Speaking at a news conference, Stoltenberg said "cuts in defense spending by European allies have practically stopped."
Aggregate defense spending by NATO's European members and Canada dropped 0.3 percent last year, just a third of the reduction the previous year, the report said.
"Over the last year, we have started to move in the right direction," Stoltenberg told reporters. "The picture is mixed, but the picture is better."
Stoltenberg said, "Last year showed how insecurity abroad can directly affect our security at home. We saw this in the brutal terrorist attacks in our cities. In the biggest refugee crisis in Europe since World War Two.
"We also saw it in Russia's continued actions in Ukraine. And its recent military build-up in Syria and the eastern Mediterranean. But last year also showed how NATO is responding."
He went on, "We implemented the greatest strengthening of our collective defense since the end of the Cold War. And cuts in defense spending among European allies have now practically stopped."
The official said, "We have visibly increased NATO's presence in the eastern part of our alliance. And to the south, we have agreed to increase the presence of AWACS early warning aircraft over Turkey, as we continue to augment Turkey's air defenses.
"We have tripled the size of the NATO Response Force to more than 40,000 troops. And at its core is our new, very high readiness 'Spearhead Force.' That is now operational. Ready within days to deploy to wherever it is needed. I was really impressed when I saw it in action at its first deployment exercise in Poland.
"We are also establishing eight force integration units or small headquarters in the eastern part of our alliance. They support planning, training and reinforcements, if needed."
Stoltenberg continued: "To combat hybrid warfare, we are improving our intelligence and early warning. Speeding up our decision-making and enhancing our cyber defenses.
"Last year, we conducted around 300 allied exercises, including the largest and most complex one in over a decade with over 36,000 troops, 140 aircraft and 60 ships from over 30 different nations. Exercise Trident Juncture took place in Spain, Portugal and Italy. A tremendous display of our capabilities and of allies' ability to work together."
Exercise activity will increase, he said.
"We will continue to step up our exercises this year, and we will remain transparent in what we do, as you can see from the exercise schedule we have posted online. Over the last two years, Russian air activity close to NATO's European airspace has increased by around 70 percent. In response, allied aircraft scrambled over 400 times to intercept Russian aircraft.
"We have made substantial progress with our new Alliance Ground Surveillance system, including the first test flight of one of our new Global Hawk drones. This system will provide real-time intelligence to our commanders in theater. And we have also made important steps for NATO's ballistic missile defense system. [Including] the arrival of two more US Aegis ships based in Spain and progress toward the activation of the missile defense facility in Romania. And this spring, we will break ground for a new site in Poland.
"This is a defensive system to protect our European allies against the real threat of ballistic missiles from outside the Euro-Atlantic area."
The report states "Five Allies now meet our guideline on spending 2 percent of GDP or more on defence.16 Allies spent more on defence in real terms in 2015.And 23 Allies increased the amount they are spending on new equipment.
"This has taken a lot of effort. But we all need to do more.
"NATO is at the forefront of the fight against international terrorism. The aim of our mission in Afghanistan has been to deny safe haven to international terrorists. We continue to train, advise and assist the Afghan Army and police. They face significant challenges, but they are holding their ground. We decided, in 2015, to maintain our current level of troops this year. And we are looking at how we can contribute to the funding of the Afghan security forces until 2020."
"Every NATO Ally is part of the Global Coalition to counter ISIL. The Coalition's high degree of interoperability is a key asset. Built through years of challenging NATO-led operations and training.
"In the western Balkans, our mission in Kosovo continues to bring much needed security and stability to a region that has been highly volatile. And in 2015, we took another important decision, which will advance stability in the western Balkans. We formally invited Montenegro to begin talks to become the 29th member of NATO."
The secretary general added, "And accession negotiations will begin in mid-February. In the east, we continue to support Ukraine, Georgia and Moldova, to better resist outside pressure. We help them in different ways to build their defense capacity, modernize their institutions and strengthen their reforms.
"In less than six months from now, allied leaders will meet at our summit in Warsaw. We will take the next steps to strengthen our defense and deterrence. We will decide on the right balance between a forward presence in the east and our ability to reinforce."
"But NATO is adapting to keep our nations safe. In 2016, and in the years ahead, NATO will remain an anchor of stability. Staying strong, open for dialogue, and working with our partners around the world."
Martin Banks covered the European Union, NATO and affairs in Belgium for Defense News.