281)
CORPORATE NOTES - 3.26%
500,000 Wal-Mart Stores, Inc.
Senior Note
5.50%, 03/01/98 ............................. 499,686
-----------
TOTAL CORPORATE NOTES ....................... 499,686
-----------
(Cost $499,686)
TOTAL INVESTMENTS - 100.11% ...................................... 15,347,223
-----------
(Cost $15,347,223)
NET OTHER ASSETS AND LIABILITIES - (0.11)% ....................... (17,318)
-----------
NET ASSETS - 100.00% ............................................. $15,329,905
===========
</TABLE>
- ---------------------------------------
(A) Discount yield at time of purchase.
(B) Security exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended. This security may be resold, in transactions exempt
from registration, to qualified institutional buyers. At December 31,
1997, these securities amounted to $1,304,640 or 8.51% of net assets.
See Notes to Financial Statements.
9
<PAGE> 11
THE GALAXY
VIP FUND
VIP EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ---------------- -----------
<S> <C> <C>
COMMON STOCKS - 77.20%
CONSUMER STAPLES - 18.04%
12,000 Anheuser-Busch Cos., Inc. $ 528,000
20,000 Bristol-Myers Squibb Co. 1,892,499
14,000 Gillette Co. 1,406,125
18,000 Johnson & Johnson 1,185,750
14,000 Merck & Co., Inc. 1,487,500
40,000 PepsiCo, Inc. 1,457,500
20,000 Pfizer, Inc. 1,491,250
14,000 Procter & Gamble Co. 1,117,375
20,000 Sara Lee Corp. 1,126,250
20,000 Sysco Corp. 911,250
-----------
12,603,499
-----------
TECHNOLOGY - 15.15%
16,000 AMP, Inc. 672,000
38,000 Applied Materials, Inc.* 1,144,750
22,000 Automatic Data Processing, Inc. 1,350,250
28,000 Corning, Inc. 1,039,500
20,000 Hewlett-Packard Co. 1,250,000
35,000 Intel Corp. 2,458,750
14,000 Microsoft Corp.* 1,809,500
15,000 Motorola, Inc. 855,938
-----------
10,580,688
-----------
FINANCE - 11.06%
15,000 American International Group, Inc 1,631,250
18,000 Barnett Banks, Inc. 1,293,750
16,000 Crestar Financial Corp. 912,000
30,000 Fannie Mae 1,711,875
40,000 Hibernia Corp., Class A 752,500
20,000 SunTrust Banks, Inc. 1,427,500
-----------
7,728,875
-----------
CAPITAL GOODS - 10.13%
28,000 Boeing Co. 1,370,250
32,000 Caterpillar, Inc. 1,554,000
28,000 Deere & Co. 1,632,750
18,000 General Electric Co. 1,320,750
27,000 Thermo Electron Corp.* 1,201,500
-----------
7,079,250
-----------
CONSUMER CYCLICAL - 9.25%
10,000 Armstrong World Industries, Inc. 747,500
21,000 Dayton-Hudson Corp. 1,417,500
10,000 Disney (Walt) Co. 990,625
21,000 Home Depot, Inc. 1,236,375
27,000 McDonald's Corp. 1,289,250
28,000 Sherwin-Williams Co. 777,000
-----------
6,458,250
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ---------------- -----------
<S> <C> <C>
ENERGY - 5.49%
9,000 Atlantic Richfield Co. $ 721,125
14,000 Exxon Corp. 856,625
24,000 Halliburton Co. 1,246,500
14,000 Mobil Corp. 1,010,625
-----------
3,834,875
-----------
TRANSPORTATION - 4.09%
10,000 AMR Corp.* 1,285,000
22,000 Ford Motor Co. 1,071,125
8,000 Union Pacific Corp. 499,500
-----------
2,855,625
-----------
BASIC MATERIALS - 3.99%
9,000 Air Products & Chemicals, Inc. 740,250
11,000 Consolidated Papers, Inc. 587,125
7,000 Dow Chemical Co. 710,500
9,000 Georgia-Pacific Corp. 546,750
9,000 Georgia-Pacific Corp., Timber Group* 204,188
2,788,813
-----------
TOTAL COMMON STOCKS 53,929,875
-----------
(Cost $27,788,755)
Par Value
- --------------
U.S. AGENCY OBLIGATION (A) - 22.75%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 22.75%
$ 15,899,000 6.00%, 01/02/98 15,896,350
-----------
Total U.S. Agency Obligation 15,896,350
-----------
(Cost $15,896,350)
TOTAL INVESTMENTS - 99.95% 69,826,225
-----------
(Cost $43,685,105)
NET OTHER ASSETS AND LIABILITIES - 0.05% 36,736
-----------
NET ASSETS - 100.00% $69,862,961
===========
</TABLE>
- ---------------------------------------
* Non income producing security.
(A) Discount yield at time of purchase.
See Notes to Financial Statements.
10
<PAGE> 12
THE GALAXY
VIP FUND
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ---------------- -----------
<S> <C> <C>
COMMON STOCKS - 44.42%
CONSUMER STAPLES - 9.52%
7,500 Coca-Cola Enterprises, Inc. $ 266,719
5,000 CPC International, Inc. 538,750
4,000 Gillette Co. 401,750
6,000 Lilly (Eli) & Co. 417,750
7,000 Merck & Co., Inc. 743,750
14,000 PepsiCo, Inc. 510,125
7,000 Pfizer, Inc. 521,938
5,000 Procter & Gamble Co. 399,063
2,000 Warner-Lambert Co. 247,985
-----------
4,047,830
-----------
FINANCE - 7.38%
4,500 American International Group, Inc. 489,375
2,500 BankBoston Corp. 234,844
2,000 Chase Manhattan Corp. 219,000
10,000 Fannie Mae 570,625
6,000 First Union Corp. 307,500
4,000 Hartford Financial
Services Group, Inc. 374,250
9,000 Norwest Corp. 347,625
5,000 SunAmerica, Inc. 213,750
6,000 Washington Mutual, Inc. 382,875
-----------
3,139,844
-----------
TECHNOLOGY - 6.56%
8,000 Automatic Data Processing, Inc. 491,000
8,000 Boston Scientific Corp.* 367,000
11,000 Cisco Systems, Inc.* 613,250
8,000 Hewlett-Packard Co. 500,000
4,000 Intel Corp. 281,000
3,000 Motorola, Inc. 171,188
5,000 Xerox Corp. 369,063
-----------
2,792,501
-----------
CONSUMER CYCLICAL - 5.02%
11,000 Ford Motor Co. 535,563
12,000 Home Depot, Inc. 706,500
5,400 McDonald's Corp. 257,850
15,000 Sherwin-Williams Co. 416,250
7,000 Walgreen Co. 219,625
-----------
2,135,788
-----------
ENERGY - 4.20%
3,000 Anadarko Petroleum Corp. $ 182,063
2,000 Baker Hughes, Inc. 87,250
3,000 Exxon Corp. 183,563
6,000 Halliburton Co. 311,625
8,000 Mobil Corp. 577,500
8,000 Noble Affiliates, Inc. 282,000
2,000 Schlumberger, Ltd. 161,000
-----------
1,785,001
-----------
CAPITAL GOODS - 4.01%
11,000 Boeing Co. 538,313
5,000 Dresser Industries, Inc. 209,688
5,000 General Electric Co. 366,875
10,000 Thermo Electron Corp.* 445,000
2,000 United Technologies Corp. 145,625
-----------
1,705,501
-----------
BASIC MATERIALS - 3.48%
7,000 AlliedSignal, Inc. 272,563
9,000 Crown Cork & Seal Co., Inc. 451,125
5,000 Minnesota Mining &
Manufacturing Co. 410,313
10,000 Sonoco Products Co. 346,875
-----------
1,480,876
-----------
UTILITIES - 3.05%
5,000 Frontier Corp. 120,313
5,000 SBC Communications, Inc. 366,250
12,000 United States Filter Corp.* 359,250
15,000 WorldCom, Inc. 453,750
-----------
1,299,563
-----------
TRANSPORTATION - 1.20%
8,000 Southwest Airlines Co. 197,000
5,000 Union Pacific Corp. 312,188
-----------
509,188
-----------
TOTAL COMMON STOCKS 18,896,092
-----------
(Cost $13,798,109)
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 13
THE GALAXY
VIP FUND
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ---------------- -----------
<S> <C> <C>
PREFERRED STOCK - 0.43%
3,000 Loral Space and
Communications, Ltd., Series C* (B) $ 183,750
-----------
TOTAL PREFERRED STOCK 183,750
-----------
(Cost $162,773)
PAR VALUE
- ----------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 32.86%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 18.08%
$ 7,449,000 6.00%, 01/02/98 (A) $ 7,447,759
241,540 7.00%, 01/01/27 244,180
-----------
7,691,939
-----------
U.S. TREASURY BONDS - 8.43%
350,000 7.25%, 05/15/16 398,689
500,000 7.50%, 11/15/16 583,975
100,000 7.88%, 02/15/21 122,838
250,000 8.00%, 11/15/21 311,865
450,000 7.25%, 08/15/22 519,907
450,000 7.63%, 11/15/22 541,814
400,000 7.13%, 02/15/23 456,832
615,000 6.38%, 08/15/27 649,359
-----------
3,585,279
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 2.19%
100,000 6.40%, 03/25/03 99,993
150,000 6.31%, 08/25/03, MTN 149,703
100,000 8.18%, 04/15/24, MTN 101,324
219,237 10.00%, 05/01/22, Pool # 313544 242,843
244,936 6.00%, 04/01/11, Pool # 338365 241,489
95,949 6.50%, 02/01/27, Pool # 371680 94,750
-----------
930,102
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.59%
279,189 8.00%, 09/15/17, Pool # 780520 293,757
76,116 9.00%, 12/15/17, Pool # 780201 82,895
301,500 6.50%, 05/15/24, Pool # 780168 298,956
-----------
675,608
-----------
U.S. TREASURY NOTES - 1.16%
200,000 7.88%, 11/15/04 223,698
250,000 7.00%, 07/15/06 269,965
-----------
493,663
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ---------------- ----------
<S> <C> <C>
FEDERAL HOME LOAN BANK - 0.82%
$ 100,000 6.41%, 12/29/03 $ 99,996
250,000 7.00%, 11/21/05 249,942
----------
349,938
----------
FEDERAL FARM CREDIT BANK - 0.59%
250,000 6.40%, 12/11/00, MTN 250,040
----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS 13,976,569
----------
(Cost $13,695,206)
CORPORATE NOTES AND
BONDS - 20.91%
FINANCE - 7.77%
155,000 American General Finance Corp.
Senior Note
8.25%, 01/15/98 155,091
100,000 Aristar, Inc., Senior Note
6.75%, 05/15/99 101,000
250,000 Associates Corp. of North America
7.88%, 09/30/01 264,063
100,000 Associates Corp. of North America, MTN
6.00%, 03/15/99 100,125
100,000 CIT Group Holdings, Inc., Senior MTN
6.20%, 06/17/99 100,250
100,000 Caterpillar Financial Services Corp.
Series E, MTN
6.87%, 11/30/99 101,375
250,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00 253,750
250,000 Commercial Credit Co., Senior Note
5.55%, 02/15/01 246,250
100,000 Deere (John) Capital Corp.
6.30%, 06/01/99 100,500
250,000 Ford Motor Credit Co.
6.38%, 12/15/05 250,313
100,000 General Motors Acceptance Corp., MTN
6.35%, 06/18/98 100,264
100,000 General Motors Acceptance Corp.
7.75%, 01/15/99 101,750
200,000 General Motors Acceptance Corp.
7.00%, 03/01/00 203,750
150,000 Household Finance Corp.
7.63%, 06/15/99 153,188
200,000 International Lease Finance Corp.
6.20%, 05/01/00 200,500
400,000 Norwest Financial, Inc., Senior Note
7.75%, 08/15/01 421,500
250,000 PACCAR Financial Corp.
Series H, Senior MTN
6.39%, 06/15/00 252,188
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 14
THE GALAXY
VIP FUND
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- -----------
<S> <C> <C>
FINANCE - CONTINUED
$ 100,000 Pitney Bowes Credit Corp., Series C, MTN
6.54%, 07/15/99 $ 101,000
100,000 Sears Roebuck Acceptance Corp.
Series II, MTN
6.38%, 02/16/99 100,500
-----------
3,307,357
-----------
BANKING - 4.15%
100,000 Bank One Milwaukee, N.A. MTN
6.35%, 03/19/01 100,625
300,000 Chase Manhattan Corp., MTN
5.50%, 02/15/01 294,000
200,000 Citicorp, Senior MTN
8.63%, 11/01/04 209,000
250,000 First Union Corp., Senior Note
6.60%, 06/15/00 252,813
200,000 Mellon Financial Co., Senior Note
7.63%, 11/15/99 206,250
250,000 NationsBank Corp., Senior Note
5.38%, 04/15/00 246,250
100,000 NationsBank Corp., Senior Note
7.00%, 05/15/03 103,125
100,000 SunTrust Bank of Central Florida, MTN
6.90%, 06/01/07 102,875
250,000 Wachovia Bank NC, N.A.
6.30%, 03/15/01 250,938
-----------
1,765,876
-----------
INDUSTRIAL - 1.79%
250,000 Coca-Cola Enterprises, Inc.
6.70%, 10/15/36 259,375
100,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27 101,500
100,000 Parker Hannifin Corp.
7.30%, 05/15/11 107,375
280,000 Rockwell International Corp.
Debenture
8.88%, 09/15/99 292,950
-----------
761,200
-----------
OIL, GAS, AND PETROLEUM - 1.55%
200,000 Occidental Petroleum Corp., MTN
6.75%, 09/16/99 202,000
200,000 Phillips Petroleum Co., Debenture
9.38%, 02/15/11 249,750
100,000 Union Oil Co. of California, MTN
Guaranteed: Unocal Corp.
6.70%, 10/15/07 102,250
100,000 Union Pacific Resources Group, Inc.
7.00%, 10/15/06 104,250
-----------
658,250
-----------
UTILITIES - 0.93%
$ 250,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 $ 252,500
140,000 Virginia Electric & Power Co.
Series B, MTN
9.35%, 06/22/98 142,275
-----------
394,775
-----------
MERCHANDISING AND RETAIL - 0.85%
100,000 The May Department Stores Co.
7.45%, 10/15/16 107,500
250,000 Rite Aid Corp.
6.70%, 12/15/01 254,063
-----------
361,563
-----------
EQUIPMENT - 0.85%
250,000 Baker Hughes, Inc.
7.63%, 02/15/99 254,688
100,000 Xerox Corp., MTN
7.20%, 04/01/16 105,500
-----------
360,188
-----------
TELECOMMUNICATIONS - 0.70%
300,000 Northern Telecom, Ltd.
Yankee Note
6.00%, 09/01/03 297,375
-----------
PROCESSED FOODS - 0.63%
250,000 Sysco Corp.
7.25%, 04/15/07 267,813
-----------
PHARMACEUTICALS - 0.59%
250,000 Lilly (Eli) & Co.
6.75%, 11/15/99 253,438
-----------
AEROSPACE - 0.50%
200,000 Lockheed Martin Corp.
Guaranteed: Lockheed Martin
Tactical Systems, Inc.
7.25%, 05/15/06 211,750
-----------
CONSUMER PRODUCTS - 0.34%
135,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27 144,619
-----------
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 15
\THE GALAXY
VIP FUND
VIP ASSET ALLOCATION
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- ------------
<S> <C> <C>
TRANSPORTATION - 0.26%
$ 100,000 Southwest Airlines Co.
Senior Unsecured Note
9.40%, 07/01/01 $ 109,375
------------
TOTAL CORPORATE NOTES AND BONDS 8,893,579
------------
(Cost $8,815,439)
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 1.78%
70,000 California Infrastructure & Economic
Development Bank, Special Purpose Trust
Pacific Gas & Electric Co.
Series 1997-1, Class A-4
6.16%, 06/25/03 70,241
250,000 California Infrastructure & Economic
Development Bank, Special Purpose Trust
San Diego Gas & Electric Co.
Series 1997-1, Class A-3
6.07%, 03/25/03 250,234
250,000 Chase Credit Card Master Trust
Series 1997-2, Class A
6.30%, 04/15/03 251,250
100,000 NationsBank Auto Owner Trust
Series 1996-A, Class A-3
6.38%, 07/15/00 100,218
82,862 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 82,652
------------
TOTAL ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES 754,595
------------
(Cost $682,476)
TOTAL INVESTMENTS - 100.40% $ 42,704,585
------------
(Cost $37,154,003)
NET OTHER ASSETS AND LIABILITIES - (0.40)% (169,379)
------------
NET ASSETS - 100.00% $ 42,535,206
============
</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 December 31, 1997,
this security amounted to $183,750 or 0.43% of net assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
14
<PAGE> 16
THE GALAXY
VIP FUND
VIP HIGH QUALITY BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- ------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 53.64%
U.S. TREASURY BONDS - 23.86%
$ 135,000 12.00%, 08/15/13 $ 199,007
150,000 13.25%, 05/15/14 240,018
150,000 7.50%, 11/15/16 175,193
225,000 7.88%, 02/15/21 276,386
200,000 8.13%, 08/15/21 252,382
400,000 8.00%, 11/15/21 498,984
600,000 7.25%, 08/15/22 693,209
250,000 7.13%, 02/15/23 285,520
785,000 6.38%, 08/15/27 828,857
------------
3,449,556
------------
U.S. TREASURY NOTES - 9.66%
355,000 5.88%, 02/15/00 356,476
600,000 6.25%, 08/31/00 608,135
400,000 7.00%, 07/15/06 431,944
------------
1,396,555
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 7.39%
400,075 7.50%, 11/01/12, Pool # 780671 412,140
433,224 8.00%, 09/15/17, Pool # 780520 455,830
195,671 7.50%, 04/15/27, Pool # 780551 200,439
------------
1,068,409
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.51%
500,000 7.55%, 06/10/04, Series SM-2004-F 514,025
430,933 6.50%, 09/01/23, Pool # 50911 427,429
------------
941,454
------------
U.S. GOVERNMENT BACKED BONDS - 4.86%
200,000 Private Export Funding Corp., Series B
6.49%, 07/15/07 206,250
200,000 State of Israel, Series 7-A
Guaranteed: U.S. Government
5.45%, 02/15/01 197,000
300,000 Tennessee Valley Authority Power Board
Class 1993, Series C
6.13%, 07/15/03 299,625
------------
702,875
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (A) - 1.36%
196,000 6.00%, 01/02/98 195,967
------------
TOTAL U. S. GOVERNMENT AND
AGENCY OBLIGATIONS 7,754,816
------------
(Cost $7,457,995)
CORPORATE NOTES AND BONDS - 33.17%
FINANCE - 22.63%
$ 250,000 Associates Corp. of North America $ 246,563
Senior Note
5.60%, 01/15/01
300,000 Associates Corp. of North America 303,375
Senior Note
6.50%, 07/15/02
500,000 Bank One Milwaukee, MTN 503,125
6.35%, 03/19/01
500,000 CIT Group Holdings, Inc., MTN, Senior 501,250
6.20%, 06/17/99
500,000 Ford Motor Credit Co., Senior Note
6.50%, 02/28/02 504,375
400,000 Keycorp Institutional Capital Corp.
Coupon Adjusted Pass-Through, Series A
6.63%, 06/15/29 (B) 402,480
500,000 National Rural Utilities
Cooperative Finance Corp.
6.38%, 10/15/04 503,125
200,000 Pitney Bowes Credit Corp., Series C, MTN
6.54%, 07/15/99 202,000
100,000 SunTrust Bank Atlanta
Subordinated Note, MTN
7.25%, 09/15/06 105,000
------------
3,271,293
------------
CONSUMER PRODUCTS - 6.73%
400,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99 407,000
200,000 Coca-Cola Enterprises, Inc., Debenture
6.70%, 10/15/36 207,500
240,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27 257,100
100,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27 101,500
------------
973,100
------------
UTILITIES - 3.81%
400,000 GTE Florida, Inc.
Debenture, Series A
6.31%, 12/15/02 400,000
150,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 151,500
------------
551,500
------------
TOTAL CORPORATE NOTES AND BONDS 4,795,893
------------
(Cost $4,733,626)
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 17
THE GALAXY
VIP FUND
VIP HIGH QUALITY BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
--------- ---------
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 11.45%
<S> <C> <C> <C>
$ 200,000 California Infrastructure & Economic
Development Bank, Special Purpose Trust
Pacific Gas & Electric Co.
Series 1997-1, Class A-4
6.16%, 06/25/03 $ 200,688
150,000 California Infrastructure SCE-1
Class 1997-1, Series A-3
6.17%, 03/25/03 150,563
250,000 Chase Credit Card Master Trust
Class 1997-2, Series A
6.30%, 04/15/03 251,250
387,735 Prudential Home Mortgage Securities
Class 1996-7,Series A-1, CMO
6.75%, 06/25/11 388,947
414,312 Rural Housing Trust
Class 1987-1, Series 1-D, CMO
6.33%, 04/01/26 413,260
250,000 Sears Credit Account Master Trust II
Class 1996-1, Series A
6.20%, 02/16/06 250,468
-----------
TOTAL ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES 1,655,176
-----------
(Cost $1,644,539)
TOTAL INVESTMENTS - 98.26% 14,205,885
-----------
(Cost $13,836,160)
NET OTHER ASSETS AND LIABILITIES - 1.74% 251,241
-----------
NET ASSETS - 100.00% $ 14,457,126
============
</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 security may be resold, in transactions
exempt from registration, to qualified institutional buyers. At
December 31, 1997, this security amounted to $402,480 or 2.78% of net
assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
16
<PAGE> 18
THE GALAXY
VIP FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY MARKET EQUITY ASSET ALLOCATION HIGH QUALITY
FUND FUND FUND BOND FUND
--- --- --- ---------
ASSETS:
<S> <C> <C> <C> <C>
Investments (Note 2):
Investments at cost ...................... $ 15,347,223 $ 43,685,105 $37,154,003 $ 13,836,160
Net unrealized appreciation .............. -- 26,141,120 5,550,582 369,725
------------ ------------ ----------- ------------
Total investments at value ............. 15,347,223 69,826,225 42,704,585 14,205,885
Cash ....................................... 904 269 481 259
Receivable for investments sold ............ -- -- 2,623,948 154,321
Receivable for shares sold ................. 493 91,986 125,884 51,938
Interest and dividend receivables .......... 9,243 63,985 247,904 210,365
Deferred organizational expense (Note 2) ... 293 133 329 186
------------ ------------ ----------- ------------
Total Assets ............................. 15,358,156 69,982,598 45,703,131 14,622,954
------------ ------------ ----------- ------------
LIABILITIES:
Payable for investments purchased .......... -- -- 3,105,872 146,024
Payable for shares repurchased ............. -- 32,022 75 23
Advisory fee payable (Notes 3 & 4) ......... 1,996 43,720 25,925 1,766
Payable to Administrator (Notes 3 & 4) ..... 1,755 5,237 5,005 2,112
Trustees' fees and expenses payable (Note 3) 253 798 427 183
Accrued expenses and other payables ........ 24,247 37,860 30,621 15,720
------------ ------------ ----------- ------------
Total Liabilities ........................ 28,251 119,637 3,167,925 165,828
------------ ------------ ----------- ------------
NET ASSETS .................................... $ 15,329,905 $ 69,862,961 $42,535,206 $ 14,457,126
============ ============ =========== ============
NET ASSETS CONSIST OF:
Par value (Note 5) ......................... $ 15,330 $ 3,550 $ 2,925 $ 1,402
Paid-in capital in excess of par value ..... 15,314,394 43,912,498 36,692,179 14,338,458
Undistributed net investment income ........ 284 16,360 14,468 4,934
Accumulated net realized gain (loss)
on investments sold ...................... (103) (210,567) 275,052 (257,393)
Net unrealized appreciation of investments . -- 26,141,120 5,550,582 369,725
------------ ------------ ----------- ------------
TOTAL NET ASSETS .............................. $ 15,329,905 $ 69,862,961 $42,535,206 $ 14,457,126
============ ============ =========== ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING ..... 15,329,724 3,550,451 2,925,304 1,401,691
NET ASSET VALUE:
offering and redemption price per share
(Net Assets / Shares Outstanding) .......... $ 1.00 $ 19.68 $ 14.54 $ 10.31
============ ============ =========== ============
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 19
THE GALAXY
VIP FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY MARKET EQUITY ASSET ALLOCATION HIGH QUALITY
FUND FUND FUND BOND FUND
---- ---- ---- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ......................... $ 858,018 $ 673,073 $ 1,073,967 $ 791,419
Dividends (Note 2) ......................... -- 665,075 213,516 --
--------- ----------- ----------- -----------
Total investment income .................. 858,018 1,338,148 1,287,483 791,419
--------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees (Note 3) .......... 61,827 440,287 235,784 65,975
Administration fees (Note 3) ............... 25,000 25,000 25,000 25,000
Custody fees ............................... 17,092 13,407 18,688 13,767
Fund accounting fees (Note 3) .............. 25,602 36,549 34,640 29,304
Legal fees ................................. 10,302 38,957 20,807 8,010
Audit fees ................................. 10,756 12,015 12,015 12,015
Trustees' fees (Note 3) .................... 410 1,456 778 312
Amortization of organization costs (Note 2) 3,256 3,256 3,256 3,256
Reports to shareholders .................... 10,751 45,853 25,849 9,080
Miscellaneous .............................. 8,808 17,090 14,983 6,367
--------- ----------- ----------- -----------
Total expenses before reimbursement/waiver 173,804 633,870 391,800 173,086
Less: reimbursement/waiver (Note 4) ...... (69,785) -- (16,327) (80,145)
--------- ----------- ----------- -----------
Total expenses net of reimbursement/waiver 104,019 633,870 375,473 92,941
--------- ----------- ----------- -----------
NET INVESTMENT INCOME ......................... 753,999 704,278 912,010 698,478
--------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (Note 2):
Net realized gain on investments sold ...... 5 95,675 2,548,910 115,244
Net change in unrealized appreciation
of investments ............................. -- 12,942,969 1,884,101 271,208
--------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ................................ 5 13,038,644 4,433,011 386,452
--------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 754,004 $13,742,922 $ 5,345,021 $ 1,084,930
========= =========== =========== ===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
THE GALAXY
VIP FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND EQUITY FUND
---------------- -----------
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD .................... $ 16,295,291 $ 17,925,279 $ 46,241,851 $ 30,826,249
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ............................. 753,999 852,480 704,278 509,213
Net realized gain (loss) on investments sold ...... 5 92 95,675 (99,373)
Net change in unrealized appreciation
of investments ................................. - - 12,942,969 7,121,725
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ................... 754,004 852,572 13,742,922 7,531,565
------------ ------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................. (753,999) (852,480) (687,918) (509,213)
In excess of net investment income ................ - - - -
Return of capital ................................. - - - (3,254)
------------ ------------ ------------ ------------
Total Dividends ................................ (753,999) (852,480) (687,918) (512,467)
------------ ------------ ------------ ------------
SHARE TRANSACTIONS:
Net proceeds from sale of shares .................. 7,556,021 9,677,376 13,908,741 10,270,161
Issued to shareholders in reinvestment of dividends 753,997 852,480 687,918 512,467
Costs of shares repurchased ....................... (9,275,409) (12,159,936) (4,030,553) (2,386,124)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions (965,391) (1,630,080) 10,566,106 8,396,504
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .......... (965,386) (1,629,988) 23,621,110 15,415,602
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ....... $ 15,329,905 $ 16,295,291 $ 69,862,961 $ 46,241,851
============ ============ ============ ============
(A) Undistributed net investment income .............. $ 284 $ 284 $ 16,360 $ -
============ ============ ============ ============
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .............................................. 7,556,021 9,677,376 765,837 728,435
Issued to shareholders in reinvestment of dividends 753,997 852,480 37,145 35,280
Repurchased ....................................... (9,275,409) (12,159,936) (221,254) (167,823)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding .. (965,391) (1,630,080) 581,728 595,892
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
THE GALAXY
VIP FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND HIGH QUALITY BOND FUND
-------------------- ----------------------
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ...................... $ 24,114,119 $ 17,245,518 $ 11,814,065 $ 11,066,976
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ............................. 912,010 470,807 698,478 646,455
Net realized gain (loss) on investments sold ...... 2,548,910 1,139,968 115,244 (184,947)
Net change in unrealized appreciation
(depreciation) of investments ................. 1,884,101 1,262,456 271,208 (225,682)
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ................ 5,345,021 2,873,231 1,084,930 235,826
------------ ------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................. (897,607) (471,186) (698,466) (646,455)
In excess of net investment income ................ -- (102) -- (12)
Net realized gain on investments .................. (2,452,737) (933,720) -- --
------------ ------------ ------------ ------------
Total Dividends ............................... (3,350,344) (1,405,008) (698,466) (646,467)
------------ ------------ ------------ ------------
SHARE TRANSACTIONS:
Net proceeds from sale of shares .................. 15,999,740 6,863,797 3,442,357 2,301,499
Issued to shareholders in reinvestment of dividends 3,350,344 1,405,008 698,466 646,471
Costs of shares repurchased ....................... (2,923,674) (2,868,427) (1,884,226) (1,790,240)
------------ ------------ ------------ ------------
Net increase from share transactions .......... 16,426,410 5,400,378 2,256,597 1,157,730
------------ ------------ ------------ ------------
Net increase in net assets .................... 18,421,087 6,868,601 2,643,061 747,089
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ......... $ 42,535,206 $ 24,114,119 $ 14,457,126 $ 11,814,065
============ ============ ============ ============
(A) Undistributed net investment income ................ $ 14,468 $ -- $ 4,934 $ 1,065
============ ============ ============ ============
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .............................................. 1,090,906 526,178 338,747 229,617
Issued to shareholders in reinvestment of dividends 232,254 105,729 69,508 64,993
Repurchased ....................................... (201,877) (220,448) (188,923) (179,711)
------------ ------------ ------------ ------------
Net increase in shares outstanding ............ 1,121,283 411,459 219,332 114,899
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
THE GALAXY
VIP FUND
VIP MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- -----------
Income from Investment Operations:
Net investment income (A) ............................ 0.05 0.05 0.05 0.04 0.03
Net realized and unrealized gain (loss) on investments -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total from Investment Operations ................... 0.05 0.05 0.05 0.04 0.03
---------- ---------- ---------- ---------- -----------
Less Dividends:
Dividends from net investment income ................. (0.05) (0.05) (0.05) (0.04) (0.03)
Dividends from net realized capital gains ............ -- -- -- -- --
----------- ----------- ---------- ------------ -----------
Total Dividends .................................... (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
========== ========== ========== ========== ==========
Total Return ............................................ 4.99% 4.91% 5.38% 3.89% 2.74%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....................... $ 15,330 $ 16,295 $ 17,925 $ 13,276 $ 10,864
Ratios to average net assets:
Net investment income including reimbursement/waiver . 4.88% 4.80% 5.25% 3.85% 3.00%*
Operating expenses including reimbursement/waiver .... 0.67% 0.60% 0.63% 0.42% 0.13%*
Operating expenses excluding reimbursement/waiver .... 1.12% 1.02% 1.11% 1.21% 2.00%*
</TABLE>
* Annualized
** Not Annualized
(1) The Fund commenced operations on February 2, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by
the Investment Advisor and/or Administrator for the years ended
December 31, 1997, 1996, 1995 and 1994 and for the period ended
December 31, 1993 were $0.05, $0.05, $0.05, $0.03 and $0.01,
respectively.
See Notes to Financial Statements
21
<PAGE> 23
THE GALAXY
VIP FUND
VIP EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 15.58 $ 12.99 $ 10.40 $ 10.25 $ 10.00
------- -------- -------- ------- -------
Income from Investment Operations:
Net investment income (A) .......................... 0.21 0.19 0.18 0.20 0.16
Net realized and unrealized gain on investments .... 4.10 2.59 2.59 0.15 0.25
------- -------- -------- ------- -------
Total from Investment Operations ................. 4.31 2.78 2.77 0.35 0.41
------- -------- -------- ------- -------
Less Dividends:
Dividends from net investment income ............... (0.21) (0.19) (0.18) (0.20) (0.16)
Dividends from net realized capital gains .......... -- -- -- -- --
------- -------- -------- ------- -------
Total Dividends .................................. (0.21) (0.19) (0.18) (0.20) (0.16)
------- -------- -------- ------- -------
Net increase in net asset value ....................... 4.10 2.59 2.59 0.15 0.25
------- -------- -------- ------- -------
Net Asset Value, End of Period ........................ $ 19.68 $ 15.58 $ 12.99 $ 10.40 $ 10.25
======= ======== ======== ======= =======
Total Return .......................................... 27.74% 21.49% 26.76% 3.47% 4.15%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ..................... $69,863 $ 46,242 $ 30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income including reimbursement/waiver 1.20% 1.34% 1.55% 2.06% 2.23%*
Operating expenses including reimbursement/waiver .. 1.08% 1.10% 1.21% 0.71% 0.20%*
Operating expenses excluding reimbursement/waiver .. 1.08% 1.10% 1.24% 1.42% 2.60%*
Portfolio Turnover Rate ............................... 1% 8% 3% 2% 5%**
Average Commission Rate Paid (B) ...................... $0.0691 $ 0.0676 N/A N/A N/A
</TABLE>
* Annualized
** Not Annualized
(1) The Fund commenced operations on January 11, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by
the Investment Advisor and/or Administrator for the years ended
December 31, 1997, 1996, 1995 and 1994 and for the period ended
December 31, 1993 were $0.21, $0.19, $0.18, $0.13 and $(0.02),
respectively.
(B) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for
portfolio transactions for which commissions are charged.
See Notes to Financial Statements
22
<PAGE> 24
VIP ASSET ALLOCATION FUND
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 13.37 $ 12.38 $ 9.80 $ 10.33 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................ 0.40 0.30 0.28 0.31 0.18
Net realized and unrealized gain (loss) on investments 2.11 1.53 2.58 (0.53) 0.35
-------- -------- -------- -------- --------
Total from Investment Operations ................... 2.51 1.83 2.86 (0.22) 0.53
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ................. (0.40) (0.30) (0.28) (0.31) (0.18)
Dividends from net realized capital gains ............ (0.94) (0.54) -- -- (0.02)
-------- -------- -------- -------- --------
Total Dividends .................................... (1.34) (0.84) (0.28) (0.31) (0.20)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .............. 1.17 0.99 2.58 (0.53) 0.33
-------- -------- -------- -------- --------
Net Asset Value, End of Period .......................... $ 14.54 $ 13.37 $ 12.38 $ 9.80 $ 10.33
======== ======== ======== ======== ========
Total Return ............................................ 19.03% 14.64% 29.42% (2.15)% 5.33%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....................... $ 42,535 $ 24,114 $ 17,246 $ 10,572 $ 11,800
Ratios to average net assets:
Net investment income including reimbursement/waiver . 2.90% 2.31% 2.54% 3.02% 3.01%*
Operating expenses including reimbursement/waiver .... 1.19% 1.33% 1.37% 0.78% 0.26%*
Operating expenses excluding reimbursement/waiver .... 1.25% 1.33% 1.54% 1.68% 3.11%*
Portfolio Turnover Rate ................................. 74% 45% 46% 28% 10%**
Average Commission Rate Paid (B) ........................ $ 0.0664 $ 0.0693 N/A N/A N/A
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund commenced operations on February 6, 1993.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.39, $0.30, $0.26, $0.22 and $0.01, respectively.
(B) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per
share for portfolio transactions for which commissions are charged.
See Notes to Financial Statements
23
<PAGE> 25
VIP HIGH QUALITY BOND FUND
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993(1)
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 9.99 $ 10.37 $ 8.97 $ 10.11 $ 10.00
-------- ------- -------- ------- -------
Income from Investment Operations:
Net investment income (A) ............................ 0.58 0.58 0.57 0.56 0.47
Net realized and unrealized gain (loss) on investments 0.32 (0.38) 1.40 (1.14) 0.12
-------- ------- -------- ------- -------
Total from Investment Operations ................... 0.90 0.20 1.97 (0.58) 0.59
-------- ------- -------- ------- -------
Less Dividends:
Dividends from net investment income ................. (0.58) (0.58) (0.57) (0.56) (0.47)
Dividends from net realized capital gains ............ -- -- -- -- (0.01)
-------- ------- -------- ------- -------
Total Dividends .................................... (0.58) (0.58) (0.57) (0.56) (0.48)
-------- ------- -------- ------- -------
Net increase (decrease) in net asset value .............. 0.32 (0.38) 1.40 (1.14) 0.11
-------- ------- -------- ------- -------
Net Asset Value, End of Period .......................... $ 10.31 $ 9.99 $ 10.37 $ 8.97 $ 10.11
======== ======= ======== ======= =======
Total Return ............................................ 9.36% 1.57% 22.55% (5.85)% 6.04%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....................... $ 14,457 $11,814 $ 11,067 $ 8,012 $ 9,802
Ratios to average net assets:
Net investment income including reimbursement/waiver . 5.82% 5.78% 5.86% 5.90% 5.30%*
Operating expenses including reimbursement/waiver .... 0.77% 0.72% 0.80% 0.57% 0.22%*
Operating expenses excluding reimbursement/waiver .... 1.44% 1.38% 1.57% 1.63% 2.92%*
Portfolio Turnover Rate ................................. 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 years ended December 31,
1997, 1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.51, $0.51, $0.50, $0.46 and $0.23, respectively.
See Notes to Financial Statements
24
<PAGE> 26
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Galaxy VIP Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified, management investment company, for the
purpose of providing a vehicle for the investment of assets of various separate
accounts established to fund variable annuity contracts and variable life
insurance policies. Currently, shares of the Trust are offered only to separate
accounts in connection with variable annuity contracts issued by American
Skandia Life Assurance Corporation and its affiliated life assurance companies.
The accompanying financial statements and financial highlights are those of the
Money Market, Equity, Asset Allocation and High Quality Bond Funds (individually
a "Fund,"collectively, the "Funds"), the four managed investment portfolios
offered by the Trust as of the date of this report.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies in conformity with
generally accepted accounting principles consistently followed by the Trust in
the preparation of its financial statements.
PORTFOLIO VALUATION: Investments in securities which are traded on a
recognized stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded, or at the last sale
price on the national securities market. Securities traded on over-the-counter
markets are valued at the last sales price. Short-term obligations that mature
in 60 days or less are valued at amortized cost, which approximates fair value.
Corporate debt securities and debt securities of U.S. issuers (other than
short-term investments), including municipal securities, are valued by an
independent pricing service approved by the Board of Trustees. When, in the
judgment of the service, quoted bid prices for securities are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between quoted bid prices and asked prices. Investments with
prices that cannot be readily obtained, if any, are carried at fair value as
determined by the service based on methods which include consideration of yields
or prices of bonds of comparable quality, coupon maturity and type, indications
as to values from dealers, and general market conditions. All other securities
and assets are appraised at their fair value as determined in good faith under
consistently applied procedures established by and under the general supervision
of the Board of Trustees. The investments of the Money Market Fund are valued
utilizing the amortized cost valuation method permitted in accordance with Rule
2a-7 under the 1940 Act. This method involves valuing a portfolio security
initially at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Net realized gains and losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are declared daily and paid monthly with respect to the Money Market and
High Quality Bond Funds, and declared and paid quarterly with respect to the
Equity and Asset Allocation Funds. Net realized capital gains, if any, are
distributed at least annually.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
FEDERAL INCOME TAXES: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Fund will not be subject to federal
income taxes to the extent it distributes substantially all of its taxable or
tax-exempt income, if any, for the tax year ending December 31. In addition, by
distributing during each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a federal excise tax. Therefore, no federal income tax provision is
recorded.
EXPENSES: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a particular Fund are
charged to the Fund, while expenses which are attributable to more than one Fund
of the Trust are allocated among the respective Funds.
ORGANIZATION COSTS: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
shares for distribution under federal and state securities laws. All such costs
are being amortized using the straight-line method over a period of five years
beginning with the commencement of each Fund's operation.
25
<PAGE> 27
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY, ADMINISTRATION AND OTHER
RELATED PARTY TRANSACTIONS
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., are parties to
an investment advisory agreement under which the Investment Advisor provides
services for a fee, computed daily and paid monthly, at an annual rate based
upon the following percentages of average daily net asset value: 0.40% for the
Money Market Fund, 0.75% for the Equity and Asset Allocation Funds and 0.55% for
the High Quality Bond Fund (see Note 4).
The Trust and First Data Investor Services Group, Inc. ("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, N.A., 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 and/or
Distributor. Such officers receive no compensation from the Trust for serving in
their respective roles. No officer, director or employee of the Investment
Advisor serves as an officer, Trustee or employee of the Trust. Each Trustee is
entitled to receive for services as a trustee of the Trust, The Galaxy Fund
("Galaxy") and Galaxy Fund II ("Galaxy II") an aggregate fee of $29,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. The Chairman of
the Boards of Trustees, and the President and Treasurer of the Trust, Galaxy and
Galaxy II are also entitled to additional fees for their services in these
capacities. These fees are allocated among the funds of the Trust, Galaxy and
Galaxy II, based on their relative net assets. Prior to November 1, 1996, each
Trustee was entitled to receive for services as a trustee of the Trust and
Galaxy an aggregate fee of $18,000 per annum plus certain other fees for
attending or participating in meetings as well as reimbursement for expenses
incurred in attending meetings. The Chairman of the Boards of Trustees of the
Trust and Galaxy and the President and Treasurer of the Trust and Galaxy were
entitled to additional annual fees for their services in these capacities.
Each Trustee is eligible to participate in the Trust's Deferred Compensation
Plan (the "Plan"), an unfunded, non-qualified deferred compensation plan. The
Plan allows each trustee to defer receipt of all or a percentage of fees which
otherwise would be payable for services performed. On January 1, 1997, the Plan
was merged into a combined Deferred Compensation Plan for the Trust, Galaxy and
Galaxy II.
Expenses for the year ended December 31, 1997 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 Advisor and Administrator may voluntarily waive all or a
portion of the fees payable to them by the Funds. The Investment Advisor and
Administrator may, at their discretion, revise or discontinue the voluntary
limitations at any time.
For the year ended December 31, 1997, the Investment Advisor and
Administrator voluntarily waived advisory, fund accounting and custody fees as
follows:
<TABLE>
<CAPTION>
FEES WAIVED BY FEES WAIVED BY
FUND INVESTMENT ADVISOR ADMINISTRATOR
- ---- ------------------ -------------
<S> <C> <C>
Money Market $ 38,641 $ 30,000
High Quality Bond 47,982 30,000
</TABLE>
The Investment Advisor may, from time to time agree to reimburse a Fund for
expenses above a specified percentage of average net assets. For the year ended
December 31, 1997, the Investment Advisor agreed to reimburse the Money Market
Fund, the Asset Allocation Fund, and the High Quality Bond Fund in the amounts
of $1,144, $16,327, and $2,163, respectively.
26
<PAGE> 28
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS (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 four classes of shares
including: Class A - Money Market Fund; Class B - Equity Fund; Class C - Asset
Allocation Fund; and Class D - High Quality Bond Fund. Each share represents an
equal proportionate interest in the respective Fund, bears the same fees and
expenses and is entitled to such dividends and distributions of income earned as
are declared at the discretion of the Trust's Board of Trustees. Shareholders
are entitled to one vote for each full share held and will vote in the aggregate
and not by class, except as otherwise expressly required by law or when the
Board of Trustees determines that the matter to be voted on affects only the
interests of shareholders of a particular class.
6. PURCHASES AND SALES OF SECURITIES
The costs of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
FUND OTHER GOVERNMENT OTHER GOVERNMENT
---- ----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Equity $ 4,918,073 $ -- $ 244,280 $ --
Asset
Allocation 19,056,655 11,201,861 10,770,052 8,968,818
High Quality
Bond 7,012,920 13,912,691 6,509,056 12,305,948
</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 December 31, 1997 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND APPRECIATION (DEPRECIATION) NET COST
---- ------------ -------------- --- ----
<S> <C> <C> <C> <C>
Money
Market $ -- $ -- $ -- $15,347,223
Equity 26,283,255 (142,135) 26,141,120 43,685,105
Asset
Allocation 5,950,677 (407,738) 5,542,939 37,161,646
High Quality
Bond 368,179 (9,564) 358,615 13,847,270
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, the Funds had capital loss carryforwards 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>
8. POST OCTOBER LOSSES
Under current tax laws, certain capital losses realized after October 31 may
be deferred and treated as occurring on the first day of the following fiscal
year. For the fiscal year ended December 31, 1997, the High Quality Bond Fund
elected to defer losses occurring between November 1, 1997 and December 31, 1997
in the amount of $9,705.
9. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Distributions from long-term capital gains for the fiscal year ended December
31, 1997 were $2,058,142 for the Asset Allocation Fund.
27
<PAGE> 29
THE GALAXY
VIP FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE GALAXY VIP FUND:
We have audited the accompanying statements of assets and liabilities of the
Money Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond Fund
(four series of The Galaxy VIP Fund), including the portfolios of investments,
as of December 31, 1997, and the related statements of operations, the
statements of changes in net assets, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of The Galaxy VIP Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers and where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned series of The Galaxy VIP Fund as of December 31, 1997, the
results of their operations, the changes in their net assets, and their
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
28
<PAGE> 30
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 ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, Massachusetts
02109-1810
DISTRIBUTOR
First Data
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
ADMINISTRATOR
First Data Investor
Services Group, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
This report is submitted for the general information of shareholders of The
Galaxy VIP Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for The Galaxy VIP
Fund and for American Skandia Life Assurance Corporation Variable Account E,
which contain more information concerning investment policies, fees and expenses
and other pertinent information. Read the prospectuses carefully before you
invest.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by Fleet Financial Group, Inc. or any of its affiliates, Fleet
Investment Advisors Inc., or any Fleet bank. Shares of the Funds are not
federally insured by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment return
and principal value will vary as a result of market conditions or other factors
so that shares of the Funds, when redeemed, may be worth more or less than their
original cost. An investment in the Funds involves investment risks, including
the possible loss of principal.
[RECYCLING GRAPHIC]
This report was printed on recycled paper.
<PAGE> 31
BULK RATE
GALAXY 4400 Computer Drive U.S. POSTAGE
VIP FUND Box 5108 PAID
Westborough, MA 01581-5108 SMITHTOWN, NY
PERMIT NO. 700
