[front cover]
[graphics: acorn, Ionic column; graduation mortar board; hands clasped in
handshake]
Galaxy Variable Annuity
Annual Report
December 31, 1998
Galaxy VIP Funds
[logo: Galaxy
Funds]
<PAGE>
CHAIRMAN'S
MESSAGE FOR THE
GALAXY VIP FUND
Dear Variable Annuity Policyholder:
The following annual report for The Galaxy VIP Fund covers the fiscal year
ended December 31, 1998. The report includes a Market Overview that describes
the economic and market changes that occurred during the year and how those
changes may have affected your returns. There are also individual Portfolio
Reviews that describe how Fleet Investment Advisors Inc. and Columbia Management
Company managed Fund assets in this environment. At the end of the report you
will find annual financial statements for each portfolio and a list of each
portfolio's investments as of December 31, 1998.
Stocks earned strong returns in 1998 -- the fourth year in a row --
despite a correction of nearly 20% in July and August. This was due to continued
economic growth at home, as well as a decline in interest rates and inflation.
However, stock prices were quite volatile, as a broadening of world economic
problems suggested slower domestic growth ahead. As in 1997, stocks of larger
companies outperformed shares of smaller firms.
Bond prices rallied in this environment, with U.S. Treasury securities
outperforming other fixed-income issues. As the prospects for corporate earnings
worsened at home and abroad, the world's investors took refuge in Treasuries.
This "flight to quality" significantly reduced demand for other fixed-income
issues. During the year, the Galaxy VIP Funds benefited from focusing on quality
investments with good value. Given the economic uncertainty that still exists,
we think attention to quality and value will continue to serve shareholders in
the months ahead.
Because stock and bond prices have fluctuated so dramatically in recent
months, this may be a good time to rebalance your investments. Restoring your
portfolio to its original allocations is important for proper diversification -
a key method for minimizing investment risk. You can also reduce risk by using
strategies like dollar-cost averaging - in which you invest the same amount of
money at regular intervals, in good times and bad - and by sticking with your
long-term investment plan.
A long-term approach is particularly important when you invest in stocks,
which tend to be more volatile than bonds or money market securities. By riding
out short-term market fluctuations, you can take advantage of the
inflation-beating growth that stocks offer over time. For example, if you had
put $100 per month in stocks mirroring the Standard & Poor's 500(R) Index (the
"S&P 500 Index") from January 1970 through December 1998, you would have
accumulated savings worth more than $545,720 - even though the S&P 500 Index had
10 corrections of 10% or more during that time.
Your investment professional can help you review your long-term investment
plan and make the most of dollar-cost averaging and portfolio rebalancing.
Should you have any questions about the information in this report, please
contact the Galaxy Information Center at 1-877-BUY-GALAXY (289-4252).
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
The Galaxy VIP Fund
[sidebar]
Mutual Funds:
o are not bank deposits
o are not FDIC insured
o are not obligations of Fleet Bank
o are not guaranteed by Fleet Bank
o are subject to investment risks
including possible loss of
principal amount invested
[end sidebar]
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 following portfolios of The Galaxy VIP Fund:
The Galaxy VIP Fund 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 portfolios. This
report relates to The Galaxy VIP Fund only. Dollar-cost averaging does not
assure a profit and does not protect against loss in declining markets.
<PAGE>
MARKET OVERVIEW
[sidebar]
Galaxy VIP Funds
Performance
At-A-Glance
Average Annual Returns
as of December 31, 1998
[bar charts]
<TABLE>
<CAPTION>
Money Market Fund
Inception Date 2/2/93
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
5.16% 5.02% 4.86% 4.58%
</TABLE>
<TABLE>
<CAPTION>
Equity Fund
Inception Date 1/11/93
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
23.52% 24.22% 20.25% 17.50%
</TABLE>
Growth and Income Fund
Inception Date 3/4/98
Life of Fund
3.72%*
Small Company Growth Fund
Inception Date 4/17/98
Life of Fund
-10.68%*
Columbia Real Estate
Equity Fund II
Inception Date 3/3/98
Life of Fund
-9.57%*
<TABLE>
<CAPTION>
Asset Allocation Fund
Inception Date 2/6/93
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
17.51% 17.05% 15.27% 13.80%
</TABLE>
<TABLE>
<CAPTION>
High Quality Bond Fund
Inception Date 1/21/93
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
9.70% 6.81% 7.16% 7.04%
</TABLE>
Columbia High Yield Fund II
Inception Date 3/3/98
Life of Fund
9.61%*
*Not annualized
[end bar charts]
[end sidebar]
MARKET OVERVIEW
By Fleet Investment Advisors Inc.
Stock prices advanced strongly in the fiscal year ended December 31, 1998.
Despite a market correction of nearly 20% in August and September, the S&P 500
Index earned a total return of 28.76% for the reporting period which was high by
historic standards. As economic uncertainty favored stocks with strong earnings
records and good liquidity, stocks of smaller firms, represented by the Russell
2000 Index, lost ground during the period, posting a total return of -2.55%.
After trading in a narrow range in the first half of 1998, bond prices
rose sharply in the second half. This was due largely to a slowdown in growth
and cuts in interest rates. For the year, the Lehman Brothers Government/
Corporate Bond Index had a total return of 9.47%. Because economic uncertainty
sharply increased demand for U.S. Treasury bonds during much of 1998, Treasuries
significantly outperformed other fixed-income issues.
By emphasizing quality investments in the Galaxy VIP Funds during the
year, we helped the Funds earn returns that were generally competitive with
other funds having similar investment objectives that are tracked by Lipper
Analytical Services ("Lipper"). (These comparisons are available on pages 4
through 11 of this report.)
Economic Growth Slows
In the first quarter of 1998 the gross domestic product ("GDP"), which
measures the production of U.S. goods and services, grew at an annual rate of
5.5%. Although employment was strong - which put upward pressure on wages -
falling oil prices, competitive pricing, and gains in productivity helped
inflation fall from 1.7% to 1.4%.
During the quarter, economic troubles that had surfaced in Asia's emerging
markets the previous summer continued to deepen. Although investors worried that
reduced trade with Asia might slow U.S. growth, they became less concerned about
inflation and looked for the Federal Reserve (the "Fed") to trim interest rates.
While it soon became clear that growth was too strong for a cut in rates, a
federal budget surplus argued against higher rates. Bond yields seesawed in this
climate. Stock prices rose sharply as the International Monetary Fund helped
stabilize Asian economies, and corporate consolidations and stock buyback
programs further reduced the supply of stocks.
As Japan entered a recession in the second quarter, GDP growth slowed to
1.8%. With U.S. companies reporting the lowest profit growth since 1991, gains
for stocks were mixed. While large-cap stocks broke new highs, small-cap stocks
began to fall. Although the Fed hinted it might raise rates to keep stock gains
from overheating the economy, low inflation and the possibility of slower growth
kept bonds trading in a narrow range most of the quarter.
With further evidence that U.S. growth was slowing, bonds rallied from
June into the third quarter. Although GDP grew at a rate of 3.9%, a deepening in
Asia's economic problems plus trouble in the emerging economies in Russia and
Latin America suggested slower growth ahead. Meanwhile, second-quarter earnings
announcements by U.S. firms showed that reduced exports earlier in the
2
<PAGE>
MARKET OVERVIEW
[sidebar]
Galaxy VIP Funds
Product Performance
At-A-Glance
Average Annual Returns
as of December 31, 1998
Variable Account E
Inception 1/8/93
[bar charts]
<TABLE>
<CAPTION>
Money Market Fund
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
4.49% 4.40% 4.27% 3.98%
</TABLE>
<TABLE>
<CAPTION>
Equity Fund
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
22.84% 23.47% 19.58% 16.84%
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Fund
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
16.29% 16.17% 14.52% 13.08%
</TABLE>
<TABLE>
<CAPTION>
High Quality Bond Fund
1 Year 5 Years 3 Years Life of Fund
<S> <C> <C> <C>
9.09% 6.20% 6.58% 6.45%
</TABLE>
[end bar charts]
[end sidebar]
year were already taking their toll. Stock prices corrected sharply. By the end
of August, the S&P 500 Index had fallen 19% from its high on July 17.
Stock prices firmed in September, as investors went hunting for bargains
and looked for a cut in interest rates. On September 29, the Fed trimmed
short-term rates by 25 basis points -- the first cut since January 1996.
However, by that time, financial firms holding large amounts of emerging-market
debt were floundering. As investors became increasingly concerned about credit
quality, demand for corporate bonds, mortgage-backed securities, and even issues
of U.S. government agencies evaporated. However, Treasury bonds continued to
rally, driving the yield for 30-year issues to 4.71% by October 5.
To prevent a potential credit crunch and support U.S. growth, the Fed cut
rates another 25 basis points on October 15 and again on November 17. Hoping the
worst of world economic crises had passed, investors ignored disappointing
earnings reports and pushed stock prices sharply higher. When the Fed signaled
that only significantly slower economic growth would spur another rate cut, bond
prices moved lower and yields rose. At the end of December the yield for 30-year
Treasuries stood at 5.09%. With greater demand for other fixed-income issues,
corporate bonds and mortgage-backed securities outperformed Treasuries for the
quarter.
Continued Focus on Quality
As large-company stocks dominated market rallies during the year, market
leadership narrowed to a handful of the very largest firms. As a result, stock
funds that were more broadly diversified, including some of the Galaxy VIP
equity portfolios, underperformed this market benchmark. By emphasizing quality
investments, however, many of these portfolios outpaced their fund peer groups.
During the year we increased the focus on stocks with reliable earnings,
strong credit ratings and good liquidity. With stock prices historically high
versus company earnings, we also favored issues that represented good value. In
addition, we increased weightings in "defensive" stocks whose earnings could
still grow if economic conditions worsened. Because of the many economic
problems abroad, we gave greater attention to domestically focused companies. We
also focused on quality investments with defensive characteristics in the bond
portfolios.
Slower Growth Likely
Although recent economic signals suggest continued growth in coming
months, we believe problems overseas and reduced spending at home may slow
growth later in 1999. While the Fed may lower interest rates in order to prevent
recession, further economic uncertainty could bring new volatility for stocks
and bonds. As a result, we plan to remain defensive in choosing Fund investments
- - emphasizing quality and value where we can.
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 Asset Allocation, and GAL High Quality Bond. 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 and the Galaxy VIP High Quality Bond Fund. Without such
waivers, performance would be lower. An investment in the Galaxy VIP Money
Market Fund is neither insured nor guaranteed by the FDIC or U.S. Government.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in this Fund.
3
<PAGE>
PORTFOLIO REVIEWS
[photo: Karen M. Arneil]
GALAXY VIP MONEY MARKET FUND
Portfolio Manager
Karen M. Arneil
The Galaxy VIP Money Market Fund seeks as high a level of current income
as is consistent with liquidity and stability of principal.
Short-term yields moved lower during 1998 - as economic growth slowed, and
the Fed cut short-term interest rates. By making the most of changes in spreads
between yields of different instruments that occurred during that time, and
adjusting investment maturities for fluctuations in yields, we helped the Fund
earn a total return of 5.16% for the fiscal year ended December 31, 1998. Over
the same time the average money market fund tracked by Lipper earned a total
return of 4.85%.
[sidebar]
Galaxy VIP Money
Market Fund
Distribution of Total Net Assets
as of December 31, 1998
[pie chart]
<TABLE>
<S> <C>
Commercial Paper 52%
U.S. Agency Obligations 48%
</TABLE>
[end pie chart]
[end sidebar]
Adapting to Lower Yields
Early 1998 brought expectations for a cut in short-term interest rates.
Although this pushed short-term yields lower, the yield curve for commercial
paper flattened. By investing in issues that matured at the shortest end of the
yield curve, we had the flexibility to take advantage of a rise in yields when
the Fed failed to cut rates. Where possible, we improved the Fund's yield by
taking advantage of investment opportunities in individual issues. We kept
investment maturities relatively short in the second quarter, as uncertainty
about economic growth and interest rates made the yield curve even flatter.
Money market yields moved sharply lower in the third quarter - as
investors became more concerned about the impact of weak foreign economies on
domestic growth and the Fed made the first of three 25-point cuts in short-term
interest rates. In this unsettled environment, we kept the portfolio liquid by
maintaining a higher percentage of overnight securities. We further enhanced
liquidity, as well as credit quality, by increasing the Fund's weighting in
issues of U.S. government agencies and emphasizing commercial paper of the
highest quality firms.
Short-term yields continued to fall through the first part of the fourth
quarter, as the Fed cut interest rates another 50 basis points. Later in the
quarter, we took advantage of year-end technical factors that increased yields
for issues maturing early in 1999, by selectively purchasing these securities.
On December 31, 1998, the Fund had an average maturity of 30 days, a 7-day
Securities and Exchange Commission ("SEC") effective yield of 4.77%, and a
30-day SEC effective yield of 4.74%.
Yields Could Head Lower
Because U.S. economic growth remains solid, and the Fed has said it will
wait for slower growth before cutting interest rates again, we do not expect
money market yields to decline in the first months of 1999. If growth slows in
the second half of the year as we expect, rates and yields could then head
lower.
In this environment we plan to continue looking for new ways to enhance
the Fund's yield - while emphasizing a diversified portfolio of domestic
securities with good liquidity. As we wait to see how economies fare at home and
overseas, we expect to keep the weighted average maturities of the Fund on the
short side.
Karen M. Arneil has managed the Galaxy VIP Money Market Fund since September
1996. She has managed money market investments since 1993.
[line chart]
Galaxy VIP Money Market Fund
7-Day Average Yields
<plot points needed from client>
January 1, 1998 December 31, 1998
An investment in the Galaxy VIP Money Market Fund is neither insured nor
guaranteed by the FDIC or U.S. Government. Although the Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money by
investing in this Fund.
[end line chart]
4
<PAGE>
PORTFOLIO REVIEWS
[photo: Robert G. Armknecht]
GALAXY VIP EQUITY FUND
Portfolio Manager
Robert G. Armknecht
The Galaxy VIP Equity Fund seeks long-term growth by investing in
companies that Fleet Investment Advisors Inc. believes have above-average
earnings potential.
By historic measures, the Fund enjoyed healthy returns for the year -
benefiting from solid gains by many of its investments. During the first part of
the year, when lower corporate earnings and high stock prices threatened a sharp
market correction, we kept a sizable portion of the portfolio in cash. This
caused the Fund to underperform its benchmarks during that time. By putting
these reserves to work in the second half of 1998, we were able to take
advantage of attractive investment opportunities that resulted from market
weakness. This helped the Fund outperform its benchmarks as stocks rebounded in
the fourth quarter.
For the fiscal year ended December 31, 1998, the Fund had a total return
of 23.52%. That compares with total returns of 28.76% for the S&P 500 Index and
22.86% for the average growth fund tracked by Lipper.
Taking Advantage of Market Weakness
In the first half of the year, the Fund enjoyed strong performances from
holdings in the drug, technology and banking sectors. There were many individual
issues outside those areas representing large positions in the Fund that also
performed well. Such positive contributions offset disappointing performances by
energy stocks hurt by falling oil prices.
In the third quarter, the Fund benefited from a firming in the prices of
oil-services shares and a rebound in certain technology issues. We used the
late-summer market correction to commit the rest of the Fund's cash and further
upgrade the quality of Fund investments. This timely use of cash extended to
many different positions that existed within the Fund.
[pie chart]
Galaxy VIP
Equity Fund
Distribution of Total Net Assets
as of December 31, 1998
Technology 25%
Consumer Staples 23%
Consumer Cyclical 15%
Finance 12%
Capital Goods and Construction 10%
Other Common Stocks & Convertible
Preferred Stocks 8%
Energy 6%
Repurchase Agreement 1%
[end pie chart]
As stocks recovered in the fourth quarter, the Fund continued to enjoy
strong performance from its technology positions. While energy stocks generally
remained hurt by low oil prices, we were able to profit from volatility in that
sector. We used other opportunities that arose from market fluctuations to buy
selected broadcasting, financial and entertainment stocks. We also made trades
within the technology sector that improved the earnings potential of investments
there.
New Opportunities
Although the U.S. economy has been stronger than analysts expected, rising
wages and a slowdown in global growth could squeeze U.S. corporate profits in
1999. Further cuts in interest rates could curb earnings disappointments.
However, continued uncertainty over where the economy may head could keep stock
prices volatile in the months ahead.
As before, we plan to monitor market fluctuations for investment
opportunities that would give the Fund even better growth potential. For now, we
expect to remain focused on sectors with superior long-term prospects for growth
- - such as health care, technology, and communications.
Robert G. Armknecht has managed the Galaxy VIP Equity Fund since July 1998. He
has managed equity portfolios for Fleet Investment Advisors Inc. since 1988.
[mountain chart]
Galaxy VIP Equity Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP
Equity Fund S&P 500 Index
<S> <C> <C>
Inception
12/31/93
12/31/94
12/31/95 <plot points needed from client>
12/31/96
12/31/97
12/31/98 $26,184 $35,648
</TABLE>
*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
investment management fees and other expenses incurred by the Fund.
[end mountain chart]
5
<PAGE>
PORTFOLIO REVIEWS
[photo: Gregory M. Miller]
GALAXY VIP GROWTH AND INCOME FUND
Portfolio Manager
Gregory M. Miller
The Galaxy VIP Growth and Income Fund seeks a relatively 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 December 31, 1998, the Fund earned a total return of 3.72%. For the
same period, the S&P 500 Index had a total return of 18.64%, and the average
growth and income fund tracked by Lipper had a total return of 7.92%.
Focus on Value
When we launched the Fund in March, stock prices were breaking new highs.
In looking for stocks that represented good value, we bought shares of basic
materials, capital goods and energy firms. Soon, however, reduced trade with
Asia hurt the prices of basic materials and capital goods stocks, and falling
oil prices trimmed prices for energy shares. Although poor returns from these
sectors caused the Fund to underperform its market benchmarks at that time, we
continued to believe that the attractive valuations of those sectors should
benefit Fund returns over a longer period.
As the economic crisis in Asia broadened to other regions in the middle of
the year - and oil prices continued to fall - stocks of basic materials, capital
goods and energy firms remained a drag on the Fund's performance. However,
during the sharp U.S. stock correction in August and September, we found
attractive opportunities for adding to existing positions in the banking, retail
and energy sectors. To protect the Fund against further weakness, we reduced
shares of companies whose growth potential had declined.
[pie chart]
Galaxy VIP Growth
and Income Fund
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
Other Common Stocks & Convertible
Preferred Stocks 24%
Finance 19%
Consumer Staples 17%
Technology 14%
Consumer Cyclical 10%
U.S. Agency Obligations 9%
Basic Materials 7%
</TABLE>
[end pie chart]
The Fund performed well when stocks rebounded in the fourth quarter.
Strong gains by positions in technology, retail, financial and basic materials
shares offset further disappointments in the energy sector. We used market
fluctuations that occurred during the quarter to trade technology, health care
and telecommunications shares that had performed well for shares of other Fund
positions that offered better promise.
Stock Selection Remains Key
If a slowing economy reduces corporate profits, as we expect, stock
selection should remain important. The Fund should perform well in this
environment - with an average growth potential for its stocks that is far
stronger than that for stocks in the S&P 500 Index and a price-to-earnings ratio
that is significantly lower.
We continue to feel that basic materials, capital goods and energy shares
represent good value in a very expensive market. While economic uncertainty
remains, we hope to find additional opportunities to add value to the Fund's
portfolio. Once investors have more confidence in the economy, we believe
value-oriented investments could outperform.
Gregory M. Miller has managed the Galaxy VIP Growth and Income Fund since July
1998. He has managed equity portfolios for Fleet Investment Advisors Inc. since
1989.
[mountain chart]
Galaxy VIP Growth and Income Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP Growth
and Income Fund S&P 500 Index
<S> <C> <C>
Inception <plot points needed from client>
12/31/98 $10,372 $11,864
</TABLE>
*Since the Fund's inception on 3/4/98. The S&P 500 Index is an unmanaged index
of 500 leading stocks. Results for the S&P 500 Index do not reflect the
investment management fees and other expenses incurred by the Fund.
[end mountain chart]
6
<PAGE>
PORTFOLIO REVIEWS
[photo: Stephen D. Barbaro]
GALAXY VIP SMALL COMPANY GROWTH FUND
Portfolio Manager
Stephen D. Barbaro
The Galaxy VIP Small Company Growth Fund seeks capital appreciation by
investing primarily in the securities of companies with market capitalizations
of $1.5 billion or less.
As investors avoided small company stocks in 1998, stocks of the smallest
firms usually suffered the largest losses. This was particularly true during the
third-quarter market correction, when investors were very concerned about
liquidity. Although many of the Fund's investments earned solid returns during
the reporting period, a heavy weighting in stocks with the smallest market
capitalizations caused the Fund to underperform its market benchmarks for that
time.
Between the Fund's inception on April 17, 1998 and December 31, 1998, the
Fund earned a total return of -10.68%. Over the same time, small-company growth
funds tracked by Lipper had an average total return of -11.16%, and the Russell
2000 Index had a total return of -11.94%.
Strong Growth Potential at Reasonable Prices
As we built the Fund's portfolio, we chose stocks whose prices seemed
reasonable compared to their strong potential for earnings growth. Where we
could, we bought companies whose earnings would not be vulnerable to the
economic problems in Asia. At times of market weakness, we added high quality
investments in consumer and technology stocks - focusing on information-service
firms in the technology sector. Although small-cap stocks as a whole
underperformed during this time, many of the issues we bought - especially
certain transportation and consumer shares - performed relatively well.
When stocks corrected in the third quarter of 1998, we sought
opportunities to enhance the quality of Fund investments. We also made a slight
increase in the average size of companies represented in the portfolio. As
stocks rebounded in the fourth quarter, the Fund enjoyed strong gains from
positions in semi-conductor stocks. Where possible, we continued to invest in
stocks with somewhat larger capitalizations and better quality earnings. The
addition of new technology holdings, increases in existing positions and price
appreciation in the sector, raised the Fund's overall weighting in technology
shares.
[pie chart]
Galaxy VIP Small
Company Growth
Fund
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
Technology 41%
Consumer Cyclical 22%
Consumer Staples 17%
Capital Goods & Construction 7%
Other Common Stocks 7%
Net Other Assets & Liabilities 6%
</TABLE>
[end pie chart]
Smaller Issues Still Very Attractive
Despite a strong rebound in the final months of 1998, the stock prices of
smaller firms remain very attractive versus company earnings. Compared to
large-cap issues, small-cap shares are now cheaper than they have been since the
mid-1970s. While further uncertainty about the economy could curb gains for
small-cap issues in months to come, small-cap stocks could outperform once
investors are more confident in the economy.
In the meantime, we plan to continue looking for buying opportunities that
market fluctuations may bring. As in previous months, we hope to use these
opportunities to upgrade the earnings potential and size of companies in which
we invest.
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.
[mountain chart]
Galaxy VIP Small Company Growth Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP Small
Company Growth Fund Russell 2000 Index
<S> <C> <C>
Inception <plot points needed from client>
12/31/98 $8,932 $8,806
</TABLE>
*Since the Fund's inception on 4/17/98. The Russell 2000 Index is an unmanaged
index of 2000 small company stocks. Results for the Russell 2000 Index do not
reflect the investment management fees and other expenses incurred by the Fund.
[end mountain chart]
7
<PAGE>
PORTFOLIO REVIEWS
[photo: David W. Jellison]
GALAXY VIP COLUMBIA
REAL ESTATE EQUITY FUND II
Portfolio Manager
David W. Jellison
The Galaxy VIP Columbia Real Estate Equity Fund II seeks, with equal
emphasis, capital appreciation and above-average current income by investing
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 December 31, 1998, the
Fund had a total return of -9.57%. Over the same period, the National
Association of Real Estate Trusts (NAREIT) Index earned a total return of
- -15.18% and the average real estate stock fund tracked by Lipper earned a total
return of -14.35%.
A Focus on Fundamentals
Prices for REITs lagged those for the broader stock market throughout
1998. Investors became concerned that the recent strong growth in industry
earnings might slow as acquisition of new properties became increasingly
expensive and new development threatened to upset the balance between building
supply and demand.
In the first half of the reporting period, the more defensive retail
portion of the REIT sector led industry performance as a result of strong
consumer spending. Industrial REITs also outperformed. Investor concern about
overbuilding and rising vacancy rates in the high-growth office and lodging
sectors caused stocks in those groups to lag. During this time the Fund
benefited from a below-market weighting in lodging REITs and an above-market
weighting in industrial REITs. This helped offset the effects of a sizable
weighting in office REITs - from which we expect to benefit over time as a
result of internal growth and industry consolidation.
In the second half of 1998, the Fund continued to benefit from its
weightings in industrial, residential and retail REITs. These groups performed
well as investors remained focused on the relative stability of their underlying
fundamentals. The Fund also continued to benefit from its underweighting in the
lodging sector, which remained a poor performer.
[pie chart]
Galaxy VIP Columbia
Real Estate Equity Fund
II
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
U.S. Government Obligations &
Net Other Assets 5%
Investment Company 2%
Real Estate 93%
</TABLE>
[end pie chart]
Attractive Valuations
Investor perception toward REITs shifted sharply in the past year - as
fears of overbuilding reduced expectations for earnings growth. Although growth
rates are declining, the prices for REIT shares have already discounted the
slowdown. Many REITs, in fact, are trading at or below the underlying value of
the real estate they own. Continued growth in 1999, combined with dividend
yields above 7%, should enhance the sector's performance going forward.
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.
[mountain chart]
Galaxy VIP Columbia Real Estate Equity Fund II
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP Columbia
Real Estate Equity Fund II NAREIT
<S> <C> <C>
Inception <plot points needed from client>
12/31/98 $9,043 $8,482
</TABLE>
*Since the Fund's inception on 3/3/98. The NAREIT Index is an unmanaged index
of all tax qualified REITs listed on the New York Stock Exchange, the American
Stock Exchange and the NASDAQ which have 75% or more of their gross invested
book assets invested directly or indirectly in the equity ownership of real
estate. Only common shares issued by a REIT are included in this market
weighted index which includes dividends in the month based upon their payment
date. Results for the NAREIT Index do not reflect the investment management
fees and other expenses incurred by the Fund.
[end mountain chart]
8
<PAGE>
PORTFOLIO REVIEWS
[photo: Donald Jones]
GALAXY VIP ASSET ALLOCATION FUND
Portfolio Manager
Donald Jones
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, as well as long-term growth in the value of
its assets. The Fund invests in a diversified portfolio of equity, bond, and
short-term obligations.
With stock prices historically high versus company earnings, we kept 40%
of Fund assets in notes and bonds during 1998. This helped buffer the Fund
against stock market volatility during the year, including the sharp market
correction in the third quarter. It also let us make the most of falling
interest rates. By adding high-grade corporate issues to the bond portfolio at
attractive prices and yields, we further improved the Fund's return. As a result
of these strategies, and strong gains from many equity investments, the Fund
outperformed its peers during the year.
For the fiscal year ended December 31, 1998, the Fund earned a total
return of 17.51%. That compares to a total return of 14.16% for the average
flexible portfolio fund tracked by Lipper. The S&P 500 Index, which tracks the
performance of stocks only, earned a total return of 28.76% during the same
time.
[pie chart]
Galaxy VIP Asset
Allocation Fund
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
Common Stocks and Convertible Preferred Stock 49%
Corporate Notes and Bonds 20%
U.S. Government & Agency Obligations 19%
Repurchase Agreement and Net Other Assets
and Liabilities 11%
Asset-Backed and Mortgage-Backed Securities 1%
</TABLE>
[end pie chart]
Making the Most of Economic Uncertainty
In the first half of 1998, the Fund enjoyed strong gains by shares of
pharmaceutical firms and certain technology positions. These returns helped
offset disappointing performances by other technology investments and energy
stocks hurt by falling oil prices. We used new cash that came into the Fund
during this time, along with profits we took in stocks that had become
overvalued, to increase shares of many existing positions and add new names in
the banking, drug and technology sectors.
In the second half of 1998, the Fund benefited from both an overweighting
in the strongly performing consumer staples sector and an underweighting in
energy stocks and economically sensitive issues - which underperformed. We
continued to take advantage of equity opportunities that resulted from market
weakness. As the year closed, we sold shares of several manufacturing firms and
used the proceeds, along with Fund cash, for shares of financial and technology
firms that we believe to have better long-term growth potential.
As economic concerns made corporate bonds more appealing during the year,
we increased the Fund's position in high-grade corporate issues. We further
improved the Fund's yield with investments in mortgage-backed securities, which
became more attractive as investors overreacted to increased home-loan
prepayments, as well as investments in asset-backed securities. In October, when
investors became particularly concerned about credit quality and liquidity, we
increased investments in U.S. government securities. This reduced corporates
from about 60% of the bond portfolio to about 50%.
Positioned for Slower Growth
If growth slows in 1999, causing stock prices to weaken again and interest
rates to resume their decline, the Fund should continue to benefit from its
strong position in bonds.
[mountain chart]
Galaxy VIP Asset Allocation Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP Asset
Allocation Fund S&P 500 Index
<S> <C> <C>
Inception
12/31/93
12/31/94
12/31/95 <plot points needed from client>
12/31/96
12/31/97
12/31/98 $21,440 $35,298
</TABLE>
*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
investment management fees and other expenses incurred by the Fund.
[end mountain chart]
9
<PAGE>
PORTFOLIO REVIEWS
Given the current uncertainty as to where the economy is headed, we plan
to maintain the Fund's added emphasis on government issues for now.
As stock market fluctuations provide new opportunities to upgrade the
Fund's equity portfolio, we plan to pay particular attention to economically
sensitive issues - including shares of basic materials firms, where the Fund is
underweighted.
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.
[photo: Marie M. Schofield]
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 in U.S. government
securities and corporate issues rated in the four highest credit rating
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P") or unrated securities of comparable quality; provided
however, that at least 65% of the Fund's assets are invested in securities
ranked in the two highest credit categories by Moody's or S&P or in unrated
securities of comparable quality.
During the past fiscal year, the Fund has benefited from Fleet's "active
duration" discipline, which focuses on economic fundamentals and the relative
value of real (inflation-adjusted) yields for U.S. Treasury securities.
Historically, a real yield of 3.5% or more for 30-year Treasuries has
represented an attractive opportunity to extend average maturity and lock in
returns. Real yields below 3% have suggested a shortening of maturities.
With inflation averaging about 1.5% for much of 1998, Treasury yields
offered real returns as high as 4.5%. By adding longer-term issues at those
times - plus increasing our allocation to Treasuries and maintaining our
emphasis on high credit quality and liquidity - we helped the Fund earn a total
return that outpaced the total returns of its bench-marks.
For the fiscal year ended December 31, 1998, the Fund returned 9.70%. That
compares to total returns of 9.47% for the Lehman Brothers Government/Corporate
Bond Index (the "Lehman Index") and 7.47% for the average A-rated corporate bond
fund tracked by Lipper. On December 31, 1998 the Fund had a 30-day SEC yield of
4.98%.
Investment Strategy
In the first half of 1998, we increased the Fund's average duration to
over one-half year longer than that of the Lehman Index on two occaisions. Both
times, Treasury yields had spiked over 6% in response to a strong U.S. economy.
As long-term Treasury yields fell in the second and third quarters, and bond
prices appreciated, the Fund earned strong gains from its longer maturities.
During the first half of the year the mix of fund investments was also
adjusted in favor of Treasuries while reducing our holdings of corporate and
mortgage-backed issues. At that time, we felt that corporate yields did not
offset the added risks these issues carried in light of economic
[mountain chart]
Galaxy VIP High Quality Bond Fund
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP High Lehman Brothers Government/
Quality Bond Fund Corporate Bond Index
<S> <C> <C>
Inception
12/31/93
12/31/94
12/31/95 <plot points needed from client>
12/31/96
12/31/97
12/31/98 $14,981 $14,950
</TABLE>
*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 investment management fees
and other expenses incurred by the Fund.
10
<PAGE>
PORTFOLIO REVIEWS
[pie chart]
Galaxy VIP High
Quality Bond Fund
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
U.S. Government and Agency Obligations 67%
Corporate Notes & Bonds 25%
Asset-Backed and Mortgage-Backed Securities 5%
Repurchase Agreement & Net Other
Assets & Liabilities 3%
</TABLE>
[end pie chart]
uncertainties at home and abroad. Within the corporate sector, we focused on
shorter-term issues of high credit quality that were less vulnerable to economic
concerns. In the mortgage sector, pre-payment worries in a climate of falling
interest rates were reducing the relative attractiveness of mortgage-backed
securities. Within the sector, we emphasized issues of newer origination thought
to have less prepayment risk.
As investors fled increasingly to safe-haven securities in the third
quarter, Treasury yields hit historic lows. Because price gains for corporate
and mortgage-backed securities lagged those for Treasuries, there was a dramatic
widening in the spreads between the yields of these issues. Once the bond market
stabilized in the fourth quarter, in response to aggressive easing by the Fed,
investors sought the now generous yields of "spread products." We selectively
added high-quality bonds of industrial corporations and also increased
investments in mortgage-backed securities. When yields for long-term Treasuries
fell below 5% in December, we reduced the Fund's duration to one-quarter year
longer than that of the Lehman Index.
The Uncertainty Continues
Although the Fed shifted from an easing to a neutral bias in November,
another cut in short-term interest rates is possible in 1999 -- particularly if
economic growth moderates significantly. As in the past, we will adjust the
Fund's maturity structure to maximize real returns in keeping with our "active
duration" discipline. With excellent opportunities in high quality corporates
and mortgages, we have continued to add to these sectors. The mortgage sector,
in particular, offers relative value not seen for many years.
Marie Schofield has managed the Galaxy VIP High Quality Bond Fund since March
1996. Ms Schofield has been with Fleet Investment Advisors Inc. since 1991 and
has managed fixed-income assets since 1975.
GALAXY VIP COLUMBIA HIGH YIELD FUND II
Portfolio Manager
Jeffrey L. Rippey
The Galaxy VIP Columbia High Yield Fund II seeks a high level of current
income with a secondary objective of capital appreciation. The Fund invests
primarily in high-yielding corporate bonds rated BB or lower by S&P or Ba or
lower by Moody's ("junk bonds"), with no more than 10% of its assets in bonds
rated below B.
As economic uncertainty raised demand for better-quality bonds with good
liquidity in 1998, prices for high-yield bonds lagged those of other
fixed-income issues. In this environment, high-yield bonds with stronger credit
ratings issued by companies with less sensitivity to economic change outpaced
the rest of the high-yield sector. Because the Galaxy VIP Columbia High Yield
Fund II emphasizes higher-quality issues, the Fund performed well against its
benchmarks for the reporting period.
From the Fund's inception on March 3, 1998 through December 31, 1998, the
Fund had a total return of 9.61%. That compares to total returns of 7.39% for
the Lehman Brothers Aggregate Bond Index and -3.17% for the average high-yield
bond fund tracked by Lipper. On December 31, 1998, the Fund had a 30-day SEC
yield of 6.35%.
Seizing Market Opportunities
After high-yield bonds outperformed investment grade debt early in 1998,
continuing a trend of 1996 and 1997, the currency and economic situation in Asia
seemed to stabilize. When investors
[pie chart]
Galaxy VIP Columbia
High Yield Fund II
Distribution of Total Net Assets
as of December 31, 1998
<TABLE>
<S> <C>
Corporate Notes and Bonds 96%
Investment Company 2%
Net Other Assets & Liabilities 2%
</TABLE>
[end pie chart]
11
<PAGE>
PORTFOLIO REVIEWS
[photo: Jeffrey L. Rippey]
realized Asia's problems were deeper than they had thought, they fled to U.S.
Treasury bonds for safety and high-yield bonds lagged once again.
In the first two quarters of 1998, we found attractive investment
opportunities in the debt of aerospace and cable TV firms. During this time we
also increased positions in two large hospital operators and added issues of a
large movie exhibitor, an office-products distributor and an equipment-rental
firm.
The high-yield market ended 1998 on a positive note, as investors became
more hopeful in their economic outlook and left Treasuries for other
fixed-income sectors.
High-Yield Bonds Remain Attractive
Even with mild price appreciation at the end of 1998, high-yield bonds
remain attractive versus Treasuries. As long as investors remain confident that
the U.S. economy will continue to grow, the high-yield sector could perform
well. With our expectation for a moderately expanding economy in 1999, high
yield bonds should provide an attractive investment opportunity for the coming
year - particularly with our emphasis on better credit quality and sectors with
improving fundamentals.
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.
[mountain chart]
Galaxy VIP
Columbia High Yield Fund II
Growth of $10,000 investment*
<TABLE>
<CAPTION>
Galaxy VIP Columbia Lehman Brothers
High Yield Fund II Aggregate Bond Index
<S> <C> <C>
Inception <plot points needed from client>
12/31/98 $10,961 $10,739
</TABLE>
*Since the Fund's inception on 3/3/98. The Lehman Brothers Aggregate Bond Index
is an index composed of treasury issues, agency issues, corporate bond issues
and mortgage-backed securities. Results for the Lehman Brothers Aggregate Bond
Index do not reflect the investment management fees and other expenses incurred
by the Fund.
[end mountain chart]
12
<PAGE>
Money Market Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
COMMERCIAL PAPER (A) - 52.10%
<S> <C> <C>
Consumer Staples - 22.22%
$ 700,000 Campbell Soup Co.
5.20%, 01/13/99..................... $ 698,787
800,000 Coca-Cola Co.
5.14%, 01/20/99..................... 797,830
750,000 PepsiCo, Inc.
5.12%, 01/19/99..................... 748,080
700,000 Pfizer, Inc.
5.13%, 02/12/99 (B)................. 695,811
800,000 United Parcel Service
5.50%, 01/22/99..................... 797,433
-----------
3,737,941
-----------
Finance - 16.26%
750,000 Ford Motor Credit Co.
5.11%, 02/04/99..................... 746,380
750,000 General Electric Capital Corp.
5.17%, 02/23/99..................... 744,291
500,000 IBM Credit Corp.
5.27%, 01/05/99..................... 499,707
750,000 National Rural Utilities
Cooperative Finance Corp.
5.12%, 02/19/99..................... 744,773
-----------
2,735,151
-----------
Technology - 8.88%
750,000 BellSouth Telecommunications, Inc.
5.17%, 01/26/99..................... 747,307
750,000 Lucent Technologies, Inc.
5.12%, 02/03/99..................... 746,480
-----------
1,493,787
-----------
Consumer Cyclical - 4.74%
800,000 Disney (Walt) Co.
5.05%, 02/02/99..................... 796,409
-----------
Total Commercial Paper.............. 8,763,288
(Cost $8,763,288) -----------
U.S. AGENCY OBLIGATIONS (A) - 48.42%
Federal Home Loan
Mortgage Corporation - 26.28%
$ 2,900,000 4.70%, 01/04/99..................... $ 2,898,864
690,000 5.10%, 02/16/99..................... 685,504
843,000 4.95%, 02/24/99..................... 836,741
-----------
4,421,109
-----------
Federal Home Loan Bank - 11.81%
1,000,000 4.92%, 02/12/99..................... 994,260
1,000,000 4.92%, 02/19/99..................... 993,303
-----------
1,987,563
-----------
Federal National
Mortgage Association - 10.33%
1,000,000 5.03%, 02/05/99..................... 995,105
746,000 5.03%, 02/11/99..................... 741,727
-----------
1,736,832
-----------
Total U.S. Agency Obligations....... 8,145,504
(Cost $8,145,504) -----------
Total Investments - 100.52%......................... 16,908,792
(Cost $16,908,792) -----------
Net Other Assets and Liabilities - (0.52)%.......... (87,552)
-----------
Net Assets - 100.00%................................ $16,821,240
===========
</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 only be resold in exempt
transactions to qualified buyers. At December 31, 1998, these securities
amounted to $695,811 or 4.14% of net assets.
See Notes to Financial Statements.
13
<PAGE>
Equity Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
COMMON STOCKS - 99.00%
Technology - 26.08%
30,000 Applied Materials, Inc.*............ $ 1,280,625
24,000 Automatic Data Processing, Inc...... 1,924,500
20,000 Cisco Systems, Inc.*................ 1,856,250
30,000 Compaq Computer Corp................ 1,258,125
12,500 Dell Computer Corp.*................ 914,844
20,000 EMC Corp.*.......................... 1,700,000
30,000 Edwards (J.D.) & Co.*............... 851,250
15,000 Hewlett-Packard Co.................. 1,024,687
12,500 Intel Corp.......................... 1,482,031
7,500 International Business Machines
Corp. .............................. 1,385,625
45,000 Loral Space & Communications, Ltd... 801,563
10,000 Lucent Technologies, Inc............ 1,100,000
22,500 Maxim Integrated Products, Inc.*.... 982,969
20,000 Network Associates, Inc.*........... 1,325,000
10,000 Nokia Corp., Class A, ADR........... 1,204,375
20,000 Tellabs, Inc.*...................... 1,371,250
15,000 Teradyne, Inc.*..................... 635,625
15,000 Texas Instruments, Inc.............. 1,283,437
15,000 Xerox Corp.......................... 1,770,000
-----------
24,152,156
-----------
Consumer Staples - 22.55%
32,500 Abbott Laboratories................. 1,592,500
17,500 American Home Products Corp......... 985,469
25,000 Becton Dickinson & Co............... 1,067,187
22,500 Bestfoods........................... 1,198,125
15,000 Bristol-Myers Squibb Co............. 2,007,187
22,500 Elan Corp. Plc, ADR*................ 1,565,156
15,000 Guidant Corp........................ 1,653,750
18,000 Johnson & Johnson................... 1,509,750
20,000 Lilly (Eli) & Co.................... 1,777,500
10,000 Merck & Co., Inc.................... 1,476,875
22,000 PepsiCo, Inc........................ 900,625
12,500 Pfizer, Inc......................... 1,567,969
15,000 Phillip Morris Cos., Inc............ 802,500
14,000 Procter & Gamble Co................. 1,278,375
20,000 Warner-Lambert Co................... 1,503,750
-----------
20,886,718
-----------
Consumer Cyclical - 14.71%
20,000 Capstar Broadcasting Corp.,
Class A* ........................... 457,500
22,500 Chancellor Media Corp.*............. 1,077,187
30,000 CVS Corp............................ 1,650,000
35,000 Dayton-Hudson Corp.................. 1,898,750
30,000 Disney (Walt) Co.................... 900,000
30,000 Home Depot, Inc..................... 1,835,625
40,000 Infinity Broadcasting Corp.,
Class A* ........................... 1,095,000
20,000 McDonald's Corp..................... 1,532,500
30,000 Service Corp. International......... 1,141,875
30,000 Sinclair Broadcast Group, Inc.,
Class A* ........................... 586,875
50,000 TJX Cos., Inc....................... 1,450,000
-----------
13,625,312
-----------
Finance - 11.51%
40,000 Associates First Capital Corp....... $ 1,695,000
7,500 American International Group, Inc... 724,688
27,500 Chase Manhattan Corp................ 1,871,719
35,000 Citigroup, Inc...................... 1,732,500
30,000 Fannie Mae.......................... 2,220,000
15,000 SunAmerica, Inc..................... 1,216,875
30,000 Wells Fargo & Co.................... 1,198,125
-----------
10,658,907
-----------
Capital Goods and Construction - 10.49%
22,500 AES Corp............................ 1,065,938
15,000 Federal-Mogul Corp.................. 892,500
25,000 General Electric Co................. 2,551,562
25,000 Tyco International Ltd.............. 1,885,938
40,000 US Filter Corp.*.................... 915,000
12,500 United Technologies Corp............ 1,359,375
22,500 Waste Management, Inc............... 1,049,063
-----------
9,719,376
-----------
Energy - 6.41%
40,000 Anadarko Petroleum Corp............. 1,235,000
22,500 Cooper Cameron Corp.*............... 551,250
33,000 Halliburton Co...................... 977,625
20,000 Mobil Corp.......................... 1,742,500
15,000 Schlumberger Ltd.................... 691,875
27,500 Transocean Offshore, Inc............ 737,344
-----------
5,935,594
-----------
Utilities - 3.99%
35,000 MCI Worldcom, Inc.*................. 2,511,250
50,000 Nextel Communications, Inc.,
Class A* ........................... 1,181,250
-----------
3,692,500
-----------
Transportation - 2.54%
15,000 AMR Corp*........................... 890,625
25,000 Ford Motor Co....................... 1,467,187
-----------
2,357,812
-----------
Basic Materials - 0.72%
12,500 duPont (E.I.) deNemours & Co........ 663,281
-----------
Total Common Stocks................. 91,691,656
(Cost $68,259,902) -----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Equity Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Par Value
Value (Note 2)
------- --------
<S> <C> <C>
REPURCHASE AGREEMENT - 1.07%
$ 995,000 Chase Manhattan Bank
4.50%, 01/04/99, dated 12/31/98
Repurchase Price $995,498
(Collateralized by U.S. Treasury Note
9.25%, due 02/15/16;
Total Par $695,000
Market Value $1,019,105)............ $ 995,000
-----------
Total Repurchase Agreement.......... 995,000
(Cost $995,000) -----------
Total Investments - 100.07%......................... 92,686,656
(Cost $69,254,902) -----------
Net Other Assets and Liabilities - (0.07)%.......... (66,750)
-----------
Net Assets - 100.00%................................ $92,619,906
===========
</TABLE>
- ------------------------------------------------------------------
* Non-income producing security.
ADR American Depositary Receipt
See Notes to Financial Statements.
15
<PAGE>
Growth and Income Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
COMMON STOCKS - 89.82%
Finance - 18.81%
2,200 BankAmerica Corp.................... $ 132,275
2,100 Bank One Corp....................... 107,231
1,500 Chase Manhattan Corp................ 102,094
1,100 Chubb Corp.......................... 71,363
2,400 Citigroup, Inc...................... 118,800
1,800 Countrywide Credit Industries, Inc.. 90,338
400 Berkshire Hathaway.................. 98,700
1,300 Hartford Financial Services Group,
Inc. ............................... 71,337
1,000 Lincoln National Corp............... 81,812
700 Morgan (J.P.) & Co.................. 73,544
3,000 Standard & Poor's Depositary
Receipts ........................... 369,000
3,000 Wells Fargo & Co.................... 119,812
-----------
1,436,306
-----------
Consumer Staples - 16.98%
1,700 American Home Products Corp......... 95,731
1,000 Anheuser-Busch Cos., Inc............ 65,625
1,900 Elan Corp. Plc, ADR*................ 132,169
2,000 Forest Laboratories, Inc.*.......... 106,375
2,700 Genzyme Corp.*...................... 134,325
324 Genzyme Molecular Oncology*......... 1,053
1,500 Hannaford Brothers Co............... 79,500
1,500 Humana, Inc.*....................... 26,719
1,750 International Flavors &
Fragrances, Inc..................... 77,328
800 Johnson & Johnson Co................ 67,100
600 Merck & Co., Inc.................... 88,613
2,150 PepsiCo, Inc........................ 88,016
570 Pfizer, Inc......................... 71,499
1,300 Pharmacia & Upjohn, Inc............. 73,612
2,500 Stryker Corp.*...................... 137,656
1,200 United HealthCare Corp.............. 51,675
-----------
1,296,996
-----------
Technology - 13.58%
1,745 AMP, Inc............................ 90,849
1,500 Avnet, Inc.......................... 89,813
900 Cisco Systems, Inc.*................ 83,531
2,700 Compaq Computer Corp................ 113,231
1,200 Computer Sciences Corp.*............ 77,325
2,000 Electronic Data Systems Corp........ 100,500
1,850 Harris Corp......................... 67,756
1,900 Hewlett-Packard Co.................. 129,794
500 International Business Machines
Corp. .............................. 92,375
1,600 Motorola, Inc....................... 97,700
1,100 Texas Instruments, Inc.............. 94,119
-----------
1,036,993
-----------
Consumer Cyclical - 9.96%
2,200 Circuit City Stores-Circuit City
Group .............................. $109,863
800 Eastman Kodak Co.................... 57,600
2,400 Lowe's Cos., Inc.................... 122,850
1,200 McDonald's Corp..................... 91,950
3,800 Office Depot, Inc.*................. 140,362
2,000 Penny (J.C.) Co., Inc............... 93,750
2,900 Sherwin-Williams Co................. 85,188
3,500 Toys `R' Us, Inc.*.................. 59,062
-----------
760,625
-----------
Basic Materials - 7.24%
3,300 Crown Cork & Seal, Inc.............. 101,681
2,100 Goodrich (B.F.) Co.................. 75,338
1,300 Minnesota Mining &
Manufacturing Co.................... 92,462
2,300 Morton International, Inc........... 56,350
3,000 Pall Corp........................... 75,938
2,200 Praxair, Inc........................ 77,550
2,500 Sigma Aldrich Corp.................. 73,437
-----------
552,756
-----------
Energy - 6.76%
1,600 Amoco Corp.......................... 94,400
950 Atlantic Richfield Co............... 61,988
3,500 Baker Hughes, Inc................... 61,906
2,200 Halliburton Co...................... 65,175
2,000 Kerr-McGee Corp..................... 76,500
1,000 Mobil Corp.......................... 87,125
1,500 Schlumberger, Ltd................... 69,187
-----------
516,281
-----------
Capital Goods and Construction - 6.61%
2,100 Boeing Co........................... 68,513
800 General Electric Co................. 81,650
1,100 Honeywell, Inc...................... 82,844
1,800 Hubbell, Inc., Class A.............. 68,512
4,399 U.S. Filter Corp.*.................. 100,627
2,199 Waste Management, Inc............... 102,528
-----------
504,674
-----------
Utilities - 6.56%
1,300 AT&T Corp........................... 97,825
1,300 Century Telephone Enterprises, Inc.. 87,750
1,300 GTE Corp............................ 84,500
1,800 MCI WorldCom, Inc.*................. 129,150
1,900 SBC Communications, Inc............. 101,888
-----------
501,113
-----------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Growth and Income Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
Transportation - 3.32%
1,600 British Airways Plc, ADR............ $ 108,500
2,300 Burlington Northern Santa Fe Corp... 77,625
1,500 Union Pacific Corp.................. 67,594
-----------
253,719
-----------
Total Common Stocks................. 6,859,463
(Cost $6,429,677) -----------
CONVERTIBLE PREFERRED STOCK - 0.82%
1,200 Loral Space and
Communications. Ltd., 6.00% (B)..... 62,700
-----------
Total Convertible Preferred Stock... 62,700
(Cost $81,318) -----------
Par Value
----------
U.S. AGENCY OBLIGATION (A) - 9.52%
Federal Home Loan
Mortgage Corporation - 9.52%
$ 727,000 4.70%, 01/04/99..................... 726,715
-----------
Total U.S. Agency Obligation........ 726,715
(Cost $726,715) -----------
Total Investments - 100.16%......................... 7,648,878
(Cost $7,237,710) -----------
Net Other Assets and Liabilities - (0.16)%.......... (12,128)
-----------
Net Assets - 100.00%................................ $ 7,636,750
===========
</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 only be resold, in a
transaction exempt from registration, to qualified institutional buyers. At
December 31, 1998, this security amounted to $62,700, or 0.82% of net
assets.
ADR American Depositary Receipt
See Notes to Financial Statements.
17
<PAGE>
Small Company Growth Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
COMMON STOCKS - 93.93%
Technology - 41.32%
154 Acxiom Corp. *...................... $ 4,774
470 Advanced Fibre
Communications, Inc. *.............. 5,141
40 Applied Micro Circuits Corp. *...... 1,359
150 Ardent Software, Inc. *............. 3,450
250 Asesco Corp. *...................... 344
490 Aspen Technology, Inc. *............ 7,105
130 AXENT Technologies, Inc. *.......... 3,973
100 Best Software, Inc. *............... 2,375
340 BindView Development Corp. *........ 9,350
130 BISYS Group, Inc. *................. 6,711
240 BroadVision, Inc. *................. 7,680
200 Complete Business Solutions, Inc. *. 6,775
210 Concord Communications, Inc. *...... 11,918
470 Condor Technology Solutions, Inc. *. 4,700
80 Cree Research, Inc. *............... 3,830
460 Daou Systems, Inc. *................ 2,832
350 Deltek Systems, Inc. *.............. 5,906
10 Exchange Applications, Inc. *....... 196
210 FactSet Research Systems, Inc. *.... 12,967
270 Forrester Research, Inc. *.......... 11,812
360 Galileo Technology Ltd. *........... 9,720
440 Gentex Corp. *...................... 8,800
400 GeoTel Communications Corp. *....... 14,900
360 Global Imaging Systems, Inc. *...... 8,730
280 Great Plains Software, Inc. *....... 13,510
100 HEICO Corp.......................... 3,156
100 HNC Software Inc. *................. 4,044
620 H.T.E., Inc. *...................... 3,100
150 Hyperion Solutions Corp. *.......... 2,700
220 ICG Communications, Inc. *.......... 4,730
330 IDT Corp. *......................... 5,074
340 IMRglobal Corp. *................... 10,009
427 Information Advantage, Inc. *....... 3,229
590 Inprise Corp. *..................... 3,245
250 Inso Corp. *........................ 6,250
320 International Telecommunication
Data Systems, Inc. *................ 4,720
100 Isis Pharmaceuticals, Inc.*......... 1,294
445 JDA Software Group, Inc. *.......... 4,311
20 Komag, Inc. *....................... 208
220 Kopin Corp. *....................... 4,620
130 Level One Communications, Inc. *.... 4,615
240 Macromedia, Inc. *.................. 8,085
450 Made2Manage Systems, Inc. *......... 6,694
380 Mecon, Inc. *....................... 3,990
170 Melita International Corp. *........ 3,570
10 Merix Corp. *....................... 60
410 META Group, Inc. *.................. 12,197
60 Metro Information Services, Inc. *.. 1,800
230 Natural MicroSystems Corp. *........ 1,675
230 New Era of Networks, Inc. *......... 10,120
Technology (continued)
440 Norstan, Inc. *..................... $ 7,810
360 Ortel Corp. *....................... 3,150
360 PairGain Technologies, Inc. *....... 2,767
450 Pervasive Software, Inc. *.......... 8,663
890 PhoneTel Technologies, Inc. *....... 97
20 PMC-Sierra, Inc. *.................. 1,262
240 PRI Automation, Inc. *.............. 6,240
150 Prism Solutions, Inc. *............. 375
90 ProBusiness Services, Inc. *........ 4,095
520 Renaissance Worldwide, Inc. *....... 3,185
340 SeaMED Corp. *...................... 3,825
490 Secure Computing Corp. *............ 9,341
460 Security Dynamics Technologies,
Inc. * ............................. 10,580
80 SIPEX Corp. *....................... 2,810
555 SPR, Inc. *......................... 9,574
260 SPSS, Inc. *........................ 4,907
200 STAR Telecommunications, Inc. *..... 2,438
420 Tekelec *........................... 6,956
380 TeleTech Holdings, Inc. *........... 3,895
540 Tier Technologies, Inc. *........... 9,315
350 Timberline Software Corp............ 4,813
290 Tollgrade Communications, Inc. *.... 5,583
230 TranSwitch Corp. *.................. 8,956
370 TSI International Software Ltd. *... 17,714
600 Unitrode Corp. *.................... 10,500
130 Visio Corp. *....................... 4,753
140 Vitesse Semiconductor Corp. *....... 6,387
40 Voice Control Systems, Inc. *....... 70
740 Whittman-Hart, Inc. *............... 20,443
200 World Access, Inc. *................ 4,275
310 YieldUP International Corp. *....... 542
520 Zygo Corp. *........................ 4,485
-----------
472,160
-----------
Consumer Cyclical - 22.41%
480 ABR Information Services, Inc. *.... 9,420
90 Action Performance Cos., Inc. *..... 3,184
300 Bally Total Fitness Holding Corp. *. 7,462
200 Boron, LePore & Associates, Inc. *.. 6,900
640 Brass Eagle, Inc. *................. 9,840
180 Carey International, Inc. *......... 3,150
160 Carriage Services, Inc., Class A*... 4,550
180 CEC Entertainment, Inc. *........... 4,995
140 Cost Plus, Inc. *................... 4,393
230 Coulter Pharmaceutical, Inc. *...... 6,900
375 Data Processing Resources Corp. *... 10,969
280 Dura Automotive Systems, Inc. *..... 9,555
560 Funco, Inc. *....................... 9,800
400 Goody's Family Clothing, Inc. *..... 4,013
350 Group Maintenance America Corp. *... 4,244
220 Guitar Center, Inc. *............... 5,417
240 Haemonetics Corp. *................. 5,460
200 HA-LO Industries, Inc. *............ 7,525
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Small Company Growth Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
Consumer Cyclical (continued)
400 Jones Intercable, Inc., Class A *... $ 14,250
550 Just For Feet, Inc. *............... 9,556
170 Kroll-O'Gara Co. *.................. 6,704
290 Lifeline Systems, Inc. *............ 7,250
510 Lo-Jack Corp. *..................... 6,056
240 Market Facts, Inc. *................ 6,240
200 Metamor Worldwide, Inc. *........... 5,000
280 Millipore Corp...................... 7,963
950 Players International, Inc. *....... 5,878
230 Pre-Paid Legal Services, Inc. *..... 7,590
240 Racing Champions Corp. *............ 3,210
630 Silverleaf Resorts, Inc. *.......... 5,867
370 Source Information Management Co. *. 4,301
500 Stein Mart, Inc. *.................. 3,484
330 Steiner Leisure Ltd. *.............. 10,560
560 The First Years, Inc................ 8,855
10 The Maxim Group, Inc. *............. 240
300 Travel Services International,
Inc. *.............................. 9,150
280 Travis Boats & Motors, Inc. *....... 5,740
435 West Marine, Inc. *................. 4,296
300 Wilmar Industries, Inc. *........... 6,094
-----------
256,061
-----------
Consumer Staples - 17.08%
450 Anesta Corp. *...................... 11,981
390 ASI Solutions, Inc. *............... 2,974
360 Cytyc Corp. *....................... 9,270
140 Education Management Corp. *........ 3,308
540 FirstService Corp. *................ 6,446
450 Geltex Pharmaceuticals, Inc. *...... 10,181
120 Hanger Orthopedic Group, Inc. *..... 2,700
50 Horizon Health Corp. *.............. 394
485 King Pharmaceuticals, Inc. *........ 12,671
500 Medaphis Corp. *.................... 1,641
380 Natrol, Inc. *...................... 4,180
260 Natural Alternatives
International, Inc. *............... 2,860
180 NCS Healthcare, Inc., Class A *..... 4,275
100 Ocular Sciences, Inc. *............. 2,675
450 On Assignment, Inc. *............... 15,525
240 Orthodontic Centers of America,
Inc. * ...,,........................ 4,665
130 Oshkosh B'Gosh, Inc., Class A....... 2,624
80 Osteotech, Inc. *................... 3,720
130 PAREXEL International Corp. *....... 3,250
80 Patterson Dental Co. *.............. 3,480
240 Pediatrix Medical Group, Inc. *..... 14,385
270 Physician Reliance Network, Inc. *.. 3,544
930 Physicians' Specialty Corp. *....... 7,789
190 Province Healthcare Co. *........... 6,816
275 Renal Care Group, Inc. *............ 7,923
240 Rexall Sundown, Inc. *.............. 3,360
470 Romac International, Inc. *......... 10,457
580 Sheridan Healthcare, Inc. *......... 4,858
Consumer Staples (continued)
240 Sonic Corp. *....................... $ 5,970
200 StaffMark, Inc. *................... 4,475
150 Twinlab Corp. *..................... 1,969
550 Weider Nutrition International,
Inc. ............................... 3,506
130 Whole Foods Market, Inc. *.......... 6,289
155 Xomed Surgical Products, Inc. *..... 4,960
-----------
195,121
-----------
Capital Goods and Construction - 6.63%
130 AAR Corp............................ 3,104
160 AFC Cable Systems, Inc. *........... 5,380
190 Astec Industries, Inc. *............ 10,569
130 Aviation Sales Co. *................ 5,281
200 Comfort Systems USA, Inc. *......... 3,575
305 Cuno, Inc. *........................ 4,956
40 Firearms Training Systems, Inc. *... 56
210 Lindberg Corp....................... 1,910
340 Motivepower Industries, Inc. *...... 10,944
180 MSC Industrial Co., Class A *....... 4,072
460 Newpark Resources, Inc. *........... 3,134
760 PCD, Inc. *......................... 9,880
370 Recycling Industries, Inc. *........ 370
150 Superior Services, Inc. *........... 3,009
380 Tower Automotive, Inc. *............ 9,476
-----------
75,716
-----------
Transportation - 2.53%
340 Covenant Transport, Inc., Class A *. 6,077
825 Dynamex, Inc. *..................... 3,248
200 Expeditors International of
Washington, Inc..................... 8,400
120 Knight Transportation, Inc. *....... 3,203
120 Swift Transportation Co., Inc. *.... 3,364
310 U.S. Xpress Enterprises, Inc. *..... 4,650
-----------
28,942
-----------
Utilities - 2.30%
10 Architel Systems Corp. *............ 126
460 Boston Communications Group, Inc. *. 5,980
350 Davel Communication Corp. *......... 6,388
20 Pacific Gateway Exchange, Inc. *.... 961
580 SkyTel Communications, Inc. *....... 12,832
-----------
26,287
-----------
Energy - 0.87%
490 Cabot Oil & Gas Corp., Class A...... 7,350
230 Nuevo Energy Co. *.................. 2,645
-----------
9,995
-----------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Small Company Growth Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
Finance - 0.55%
10 Meadowbrook Insurance Group, Inc.... $ 164
10 Policy Management Systems Corp. *... 505
800 Towne Services, Inc. *.............. 5,600
-----------
6,269
-----------
Basic Materials - 0.24%
60 AMCOL International Corp............ 592
430 U.S. Home & Garden, Inc. *.......... 2,150
-----------
2,742
-----------
Total Common Stocks................. 1,073,293
(Cost $1,012,179) -----------
Total Investments - 93.93%.......................... 1,073,293
(Cost $1,012,179) -----------
Net Other Assets and Liabilities - 6.07%............ 69,380
-----------
Net Assets - 100.00%................................ $ 1,142,673
===========
</TABLE>
- ------------------------------------------------------------------
* Non-income producing security.
See Notes to Financial Statements.
20
<PAGE>
Columbia Real Estate Equity Fund II
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
--------- --------
COMMON STOCKS - 93.07%
<S> <C> <C>
Real Estate - 93.07%
700 Alexandria Real Estate Equities..... $ 21,656
1,100 Apartment Investment &
Management Co....................... 40,906
1,200 Archstone Communities Trust......... 24,300
607 Avalon Bay Communities, Inc......... 20,790
700 Boston Properties, Inc.............. 21,350
1,500 Cabot Industrial Trust.............. 30,656
800 Capital Automotive.................. 11,900
1,300 Catellus Development Corp.*......... 18,606
700 Colonial Properties Trust........... 18,638
1,000 Duke Realty Investments, Inc........ 23,250
1,800 Equity Office Properties Trust...... 43,200
400 Equity Residential Properties Trust. 16,175
200 Excel Legacy Corp.*................. 800
700 First Industrial Realty Trust....... 18,769
700 General Growth Properties........... 26,513
500 Kimco Realty Corp................... 19,844
900 Liberty Property Trust.............. 22,162
900 Mack-Cali Realty Corp............... 27,788
800 Manufactured Home
Communities, Inc.................... 20,050
1,440 New Plan Excel Realty Trust......... 31,950
700 Pan Pacific Retail Properties, Inc.. 13,956
600 Prentiss Properties Trust........... 13,387
900 ProLogis Trust...................... 18,675
1,300 Public Storage, Inc................. 35,181
800 Reckson Associates Realty Corp...... 17,750
40 Reckson Service Industries*......... 165
1,000 Security Capital Group, Inc.,
Class B* ........................... 13,563
600 Shurgard Storage
Centers, Inc., Class A.............. 15,487
1,500 Simon Property Group, Inc........... 42,750
800 Spieker Properties, Inc............. 27,700
800 Starwood Hotels & Resorts........... 18,150
400 The Macerich Co..................... 10,250
600 TriNet Corporate Realty Trust, Inc.. 16,050
35 Vornado Operating Co.*.............. 282
800 Vornado Realty Trust................ 27,000
-----------
Total Common Stocks................. 729,649
(Cost $809,117) -----------
Value
Par Value (Note 2)
--------- --------
U.S. GOVERNMENT OBLIGATION (A) - 3.18%
U.S. Treasury Bill - 3.18%
$ 25,000 4.47%, 01/21/99..................... $ 24,941
-----------
Total U.S. Government Obligation.... 24,941
(Cost $24,941) -----------
Shares
-------
INVESTMENT COMPANY - 2.34%
18,352 Vista U.S. Government Money Market.. 18,352
-----------
Total Investment Company............ 18,352
(Cost $18,352) -----------
Total Investments - 98.59%.......................... 772,942
(Cost $852,410) -----------
Net Other Assets and Liabilities - 1.41%............ 11,074
-----------
Net Assets - 100.00%................................ $ 784,016
===========
</TABLE>
- ------------------------------------------------------------------
* Non-income producing security.
(A) Discount yield at time of purchase.
See Notes to Financial Statements.
21
<PAGE>
Asset Allocation Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------- --------
<S> <C> <C>
COMMON STOCKS - 49.18%
Consumer Staples - 11.78%
16,000 Becton, Dickinson & Co.............. $ 683,000
13,000 Bestfoods........................... 692,250
24,000 Coca-Cola Entrerprises, Inc......... 858,000
7,000 Elan Corp. Plc, ADR*................ 486,938
11,000 Forest Laboratories, Inc.*.......... 585,062
15,000 Genzyme Corp.*...................... 746,250
10,000 Gillette Co......................... 483,125
10,000 Lilly (Eli) & Co.................... 888,750
7,000 Merck & Co., Inc.................... 1,033,813
15,000 PepsiCo, Inc........................ 614,062
9,000 Pfizer, Inc......................... 1,128,938
5,000 Procter & Gamble Co................. 456,562
8,000 Warner-Lambert Co................... 601,500
-----------
9,258,250
-----------
Technology - 11.03%
12,000 Altera Corp.*....................... 730,500
10,000 Automatic Data Processing, Inc...... 801,875
25,000 Boston Scientific Corp.*............ 670,313
16,000 Cisco Systems, Inc.*................ 1,485,000
17,000 Compaq Computer Corp................ 712,937
11,000 EMC Corp.*.......................... 935,000
9,000 Hewlett-Packard Co.................. 614,813
9,000 Intel Corp.......................... 1,067,062
8,000 Lucent Technologies, Inc............ 880,000
6,500 Xerox Corp.......................... 767,000
-----------
8,664,500
-----------
Finance - 8.49%
8,000 American International Group, Inc... 773,000
10,000 Associates First Capital Corp....... 423,750
8,000 BankBoston Corp..................... 311,500
5,000 Chase Manhattan Corp................ 340,313
17,500 Citigroup, Inc...................... 866,250
15,000 Fannie Mae.......................... 1,110,000
11,500 First Union Corp.................... 699,344
11,000 Hartford Financial Services Group,
Inc. ............................... 603,625
7,000 SunAmerica, Inc..................... 567,875
12,000 Washington Mutual, Inc.............. 458,250
13,000 Wells Fargo & Co.................... 519,187
-----------
6,673,094
-----------
Consumer Cyclical - 5.00%
11,000 CVS Corp............................ 605,000
6,000 Dayton Hudson Corp.................. 325,500
24,000 Home Depot, Inc..................... 1,468,500
10,000 McDonald's Corp..................... 766,250
13,000 Walgreen Co......................... 761,313
-----------
3,926,563
-----------
Capital Goods and Construction - 4.12%
17,000 Boeing Co........................... $ 554,625
13,000 Deere & Co.......................... 430,625
9,000 General Electric Co................. 918,563
9,000 Textron, Inc........................ 683,437
6,000 United Technologies Corp............ 652,500
-----------
3,239,750
-----------
Utilities - 3.23%
15,000 Frontier Corp....................... 510,000
20,000 MCI Worldcom, Inc.*................. 1,435,000
11,000 SBC Communications, Inc............. 589,875
-----------
2,534,875
-----------
Energy - 2.99%
6,000 Anadarko Petroleum Corp............. 185,250
18,000 Halliburton Co...................... 533,250
8,000 Mobil Corp.......................... 697,000
10,000 Noble Affiliates, Inc............... 246,250
15,000 Schlumberger, Ltd................... 691,875
-----------
2,353,625
-----------
Transportation - 1.90%
10,000 AMR Corp.*.......................... 593,750
10,000 Burlington Northern Santa Fe Corp... 337,500
25,000 Southwest Airlines Co............... 560,938
-----------
1,492,188
-----------
Basic Materials - 0.64%
17,000 Sonoco Products Co.................. 503,625
-----------
Total Common Stocks................. 38,646,470
(Cost $26,208,582) -----------
Par Value
---------
CORPORATE NOTES AND BONDS - 20.09%
Finance - 7.26%
$ 455,000 American Express Credit Corp.
8.50%, 08/15/01..................... 492,538
100,000 Aristar, Inc., Senior Note
6.75%, 05/15/99..................... 100,542
500,000 Associates Corp. of North America
Senior Note
5.25%, 03/30/00..................... 499,375
250,000 Associates Corp. of North America
7.88%, 09/30/01..................... 265,312
500,000 Caterpillar Financial Services
Series F, MTN
6.00%, 05/23/02..................... 510,000
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Asset Allocation Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
Finance (continued)
<S> <C> <C>
$ 250,000 CIT Group, Inc., MTN
5.80%, 02/26/01..................... $ 251,875
200,000 Commercial Credit Co., Senior Note
6.13%, 03/01/00..................... 201,750
750,000 Diageo Capital PLC
6.00%, 03/27/03..................... 760,350
250,000 Ford Motor Credit Co.
6.85%, 08/15/00..................... 255,938
250,000 Ford Motor Credit Co.
6.38%, 12/15/05..................... 260,938
250,000 General Electric Capital Corp.
Series A, MTN
5.76%, 04/24/00..................... 251,875
250,000 General Electric Capital Corp.
Series A, MTN
5.96%, 05/14/01..................... 253,475
450,000 General Motors Acceptance Corp.
7.00%, 03/01/00..................... 457,875
150,000 Household Finance Co.
7.63%, 06/15/99..................... 151,647
200,000 International Lease Finance Corp.
6.20%, 05/01/00..................... 202,250
400,000 Norwest Financial, Inc., Senior Note
7.75%, 08/15/01..................... 425,500
100,000 PACCAR Financial Corp.
Series H, Senior MTN
5.86%, 03/15/01..................... 101,500
250,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02..................... 261,562
-----------
5,704,302
-----------
Banking - 2.54%
100,000 Bank One Milwaukee, N.A., MTN
6.35%, 03/19/01..................... 102,375
300,000 Chase Manhattan Corp., MTN
5.50%, 02/15/01..................... 301,125
200,000 Citicorp, Senior MTN
8.63%, 11/01/04..................... 204,500
250,000 First Union Corp., Senior Note
6.60%, 06/15/00..................... 255,312
200,000 Mellon Financial Co., Senior Note
7.63%, 11/15/99..................... 204,304
250,000 NationsBank Corp., Senior Note
5.38%, 04/15/00..................... 250,000
100,000 NationsBank Corp., Senior Note
7.00%, 05/15/03..................... 106,750
250,000 Norwest Corp.
Series H, MTN
5.63%, 02/05/01..................... 252,500
60,000 SunTrust Bank of Central Florida, MTN
6.90%, 07/01/07..................... 65,925
250,000 Wachovia Bank NC, N.A.
6.30%, 03/15/01..................... 255,625
-----------
1,998,416
-----------
Consumer Cyclical - 2.49%
$ 250,000 Disney (Walt) Co., MTN
5.60%, 01/13/00..................... $ 251,250
500,000 Disney (Walt) Co.
6.38%, 03/30/01..................... 514,375
135,000 Hershey Foods Corp.
7.20%, 08/15/27..................... 154,575
250,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08..................... 260,312
500,000 Mead Corp., Senior Note
6.60%, 03/01/02..................... 515,000
250,000 Sherwin-Williams Co., Senior Note
6.50%, 02/01/02..................... 259,375
-----------
1,954,887
-----------
Consumer Staples - 2.10%
100,000 Abbott Laboratories, Senior Note
6.40%, 12/01/06..................... 107,125
100,000 Becton Dickinson
7.00%, 08/01/27..................... 108,125
300,000 Colgate Palmolive Co.
Series C, MTN
5.27%, 12/01/03..................... 300,000
250,000 Merck & Co., Senior Note
6.40%, 03/01/28..................... 267,188
250,000 PepsiCo, Inc., MTN
5.75%, 01/01/03..................... 255,312
250,000 PepsiCo, Inc., MTN
5.75%, 01/15/08..................... 254,375
250,000 Sysco Corp.
7.25%, 04/15/07..................... 279,375
75,000 Sysco Corp., Debenture
6.50%, 08/01/28..................... 75,375
-----------
1,646,875
-----------
Utilities - 1.32%
250,000 National Rural Utilities,
Collateral Trust 6.13%, 05/15/05.... 260,937
250,000 National Rural Utilities,
Collateral Trust 5.75%, 11/01/08.... 250,000
250,000 Potomac Electric Power Co.
First Mortgage
6.50%, 09/15/05..................... 262,812
250,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07..................... 260,000
-----------
1,033,749
-----------
Technology - 1.05%
100,000 International Business Machines Corp.
6.22%, 08/01/27..................... 106,125
500,000 International Business Machines Corp.
Senior Note
6.38% 06/15/00...................... 508,750
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
Asset Allocation Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Technology (continued)
$ 100,000 Lucent Technologies
5.50%, 11/15/08..................... $ 100,750
100,000 Xerox Corp.
7.20%, 04/01/16..................... 109,750
-----------
825,375
-----------
Industrial - 0.84%
280,000 Boeing Co.
8.88%, 09/15/99..................... 287,000
250,000 ICI Wilmington, Inc.
6.95%, 09/15/04..................... 257,813
100,000 Parker Hannifan Corp.
7.30%, 05/15/11..................... 114,875
-----------
659,688
-----------
Merchandising and Retail - 0.80%
100,000 The May Department Stores Co.
7.45%, 10/15/16..................... 111,375
250,000 Rite Aid Corp.
6.70%, 12/15/01..................... 257,500
250,000 Wal-Mart Stores, Senior Note
6.75%, 05/15/02..................... 262,500
-----------
631,375
-----------
Oil, Gas and Petroleum - 0.72%
200,000 Occidental Petroleum Corp., MTN
6.75%, 09/16/99..................... 201,500
200,000 Phillips Petroleum Co., Debenture
9.38%, 02/15/11..................... 261,250
100,000 Union Oil Co. of California, MTN
Guaranteed: Unocal Corp.
6.70%, 10/15/07..................... 101,250
-----------
564,000
-----------
Telecommunications - 0.39%
300,000 Northern Telecom, Ltd.
Yankee Note
6.00%, 09/01/03..................... 306,000
-----------
Basic Materials - 0.32%
250,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28..................... 252,187
-----------
Transportation - 0.26%
$ 200,000 Burlington Northern Santa Fe Corp.
Debenture
6.88%, 02/15/16..................... $ 208,500
-----------
Total Corporate Notes and Bonds..... 15,785,354
(Cost $15,422,419) -----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 18.78%
U.S. Treasury Bonds - 8.25%
205,000 12.00%, 08/15/13.................... 313,045
1,250,000 7.50%, 11/15/16..................... 1,553,263
100,000 7.88%, 02/15/21..................... 131,560
250,000 8.00%, 11/15/21..................... 334,337
450,000 7.25%, 08/15/22..................... 559,620
450,000 7.63%, 11/15/22..................... 584,829
400,000 7.13%, 02/15/23..................... 492,387
1,740,000 6.50%, 11/15/26..................... 2,027,953
425,000 6.38%, 08/15/27..................... 487,730
-----------
6,484,724
-----------
U.S. Treasury Notes - 6.36%
250,000 5.88%, 11/30/01..................... 258,560
550,000 5.50%, 02/28/03..................... 566,594
245,000 5.75%, 04/30/03..................... 255,030
750,000 5.75%, 08/15/03..................... 783,548
1,050,000 7.50%, 02/15/05..................... 1,202,785
900,000 7.00%, 07/15/06..................... 1,027,530
360,000 6.50%, 10/15/06..................... 400,532
500,000 4.75%, 11/15/08..................... 503,890
-----------
4,998,469
-----------
Government National
Mortgage Association - 1.76%
493,263 6.50%, 05/15/13, Pool #473566....... 502,512
50,039 7.00%, 11/15/13, Pool #780921....... 51,274
53,424 9.00%, 12/15/17, Pool #780201....... 57,380
266,535 6.50%, 05/15/24, Pool #780168....... 269,449
248,337 7.00%, 12/15/27, Pool #461177....... 254,079
245,917 7.00%, 04/15/28, Pool #780773....... 251,679
-----------
1,386,373
-----------
Federal National
Mortgage Association - 1.21%
745,522 7.00%, 12/01/12, Pool #251339....... 761,365
100,000 8.18%, 04/15/24, MTN................ 100,829
87,786 6.50%, 02/01/27, Pool #371680....... 88,389
-----------
950,583
-----------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
Asset Allocation Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Other Government Agency Bonds - 0.68%
$ 500,000 A.I.D. Israel, Series 8-C
Guaranteed: U.S. Government
6.63%, 08/15/03..................... $ 533,250
-----------
Federal Home Loan
Mortgage Corporation - 0.52%
204,273 7.00%, 01/01/27, Pool #D77482, Gold. 208,295
200,000 6.50%, 12/01/28, Pool #C18811....... 201,500
-----------
409,795
-----------
Total U.S. Government and
Agency Obligations.................. 14,763,194
(Cost $14,242,055) -----------
ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES - 0.64%
250,000 Discover Card Master Trust
Series 1998-4, Class A
5.75%, 10/16/03..................... 252,597
150,000 First USA Credit Card Master Trust
Series 1998-9, Class A
5.28%, 09/18/06..................... 149,016
29,863 NationsBank Auto Owner Trust
Series 1996-A, Class A3
6.38%, 07/15/00..................... 29,909
67,308 Rural Housing Trust, CMO
Series 1987-1, Class D
6.33%, 04/01/26..................... 67,675
-----------
Total Asset-Backed and
Mortgage-Backed Securities.......... 499,197
(Cost $494,473) -----------
Value
Shares (Note 2)
--------- --------
CONVERTIBLE PREFERRED STOCK - 0.20%
3,000 Loral Space and
Communications, Ltd., 6.00% (A)..... $ 156,750
-----------
Total Convertible Preferred Stock... 156,750
(Cost $162,772) -----------
Par Value
---------
REPURCHASE AGREEMENT - 10.36%
$ 8,145,000 Chase Manhattan Bank
4.50%, 01/04/99, dated 12/31/98
Repurchase Price $8,149,072
(Collateralized by U.S. Treasury Note
9.25%, due 02/15/16;
Total Par $5,660,000
Market Value $8,341,298)............ 8,145,000
-----------
Total Repurchase Agreement.......... 8,145,000
(Cost $8,145,000) -----------
Total Investments - 99.25%.......................... 77,995,965
(Cost $64,675,301) -----------
Net Other Assets and Liabilities - 0.75%............ 590,039
-----------
Net Assets - 100.00%................................ $78,586,004
===========
</TABLE>
- ------------------------------------------------------------------
* Non-income producing security.
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. This security may only be resold, in a transaction exempt
from registration, to qualified institutional buyers. At December 31, 1998,
this security amounted to $156,750 or 0.20% of total net assets.
ADR American Depositary Receipt
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
25
<PAGE>
High Quality Bond Fund
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 66.50%
U.S. Treasury Bonds - 23.94%
$ 200,000 10.75%, 08/15/05.................... $ 266,870
150,000 12.00%, 08/15/13.................... 229,058
150,000 13.25%, 05/15/14.................... 248,268
415,000 7.50%, 11/15/16..................... 515,683
325,000 7.88%, 02/15/21..................... 427,570
200,000 8.13%, 08/15/21..................... 270,982
400,000 8.00%, 11/15/21..................... 534,940
675,000 7.25%, 08/15/22..................... 839,430
250,000 7.13%, 02/15/23..................... 307,743
500,000 6.50%, 11/15/26..................... 582,745
945,000 6.38%, 08/15/27..................... 1,084,482
240,000 6.13%, 11/15/27..................... 268,315
-----------
5,576,086
-----------
U.S. Treasury Notes - 22.30%
250,000 5.38%, 01/31/00..................... 251,995
350,000 5.50%, 03/31/00..................... 353,671
505,000 5.63%, 04/30/00..................... 511,262
100,000 6.25%, 08/31/00..................... 102,556
350,000 6.38%, 09/30/01..................... 365,586
75,000 5.88%, 11/30/01..................... 77,568
100,000 7.50%, 05/15/02..................... 108,702
350,000 5.50%, 03/31/03..................... 360,612
500,000 5.75%, 08/15/03..................... 522,365
450,000 5.88%, 02/15/04..................... 475,015
150,000 7.25%, 05/15/04..................... 168,081
450,000 7.00%, 07/15/06..................... 513,765
175,000 6.50%, 10/15/06..................... 194,703
300,000 6.25%, 02/15/07..................... 329,988
300,000 6.63%, 05/15/07..................... 338,202
475,000 6.13%, 08/15/07..................... 519,997
-----------
5,194,068
-----------
Federal National
Mortgage Association - 6.03%
700,000 5.10%, 09/25/00, MTN................ 702,345
500,000 7.55%, 06/10/04, Series SM-2004-F... 505,200
191,285 7.00%, 12/01/12, Pool # 251339...... 195,350
-----------
1,402,895
-----------
Government National
Mortgage Association - 5.54%
248,322 6.50%, 10/15/13, Pool # 446759...... 252,978
346,583 7.00%, 07/20/22, Pool # 008022 (C).. 352,215
278,212 7.00%, 10/15/27, Pool # 780651...... 284,644
391,646 7.00%, 04/15/28, Pool # 780773...... 400,822
-----------
1,290,659
-----------
Federal Home Loan
Mortgage Corporation - 4.46%
$ 295,365 7.00%, 11/01/13, Pool # E00586...... $ 301,641
236,827 6.50%, 10/15/23, Pool # 001990...... 238,307
495,000 6.50%, 12/01/28, Pool # C00689...... 498,554
-----------
1,038,502
-----------
Other Government Agency Bonds - 2.87%
150,000 A.I.D. Israel, Series 8-C
Guaranteed: U.S. Government
6.63%, 08/15/03..................... 159,975
200,000 A.I.D. State of Israel, Series 7-A
Guaranteed: U.S. Government
5.45%, 02/15/01..................... 202,126
300,000 Tennessee Valley Authority Power Board
Class 1993, Series C
6.13%, 07/15/03..................... 306,750
-----------
668,851
-----------
U.S Treasury Strips - 1.36%
500,000 4.86%, 05/15/08 Interest only (A)... 316,920
-----------
Total U.S. Government and
Agency Obligations.................. 15,487,981
(Cost $14,974,697) -----------
CORPORATE NOTES AND BONDS - 25.36%
Consumer Staples - 6.65%
300,000 Heinz (H.J.) Co.
Euro-Dollar Debenture
5.75%, 02/03/03..................... 304,800
440,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27..................... 503,800
200,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08..................... 208,250
400,000 PepsiCo, Inc., MTN
5.75%, 01/15/08..................... 407,000
125,000 Sysco Corp., Debenture
6.50%, 08/01/28..................... 125,625
-----------
1,549,475
-----------
Finance - 8.20%
500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01..................... 511,875
500,000 Ford Motor Credit Co., Senior Note
6.50%, 02/28/02..................... 515,000
150,000 General Electric Capital Corp.
Series A, MTN
5.89%, 05/15/00..................... 152,813
400,000 Keycorp Institutional Capital Corp.
Series A
6.63%, 06/15/29
Putable 06/01/99 (B)................ 401,600
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
High Quality Bond Fund
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Finance (continued)
$ 200,000 Private Export Funding Corp.
6.49%, 07/15/07..................... $ 218,250
100,000 SunTrust Bank Atlanta
Subordinated Note, MTN
7.25%, 09/15/06..................... 109,125
-----------
1,908,663
-----------
Utilities - 5.17%
400,000 GTE Florida, Inc., Debenture, Series A
6.31%, 12/15/02..................... 414,000
500,000 National Rural Utilities
Collateral Trust
6.38%, 10/15/04..................... 530,000
100,000 National Rural Utilities
Collateral Trust
6.20%, 02/01/08..................... 103,625
150,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07..................... 156,000
-----------
1,203,625
-----------
Health Care - 3.03%
400,000 Abbott Laboratories
6.40%, 12/01/06..................... 428,500
260,000 Merck & Co., Debenture
6.40%, 03/01/28..................... 277,875
-----------
706,375
-----------
Technology - 1.44%
175,000 International Business
Machines Corp., MTN
5.95%, 06/02/03..................... 180,250
100,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27..................... 106,125
50,000 Lucent Technologies
5.50%, 11/15/08..................... 50,375
-----------
336,750
-----------
Basic Materials - 0.87%
200,000 Minnesota Mining &
Manufacturing Co., Debenture
6.38%, 02/15/28..................... 201,750
-----------
Total Corporate Notes and Bonds..... 5,906,638
(Cost $5,665,719) -----------
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 4.95%
$ 400,000 Citibank Credit Card Master Trust I
Series 1998-6
5.85%, 04/10/03..................... $ 403,872
150,000 MBNA Master Credit Card Trust
Series 1998-D, Class A
5.80%, 12/15/05..................... 152,944
256,215 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11..................... 256,374
336,540 Rural Housing Trust 1987-1
Series 1, Class D, CMO
6.33%, 04/01/26..................... 338,374
-----------
Total Asset-Backed and
Mortgage-Backed Securities.......... 1,151,564
(Cost $1,141,395) -----------
REPURCHASE AGREEMENT - 1.80%
420,000 Chase Manhattan Bank 4.50%, 01/04/99,
dated 12/31/98 Repurchase Price
$420,210 (Collateralized by U.S.
Treasury Note 9.25%, due 02/15/16;
Total Par $295,000 Market Value
$430,230)........................... 420,000
-----------
Total Repurchase Agreement ......... 420,000
(Cost $420,000) -----------
Total Investments - 98.61%.......................... 22,966,183
(Cost $22,201,811) -----------
Net Other Assets and Liabilities - 1.39%............ 322,639
-----------
Net Assets - 100.00%................................ $23,288,822
===========
</TABLE>
- --------------------------------------------------------------------------------
(A) Stripped securities represent the splitting of cash flows into interest and
principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(B) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. This security may only be resold, in a transaction exempt
from registration, to qualified institutional buyers. At December 31, 1998,
this security amounted to $401,600 or 1.72% of net assets.
(C) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. The interest rate shown reflects the rate in
effect at December 31, 1998.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
27
<PAGE>
Columbia High Yield Fund II
THE GALAXY PORTFOLIO OF INVESTMENTS
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
CORPORATE NOTES AND BONDS - 96.10%
Capital Goods - 28.19%
$ 100,000 AES Corp.
Senior Subordinated Notes
8.38%, 08/15/07..................... $ 99,750
15,000 Aviation Sales
Senior Subordinated Notes
8.13%, 02/15/08 (A)................. 14,887
40,000 Federal-Mogul Corp.
7.75%, 07/01/06..................... 40,200
35,000 Hayes Wheels International, Inc.
Series B
9.13%, 07/15/07..................... 36,400
100,000 Newpark Resources, Inc.
Series B
8.63%, 12/15/07..................... 100,000
40,000 Rental Services Corp.
Senior Subordinated Notes
9.00%, 05/15/08 (A)................. 39,850
35,000 Silgan Holdings, Inc.
Senior Subordinated Debentures
9.00%, 06/01/09..................... 35,875
100,000 Titan Wheel International, Inc.
Senior Subordinated Notes
8.75%, 04/01/07..................... 96,250
100,000 United Stationers Supply
Senior Subordinated Notes
8.38%, 04/15/08 (A)................. 100,375
100,000 Westpoint Stevens, Inc.
Senior Notes
7.88%, 06/15/05 (A)................. 102,750
25,000 Wyman-Gordon Co.
Senior Notes
8.00%, 12/15/07..................... 25,313
-----------
691,650
-----------
Communication - 23.39%
35,000 Adelphia Communications
Senior Notes, Series B
10.50%, 07/15/04.................... 38,325
140,000 Century Communications
Senior Notes
8.64%, 03/15/03 (B)................. 103,600
35,000 Comcast Corp.
Senior Subordinated Debentures
9.50%, 01/15/08..................... 37,100
25,000 Jacor Communications Co.
Series B
8.75%, 06/15/07..................... 26,281
25,000 Jones Intercable, Inc.
Senior Notes
8.88%, 04/01/07..................... 27,188
50,000 Lenfest Communications
Senior Notes
8.38%, 11/01/05..................... 54,125
Communication (continued)
$ 100,000 Level 3 Communications, Inc.
Senior Notes
9.13%, 05/01/08 (A)................. $ 99,500
50,000 Nextlink Communications
Senior Discount Note
9.45%, (0% until 2003) 04/15/08 (A). 28,625
100,000 Sinclair Broadcasting Group
Senior Subordinated Notes
8.75%, 12/15/07..................... 101,000
50,000 Unisys Corp.
Senior Notes
11.75%, 10/15/04.................... 58,125
-----------
573,869
-----------
Consumer Cyclical - 22.33%
100,000 Hollinger International Publishing
8.63%, 03/15/05..................... 106,125
115,000 Lamar Advertising Co.
9.63%, 12/01/06..................... 124,631
50,000 Nortek, Inc.
Senior Notes
8.88%, 08/01/08 (A)................. 50,875
100,000 Outdoor Systems, Inc.
Senior Subordinated Notes
9.38%, 10/15/06..................... 108,375
50,000 Protection One Alarm
Senior Notes
7.38%, 08/15/05 (A)................. 51,750
10,000 Specialty Retailers, Inc.
Series B
8.50%, 07/15/05..................... 9,000
100,000 Zale Corp.
Senior Notes, Series B
8.50%, 10/01/07..................... 97,250
-----------
548,006
-----------
Utilities - 6.72%
15,000 CMS Energy Corp.
Coupon Pass-Through Certificates
7.00%, 01/15/05..................... 15,169
100,000 Flag, Ltd.
Senior Notes
8.25%, 01/30/08 (A)................. 98,750
50,000 Niagara Mohawk Power
Senior Notes, Series D
7.25%, 10/01/02..................... 50,938
-----------
164,857
-----------
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Columbia High Yield Fund II
THE GALAXY PORTFOLIO OF INVESTMENTS (continued)
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------- --------
<S> <C> <C>
Health Care - 6.60%
$ 40,000 Conmed Corp.
9.00%, 03/15/08..................... $ 38,950
35,000 HEALTHSOUTH Corp.
Senior Subordinated Notes
9.50%, 04/01/01..................... 36,269
25,000 Quorum Health Group, Inc.
Senior Subordinated Notes
8.75%, 11/01/05..................... 24,500
10,000 Tenet Healthcare Corp.
Senior Notes
8.63%, 12/01/03..................... 10,475
50,000 Tenet Healthcare Corp.
Senior Subordinated Notes
8.13%, 12/01/08 (A)................. 51,812
-----------
162,006
-----------
Basic Materials - 4.68%
100,000 Ball Corp.
Senior Notes
7.75%, 08/01/06 (A)................. 105,250
10,000 Webb (Del E.)
Senior Subordinated Debentures
9.00%, 02/15/06..................... 9,725
-----------
114,975
-----------
Consumer Staples - 3.17%
25,000 Cinemark USA, Inc.
Senior Subordinated Notes, Series B
9.63%, 08/01/08..................... 26,250
50,000 Purina Mills, Inc.
Senior Subordinated Notes
9.00%, 03/15/10 (A)................. 51,500
-----------
77,750
-----------
Transportation - 1.02%
25,000 Teekay Shipping Corp.
Yankee Notes
8.32%, 02/01/08..................... 24,906
-----------
Total Corporate Notes and Bonds..... 2,358,019
(Cost $2,299,224) -----------
Value
Shares (Note 2)
------- --------
INVESTMENT COMPANY - 2.12%
52,077 Vista U.S. Government Money Market.. $ 52,077
-----------
Total Investment Company............ 52,077
(Cost $52,077) -----------
Total Investments - 98.22%.......................... 2,410,096
(Cost $2,351,301) -----------
Net Other Assets and Liabilities - 1.78%............ 43,598
-----------
Net Assets - 100.00%................................ $ 2,453,694
===========
</TABLE>
- --------------------------------------------------------------------------------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may only be resold, in transactions
exempt from registration, to qualified institutional buyers. At December
31, 1998, these securities amounted to $795,924 or 32.44% of net assets.
(B) Zero Coupon Bond. Rate shown reflects effective yield to maturity at time
of purchase.
See Notes to Financial Statements.
29
<PAGE>
THE GALAXY STATEMENTS OF ASSETS AND LIABILITIES
VIP FUND December 31, 1998
<TABLE>
<CAPTION>
Money Market Equity Growth and Small Company
Fund Fund Income Fund Growth Fund
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost.................... $16,908,792 $68,259,902 $ 7,237,710 $1,012,179
Repurchase Agreement................... -- 995,000 -- --
Net unrealized appreciation (depreciation) -- 23,431,754 411,168 61,114
----------- ----------- ----------- ----------
Total investments at value........... 16,908,792 92,686,656 7,648,878 1,073,293
Cash..................................... 843 24,528 726,730 29,534
Receivable for investments sold.......... -- -- -- 30,355
Receivable for shares sold............... -- -- -- 1,666
Interest and dividend receivable......... -- 46,815 10,093 35
Receivable from Investment Advisor (Note 4) -- -- 6,883 22,792
Deferred organizational expense (Note 2). -- -- 9,176 9,441
----------- ----------- ----------- ----------
Total Assets........................... 16,909,635 92,757,999 8,401,760 1,167,116
----------- ----------- ----------- ----------
LIABILITIES:
Payable for investments purchased........ -- -- 726,620 6,094
Payable to custodian..................... -- -- -- --
Payable for shares repurchased........... 49,032 -- 17,485 --
Advisory fee payable (Notes 3 & 4)....... 2,193 56,867 -- --
Payable to Administrator (Notes 3 & 4)... 817 6,358 2,234 150
Trustees' fees and expenses payable (Note 3) 2,387 2,236 103 84
Accrued expenses and other payables...... 33,966 72,632 18,568 18,115
----------- ----------- ----------- ----------
Total Liabilities...................... 88,395 138,093 765,010 24,443
----------- ----------- ----------- ----------
NET ASSETS.................................. $16,821,240 $92,619,906 $ 7,636,750 $1,142,673
=========== =========== =========== ==========
NET ASSETS consist of:
Par value (Note 5)....................... $ 16,821 $ 4,824 $ 739 $ 128
Paid-in capital in excess of par value... 16,804,259 68,015,141 7,252,839 1,153,577
Undistributed (overdistributed) net
investment income...................... 263 -- -- --
Accumulated net realized gain (loss)
on investments sold.................... (103) 1,168,187 (27,996) (72,146)
Net unrealized appreciation (depreciation)
of investments......................... -- 23,431,754 411,168 61,114
----------- ----------- ----------- ----------
TOTAL NET ASSETS............................ $16,821,240 $92,619,906 $ 7,636,750 $1,142,673
=========== ============ =========== ==========
Shares of beneficial interest outstanding... 16,821,080 4,823,679 738,837 128,033
NET ASSET VALUE:
offering and redemption price per share
(Net Assets / Shares Outstanding)........ $ 1.00 $ 19.20 $ 10.34 $ 8.92
=========== =========== =========== ==========
</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>
$852,410 $56,530,301 $21,781,811 $2,351,301
-- 8,145,000 420,000 --
(79,468) 13,320,664 764,372 58,795
-------- ----------- ----------- ----------
772,942 77,995,965 22,966,183 2,410,096
7,195 162,881 2,537 --
-- -- -- --
9,576 57 3,414 4,576
5,695 526,242 346,911 45,815
3,597 -- -- 1,877
9,170 -- -- 9,170
-------- ----------- ----------- ----------
808,175 78,685,145 23,319,045 2,471,534
-------- ----------- ----------- ----------
7,180 -- -- --
-- -- -- 262
-- 75 185 --
-- 48,208 175 --
2,276 9,530 2,754 1,040
85 1,878 2,430 89
14,618 39,450 24,679 16,449
-------- ----------- ----------- ----------
24,159 99,141 30,223 17,840
-------- ----------- ----------- ----------
$784,016 $78,586,004 $23,288,822 $2,453,694
======== =========== =========== ==========
$ 89 $ 4,800 $ 2,176 $ 237
861,761 65,513,941 22,500,758 2,389,725
3,141 -- 5,159 1,854
(1,507) (253,401) 16,357 3,083
(79,468) 13,320,664 764,372 58,795
-------- ----------- ----------- ----------
$784,016 $78,586,004 $23,288,822 $2,453,694
======== =========== =========== ==========
89,245 4,799,857 2,175,866 236,838
$ 8.78 $ 16.37 $ 10.70 $ 10.36
======== =========== =========== ==========
</TABLE>
31
<PAGE>
THE GALAXY STATEMENTS OF OPERATIONS
VIP FUND For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Money Market Equity Growth and Small Company
Fund Fund Income Fund(1) Growth Fund(2)
----------- ------------- ----------- ----------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest (Note 2) ......................... $ 906,755 $ 636,826 $ 26,966 $ 4,155
Dividends (Note 2) ......................... -- 696,302 49,588 553
----------- ------------- ----------- ----------
Total investment income .................. 906,755 1,333,128 76,554 4,708
----------- ------------- ----------- ----------
EXPENSES:
Investment advisory fees (Note 3) .......... 65,950 601,685 26,269 3,708
Administration fees (Note 3) ............... 14,014 68,191 2,977 423
Custody fees ............................... 19,395 16,011 17,625 20,493
Fund accounting fees (Note 3) .............. 25,651 37,615 21,787 21,501
Legal fees ................................. 13,172 58,790 4,880 3,356
Audit fees ................................. 11,867 12,107 10,443 9,750
Trustees' fees (Note 3) .................... 370 1,638 134 85
Amortization of organization costs (Note 2) 293 133 1,824 1,559
Reports to shareholders .................... 10,068 45,631 4,193 2,932
Miscellaneous .............................. 523 2,218 209 136
----------- ------------- ----------- ----------
Total expenses before reimbursement/waiver 161,303 844,019 90,341 63,943
Less: reimbursement/waiver (Note 4) ...... (71,119) -- (37,806) (55,990)
----------- ------------- ----------- ----------
Total expenses net of reimbursement/waiver 90,184 844,019 52,535 7,953
----------- ------------- ----------- ----------
NET INVESTMENT INCOME (LOSS) .................. 816,571 489,109 24,019 (3,245)
----------- ------------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold -- 19,517,742 (27,996) (72,146)
Net change in unrealized
appreciation (depreciation) of investments . -- (2,709,366) 411,168 61,114
----------- ------------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .................... -- 16,808,376 383,172 (11,032)
----------- ------------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 816,571 $ 17,297,485 $ 407,191 $ (14,277)
=========== ============= =========== ==========
</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>
$ 3,265 $ 1,984,199 $1,080,214 $102,581
26,598 318,493 -- 1,898
-------- ----------- ---------- --------
29,863 2,302,692 1,080,214 104,479
-------- ----------- ---------- --------
3,545 458,849 97,551 8,055
402 52,003 15,078 1,141
8,088 23,159 15,905 8,173
21,987 38,668 30,642 22,533
2,219 38,237 12,639 3,707
10,719 12,107 13,164 10,694
90 1,108 362 99
1,830 329 186 1,830
576 30,025 9,847 708
144 1,530 509 156
-------- ----------- ---------- --------
49,600 656,015 195,883 57,096
(41,560) -- (100,843) (35,619)
-------- ----------- ---------- --------
8,040 656,015 95,040 21,477
-------- ----------- ---------- --------
21,823 1,646,677 985,174 83,002
-------- ----------- ---------- --------
(1,622) 668,851 273,906 26,477
(79,468) 7,770,082 394,647 58,795
-------- ----------- ---------- --------
(81,090) 8,438,933 668,553 85,272
-------- ----------- ---------- --------
$(59,267) $10,085,610 $1,653,727 $168,274
======== =========== ========== ========
</TABLE>
33
<PAGE>
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,
1998 1997 1998 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 (loss) 816,571 753,999 489,109 704,278
Net realized gain (loss) on investments sold -- 5 19,517,742 95,675
Net change in unrealized appreciation
(depreciation) of investments -- -- (2,709,366) 12,942,969
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 816,571 754,004 17,297,485 13,742,922
------------ ----------- ----------- -----------
Dividends to shareholders from:
Net investment income (816,592) (753,999) (505,469) (687,918)
In excess of net investment income -- -- -- --
Net realized gain on investments -- -- (18,138,988) --
In excess of net realized gain on investments -- -- -- --
------------ ----------- ----------- -----------
Total Dividends (816,592) (753,999) (18,644,457) (687,918)
------------ ----------- ----------- -----------
Share Transactions:
Net proceeds from sale of shares 12,419,269 7,556,021 12,269,094 13,908,741
Issued to shareholders in reinvestment of
dividends 816,592 753,997 18,644,457 687,918
Cost of shares repurchased (11,744,505) (9,275,409) (6,809,634) (4,030,553)
------------ ----------- ----------- -----------
Net increase (decrease) from share
transactions 1,491,356 (965,391) 24,103,917 10,566,106
------------ ----------- ----------- -----------
Net increase (decrease) in net assets 1,491,335 (965,386) 22,756,945 23,621,110
------------ ----------- ----------- -----------
NET ASSETS at end of period
(including line A) $ 16,821,240 $15,329,905 $92,619,906 $69,862,961
============ =========== =========== ===========
(A) Undistributed (overdistributed) net
investment income $ 263 $ 284 $ -- $ 16,360
============ =========== =========== ===========
OTHER INFORMATION:
Share Transactions:
Sold 12,419,269 7,556,021 581,676 765,837
Issued to shareholders in reinvestment of
dividends 816,592 753,997 1,012,617 37,145
Repurchased (11,744,505) (9,275,409) (321,065) (221,254)
------------ ----------- ----------- -----------
Net increase (decrease) in shares outstanding 1,491,356 (965,391) 1,273,228 581,728
============ =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on March 4, 1998.
(2) The Fund commenced operations on April 17, 1998.
(3) The Fund commenced operations 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 Years ended
December 31, December 31, December 31, December 31,
1998 1998 1998 1998 1997
- --------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
$ 10(a) $ 10(a) $250,000(a) $42,535,206 $24,114,119
---------- ---------- -------- ----------- -----------
24,019 (3,245) 21,823 1,646,677 912,010
(27,996) (72,146) (1,622) 668,851 2,548,910
411,168 61,114 (79,468) 7,770,082 1,884,101
---------- ---------- -------- ----------- -----------
407,191 (14,277) (59,267) 10,085,610 5,345,021
---------- ---------- -------- ----------- -----------
(24,019) -- (20,397) (1,658,095) (897,607)
(2,926) (666) -- (7,406) --
-- -- -- (954,596) (2,452,737)
-- -- -- (241,887) --
---------- ---------- -------- ----------- -----------
(26,945) (666) (20,397) (2,861,984) (3,350,344)
---------- ---------- -------- ----------- -----------
7,580,935 1,167,022 643,056 29,289,514 15,999,740
26,945 666 20,397 2,861,984 3,350,344
(351,386) (10,082) (49,773) (3,324,326) (2,923,674)
---------- ---------- -------- ----------- -----------
7,256,494 1,157,606 613,680 28,827,172 16,426,410
---------- ---------- -------- ----------- -----------
7,636,740 1,142,663 534,016 36,050,798 18,421,087
---------- ---------- -------- ----------- -----------
$7,636,750 $1,142,673 $784,016 $78,586,004 $42,535,206
========== ========== ======== =========== ===========
$ -- $ -- $ 3,141 $ -- $ 14,468
========== ========== ======== =========== ===========
773,404 129,312 67,305 1,909,181 1,090,906
2,801 73 2,377 182,716 232,254
(37,369) (1,353) (5,437) (217,344) (201,877)
---------- ---------- -------- ----------- -----------
738,836 128,032 64,245 1,874,553 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)
----------------------------------- ------------------
Years ended Period ended
December 31, December 31,
1998 1997 1998
---------------- --------------- ------------------
<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.................................... 985,174 698,478 83,002
Net realized gain on investments sold.................... 273,906 115,244 26,477
Net change in unrealized appreciation of investments..... 394,647 271,208 58,795
------------ ----------- -----------
Net increase in net assets
resulting from operations....................... 1,653,727 1,084,930 168,274
------------ ----------- -----------
Dividends to shareholders from:
Net investment income.................................... (985,105) (698,466) (82,994)
Net realized gain on investments......................... -- -- (23,378)
------------ ----------- -----------
Total Dividends...................................... (985,105) (698,466) (106,372)
------------ ----------- -----------
Share Transactions:
Net proceeds from sale of shares......................... 8,645,811 3,442,357 2,822,796
Issued to shareholders in reinvestment of dividends...... 985,105 698,466 106,372
Cost of shares repurchased............................... (1,467,842) (1,884,226) (787,376)
------------ ----------- -----------
Net increase from share transactions................. 8,163,074 2,256,597 2,141,792
------------ ----------- -----------
Net increase in net assets........................... 8,831,696 2,643,061 2,203,694
------------ ----------- -----------
NET ASSETS at end of period (including line A)................ $ 23,288,822 $14,457,126 $ 2,453,694
============ =========== ===========
(A) Undistributed net investment income....................... $ 5,159 $ 4,934 $ 1,854
============ =========== ===========
OTHER INFORMATION:
Share Transactions:
Sold..................................................... 817,807 338,747 278,284
Issued to shareholders in reinvestment of dividends...... 93,544 69,508 10,351
Repurchased.............................................. (137,176) (188,923) (76,797)
------------ ----------- -----------
Net increase in shares outstanding................... 774,175 219,332 211,838
============ =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on March 3, 1998.
(a) Amount represents initial seed money.
See Notes to Financial Statements
36
<PAGE>
Money Market Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<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 0.05 0.04
Net realized and unrealized
gain (loss) on investments............... -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Operations......... 0.05 0.05 0.05 0.05 0.04
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income....... (0.05) (0.05) (0.05) (0.05) (0.04)
Dividends from net realized capital gains.. -- -- -- -- --
------- ------- ------- ------- -------
Total Dividends.......................... (0.05) (0.05) (0.05) (0.05) (0.04)
------- ------- ------- ------- -------
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 ................................. 5.16% 4.99% 4.91% 5.38% 3.89%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............. $16,821 $15,330 $16,295 $17,925 $13,276
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 4.95% 4.88% 4.80% 5.25% 3.85%
Operating expenses including
reimbursement/waiver..................... 0.55% 0.67% 0.60% 0.63% 0.42%
Operating expenses excluding
reimbursement/waiver..................... 0.98% 1.12% 1.02% 1.11% 1.21%
</TABLE>
- --------------------------------------------------------------------------------
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended December 31,
1998, 1997, 1996, 1995 and 1994 was $0.05, $0.05, $0.05, $0.05 and $0.03,
respectively.
See Notes to Financial Statements
37
<PAGE>
Equity Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.68 $15.58 $12.99 $10.40 $10.25
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) 0.13 0.21 0.19 0.18 0.20
Net realized and unrealized
gain on investments 4.25 4.10 2.59 2.59 0.15
------- ------- ------- ------- -------
Total from Investment Operations 4.38 4.31 2.78 2.77 0.35
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income (0.13) (0.21) (0.19) (0.18) (0.20)
Dividends from net realized capital gains (4.73) -- -- -- --
------- ------- ------- ------- -------
Total Dividends (4.86) (0.21) (0.19) (0.18) (0.20)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value (0.48) 4.10 2.59 2.59 0.15
------- ------- ------- ------- -------
Net Asset Value, End of Period $19.20 $19.68 $15.58 $12.99 $10.40
======= ======= ======= ======= =======
Total Return 23.52% 27.74% 21.49% 26.76% 3.47%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $92,620 $69,863 $46,242 $30,826 $19,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver 0.61% 1.20% 1.34% 1.55% 2.06%
Operating expenses including
reimbursement/waiver 1.05% 1.08% 1.10% 1.21% 0.71%
Operating expenses excluding
reimbursement/waiver 1.05% 1.08% 1.10% 1.24% 1.42%
Portfolio Turnover Rate 75% 1% 8% 3% 2%
</TABLE>
- --------------------------------------------------------------------------------
(A) Net investment income per share before reimbursement/waiver of fees by
the Investment Advisor and/or Administrator for the years ended December
31, 1998, 1997, 1996, 1995 and 1994 was $0.13, $0.21, $0.19, $0.18 and
$0.13, respectively.
See Notes to Financial Statements
38
<PAGE>
Growth and Income Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
December 31,
1998(1)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $10.00
------
Income from Investment Operations:
Net investment income (A).................................. 0.05
Net realized and unrealized gain on investments............ 0.34
------
Total from Investment Operations......................... 0.39
------
Less Dividends:
Dividends from net investment income....................... (0.05)
Dividends in excess of net investment income............... --(2)
Dividends from net realized capital gains.................. --
------
Total Dividends.......................................... (0.05)
------
Net increase in net asset value............................... 0.34
------
Net Asset Value, End of Period................................ $10.34
======
Total Return ................................................. 3.72%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $7,637
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 0.69%*
Operating expenses including reimbursement/waiver.......... 1.50%*
Operating expenses excluding reimbursement/waiver.......... 2.58%*
Portfolio Turnover Rate....................................... 30%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 4, 1998.
(2) Amount is less than $0.005 per share.
(A) Net investment (loss) per share before reimbursement/waiver of fees by the
Investment Advisor and/or Adminstrator for the period ended December 31,
1998 was $(0.03).
See Notes to Financial Statements
39
<PAGE>
Small Company Growth Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
December 31,
1998(1)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $10.00
-------
Income from Investment Operations:
Net investment (loss) (A).................................. (0.02)
Net realized and unrealized (loss) on investments.......... (1.05)
-------
Total from Investment Operations......................... (1.07)
-------
Less Dividends:
Dividends from net investment income....................... --
Dividends in excess of net investment income............... (0.01)
Dividends from net realized capital gains.................. --
-------
Total Dividends.......................................... (0.01)
-------
Net (decrease) in net asset value............................. (1.08)
-------
Net Asset Value, End of Period................................ $ 8.92
=======
Total Return ................................................. (10.68)%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $1,143
Ratios to average net assets:
Net investment (loss) including reimbursement/waiver....... (0.65)%*
Operating expenses including reimbursement/waiver.......... 1.60%*
Operating expenses excluding reimbursement/waiver.......... 12.86%*
Portfolio Turnover Rate....................................... 87%**
</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 December 31,
1998 was $(0.36).
See Notes to Financial Statements
40
<PAGE>
Columbia Real Estate Equity Fund II
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
December 31,
1998(1)
--------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $10.00
-------
Income from Investment Operations:
Net investment income (A).................................. 0.28
Net realized and unrealized (loss) on investments.......... (1.24)
-------
Total from Investment Operations......................... (0.96)
-------
Less Dividends:
Dividends from net investment income....................... (0.26)
Dividends from net realized capital gains.................. --
-------
Total Dividends.......................................... (0.26)
-------
Net (decrease) in net asset value............................. (1.22)
-------
Net Asset Value, End of Period................................ $ 8.78
=======
Total Return ................................................. (9.57)%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $ 784
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 4.62%*
Operating expenses including reimbursement/waiver.......... 1.70%*
Operating expenses excluding reimbursement/waiver.......... 10.49%*
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 December 31,
1998 was $(0.26).
See Notes to Financial Statements
41
<PAGE>
Asset Allocation Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.54 $ 13.37 $ 12.38 $ 9.80 $ 10.33
----------- ----------- ----------- ----------- -----------
Income from Investment Operations:
Net investment income (A) 0.33 0.40 0.30 0.28 0.31
Net realized and unrealized
gain (loss) on investments 2.17 2.11 1.53 2.58 (0.53)
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 2.50 2.51 1.83 2.86 (0.22)
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment income (0.39) (0.40) (0.30) (0.28) (0.31)
Dividends in excess of net investment income --(1) -- -- -- --
Dividends from net realized capital gains (0.22) (0.94) (0.54) -- --
Dividends in excess of net realized capital gains (0.06) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Dividends (0.67) (1.34) (0.84) (0.28) (0.31)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset value 1.83 1.17 0.99 2.58 (0.53)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 16.37 $ 14.54 $ 13.37 $ 12.38 $ 9.80
=========== =========== =========== =========== ===========
Total Return 17.51% 19.03% 14.64% 29.42% (2.15)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $78,586 $42,535 $24,114 $17,246 $10,572
Ratios to average net assets:
Net investment income including
reimbursement/waiver 2.69% 2.90% 2.31% 2.54% 3.02%
Operating expenses including
reimbursement/waiver 1.07% 1.19% 1.33% 1.37% 0.78%
Operating expenses excluding
reimbursement/waiver 1.07% 1.25% 1.33% 1.54% 1.68%
Portfolio Turnover Rate 88% 74% 45% 46% 28%
</TABLE>
- --------------------------------------------------------------------------------
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended December 31,
1998, 1997, 1996, 1995 and 1994 was $0.33, $0.39, $0.30, $0.26 and $0.22,
respectively.
(1) Amount is less than $0.005.
See Notes to Financial Statements
42
<PAGE>
High Quality Bond Fund
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $ 10.31 $ 9.99 $ 10.37 $ 8.97 $10.11
--------- --------- --------- --------- -------
Income from Investment Operations:
Net investment income (A)......................... 0.58 0.58 0.58 0.57 0.56
Net realized and unrealized
gain (loss) on investments...................... 0.39 0.32 (0.38) 1.40 (1.14)
--------- --------- --------- --------- -------
Total from Investment Operations................ 0.97 0.90 0.20 1.97 (0.58)
--------- --------- --------- --------- -------
Less Dividends:
Dividends from net investment income.............. (0.58) (0.58) (0.58) (0.57) (0.56)
Dividends from net realized capital gains......... -- -- -- -- --
--------- --------- --------- --------- -------
Total Dividends................................. (0.58) (0.58) (0.58) (0.57) (0.56)
--------- --------- --------- --------- -------
Net increase (decrease) in net asset value........... 0.39 0.32 (0.38) 1.40 (1.14)
--------- --------- --------- --------- -------
Net Asset Value, End of Period....................... $ 10.70 $ 10.31 $ 9.99 $ 10.37 $ 8.97
========= ========= ========= ========= =======
Total Return ........................................ 9.70% 9.36% 1.57% 22.55% (5.85)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................... $23,289 $14,457 $11,814 $11,067 $8,012
Ratios to average net assets:
Net investment income including
reimbursement/waiver............................ 5.55% 5.82% 5.78% 5.86% 5.90%
Operating expenses including
reimbursement/waiver............................ 0.54% 0.77% 0.72% 0.80% 0.57%
Operating expenses excluding
reimbursement/waiver............................ 1.10% 1.44% 1.38% 1.57% 1.63%
Portfolio Turnover Rate.............................. 194% 160% 132% 21% 32%
</TABLE>
- --------------------------------------------------------------------------------
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended December 31,
1998, 1997, 1996, 1995 and 1994 was $0.52, $0.51, $0.51, $0.50 and $0.46,
respectively.
See Notes to Financial Statements
43
<PAGE>
Columbia High Yield Fund II
THE GALAXY FINANCIAL HIGHLIGHTS
VIP FUND For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
Period ended
December 31,
1998(1)
------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $10.00
-------
Income from Investment Operations:
Net investment income (A).................................. 0.49
Net realized and unrealized gain on investments............ 0.45
-------
Total from Investment Operations......................... 0.94
-------
Less Dividends:
Dividends from net investment income....................... (0.49)
Dividends from net realized capital gains.................. (0.09)
-------
Total Dividends.......................................... (0.58)
-------
Net increase in net asset value............................... 0.36
-------
Net Asset Value, End of Period................................ $10.36
=======
Total Return ................................................. 9.61%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................. $2,454
Ratios to average net assets:
Net investment income including reimbursement/waiver....... 6.18%*
Operating expenses including reimbursement/waiver.......... 1.60%*
Operating expenses excluding reimbursement/waiver.......... 4.25%*
Portfolio Turnover Rate....................................... 89%**
</TABLE>
- ---------------------------------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 3, 1998.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Adminstrator for the period ended December 31,
1998 was $0.28.
See Notes to Financial Statements
44
<PAGE>
THE GALAXY NOTES TO FINANCIAL STATEMENTS
VIP FUND
1. Organization
The Galaxy VIP Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, diversified, management investment company, for the
purpose of providing a vehicle for the investment of assets of various separate
accounts established to fund variable annuity contracts and variable life
insurance policies. Currently, shares of the Trust are offered only to separate
accounts in connection with variable annuity contracts issued by American
Skandia Life Assurance Corporation and its affiliated life assurance companies.
The accompanying financial statements and financial highlights are those of the
Money Market 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 Equity 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.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions with institutions that the Fund's investment advisor has determined
are credit-worthy pursuant to guidelines established by the Trust's Board of
Trustees. Each repurchase agreement transaction is recorded at cost plus accrued
interest. Each Fund requires that the securities collateralizing a repurchase
agreement transaction be transferred to the Trust's custodian in a manner that
is intended to enable the Fund to obtain those securities in the event of a
counterparty default. The value of the collateral securities is monitored daily
to ensure that the value of the collateral, including accrued interest, equals
or exceeds the repurchase price. Repurchase agreement transactions involve
certain risks in the event of default or insolvency of the counterparty,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities, and a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert its rights.
45
<PAGE>
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS (continued)
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 securities laws. All such costs are being
amortized using the straight-line method over a period of five years beginning
with the commencement of each Fund's operation.
3. Investment Advisory, Administration and Other
Related Party Transactions
The Trust 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
iAdministrator") 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 year ended December 31, 1998 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
Pursuant to procedures adopted by the Board of Trustees
46
<PAGE>
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS (continued)
and in accordance with the 1940 Act, certain funds placed a portion of their
portfolio transactions with Quick & Reilly Institutional Trading, a division of
Fleet Securities, Inc., an affiliate of the Funds' Advisor. The commissions paid
to Quick & Reilly Institutional Trading for the period January 1, 1998 through
December 31, 1998 were as follows:
<TABLE>
<S> <C>
Equity $45,441
Growth and Income 744
Asset Allocation 16,815
</TABLE>
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 fee
waivers at any time.
For the year ended December 31, 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 $41,219 $29,900
High Quality Bond 70,943 29,900
</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 year ended
December 31, 1998, the Investment Advisors agreed to reimburse the Growth and
Income Fund, the Small Company Growth Fund, the Columbia Real Estate Equity Fund
II and the Columbia High Yield Fund II in the amounts of $37,806, $55,990,
$41,560 and $35,619, respectively.
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 December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
Fund Other Government Other Government
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity $72,608,073 $ -- $51,654,668 $ --
Growth and Income 7,758,917 -- 1,219,926 --
Small Company Growth 2,231,170 -- 468,946 --
Columbia Real Estate Equity II 823,762 -- 13,173 --
Asset Allocation 37,007,866 35,563,687 18,973,581 27,092,731
High Quality Bond 7,866,280 32,789,152 7,553,785 25,233,934
Columbia High Yield II 2,886,730 698,476 558,331 722,272
</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, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation) Net Cost
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market $ -- $ -- $ -- $16,908,792
Equity 27,076,327 (3,698,821) 23,377,506 69,309,150
Growth and Income 932,247 (522,547) 409,700 7,239,178
Small Company Growth 163,107 (106,167) 56,940 1,016,353
Columbia Real Estate Equity II 5,125 (83,879) (78,754) 851,696
Asset Allocation 14,328,058 (1,016,847) 13,311,211 64,684,754
High Quality Bond 777,553 (31,553) 746,000 22,220,183
Columbia High Yield II 74,062 (15,267) 58,795 2,351,301
</TABLE>
47
<PAGE>
THE GALAXY
VIP FUND NOTES TO FINANCIAL STATEMENTS (continued)
7. Capital Loss Carryforward
At December 31, 1998, the Funds had capital loss carry forwards as follows:
<TABLE>
<CAPTION>
Fund Amount Expiration
- ---- ------ ----------
<S> <C> <C>
Money Market $ 74 2002
29 2003
Growth and Income 26,528 2006
Small Company Growth 67,971 2006
Columbia Real Estate
Equity II 1,507 2006
</TABLE>
8. Post October Losses
Under current tax laws, certain capital losses realized after October 31 may
be deferred and treated as occuring on the first day of the following fiscal
year. For the fiscal year ended December 31, 1998, the Asset Allocation Fund
elected to defer losses occurring between November 1, 1998 and December 31, 1998
in the amount of $243,948.
9. Federal Income Tax Information (unaudited)
Distributions from long-term capital gains for the fiscal year ended December
31, 1998 were $18,104,397 and $1,169,343 for the Equity and Asset Allocation
Funds, respectively.
48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and the Board of Trustees of
The Galaxy VIP Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position 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 (eight series of The Galaxy VIP Fund) at December
31, 1998, 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. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of The Galaxy VIP Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
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<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
William Greilich
Vice President
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, guaranteed by, obligations of or
otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental 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>
[back cover]
[logo: Galaxy 4400 Computer Drive STANDARD RATE
Funds] P.O. Box 5108 U. S. POSTAGE PAID
Westborough, MA 01581-5108 PERMIT NO. 9
BOSTON, MA
(12/98) Date of first use: March 1, 1999
