<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1996
SECURITIES ACT FILE NO. 33-4806
INVESTMENT COMPANY ACT FILE NO. 811-4636
----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 29 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 30
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westboro, Massachusetts 01581-5108
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Neil Forrest
Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective agreement.
Registrant has previously registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933, as amended, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant's
Rule 24f-2 Notice for its fiscal year ended October 31, 1996 was filed on
December 20, 1996.
<PAGE> 2
THE GALAXY FUND
(Retail A Shares and/or Shares of the Money Market Fund,
Government Fund, U.S. Treasury Fund and
Tax-Exempt Fund and Shares of the
Connecticut Municipal Money Market
Fund, Massachusetts Municipal
Money Market Fund and Institutional
Treasury Money Market Fund and Retail B
Shares of the Money Market Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Highlights and Expense Summary
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Highlights; Investment Objectives
and Policies; Investments,
Strategies and Risks; Investment
Limitations; Description of Galaxy
and its Shares
5. Management of the Fund................... Management of the Funds; Investment
Objectives and Policies; Investment
Adviser; Authority to Act as
Investment Adviser; Administrator;
Custodian and Transfer Agent;
Expenses; Performance and Yield
Information; Miscellaneous
5A. Management's Discussion of
Fund Performance......................... Not Applicable
6. Capital Stock and Other
Securities............................... Dividends and Distributions; Taxes;
Description of Galaxy and Its
Shares; Miscellaneous
7. Purchase of Securities
Being Offered............................ How to Purchase and Redeem Shares;
Distributor; Purchase of Shares;
Purchase Procedures; Other Purchase
Information; Investor Programs
8. Redemption or
Repurchase............................... How to Purchase and Redeem Shares;
Distributor; Redemption Procedures;
Other Redemption Information;
Investor Programs
9. Pending Legal
Proceedings........................... Not Applicable
</TABLE>
-1-
<PAGE> 3
THE GALAXY FUND
(Retail A Shares of the Short-Term Bond Fund,
Intermediate Government Income Fund,
High Quality Bond Fund, Corporate Bond Fund,
Tax-Exempt Bond Fund, New York Municipal Bond Fund,
Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund, Rhode Island
Municipal Bond Fund, Equity Value Fund,
Equity Growth Fund, Equity Income Fund,
International Equity Fund, Small Company
Equity Fund, Asset Allocation Fund, Small Cap
Value Fund and Growth and Income Fund and
Retail B Shares of the Short-Term Bond Fund,
High Quality Bond Fund, Tax-Exempt
Bond Fund, Equity Value Fund, Equity
Growth Fund, Small Company Equity Fund,
Asset Allocation Fund and Growth and Income Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Highlights and Expense Summary
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Highlights; Investment Objectives
and Policies; Investment
Limitations; Description of Galaxy
and its Shares
5. Management of the Fund................... Management of the Funds; Investment
Objectives and Policies; Investment
Adviser (and Sub-Adviser); Authority
to Act as Investment Adviser;
Administrator; Custodian and
Transfer Agent; Expenses;
Performance and Yield Information;
Miscellaneous
5A. Management's Discussion of
Fund Performance......................... Not Applicable
6. Capital Stock and Other
Securities............................... Dividends and Distributions; Taxes;
Description of Galaxy and Its
Shares; Miscellaneous
</TABLE>
-2-
<PAGE> 4
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
7. Purchase of Securities
Being Offered............................ How to Purchase Shares; Distributor;
General; Purchase Procedures; Other
Purchase Information; Investor
Programs
8. Redemption or
Repurchase............................... How to Redeem Shares;
Distributor; Redemption Procedures;
Other Redemption Information;
Investor Programs
9. Pending Legal
Proceedings.............................. Not Applicable
</TABLE>
-3-
<PAGE> 5
THE GALAXY FUND
(Trust Shares of the Money Market Fund,
Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Short-Term Bond Fund,
Intermediate Government Income Fund,
High Quality Bond Fund,
Tax-Exempt Bond Fund,
New York Municipal Bond Fund,
Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund, Rhode Island
Municipal Bond Fund, Equity Value Fund,
Equity Growth Fund,, Equity Income Fund,
International Equity Fund, Small Company Equity
Fund, Asset Allocation Fund, Small Cap
Value Fund and Growth and Income Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Highlights and Expense Summary
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Investment Objectives and Policies;
Investment Limitations; Description
of Galaxy and its Shares
5. Management of the Fund................... Management of the Funds; Investment
Objectives and Policies; Investment
Adviser (and Sub-Adviser); Authority
to Act as Investment Adviser;
Administrator; Custodian and
Transfer Agent; Expenses;
Performance and Yield Information;
Miscellaneous
5A. Management's Discussion of
Fund Performance......................... Not Applicable
6. Capital Stock and Other
Securities............................... Dividends and Distributions; Taxes;
Description of Galaxy and Its
Shares; Miscellaneous
7. Purchase of Securities
Being Offered............................ How to Purchase and Redeem Shares;
Distributor; Purchase of Shares
8. Redemption or
Repurchase............................... How to Purchase and Redeem Shares;
Distributor; Redemption of Shares
9. Pending Legal
Proceedings.............................. Not Applicable
</TABLE>
-4-
<PAGE> 6
THE GALAXY FUND
(Trust Shares of the Corporate Bond Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Highlights and Expense Summary
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Investment Objective and Policies;
Investment Limitations; Description
of Galaxy and its Shares
5. Management of the Fund................... Management of the Funds; Investment
Objective and Policies; Investment
Adviser; Authority to Act as
Investment Adviser; Administrator;
Custodian and Transfer Agent;
Expenses; Performance and Yield
Information; Miscellaneous
5A. Management's Discussion of
Fund Performance......................... Not Applicable
6. Capital Stock and Other
Securities............................... Dividends and Distributions; Taxes;
Description of Galaxy and Its
Shares; Miscellaneous; Information
Services
7. Purchase of Securities
Being Offered............................ How to Purchase and Redeem Shares;
Distributor; Purchase of Shares;
Purchase Procedures; Other Purchase
Information Programs
8. Redemption or
Repurchase............................... How to Purchase and Redeem Shares;
Distributor; Redemption Procedures;
Other Redemption Information;
Investor Programs
9. Pending Legal
Proceedings.............................. Not Applicable
</TABLE>
-5-
<PAGE> 7
THE GALAXY FUND
(Money Market Fund, Government Fund, Tax-Exempt
Fund, U.S. Treasury Fund and
Institutional Treasury Money Market Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and
History.................................. Not Applicable
13. Investment Objectives and
Policies................................. Investment Objectives and Policies;
Net Asset Value
14. Management of the Fund................... Trustees and Officers; Expenses;
Miscellaneous
15. Control Persons and Principal
Holders of Securities.................... See Prospectus-"Management of the
Fund(s)"
16. Investment Advisory and
Other Services........................... Advisory, Administration, Custodian
and Transfer Agency Agreements;
Shareholder Services Plan;
Distribution and Services Plan;
Distributor; Auditors; Counsel
17. Brokerage Allocation and
Other Practices.......................... Portfolio Transactions
18. Capital Stock and Other
Securities............................... Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Additional Purchase and Redemption
Information; Description of Shares
20. Tax Status............................... Additional Information Concerning
Taxes
21. Underwriters............................. Portfolio Transactions
22. Calculation of
Performance Data......................... Performance and Yield Information
23. Financial Statements..................... Auditors
</TABLE>
-6-
<PAGE> 8
THE GALAXY FUND
(Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund,
Small Cap Value Fund and Growth
and Income Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and
History.................................. Not Applicable
13. Investment Objectives and
Policies................................. Investment Objectives and Policies;
Net Asset Value - Connecticut
Municipal Money Market and
Massachusetts Municipal Money Market
Funds
14. Management of the Fund................... Trustees and Officers; Expenses;
Miscellaneous
15. Control Persons and Principal
Holders of Securities.................... See Prospectus-"Management of the
Fund(s)"
16. Investment Advisory and
Other Services........................... Advisory, Administration, Custodian
and Transfer Agency Agreements;
Shareholder Services Plan;
Distribution and Services Plan;
Distributor; Auditors; Counsel
17. Brokerage Allocation and
Other Practices.......................... Portfolio Transactions
18. Capital Stock and Other
Securities............................... Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Additional Purchase and Redemption
Information; Description of Shares
20. Tax Status............................... Additional Information Concerning
Taxes
21. Underwriters............................. Portfolio Transactions
</TABLE>
-7-
<PAGE> 9
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
22. Calculation of
Performance Data......................... Performance and Yield Information
23. Financial Statements..................... Auditors
</TABLE>
-8-
<PAGE> 10
THE GALAXY FUND
(Equity Value Fund, Equity Growth Fund, Equity
Income Fund, International Equity Fund,
Small Company Equity Fund and Asset
Allocation Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and
History.................................. Not Applicable
13. Investment Objectives and
Policies................................. Investment Objectives and Policies
14. Management of the Fund................... Trustees and Officers; Expenses;
Miscellaneous
15. Control Persons and Principal
Holders of Securities.................... See Prospectus-"Management of the
Fund(s)"
16. Investment Advisory and
Other Services........................... Advisory, Administration, Custodian
and Transfer Agency Agreements;
Shareholder Services Plan;
Distribution and Services Plan;
Distributor; Auditors; Counsel
17. Brokerage Allocation and
Other Practices.......................... Portfolio Transactions
18. Capital Stock and Other
Securities............................... Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Additional Purchase and Redemption
Information; Description of Shares
20. Tax Status............................... Additional Information Concerning
Taxes
21. Underwriters............................. Portfolio Transactions
22. Calculation of
Performance Data......................... Performance and Yield Information
23. Financial Statements..................... Auditors
</TABLE>
-9-
<PAGE> 11
THE GALAXY FUND
(Short-Term Bond Fund, Intermediate
Government Income Fund and High
Quality Bond Fund,
Corporate Bond Fund, Tax-Exempt Bond Fund,
New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and
Rhode Island Municipal Bond Fund)
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and
History.................................. Not Applicable
13. Investment Objectives and
Policies................................. Investment Objectives and Policies;
Net Asset Value
14. Management of the Fund................... Trustees and Officers; Expenses;
Miscellaneous
15. Control Persons and Principal
Holders of Securities.................... See Prospectus-"Management of the
Fund(s)"
16. Investment Advisory and
Other Services........................... Advisory, Administration, Custodian
and Transfer Agency Agreements;
Shareholder Services Plan;
Distribution and Services Plan;
Distributor; Auditors; Counsel
17. Brokerage Allocation and
Other Practices.......................... Portfolio Transactions
18. Capital Stock and Other
Securities............................... Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Additional Purchase and Redemption
Information; Description of Shares
20. Tax Status............................... Additional Information Concerning
Taxes
21. Underwriters............................. Portfolio Transactions
</TABLE>
-10-
<PAGE> 12
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
22. Calculation of
Performance Data......................... Performance and Yield Information
23. Financial Statements..................... Auditors
</TABLE>
-11-
<PAGE> 13
TRUST
THE GALAXY FUND
MONEY MARKET FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 14
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
EXPENSE SUMMARY...................................................
FINANCIAL HIGHLIGHTS..............................................
INVESTMENT OBJECTIVE AND POLICIES.................................
In General...............................................
Quality Requirements.....................................
INVESTMENTS, STRATEGIES AND RISKS.................................
U.S. Government Obligations..............................
Money Market Instruments.................................
Repurchase and Reverse Repurchase Agreements.............
Securities Lending.......................................
Guaranteed Investment Contracts..........................
Asset-Backed Securities..................................
INVESTMENT LIMITATIONS............................................
PRICING OF SHARES.................................................
HOW TO PURCHASE AND REDEEM SHARES.................................
Distributor..............................................
Purchase of Shares.......................................
Redemption of Shares.....................................
DIVIDENDS AND DISTRIBUTIONS.......................................
TAXES .........................................................
Federal ................................................
State and Local..........................................
Miscellaneous............................................
MANAGEMENT OF THE FUND............................................
Investment Adviser.......................................
Authority to Act as Investment Adviser...................
Administrator............................................
DESCRIPTION OF GALAXY AND ITS SHARES..............................
Shareholder Services Plan................................
Affiliate Agreement for Sub-Account Services.............
CUSTODIAN AND TRANSFER AGENT......................................
EXPENSES .........................................................
PERFORMANCE AND YIELD INFORMATION.................................
MISCELLANEOUS.....................................................
<PAGE> 15
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding
Westboro, Massachusetts initial purchases and
01581-5180 current performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other share-
holder services, call 1-800-
628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the MONEY MARKET FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
invests in "money market" instruments with remaining maturities of one year or
less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances and commercial paper (including variable and floating rate
obligations) in addition to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (referred to herein collectively as "Retail
Shares"), which are offered under a separate prospectus. Retail A Shares are
offered primarily to individuals, corporations or other entities purchasing
either for their own accounts or for the accounts of others and to FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Retail B Shares are not offered for
purchase and are available only to the holders of Retail B Shares in Galaxy's
Short-Term Bond, High Quality Bond, Tax-Exempt Bond, Equity Value, Equity
Growth, Small Company Equity, Asset Allocation and Growth and Income Funds
who wish to exchange their Retail B Shares in such Funds for Retail B Shares in
the Fund. Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that they bear different expenses and
charges.
<PAGE> 16
See "Financial Highlights," "Management of the Fund" and "Description of
Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information
about the Fund, contained in the Statement of Additional Information relating to
the Fund and bearing the same date, has been filed with the Securities and
Exchange Commission. The current Statement of Additional Information is
available upon request without charge by contacting Galaxy at its telephone
numbers or address shown above. The Statement of Additional Information, as it
may be amended from time to time, is incorporated by reference in its entirety
into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 17
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares
of the Fund. Examples based on the summary are also shown.
MONEY
MARKET
ANNUAL FUND OPERATING EXPENSES FUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (TRUST SHARES)
Advisory Fees (After Fee Waivers)....................... . %
----
12b-1 Fees.............................................. None
Other Expenses (After Fee Waivers and Expense
Reimbursements)...................................... . %
----
Total Fund Operating Expenses (After
Fee Waivers and Expense Reimbursements).............. . %
====
- ------------------
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market Fund.......... $__ $__ $__ $__
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. Without voluntary fee waivers and/or expense
reimbursements by the Investment Adviser and/or Administrator, Advisory Fees
would be .40%, Other Expenses would be .__% and Total Fund Operating Expenses
would be .___% for Trust Shares of the Fund. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees charged by affiliates of Fleet Investment Advisors Inc. or
other institutions directly to their customer accounts for services related to
an investment in Trust Shares of the Fund are in addition to and not reflected
in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
<PAGE> 18
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares.
As of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares), and the Fund began offering a new series of
shares designated as Trust Shares. The Fund also offers an additional series of
shares, Retail B Shares. This Prospectus describes the Trust Shares in the Fund.
Retail A Shares and Retail B Shares in the Fund are offered under a separate
prospectus. As described below under "Description of Galaxy and Its Shares",
Trust Shares, Retail A Shares and Retail B Shares represent equal pro rata
interests in the Fund, except that (i) Retail A Shares of the Fund bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .10% of the average daily net asset value of the Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Fund are subject to a contingent
deferred sales charge and bear the expenses incurred under Galaxy's
Distribution and Services Plan at an annual rate of up to .75% of the average
daily net asset value of the Fund's outstanding Retail B Shares, and (iii)
Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses. See "Management of the Fund" and "Description of Galaxy and
Its Shares."
The financial highlights presented below have been audited by
[__________________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund for the
fiscal year ended October 31, 1996 (the "Annual Report"). Such financial
highlights should be read in conjunction with the financial statements contained
in the Annual Report and [__________________________] into the Statement of
Additional Information relating to the Fund. Information in the financial
highlights for periods prior to the fiscal year ended October 31, 1995 reflects
the investment results of Retail A Shares of the Fund and is intended to provide
investors with a longer-term perspective of the Fund's financial history. More
information about the performance of the Fund is contained in the Annual Report
which may be obtained without charge by contacting Galaxy at its telephone
numbers or address provided above.
-2-
<PAGE> 19
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 Years Ended October 31,(1)
-------------------- ------------------------------------------------------
Trust Shares 1994 1993 1992
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- -------------- -------------- --------------
Income from Investment Operations
Net Investment Income(3),(4) 0.05 0.03 0.03 0.04
Net realized and unrealized gain (loss)
on investments -- -- -- --
-------------- -------------- -------------- --------------
Total from Investment Operations: 0.05 0.03 0.03 0.04
-------------- -------------- -------------- --------------
Less Dividends:
Dividends from net investment income (0.05) (0.03) (0.03) (0.04)
Dividends from net realized
capital gains(5) -- -- -- --
-------------- -------------- -------------- --------------
Total Dividends: (0.05) (0.03) (0.03) (0.04)
-------------- -------------- -------------- --------------
Net increase (decrease) in net asset value -- -- -- --
-------------- -------------- -------------- --------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
Total Return(6) 5.43% 3.35% 2.78% 4.07%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 334,054 $ 797,399 $ 577,558 $ 590,911
Ratios to average net assets:
Net investment income 5.30% 3.38% 2.74% 3.74%
including reimbursement/waiver
Operating expenses 0.55% 0.64% 0.63% 0.58%
including reimbursement/waiver
Operating expenses 0.56% 0.64% 0.63% 0.58%
excluding reimbursement/waiver
</TABLE>
<TABLE>
<CAPTION>
Period
Ended
Years Ended October 31,(1) October 31,
---------------------------------------------------------------- ------------
1991 1990 1989 1988 1987(1),(2)
------------ ------------ ------------ ----------- ------------
<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(3),(4) 0.06 0.08 0.09 0.07 0.06
Net realized and unrealized gain (loss)
on investments -- -- -- -- --
------------ ------------ ------------ ----------- -----------
Total from Investment Operations: 0.06 0.08 0.09 0.07 0.06
------------ ------------ ------------ ----------- -----------
Less Dividends:
Dividends from net investment income (0.06) (0.08) (0.09) (0.07) (0.06)
Dividends from net realized
capital gains5 -- -- -- -- --
------------ ------------ ------------ ----------- -----------
Total Dividends: (0.06) (0.08) (0.09) (0.07) (0.06)
------------ ------------ ------------ ----------- -----------
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(6) 6.40% 8.11% 9.09% 7.08% 6.09%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 415,541 $ 444,303 $ 410,121 $ 210,712 $ 192,400
Ratios to average net assets:
Net investment income 6.24% 7.82% 8.73% 6.92% 6.27%(8)
including reimbursement/waiver
Operating expenses 0.59% 0.59% 0.58% 0.59% 0.52%(8)
including reimbursement/waiver
Operating expenses 0.59% 0.59% 0.59% 0.59% 0.57%(8)
excluding reimbursement/waiver
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares.
As of such date, the existing series of shares was designated as Retail
Shares (now designated as Retail A Shares) and the Fund began issuing a
second series of shares designated as Trust Shares.
(2) The Fund commenced operations on November 17, 1986.
(3) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the year ended October
31, 1989 and the period ended October 31, 1987 were $0.09 and $0.06,
respectively.
(4) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Investment Adviser and/or
Administrator for the year ended October 31, 1996 and 1995 were $____
and $0.05, respectively.
(5) Represents less than $0.01 per share for years 1992 and 1987.
(6) Total Return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held
by the Fund. Without this capital contribution, the total return would
have been 3.35%.
(7) Not Annualized.
(8) Annualized.
-3-
<PAGE> 20
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
seeks to achieve its objective by investing in "money market" instruments that
are determined by Fleet Investment Advisors Inc., the Fund's investment adviser
("Fleet" or the "Investment Adviser"), to present minimal credit risk and meet
certain rating criteria. Instruments that may be purchased by the Fund include
obligations of domestic and foreign banks (including negotiable certificates of
deposit, non-negotiable time deposits, savings deposits, and bankers'
acceptances); commercial paper (including variable and floating rate notes);
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and repurchase agreements issued by financial institutions
such as banks and broker/dealers. These instruments have remaining maturities of
one year or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). For more information,
including applicable quality requirements, see "Quality Requirements" and
"Investments, Strategies and Risks" below.
The Investment Adviser will use its best efforts to achieve the
investment objective of the Fund, although such achievement cannot be assured.
The investment objective of the Fund may not be changed without the approval of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program. The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less in an effort to maintain a stable net asset value
per share of $1.00. The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates.
QUALITY REQUIREMENTS
The Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Fund will not purchase a security
(other than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("Rating Agencies") (such as
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch Investors Service, L.P. ("Fitch"), in the highest category
for short-term debt
-4-
<PAGE> 21
securities, (ii) is rated by the only Rating Agency that has issued a rating
with respect to such security or issuer in such Rating Agency's highest
category for short-term debt, or (iii) if not rated, the security is determined
to be of comparable quality. These rating categories are determined without
regard to sub-categories and gradations. The Fund will follow applicable
regulations in determining whether a security rated by more than one Rating
Agency can be treated as being in the highest short-term rating category. See
"Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, the Investment Adviser will acquire the
security if it determines that the security is of comparable quality to
securities that have received the requisite ratings. The Investment Adviser also
considers other relevant information in its evaluation of unrated short-term
securities.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns Shares of the
Fund.
-5-
<PAGE> 22
MONEY MARKET INSTRUMENTS
"Money Market" instruments include bank obligations and
commercial paper.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank that is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank that is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investments in bank obligations are limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Investments in non-negotiable time deposits are limited to no more
than 5% of the Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional investment
risks, including future political and economic developments, the possible
imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when the
Investment Adviser believes that the credit risk with respect to the instrument
is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition
under the federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) Paper is normally resold to other
institutional investors through or with the assistance of investment dealers
which make a market in Section 4(2) Paper, thus providing liquidity.
-6-
<PAGE> 23
The Fund may also purchase Rule 144A securities. See "Investment Limitations."
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. Substantial holdings of variable and floating
rate instruments could reduce portfolio liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will only be entered into with financial
institutions such as banks and broker/dealers that are deemed to be creditworthy
by the Investment Adviser under guidelines approved by Galaxy's Board of
Trustees. The Fund will not enter into repurchase agreements with Fleet or any
of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand upon notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 5 under
"Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Income on repurchase agreements is taxable.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). A reverse repurchase agreement involves the risk that
the market value of the securities sold by the Fund may
-7-
<PAGE> 24
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with its investment limitations.
Such loans would involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, and will be made only to borrowers deemed by
the Investment Adviser to be of good standing and only when, in the Investment
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks. The Fund currently intends to limit the lending of its
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued
by United States insurance companies. Pursuant to such contracts, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Fund will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated in accordance with the applicable quality requirements described above
under "Quality Requirements." GICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on illiquid investments, unless there is
an active and substantial secondary market for the particular instrument and
market quotations are readily available.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The Fund
will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information.
-8-
<PAGE> 25
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, (ii) the Fund may enter into repurchase agreements with
respect to portfolio securities, and (iii) the Fund may lend portfolio
securities against collateral consisting of cash or securities that are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Invest in obligations having remaining maturities in excess
of one year, except that certain variable and floating rate instruments
and securities subject to repurchase agreements may bear longer
maturities (provided certain provisions are met).
3. Purchase securities of any one issuer, other than U.S.
Government obligations, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer (the "5% limitation"), except that up to 25% of the value
of its total assets may be invested without regard to this 5%
limitation.
4. Borrow money or issue senior securities, except from
domestic banks for temporary purposes, and then in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing (provided that the Fund may borrow pursuant to reverse
repurchase agreements in accordance with its investment policies and in
amounts not in excess of 10% of the value of its total assets at the
time of such borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value
of its total assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
-9-
<PAGE> 26
5. Invest more than 10% of the value of the Fund's total
assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days, time deposits with
maturities in excess of seven days, restricted securities,
non-negotiable time deposits and other securities which are not readily
marketable.
In addition to the foregoing limitations, the Fund may not purchase
securities that would cause 25% or more of the value of the Fund's total assets
at the time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or by
domestic banks or U.S. branches of foreign banks; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No 3. above (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and (b) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
securities backed by the full faith and credit of the United States) are deemed
to be U.S. Government obligations.
With respect to Investment Limitation No. 4 above, the Fund intends to
limit borrowings, including reverse repurchase agreements, to not more than 10%
of the value of its total assets at time of such borrowings.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
The Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the Statement of Additional Information relating to the Fund in
order to comply with applicable laws and regulations, including the provisions
and regulations under the Investment Company Act of 1940, as amended (the "1940
Act"). In particular the Fund will comply with the various requirements of Rule
2a-7 under the 1940 Act, which regulates money market mutual funds. In
accordance with Rule 2a- 7, the Fund is subject to the 5% limitation contained
in Investment Limitation No. 3 above as to all of its assets;
-10-
<PAGE> 27
however in accordance with such Rule, the Fund will be able to invest more than
5% (but no more than 25%) of its total assets in the securities of a single
issuer for a period of up to three business days after the purchase thereof,
provided that the Fund may not hold more than one such investment at any one
time. Subject to Investment Limitation No. 2 above, the Fund will determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by Rating Agencies,
according to Rule 2a-7. Except with respect to Investment Limitation No. 2
above, the Fund may change these operating policies to reflect changes in the
laws and regulations without the approval of the shareholders.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales
of certain securities to qualified institutional buyers. The Fund's investment
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
Fund's 10% limitation on purchases of illiquid instruments, Rule 144A
securities will not be considered to be illiquid if the Investment Adviser has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
by dividing the value of all securities and other assets attributable to a
particular series of Shares of the Fund, less the liabilities attributable to
the Shares of that series of the Fund, by the number of outstanding Shares of
that series of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of
-11-
<PAGE> 28
the security. Although Galaxy seeks to maintain the net asset value per Share of
the Fund at $1.00, there can be no assurance that the net asset value per Share
will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-
-12-
<PAGE> 29
Business Day, the order will not be executed until it is received and accepted
by the Distributor on a Business Day in accordance with the foregoing
procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Fund and
Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employers) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in
-13-
<PAGE> 30
both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the account is less than $250 as a result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend
to the persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of Shares on the day of declaration. The Fund's net income for dividend
purposes consists of all accrued income, whether taxable or tax-exempt, plus
discount earned on the Fund's assets attributable to Trust Shares, less
amortization of premium on such assets and accrued expenses attributable to
Trust Shares of the Fund. Dividends on each Share of the Fund are determined in
the same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. The Fund does not
expect to realize net capital gains. However, if any such gains are realized,
they will be paid out to shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect
to have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification relieves the Fund of
liability for federal income taxes to the extent its earnings are distributed in
accordance with the Code.
-14-
<PAGE> 31
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including interest) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each year. Such dividends will be
taxable as ordinary income to the Fund's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional Trust Shares. Because all of the Fund's net investment
income is expected to be derived from earned interest, it is anticipated that no
part of any distribution will be eligible for the dividends received deduction
for corporations.
Dividends declared in October, November or December of any year that
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
-15-
<PAGE> 32
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets at December 31, 1996 of $____
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Institutional Treasury Money Market,
Government, U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity, Asset Allocation, Small Cap
Value, Growth and Income, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
.40% of the average daily net assets of the Fund. Fleet may from time to time,
in its discretion, waive advisory fees payable by the Fund in order to help
maintain a competitive expense ratio, and may from time to time allocate a
portion of its advisory fees to Fleet Trust Company or other subsidiaries of
Fleet Financial Group, Inc. in consideration for administrative and shareholder
support services which they provide to beneficial shareholders. Fleet has
advised Galaxy that it intends to waive advisory fees payable to it by the Fund
in an amount equal to 0.05% of the average daily net assets of the Fund to the
extent that the Fund's net assets exceed $750,000,000. For the fiscal year ended
October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of 0.__% of the Fund's average daily net assets.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from
-16-
<PAGE> 33
issuing, underwriting, selling or distributing securities such as Trust Shares
of the Fund, but such banking laws and regulations do not prohibit such a bank
holding company or affiliate from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Fund's method of
operations would affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5180, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively, the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Fund, FDISG was entitled to be paid fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Portfolios, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion.
In addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive all or a
portion of the administration fee payable to it by the Fund, either voluntarily
or pursuant to applicable statutory expense limitations. For the fiscal year
ended October 31, 1996, the Fund paid FDISG administration fees at the effective
annual rate of .___% of its average daily net assets.
-17-
<PAGE> 34
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class A shares (Retail A Shares), Class A-Special Series 1 shares (Trust Shares)
and Class A-Special Series 2 shares (Retail B Shares), each series representing
interests in the Fund. The Fund is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in other portfolios of
Galaxy. For information regarding the Fund's Retail A and Retail B Shares and
these other portfolios, which are offered through separate prospectuses, contact
the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below and holders of the Fund's Retail B
Shares bear the fees described in the prospectus for such shares that are paid
under Galaxy's Distribution and Services Plan at an annual rate of up to .75% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, shares of each series in the Fund bear differing transfer agency
expenses. Standardized yield quotations are computed separately for each series
of Shares. The difference in the expenses paid by the respective series will
affect their performance.
Retail A Shares of the Fund are sold without any sales charge. Retail B
Shares of the Money Market Fund acquired in an exchange of Retail B Shares of
another portfolio offered by Galaxy are subject to a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares six
years after the date of purchase of such exchanged Retail B Shares. Retail A
and Retail B Shares have certain exchange and other privileges which are not
available with respect to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001, represents an equal proportionate interest in the related Fund
with other Shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
fractional votes for fractional Shares held, and will vote in the aggregate and
not by class, except as otherwise
-18-
<PAGE> 35
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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services enumerated below to
Customers who are the beneficial owners of Retail A Shares in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by such Customers. Services under
the Shareholder Services Plan may include aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing Customers
with information as to their positions in Retail A Shares; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Such services are
intended to supplement the services provided by FDISG as administrator and
transfer agent and are described more fully in the Statement of Additional
Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
-19-
<PAGE> 36
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares in each sub-account, crediting to each participant's sub-account
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Fleet Bank is compensated by FDISG for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of the Fund indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Funds are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the Fund.
The Fund bears the expenses incurred in its operations. Such expenses include
taxes; interest; fees (including fees paid to its Trustees and officers who are
not affiliated with FDISG); SEC fees; state securities qualification fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders; advisory, administration, shareholder servicing,
Rule 12b-1 distribution, fund accounting and custody fees; charges of the
transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; cost of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for any brokerage
-20-
<PAGE> 37
fees and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to those of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
Donoghue's Money Fund Report(R), A widely recognized independent publication
that monitors the performance of mutual funds. Also, the Fund's yield data may
be reported in national financial publications including, but not limited to,
Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York
Times, or in publications of a local or regional nature. The Fund's performance
may also be compared to the average yields reported by the Bank Rate Monitor for
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas. The
performance and yield data will be calculated separately for Trust Shares,
Retail A Shares and Retail B Shares of the Fund.
The yield of the Fund will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. The Fund
may also advertise its "effective yield," which is calculated similarly but,
when annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
The Fund's yield will fluctuate and any quotation of yield should not
be considered as representative of future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of the Fund will not be included in calculations of
yield.
-21-
<PAGE> 38
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices, shareholder portfolio and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax; retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the lesser
of (a) more than 50% of the outstanding Shares of Galaxy or such Fund, or (b)
67% or more of the shares of Galaxy or such Fund present at a meeting if more
than 50% of the outstanding shares of Galaxy or such Fund are represented at the
meeting in person or by proxy.
-22-
<PAGE> 39
TRUST
THE GALAXY FUND
GOVERNMENT FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY.......................................................
FINANCIAL HIGHLIGHTS..................................................
INVESTMENT OBJECTIVE AND POLICIES.....................................
In General...................................................
INVESTMENTS, STRATEGIES AND RISKS.....................................
U.S. Government Obligations..................................
Repurchase and Reverse Repurchase Agreements.................
Securities Lending...........................................
"When-Issued" Securities.....................................
INVESTMENT LIMITATIONS................................................
PRICING OF SHARES.....................................................
HOW TO PURCHASE AND REDEEM SHARES.....................................
Distributor..................................................
Purchase of Shares...........................................
Redemption of Shares.........................................
DIVIDENDS AND DISTRIBUTIONS...........................................
TAXES .............................................................
Federal ....................................................
State and Local..............................................
Miscellaneous................................................
MANAGEMENT OF THE FUND................................................
Investment Adviser...........................................
Authority to Act as Investment Adviser.......................
Administrator................................................
DESCRIPTION OF GALAXY AND ITS SHARES..................................
Shareholder Services Plan....................................
Affiliate Agreement for Sub-Account Services.................
CUSTODIAN AND TRANSFER AGENT..........................................
EXPENSES .............................................................
PERFORMANCE AND YIELD INFORMATION.....................................
MISCELLANEOUS.........................................................
<PAGE> 41
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding
Westboro, Massachusetts initial purchases and
01581-5108 current performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other share-
holder services, call 1-800-
628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the GOVERNMENT FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
invests in obligations with remaining maturities of one year or less which are
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and repurchase agreements relating to such obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc. and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF
<PAGE> 42
ITS AFFILIATES, FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE
FUND ARE NOT FEDERALLY INSURED, 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information
about the Funds, contained in the Statement of Additional Information relating
to the Fund and bearing the same date, has been filed with the Securities and
Exchange Commission. The current Statement of Additional Information is
available upon request without charge by contacting Galaxy at its telephone
numbers or address shown above. The Statement of Additional Information, as it
may be amended from time to time, is incorporated by reference in its entirety
into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 43
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares
of the Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES GOVERNMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
- --------------------------------------- ----
<S> <C>
Advisory Fees (After Fee Waivers).................................... .__%
12b-1 Fees........................................................... None
Other Expenses (After Fee Waivers
and Expense Reimbursements)........................................ . %
----
Total Fund Operating Expenses (After
Fee Waivers and Expense Reimbursements)............................ . %
====
</TABLE>
- ------------------
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Fund....................$__ $__ $__ $__
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. Without voluntary fee waivers and/or expense
reimbursements by the Investment Adviser and/or Administrator, Advisory Fees
would be .40%, Other Expenses would be .___% and Total Fund Operating Expenses
would be .___% for Trust Shares of the Fund. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that may be charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Fund are in addition to
and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
-3-
<PAGE> 44
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares.
As of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares), and the Fund began offering a new series of
shares designated as Trust Shares. This Prospectus describes the Trust Shares of
the Fund. Retail A Shares in the Fund are offered under a separate prospectus.
Trust Shares and Retail A Shares represent equal pro rata interests in the Fund,
except that (i) Retail A Shares of the Fund bear the expenses incurred under
Galaxy's Shareholder Services Plan at an annual rate of up to .10% of the
average daily net asset value of the Fund's outstanding Retail A Shares, and
(ii) Trust Shares and Retail A Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
[__________________] Galaxy's independent accountants, whose report is contained
in Galaxy's Annual Report to Shareholders relating to the Fund for the fiscal
year ended October 31, 1996 (the "Annual Report"). Such financial highlights
should be read in conjunction with the financial statements contained in the
Annual Report and (_______________________) into the Statement of Additional
Information. Information in the financial highlights for periods prior to the
fiscal year ended October 31, 1995 reflects the investment results of Retail A
Shares of the Fund and is intended to provide investors with a long-term
perspective of the Fund's financial history. More information about the
performance of the Fund is also contained in the Annual Report which may be
obtained without charge by contacting Galaxy at its telephone numbers or address
provided above.
-4-
<PAGE> 45
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
-----------------------------------------------------------------------------
Years Ended
October 31,
1996 1995 1994 1993 1992 1991 1990
---- ---- ---------- ----------- --------- ---------- ---------
Trust Shares
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ---------- ----------- --------- ---------- ---------
Income from Investment
Operations:
Net investment income(3),(4)..... 0.05 0.03 0.03 0.04 0.06 0.08
Net realized and
unrealized gain (loss)
on investments................... -- -- -- -- -- --
--------- ---------- ----------- --------- ---------- ---------
Total from Investment
Operations:.................. 0.05 0.03 0.03 0.04 0.06 0.08
--------- ---------- ----------- --------- ---------- ---------
Less Dividends:
Dividends from net
investment income................ (0.05) (0.03) (0.03) (0.04) (0.06) (0.08)
Dividends from net
realized capital gains(5)........ -- -- -- -- -- --
--------- ---------- ----------- --------- ---------- ---------
Total Dividends: (0.05) (0.03) (0.03) (0.04) (0.06) (0.08)
--------- ---------- ----------- --------- ---------- ---------
Net increase (decrease)
in net asset value............... -- -- -- -- -- --
--------- ---------- ----------- --------- ---------- ---------
Net Asset Value, End
of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== =========== ========= ========== =========
Total Return(6)................... 5.39% 3.49% 2.83% 4.19% 6.25% 8.10%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)................... $ 678,679 $ 759,106 $ 685,304 $ 636,338 $ 436,232 $ 335,443
Ratios to average net assets:
Net investment income including
reimbursement/waiver........... 5.27% 3.36% 2.79% 3.67% 6.05% 7.80%
Operating expenses including
reimbursement/waiver........... 0.53% 0.54% 0.55% 0.53% 0.56% 0.56%
Operating expenses excluding
reimbursement/waiver........... 0.54% 0.54% 0.55% 0.53% 0.56% 0.57%
<CAPTION>
YEARS ENDED
OCTOBER 31,(1)
------------------------------
Period Ended
1989 1988 October 31, 1987(1),(2)
---------- -------------- -----------------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 1.00 $ 1.00 $ 1.00
---------- -------------- ----------
Income from Investment
Operations:
Net investment income(3),(4)..... 0.09 0.07 0.06
Net realized and
unrealized gain (loss)
on investments................... -- -- --
---------- -------------- ----------
Total from Investment
Operations:.................. 0.09 0.07 0.06
---------- -------------- ----------
Less Dividends:
Dividends from net
investment income................ (0.09) (0.07) (0.06)
Dividends from net
realized capital gains(5)........ -- -- --
---------- -------------- ----------
Total Dividends: (0.09) (0.07) (0.06)
---------- -------------- ----------
Net increase (decrease)
in net asset value............... -- -- --
---------- -------------- ----------
Net Asset Value, End
of Period........................ $ 1.00 $ 1.00 $ 1.00
========== ============== ==========
Total Return(6)................... 8.82% 6.91% 6.08%(7)
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)................... $ 303,181 $ 141,545 $ 178,100
Ratios to average net assets:
Net investment income including
reimbursement/waiver........... 8.59% 6.73% 6.38%(8)
Operating expenses including
reimbursement/waiver........... 0.60% 0.60% 0.53%(8)
Operating expenses excluding
reimbursement/waiver........... 0.61% 0.60% 0.57%(8)
</TABLE>
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<PAGE> 46
- --------------------
(1) PRIOR TO NOVEMBER 1, 1994, THE FUND OFFERED A SINGLE SERIES OF SHARES.
AS OF SUCH DATE, THE EXISTING SERIES OF SHARES WAS DESIGNATED AS RETAIL
SHARES (NOW DESIGNATED RETAIL A SHARES) AND THE FUND BEGAN ISSUING A
SECOND SERIES OF SHARES DESIGNATED AS TRUST SHARES.
(2) THE FUND COMMENCED OPERATIONS ON NOVEMBER 17, 1986.
(3) NET INVESTMENT INCOME PER SHARE BEFORE REIMBURSEMENT/WAIVER OF FEES BY
THE INVESTMENT ADVISER AND/OR ADMINISTRATOR FOR THE YEARS ENDED OCTOBER
31, 1990 AND 1989 AND THE PERIOD ENDED OCTOBER 31, 1987 WERE $0.08,
$0.09 AND $0.06, RESPECTIVELY.
(4) NET INVESTMENT INCOME PER SHARE BEFORE REIMBURSEMENT/WAIVER OF FEES BY
THE INVESTMENT ADVISER AND/OR ADMINISTRATOR FOR TRUST SHARES FOR THE
FISCAL YEAR ENDED OCTOBER 31, 1996 AND 1995 WERE $____ AND $0.05,
RESPECTIVELY.
(5) REPRESENTS LESS THAN $0.01 PER SHARE FOR YEARS 1992, 1990, 1989, 1988
AND 1987.
(6) TOTAL RETURN FOR 1994 INCLUDES THE EFFECT OF THE VOLUNTARY CAPITAL
CONTRIBUTION OF $2.3 MILLION FROM THE INVESTMENT ADVISER IN ORDER TO
PARTIALLY OFFSET LOSSES REALIZED ON THE SALE OF CERTAIN SECURITIES HELD
BY THE FUND. WITHOUT THIS CAPITAL CONTRIBUTION, THE TOTAL RETURN WOULD
HAVE BEEN 3.49%.
(7) NOT ANNUALIZED.
(8) ANNUALIZED.
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<PAGE> 47
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
seeks to achieve its objective by investing in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. These
instruments have remaining maturities of one year or less (except for certain
variable and floating rate notes and securities underlying certain repurchase
agreements). See "Investments, Strategies and Risks" below.
Fleet Investment Advisors Inc., the Fund's investment adviser ("Fleet"
or the "Investment Adviser"), will use its best efforts to achieve the
investment objective of the Fund, although such achievement cannot be assured.
The investment objective of the Fund may not be changed without the approval of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program. The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less in an effort to maintain a stable net asset value
per share of $1.00. The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
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<PAGE> 48
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns Trust Shares of
the Fund.
Some U.S. Government obligations may be issued as variable or floating
rate instruments. Variable rate instruments provide for periodic adjustments in
the interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Because
there may not always be an active secondary market for these instruments,
substantial holdings of variable and floating rate instruments could reduce
portfolio liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will only be entered into with financial
institutions such as banks and broker/dealers that are deemed to be creditworthy
by the Investment Adviser under guidelines approved by Galaxy's Board of
Trustees. The Fund will not enter into repurchase agreements with Fleet or any
of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand upon notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitations No. 5 under
"Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Income on repurchase agreements is taxable.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as
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<PAGE> 49
banks and broker/dealers and agreeing to repurchase them at a mutually specified
date and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with its investment limitations.
Such loans would involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, and will be made only to borrowers deemed by
the Investment Adviser to be of good standing and only when, in the Investment
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks. The Fund currently intends to limit the lending of its
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
"WHEN-ISSUED" SECURITIES
The Fund may purchase securities on a "when-issued" basis. When-issued
transactions, which involve a commitment by the Fund to purchase particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit the Fund to lock in a price or yield on a security
it intends to purchase, regardless of future changes in interest rates.
When-issued transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that, absent unusual market conditions, commitments by the Fund to purchase
securities on a when-issued basis will not exceed 25% of the value of its total
assets. These transactions will not be entered into for speculative purposes,
but only in furtherance of the Fund's investment objective.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a
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<PAGE> 50
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) it may purchase or hold debt
instruments in accordance with its investment objective and policies,
(ii) it may enter into repurchase agreements with respect to portfolio
securities, and (iii) the Fund may lend portfolio securities against
collateral consisting of cash or securities that are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Invest in obligations having remaining maturities in excess
of one year, except that certain variable and floating rate instruments
and securities subject to repurchase agreements may bear longer
maturities (provided certain provisions are met).
3. Purchase securities of any one issuer, other than U.S.
Government obligations, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets may
be invested without regard to this limitation.
4. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
5. Invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
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<PAGE> 51
With respect to Investment Limitation No 3. above, (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and (b) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
securities backed by the full faith and credit of the United States) are deemed
to be U.S. Government obligations.
With respect to Investment Limitation No. 4 above, the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of the borrowing.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
The Fund may follow non-fundamental operating policies that are more restrictive
than its fundamental investment limitations, as set forth in this Prospectus and
in the Statement of Additional Information relating to the Fund, in order to
comply with applicable laws and regulations, including the provisions of and
applicable regulations under the Investment Company Act of 1940, as amended (the
"1940 Act"). In particular, the Fund will comply with the various requirements
of Rule 2a-7 under the 1940 Act, which regulates money market mutual funds.
Subject to Investment Limitation No. 2 above, the Fund will determine the
effective maturity of its investments according to Rule 2a-7. Except with
respect to Investment Limitation No. 2 above, the Fund may change these
operating policies to reflect changes in the laws and regulations without
shareholder approval.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
by dividing the value of all securities and other assets attributable to a
particular series of Shares of the Fund, less the liabilities attributable to
Shares of that series of the Fund, by the number of outstanding Shares of that
series of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to the Fund's
acquisition cost as adjusted for
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<PAGE> 52
amortization of premium or accretion of discount, regardless of the impact of
fluctuating interest rates on the market value of the security. Although Galaxy
seeks to maintain the net asset value per Share of the Fund at $1.00, there can
be no assurance that the net asset value per Share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contributions plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
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<PAGE> 53
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Fund and
Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored deferred contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for
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<PAGE> 54
redemption orders received on a non-Business Day will normally be wired to the
Institution on the next Business Day. However, in both cases Galaxy reserves the
right to wire redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment cold adversely affect
the Fund.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend
to the persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of Shares on the day of declaration. The Fund's net income for dividend
purposes consists of all accrued income, whether taxable or tax-exempt, plus
discount earned on the Fund's assets attributable to Trust Shares, less
amortization of premium on such assets and accrued expenses attributable to
Trust Shares of the Fund. Dividends on each Share of the Fund are determined in
the same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. The Fund does not
expect to realize net capital gains. However, if any such gains are realized,
they will be paid out to shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect
to have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
-14-
<PAGE> 55
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including interest) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each year. Such dividends will be
taxable as ordinary income to the Fund's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional Trust Shares. Because all of the Fund's net investment
income is expected to be derived from earned interest, it is anticipated that no
part of any distribution will be eligible for the dividends received deduction
for corporations.
Dividends declared in October, November or December of any year that
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
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<PAGE> 56
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets at December 31, 1996 of
$______ billion. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other portfolios of Galaxy: the Institutional Treasury
Money Market, Money Market, Tax-Exempt, U.S. Treasury, Connecticut Municipal
Money Market, Massachusetts Municipal Money Market, Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity, Asset Allocation,
Small Cap Value, Growth and Income, Short-Term Bond, Intermediate Government
Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
.40% of the average daily net assets of the Fund. Fleet may from time to time,
in its discretion, waive advisory fees payable by the Fund in order to help
maintain a competitive expense ratio, and may from time to time allocate a
portion of its advisory fees to Fleet Trust Company or other subsidiaries of
Fleet Financial Group, Inc. in consideration for administrative and shareholder
support services which they provide to beneficial shareholders. Fleet has
advised Galaxy that it intends to waive advisory fees payable to it by the Fund
in an amount equal to 0.05% of the average daily net assets of the Fund to the
extent that the Fund's net assets exceed $750,000,000. For the fiscal year ended
October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of 0.__% of the Fund's average daily net assets.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from
-16-
<PAGE> 57
issuing, underwriting, selling or distributing securities such as Shares of the
Fund, but such banking laws and regulations do not prohibit such a bank holding
company or affiliate from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Fund's method of
operations would affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively, the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Fund, FDISG was entitled to be paid fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Portfolios, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion.
In addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive all or a
portion of the administration fee payable to it by the Fund, either voluntarily
or pursuant to applicable statutory expense limitations. For the fiscal year
ended October 31, 1996, the Fund paid FDISG administration fees at the effective
rate of .___% of its average daily net assets.
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<PAGE> 58
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class B shares (Retail A Shares) and Class B Special Series 1 shares (Trust
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Retail A Shares and these other portfolios, which are offered through separate
prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield
quotations are computed separately for each series of Shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold without any sales charge and have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001, represents an equal proportionate interest in the related Fund
with other Shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
fractional votes for fractional Share held, and will vote in the aggregate and
not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
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<PAGE> 59
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Series Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services enumerated below to
Customers who are the beneficial owners of Retail A Shares in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by such Customers. Services under
the Shareholder Services Plan may include: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing Customers
with information as to their positions in Retail A Shares; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailing to Customers. Such services are
intended to supplement the services provided by FDISG as administrator and
transfer agent, and are described more fully in the Statement of Additional
Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemption of
Trust Shares and the dollar value of Trust Shares
-19-
<PAGE> 60
in each sub-account; crediting to each participant's sub-account all dividends
and distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Fleet Bank is
compensated by FDISG for the Sub-Account Services and in connection therewith
the transfer agency fees payable by Trust Shares of the Fund to FDISG have been
increased by an amount equal to these fees. In substance, therefore, the holders
of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Fund are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the Fund.
Galaxy bears the expenses incurred in the Fund's operations. Such expenses
include taxes; interest; fees (including fees paid to its Trustees and officers
who are not affiliated with FDISG); Securities and Exchange Commission fees;
state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders;
advisory, administration, shareholder servicing, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing service; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of their performance, may be quoted and compared
to those of other mutual funds with similar investment objectives and to other
relevant
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<PAGE> 61
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
such data is reported in national financial publications such as Donoghue's
Money Fund Report(R), A widely recognized independent publication that monitors
the performance of mutual funds. Also, the Fund's yield data may be reported in
national financial publications including, but not limited to, Money Magazine,
Forbes, Barron's, The Wall Street Journal, and The New York Times, or in
publications of a local or regional nature. The Fund's performance may also be
compared to the average yields reported by the Bank Rate Monitor for money
market deposit accounts offered by the 50 leading banks and thrift institutions
in the top five standard metropolitan statistical areas. The performance and
yield data will be calculated separately for Trust Shares and Retail A Shares of
the Fund.
The yield of the Fund will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. The Fund
may also advertise its "effective yield," which is calculated similarly but,
when annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
The Fund's yield will fluctuate and any quotation of yield should not
be considered as representative of future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of the Fund will not be included in calculations of
yield.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and
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<PAGE> 62
capital markets; investment strategies and techniques; investment products; and
tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy or the Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the lesser
of (a) more than 50% of the outstanding shares of Galaxy or the Fund, or (b) 67%
or more of the shares of Galaxy or the Fund present at a meeting if more than
50% of the outstanding shares of Galaxy or the Fund are represented at the
meeting in person or by proxy.
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<PAGE> 63
TRUST
THE GALAXY FUND
U.S. TREASURY FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 64
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY...............................................................
FINANCIAL HIGHLIGHTS..........................................................
INVESTMENT OBJECTIVE AND POLICIES.............................................
In General...........................................................
INVESTMENTS, STRATEGIES AND RISKS.............................................
U.S. Government Obligations..........................................
"When-Issued" Securities.............................................
INVESTMENT LIMITATIONS........................................................
PRICING OF SHARES.............................................................
HOW TO PURCHASE AND REDEEM SHARES.............................................
Distributor..........................................................
Purchase of Shares...................................................
Redemption of Shares.................................................
DIVIDENDS AND DISTRIBUTIONS...................................................
TAXES .....................................................................
Federal ............................................................
State and Local......................................................
Miscellaneous........................................................
MANAGEMENT OF THE FUND........................................................
Investment Adviser...................................................
Authority to Act as Investment Adviser...............................
Administrator........................................................
DESCRIPTION OF GALAXY AND ITS SHARES..........................................
Shareholder Services Plan............................................
Affiliate Agreement for Sub-Account Services.........................
CUSTODIAN AND TRANSFER AGENT..................................................
EXPENSES .....................................................................
PERFORMANCE AND YIELD INFORMATION.............................................
MISCELLANEOUS.................................................................
<PAGE> 65
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding
Westboro, Massachusetts initial purchases and
01581-5108 current performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other shareholder
services, call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the U.S. TREASURY FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests in securities with
remaining maturities of one year or less which are issued or guaranteed as to
principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. The Fund invests
at least 65% of its total assets in direct U.S. Government obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions including institutions affiliated with Fleet Financial Group, Inc.,
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue an additional series of shares in Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group Inc., and
affiliates.
<PAGE> 66
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information
about the Fund, contained in the Statement of Additional Information bearing the
same date, has been filed with the Securities and Exchange Commission. The
current Statement of Additional Information is available upon request without
charge by contacting Galaxy at its telephone numbers or address shown above. The
Statement of Additional Information, as it may be amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
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<PAGE> 67
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares
of the Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
U.S.
ANNUAL FUND OPERATING EXPENSES TREASURY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
- ------------------------------------------ ----
<S> <C>
Advisory Fees (After Fee Waivers)................................... .--%
12b-1 Fees.......................................................... None
Other Expenses (After Fee Waivers and Expense Reimbursements)....... . %
Total Fund Operating Expenses (After Fee Waivers and Expense
Reimbursements)................................................... . %
</TABLE>
- ------------------
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund $__ $__ $__ $__
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. Without voluntary fee waivers and/or expense
reimbursements by the Investment Adviser and/or Administrator, Advisory Fees
would be .40%, Other Expenses would be .__% and Total Fund Operating Expenses
would be .__% for Trust Shares of the Fund. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that may be charged by affiliates of Fleet Investment
Advisors, Inc. or other financial institutions directly to their customer
accounts for services related to an investment in Trust Shares of the fund are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
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<PAGE> 68
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares.
As of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares), and the Fund began offering a new series of
shares designated as Trust Shares. This Prospectus describes the Trust Shares in
the Fund. Retail A Shares in the Fund are offered under a separate prospectus.
Trust Shares and Retail A Shares in the Fund represent equal pro rata interests
in the Fund, except that (i) Retail A Shares in the Fund bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.10% of the average daily net asset value of the Fund's outstanding Retail A
Shares and (ii) Trust Shares and Retail A Shares bear differing transfer agency
expenses. See "Management of the Fund" and "Description of Galaxy and Its
Shares."
The financial highlights presented below have been audited by
[_________________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund for the
fiscal year ended October 31, 1996 (the "Annual Report"). Such financial
highlights should be read in conjunction with the financial statements contained
in the Annual Report and [______________________] into the Statement of
Additional Information. Information in the financial highlights for periods
prior to the fiscal year ended October 31, 1995 reflects the investment results
of Retail A Shares of the Fund and is intended to provide investors with a
longer-term perspective of the Fund's financial history. More information about
the performance of the Fund is contained in the Annual Report which may be
obtained without charge by contacting Galaxy at its telephone numbers or address
provided above.
-4-
<PAGE> 69
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Years Ended Period Ended
October 31, October 31,(1) October 31,
1996 1995 1994 1993 1992 1991(1),(2)
--------------------- ----------------------------------- --------
Trust Shares
------------ -------- -------- -------- --------
<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(3)..................... 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments..................... -- -- -- -- --
-------- -------- -------- -------- --------
Total from Investment Operations:...... 0.05 0.03 0.03 0.04 0.04
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income......... (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized
capital gains............................. -- -- -- -- --
-------- -------- -------- -------- --------
Total Dividends........................ (0.05) (0.03) (0.03) (0.04) (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(4).................................. 5.18% 3.30% 2.75% 3.69% 4.51%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................ $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income
including reimbursement/waiver.............. 5.06% 3.24% 2.71% 3.51% 4.26%(6)
Operating expenses
including reimbursement/waiver.............. 0.55% 0.56% 0.55% 0.49% 0.27%(6)
Operating expenses
excluding reimbursement/waiver.............. 0.55% 0.56% 0.55% 0.55% 0.65%(6)
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a simple series of shares.
As of such date, the Fund began issuing a second series of shares
designated as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the year ended October 31, 1992 and
the period ended October 31, 1991 were $0.04 and 0.04%, respectively.
(4) Total return for 1994 includes the effect of the voluntary capital
contributions of $1 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held
by the Fund. Without this capital contribution, the total return would
have been 3.30%.
(5) Not Annualized.
(6) Annualized.
-5-
<PAGE> 70
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund seeks to achieve its objective by
investing in securities with remaining maturities of one year or less which are
issued or guaranteed as to principal and interest by the U.S. Government or by
agencies or instrumentalities thereof, the interest income from which generally
will not be subject to state income tax by reason of current federal law. Such
instruments may include, but are not limited to, securities issued by the U.S.
Treasury and by certain U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, Federal Farm Credit Banks and the Student Loan
Marketing Association. The Fund invests at least 65% of its total assets in
direct U.S. Government obligations. Shareholders residing in a particular state
that has an income tax law should determine through consultation with their own
tax advisers whether such interest income, when distributed by the Fund, will be
considered by the state to have retained exempt status and whether the Fund's
capital gain and other income, if any, when so distributed will be subject to
the state's income tax. See "Taxes." The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less in an effort to maintain a stable
net asset value per share of $1.00. The value of the Fund's portfolio securities
will generally vary inversely with changes in prevailing interest rates.
Due to state income tax considerations, the Fund will not invest in
other securities, such as repurchase agreements and reverse repurchase
agreements, except under extraordinary circumstances such as when appropriate
U.S. Government securities are unavailable.
Portfolio securities held by the Fund have remaining maturities of one
year or less (with certain exceptions). The Fund may also invest in certain
variable and floating rate instruments as described under "Investments,
Strategies and Risks -- U.S. Government Obligations." For more information see
"Investments, Strategies and Risks" below.
Fleet Investment Advisors Inc., the Fund's investment adviser ("Fleet"
or the "Investment Adviser"), will use its best efforts to achieve the
investment objective of the Fund, although such achievement cannot be assured.
The investment objective of the Fund may not be changed without the approval of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
-6-
<PAGE> 71
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bills generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government- sponsored instrumentalities if it
is not obligated to do so by law.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns Trust Shares of
the Fund.
Some U.S. Government obligations may be issued as variable or floating
rate instruments. Variable rate instruments provide for periodic adjustments in
the interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Because
there may not always be an active secondary market for these instruments,
substantial holdings of variable and floating rate instruments could reduce
portfolio liquidity.
"WHEN-ISSUED" SECURITIES
The Fund may purchase securities on a "when-issued" basis. When-issued
transactions, which involve a commitment by the Fund to purchase particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit the Funds to lock in a price or yield on a security
it intends to purchase, regardless of future changes in interest rates.
When-issued transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when
-7-
<PAGE> 72
the securities delivery takes place. It is expected that, absent unusual market
conditions, commitments by the Fund to purchase securities on a when-issued
basis will not exceed 25% of the value of its total assets. These transactions
will not be entered into for speculative purposes, but only in furtherance of
the Fund's investment objective.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies.
2. Invest in obligations having remaining maturities in excess
of one year, except that certain variable and floating rate instruments
and securities subject to repurchase agreements may bear longer
maturities (provided certain provisions are met).
3. Purchase securities of any one issuer, other than U.S.
Government obligations, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets may
be invested without regard to this limitation.
4. Borrow money or issue senior securities, except from
domestic banks for temporary purposes, and then in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
5. Invest more than 10% of the value of the its total assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days,
-8-
<PAGE> 73
restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
With respect to Investment Limitation No 3. above, (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and (b) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
securities backed by the full faith and credit of the United States) are deemed
to be U.S. Government obligations.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
The Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and in the Statement of Additional Information relating to the Fund,
in order to comply with applicable laws and regulations, including the
provisions of and applicable regulations under the Investment Company Act of
1940, as amended (the "1940 Act"). In particular, the Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act, which regulates money
market mutual funds. Subject to Investment Limitation No. 2 above, the Fund will
determine the effective maturity of its investments according to Rule 2a-7.
Except with respect to Investment Limitation No. 2 above, the Fund may change
these operating policies to require changes in the laws and regulations without
shareholder approval.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
by dividing the value of all securities and other assets attributable to a
particular series of Shares of the Fund, less the liabilities attributable to
Shares of that series of the Fund, by the number of outstanding Shares of that
series of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of
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<PAGE> 74
the impact of fluctuating interest rates on the market value of the security.
Although Galaxy seeks to maintain the net asset value per Share of the Fund at
$1.00, there can be no assurance that the net asset value per Share will not
vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If any Institution accepts a
purchase order from its Customer on a non-
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Business Day, the order will not be executed until it is received and accepted
by the Distributor on a Business Day in accordance with the foregoing
procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Fund and
Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in
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both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend
to the persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of Shares on the day of declaration. The Fund's net income for dividend
purposes consists of all accrued income, whether taxable or tax-exempt, plus
discount earned on the Fund's assets attributable to Trust Shares, less
amortization of premium on such assets and accrued expenses attributable to
Trust Shares of the Fund. Dividends on each Share of the Fund are determined in
the same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. The Fund does not
expect to realize net capital gains. However, if any such gains are realized,
they will be paid out to shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect
to have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
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Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including interest) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each year. Such dividends will be
taxable as ordinary income to the Fund's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional Trust Shares. Because all of the Fund's net investment
income is expected to be derived from earned interest, it is anticipated that no
part of any distribution will be eligible for the dividends received deduction
for corporations.
Dividends declared in October, November or December of any year that
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
The Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Fund, that are attributable to
interest on direct U.S. Treasury obligations or obligations of certain U.S.
Government agencies, are the functional equivalent of interest from such
obligations and are, therefore, exempt from state and local income taxes.
Shareholders should consult their own tax adviser about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation, including the application of state and local tax laws.
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<PAGE> 78
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets at December 31, 1996 of $____
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Institutional Treasury Money Market,
Money Market, Government, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity, Asset Allocation, Small Cap
Value, Growth and Income, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
.40% of the first $750,000,000 of the average daily net assets of the Fund plus
.35% of the average daily net assets of the Fund in excess of $750,000,000.
Fleet may from time to time, in its discretion, waive advisory fees payable by
the Fund in order to help maintain a competitive expense ratio, and may from
time to time allocate a portion of its advisory fees to Fleet Trust Company or
other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and shareholder support services which they provide to beneficial
shareholders. For the fiscal year ended October 31, 1996, Fleet received
advisory fees at the effective annual rate of 0.__% of the Fund's average daily
net assets.
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<PAGE> 79
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Fund, but such banking laws and regulations do not prohibit such a
bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. The Investment
Adviser, custodian and Institutions that are banks or bank affiliates are
subject to such banking laws and regulations.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Funds' method of
operations would affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively, the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Fund, FDISG was entitled to be paid fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Portfolios, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion.
In addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund
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<PAGE> 80
accounting services. From time to time, FDISG may waive all or a portion of the
administration fee payable to it by the Fund, either voluntarily or pursuant to
applicable statutory expense limitations. For the fiscal year ended October 31,
1996, the Fund paid FDISG administration fees at the effective rate of .___% of
its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class F shares (Retail A Shares) and Class F-Special Series 1 shares (Trust
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Retail A Shares and these other portfolios, which are offered through separate
prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield
quotations are computed separately for each series of Shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold without a sales charge and have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001, represents an equal proportionate interest in the related Fund
with other Shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
fractional votes for fractional Shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law or when
the Board of Trustees
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determines that the matter to be voted on affects only the
interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares in consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by such Customers. Services under the Shareholder Services
Plan may include: aggregating and processing purchase and redemption request and
placing net purchase and redemption orders with the Distributor; processing
dividend payments from the Fund; providing Customers with information as to
their positions in Retail A Shares; providing sub-accounting with respect to
Retail A Shares or the information necessary for sub-accounting; and providing
periodic mailings to Customers. Such services are intended to supplement the
services provided by FDISG as administrator and transfer agent, and are
described more fully in the Statement of Additional Information under
"Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
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FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Funds are described in the Statement of Additional
Information. Communications to First Data should be directed to First Data at
P.O. Box 5108, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the Fund.
The Fund bears the expenses incurred in the Fund's operations. Such expenses
include taxes; interest; fees (including fees paid to its Trustees and officers
who are not affiliated with FDISG); Securities and Exchange Commission fees;
state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders;
advisory, administration, shareholder servicing, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
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<PAGE> 83
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to those of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
Donoghue's Money Fund Report(R), A widely recognized independent publication
that monitors the performance of mutual funds. Also, the Fund's yield data may
be reported in national financial publications including, but not limited to,
Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York
Times, or in publications of a local or regional nature. The Fund's performance
may also be compared to the average reported by the Bank Rate Monitor for money
market deposit accounts offered by the 50 leasing bank and thrift institutions
in the top five standard metropolitan statistical areas. The performance and
yield data will be calculated separately for Trust Shares and Retail A Shares of
the Fund.
The yield of the Fund will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. The Fund
may also advertise the "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
In addition, the Fund may calculate a "state flow through yield" which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The "state flow
through yield" refers to that portion of income which is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of one
minus a stated income tax rate. For illustrative purposes, state flow through
yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Fund's yield will fluctuate and any quotation of yield should not
be considered as representative of future performance of the Fund. Since yields
fluctuate, yield data cannot
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<PAGE> 84
necessarily be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. Any fees charged directly by
Institutions with respect to accounts of Customers that have invested in Trust
Shares of the Fund will not be included in calculations of yield.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
markets indices; shareholder profits and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy or the Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the lesser
of (a) more than 50% of the outstanding shares of Galaxy or the Fund, or (b) 67%
or more of the shares of Galaxy or the Fund present at a meeting if more than
50% of the outstanding shares of Galaxy or the Fund are represented at the
meeting in person or by proxy.
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<PAGE> 85
TRUST
THE GALAXY FUND
MONEY MARKET FUND
GOVERNMENT FUND
U.S. TREASURY FUND
TAX-EXEMPT FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 86
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
EXPENSE SUMMARY............................................................
FINANCIAL HIGHLIGHTS.......................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
In General...........................................................
Quality Requirements.................................................
Money Market Fund....................................................
Government Fund......................................................
U.S. Treasury Fund...................................................
Tax-Exempt Fund......................................................
INVESTMENTS, STRATEGIES AND RISKS..........................................
U.S. Government Obligations..........................................
Money Market Instruments.............................................
Municipal Securities.................................................
Repurchase and Reverse Repurchase Agreements.........................
Securities Lending -- Money Market and Government
Funds..........................................................
Guaranteed Investment Contracts -- Money Market Fund.................
Asset-Backed Securities -- Money Market Fund.........................
Investment Company Securities -- Tax-Exempt Fund.....................
Other Investment Policies of the Tax-Exempt Fund.....................
Certain Investment Policies of the U.S. Treasury and
Government Funds...............................................
INVESTMENT LIMITATIONS.....................................................
PRICING OF SHARES..........................................................
HOW TO PURCHASE AND REDEEM SHARES..........................................
Distributor..........................................................
Purchase of Shares...................................................
Redemption of Shares.................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES .....................................................................
Federal..............................................................
State and Local......................................................
Miscellaneous........................................................
MANAGEMENT OF THE FUNDS....................................................
Investment Adviser...................................................
Authority to Act as Investment Adviser...............................
</TABLE>
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<PAGE> 87
<TABLE>
<CAPTION>
PAGE
<S> <C>
Administrator........................................................
DESCRIPTION OF GALAXY AND ITS SHARES.......................................
Shareholder Services Plan............................................
Affiliate Agreement for Sub-Account Services.........................
CUSTODIAN AND TRANSFER AGENT...............................................
EXPENSES...................................................................
PERFORMANCE AND YIELD INFORMATION..........................................
MISCELLANEOUS..............................................................
</TABLE>
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<PAGE> 88
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding
Westboro, Massachusetts initial purchases and
01581-5108 current performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other share-
holder services, call 1-800-
628-0143.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes four series of Galaxy shares (collectively, "Trust
Shares" or "Shares") which represent interests in four separate diversified
money market portfolios (individually, a "Fund," collectively, the "Funds")
offered to investors by Galaxy, each having its own investment objective and
policies:
The MONEY MARKET FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of one year
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances and commercial paper (including variable and floating rate
obligations) in addition to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
The GOVERNMENT FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in obligations with remaining maturities of one year or less which
are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
The U.S. TREASURY FUND'S investment objective is to seek current income
with liquidity and stability of principal. The Fund invests in securities with
remaining maturities of one year or less which are issued or guaranteed as to
principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. The Fund invests
at least 65% of its total assets in direct U.S. Government obligations.
The TAX-EXEMPT FUND'S investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal. The
<PAGE> 89
Fund invests substantially all of its assets in high quality debt obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their authorities, agencies,
instrumentalities, and political subdivisions, the interest on which, in the
opinion of bond counsel or counsel to the issuer, is exempt from federal income
tax ("Municipal Securities"). The Fund's portfolio securities will generally
have remaining maturities of not more than one year.
This Prospectus describes Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and with respect to each Fund except the Tax-Exempt Fund, to participants
in employer-sponsored defined contribution plans. Galaxy is also authorized to
issue an additional series of shares, Retail A Shares, in the Government, U.S.
Treasury and Tax-Exempt Funds, and two additional series of shares, Retail A
Shares and Retail B Shares, in the Money Market Fund. Retail A Shares are
offered under a separate prospectus primarily to individuals, corporations or
other entities purchasing either for their own accounts or for the accounts of
others and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers on behalf of their customers. Retail B
Shares in the Money Market Fund are not offered for purchase and are available
only to the holders of Retail B Shares in Galaxy's Short-Term Bond, High
Quality Bond, Tax-Exempt Bond, Equity Value, Equity Growth, Small Company
Equity, Asset Allocation, and Growth and Income Funds who wish to exchange their
Retail B Shares in such Funds for Retail B Shares in the Money Market Fund.
Trust Shares, Retail A Shares and Retail B Shares in a Fund represent equal pro
rata interests in the Fund, except they bear different expenses which reflect
the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Funds" and "Description of Galaxy and Its
Shares."
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc. and affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S.
-2-
<PAGE> 90
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 POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Funds that
a prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-3-
<PAGE> 91
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares of
each Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
========================================================================================================
ANNUAL FUND OPERATING EXPENSES MONEY MARKET GOVERNMENT U.S. TREASURY TAX-EXEMPT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND FUND FUND FUND
- --------------------------------------- ------ ------ ------ -----
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers).......... .__% .__% .__% .__%
12b-1 Fees................................. None None None None
Other Expenses (After Fee Waivers and
Expense Reimbursements).................. . % . % . % . %
--- --- --- ---
Total Fund Operating Expenses (After Fee
Waivers and Expense Reimbursements)...... . % . % . % . %
=== === === ===
========================================================================================================
</TABLE>
- ------------------
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
=====================================================================================
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund............. $__ $__ $__ $__
Government Fund............... $__ $__ $__ $__
U.S. Treasury Fund............ $__ $__ $__ $__
Tax-Exempt Fund............... $__ $__ $__ $__
=====================================================================================
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds bears
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Funds during the last fiscal year,
restated to reflect the expenses that each Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers and/or
expense reimbursements by the Investment Adviser and/or Administrator, Advisory
Fees would be .40%, .40%, .40% and .40%, Other Expenses would be .__%, .__%,
.__% and .__%, and Total Fund Operating Expenses would be .__%, .__%, .__% and
.__%, respectively for Trust Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds, respectively. For more complete descriptions of
these costs and expenses, see "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Funds. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or
<PAGE> 92
any other institution directly to their customer accounts for services related
to an investment in Trust Shares of the Funds are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
-2-
<PAGE> 93
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, each Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and each Fund began offering a new series of shares
designated as Trust Shares. The Money Market Fund also offers an additional
series of shares, Retail B Shares. This Prospectus describes the Trust Shares in
the Funds. Retail A Shares in the Funds and Retail B Shares in the Money Market
Fund are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares", Trust Shares, Retail A Shares and
Retail B Shares in a Fund represent equal pro rata interests in the Fund,
except that (i) Retail A Shares of the Fund bear the expenses incurred under
Galaxy's Shareholder Services Plan at an annual rate of up to .10% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B Shares of the Money Market Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan for Retail B Shares at an annual rate
of up to .75% of the average daily net asset value of the Money Market Fund's
outstanding Retail B Shares and (iii) Trust Shares, Retail A Shares and Retail
B Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
(_______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds for
the fiscal year ended October 31, 1996 (the "Annual Report"). Such financial
highlights should be read in conjunction with the financial statements contained
in the Annual Report and [_____________________________] into the Statement of
Additional Information relating to the Funds. Information in the financial
highlights for periods prior to the fiscal year ended October 31, 1995 reflects
the investment results of Retail A Shares of the Funds and is intended to
provide investors with a long-term perspective of the Funds' financial history.
More information about the performance of the Funds is also contained in the
Annual Report which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-3-
<PAGE> 94
MONEY MARKET FUND
(FOR A SHARE1 OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 YEARS ENDED OCTOBER 31,(1)
------------------ -------------------------------------------------------------------
TRUST SHARES 1994 1993 1992 1991 1990 1989
------------ -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(3),(4)........ 0.05 0.03 0.03 0.04 0.06 0.08 0.09
Net realized and unrealized gain
(loss) on investments.............. - - - - - - -
------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations: 0.05 0.03 0.03 0.04 0.06 0.08 0.09
------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income.. (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09)
Dividends from net realized capital
gains(5)............................. - - - - - - -
------- -------- -------- -------- -------- -------- --------
Total Dividends:............... (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09)
-------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in net asset
value................................. - - - - - - -
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ======== ========
Total Return(6)......................... 5.43% 3.35% 2.78% 4.07% 6.40% 8.11% 9.09%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $334,054 $797,399 $577,558 $590,911 $415,541 $444,303 $410,121
Ratios to average net assets:
Net investment income including
reimbursement/waiver................ 5.30% 3.38% 2.74% 3.74% 6.24% 7.82% 8.73%
Operating expenses including
reimbursement/waiver................ 0.55% 0.64% 0.63% 0.58% 0.59% 0.59% 0.58%
Operating expenses excluding
reimbursement/waiver................ 0.56% 0.64% 0.63% 0.58% 0.59% 0.59% 0.59%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
-------------------
1988 1987(1),(2)
-------- --------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income(3),(4)......... 0.07 0.06
Net realized and unrealized gain
(loss) on investments............... - -
-------- --------
Total from Investment
Operations: 0.07 0.06
-------- --------
Less Dividends:
Dividends from net investment income.. (0.07) (0.06)
Dividends from net realized capital
gains(5)............................... - -
-------- --------
Total Dividends:............... (0.07) (0.06)
--------- ---------
Net increase (decrease) in net asset
value................................. - -
-------- --------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00
======== ========
Total Return(6)........................... 7.08% 6.09%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $210,712 $192,400
Ratios to average net assets:
Net investment income including
reimbursement/waiver............... 6.92% 6.27%(8)
Operating expenses including
reimbursement/waiver............... 0.59% 0.52%(8)
Operating expenses excluding
reimbursement/waiver............... 0.59% 0.57%(8)
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on November 17, 1986.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the year ended October 31, 1989
and the period ended October 31, 1987 were $0.09 and $0.06, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for Trust Shares for the years ended
October 31, 1996 and 1995 were $____ and $0.05, respectively.
(5) Represents less than $0.01 per share for year 1992 and 1987.
(6) Total return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.35%.
(7) Not Annualized.
-4-
<PAGE> 95
(8) Annualized.
-5-
<PAGE> 96
GOVERNMENT FUND
(FOR A SHARE1 OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
YEAR ENDED ------------------------------------------------------
OCTOBER 31, PERIOD
1996 1995 ENDED
-----------------
TRUST OCTOBER 31,
SHARES 1994 1993 1992 1991 1990 1989 1988 1988(1),(2)
------ ---- ---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from Investment
Operations:
Net investment income(3),(4). 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07 0.06
Net realized and
unrealized gain (loss)
on investments............... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations:............... 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07 0.06
------ ------ ------ ------ ------ ------ ------ ------ ------
Less Dividends:
Dividends from net
investment income............ (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06)
Dividends from net
realized capital gains(5).... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Dividends........... (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in net asset value........... -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return(6)................ 5.39% 3.49% 2.83% 4.19% 6.25% 8.10% 8.82% 6.91% 6.08%(7)
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)............... $678,679 $759,106 $685,304 $636,338 $436,232 $335,443 $303,181 $141,545 $178,100
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 5.27% 3.36% 2.79% 3.67% 6.05% 7.80% 8.59% 6.73% 6.38%(8)
Operating expenses
including reimbursement/
waiver....................... 0.53% 0.54% 0.55% 0.53% 0.56% 0.56% 0.60% 0.60% 0.53%(8)
Operating expenses
excluding reimbursement/
waiver.................... 0.54% 0.54% 0.55% 0.53% 0.56% 0.57% 0.61% 0.60% 0.57%(8)
</TABLE>
-6-
<PAGE> 97
- --------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on November 17, 1986.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the years ended October 31, 1990
and 1989 and the period ended October 31, 1987 was $0.08, $0.09 and $0.06,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the Trust Shares for the fiscal
years ended October 31, 1996 and 1995 were $_____ and $0.05, respectively.
(5) Represents less than $0.01 per share for years 1992, 1990, 1989, 1988 and
1987.
(6) Total return for 1994 includes the effect of the voluntary capital
contribution of $2.3 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
(7) Not Annualized.
(8) Annualized.
-7-
<PAGE> 98
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
YEAR ENDED
OCTOBER 31,
1996 1995
------------------- PERIOD ENDED
TRUST OCTOBER 31,
SHARES 1994 1993 1992 1991(1,2)
------ ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of $1.00 $1.00 $1.00 $1.00 $1.00
Period.............................. ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income(3).......... 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments............... -- -- -- -- --
---- ---- ---- ---- ----
Total from Investment 0.05 0.03 0.03 0.04 0.04
---- ---- ---- ---- ----
Operations:
Less Dividends:
Dividends from net investment (0.05) (0.03) (0.03) (0.04) (0.04)
income..............................
Dividends from net realized -- -- -- -- --
capital gains...............
---- ---- ---- ---- ----
Total Dividends............. (0.05) (0.03) (0.03) (0.04) (0.04)
----- ----- ----- ----- -----
Net increase (decrease) in net -- -- -- -- --
asset value......................... ---- ---- ---- ---- ----
$1.00 $1.00 $1.00 $1.00 $1.00
Net Asset Value, End of Period...... ===== ===== ===== ===== =====
Total Return(4)..................... 5.18% 3.30% 2.75% 3.69% 4.51%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income including 2.71% 3.51% 4.26%(6)
reimbursement/waiver............ 5.06% 3.24%
Operating expenses including
reimbursement/waiver............ 0.55% 0.56% 0.55% 0.49% 0.27%(6)
Operating expenses excluding
reimbursement/waiver............ 0.55% 0.56% 0.55% 0.57% 0.65%(6)
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated Retail Shares (now
designated Retail A Shares) and the Fund began issuing a second series of
shares designated as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the year ended October 31, 1992 and the
period ended October 31, 1991 was $0.04 and $0.04, respectively.
(4) Total return for 1994 includes the effect of the voluntary capital
contribution of $1 million from the Investment Adviser in order to partially
offset losses realized on the sale of certain securities held by the Fund.
Without this capital contribution, the total return would have been 3.30%.
(5) Not Annualized.
(6) Annualized.
-8-
<PAGE> 99
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
----------------------------------------------------------------------
YEAR ENDED
OCTOBER 31,
1996 1995 PERIOD
------------------- ENDED
TRUST OCTOBER 31,
SHARES 1994 1993 1992 1991 1990 1989 1988(1,2)
------ ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ----- ----- ----- ----- ----- -----
Income from Investment
Operations:
Net investment income(3,4)............ 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.02
Net realized and unrealized gain
(loss) on investments............. -- -- -- -- -- -- -- --
----- ------ ----- ----- ----- ----- ----- -----
Total from Investment Operations:... 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.02
----- ------ ----- ----- ----- ----- ----- -----
Less Dividends:
Dividends from net investment
income .......................... (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.02)
Dividends from net realized
capital gains .................... -- -- -- -- -- -- -- --
----- ------ ----- ----- ----- ----- ----- -----
Total Dividends:................... (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.02)
----- ------ ----- ----- ----- ----- ------ -----
Net increase (decrease) in net asset
value .......................... -- -- -- -- -- -- -- --
----- ------ ----- ----- ----- ----- ----- -----
Net Asset Value, End of Period.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== =====
Total Return............................ 3.29% 2.24% 1.93% 2.71% 4.51% 5.51% 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $180,706 $271,050 $301,399 $223,173 $194,098 $119,377 $131,358 $41,319
Ratios to average net assets:
Net investment income
including reimbursement/waiver..... 3.24% 2.12% 1.92% 2.64% 4.37% 5.37% 5.82% 5.42%(6)
Operating expenses
including reimbursement/waiver..... 0.55% 0.58% 0.59% 0.57% 0.60% 0.60% 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver............... 0.56% 0.58% 0.59% 0.57% 0.60% 0.61% 0.61% 0.72%(6)
</TABLE>
- -----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on June 23, 1988.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal years ended October
31, 1990 and 1989 and the period ended October 31, 1988 was $0.05, $0.06
and $0.02, respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by the Investment Adviser and/or Administrator
for the fiscal year ended October 31, 1995 was $0.03.
(5) Not Annualized.
(6) Annualized.
-9-
<PAGE> 100
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc., the Funds' investment adviser ("Fleet" or the
"Investment Adviser"), will use its best efforts to achieve each Fund's
investment objective, although such achievement cannot be assured. The
investment objective of a Fund may not be changed without the approval of the
holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program. Each Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less in an effort to maintain a stable net asset value per share of
$1.00. The value of the Funds' portfolio securities will generally vary
inversely with changes in prevailing interest rates.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Agencies") (such
as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch Investors Services, L.P. ("Fitch")) in the highest category
for short-term debt securities, (ii) is rated by the only Rating Agency
that has issued a rating with respect to such security or issuer in such Rating
Agency's highest category for short-term debt, or (iii) if not rated, the
security is determined to be of comparable quality. The Tax-Exempt Fund will
not purchase a security (other than a U.S. Government security) unless the
security (i) is rated by at least two such Rating Agencies in one of the two
highest categories for short-term debt securities, (ii) is rated by the only
Rating Agency that has assigned a rating with respect to such security in one
of such Rating Agency's two highest categories for short-term debt, or (iii) if
not rated, the security is determined to be of comparable quality. These rating
categories are determined without regard to sub-categories and gradations. The
Funds will follow applicable regulations in determining whether a security
rated by more than one Rating Agency can be treated as being in the highest or,
with respect to the Tax-Exempt Fund one of the two highest, short-term rating
categories. See "Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency,
-10-
<PAGE> 101
the Investment Adviser will acquire the security if it determines that the
security is of comparable quality to securities that have received the requisite
ratings. The Investment Adviser also considers other relevant information in its
evaluation of unrated short-term securities.
MONEY MARKET FUND
The Money Market Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in "money market" instruments
that are determined by the Investment Adviser to present minimal credit risk and
meet certain rating criteria. Instruments that may be purchased by the Money
Market Fund include obligations of domestic and foreign banks (including
negotiable certificates of deposit, non-negotiable time deposits, savings
deposits, and bankers' acceptances); commercial paper (including variable and
floating rate notes); obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; and repurchase agreements issued by financial
institutions such as banks and broker/dealers. These instruments have remaining
maturities of one year or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Quality
Requirements" above and "Investments, Strategies and Risks" below.
GOVERNMENT FUND
The Government Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to such
obligations. These instruments have remaining maturities of one year or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Investments, Strategies and Risks" below.
U.S. TREASURY FUND
The U.S. Treasury Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund seeks to achieve its objective by
investing in those securities issued or guaranteed as to principal and interest
by the U.S. Government or by agencies or instrumentalities thereof, the interest
income from which generally will not be subject to state income tax by reason of
current federal law. Such instruments may include, but are not limited to,
securities
-11-
<PAGE> 102
issued by the U.S. Treasury and by certain government agencies or
instrumentalities such as the Federal Home Loan Banks, Federal Farm Credit Banks
and the Student Loan Marketing Association. The Fund invests at least 65% of its
total assets in direct U.S. Government obligations. Shareholders residing in a
particular state that has an income tax law should determine through
consultation with their own tax advisers whether such interest income, when
distributed by the Fund, will be considered by the state to have retained exempt
status and whether the Fund's capital gain and other income, if any, when so
distributed will be subject to the state's income tax. See "Taxes."
Due to state income tax considerations, the Fund will not invest in other
securities, such as repurchase agreements and reverse repurchase agreements,
except under extraordinary circumstances such as when appropriate U.S.
Government securities are unavailable.
Portfolio securities held by the Fund have remaining maturities of one year
or less (with certain exceptions). The Fund may also invest in certain variable
and floating rate instruments as described under "Investments, Strategies and
Risks -- Money Market Instruments." For more information, including applicable
quality requirements, see "Quality Requirements" above and "Investments,
Strategies and Risks" below.
TAX-EXEMPT FUND
The Tax-Exempt Fund's investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal by investing substantially all of its assets in Municipal
Securities that present minimal credit risk and meet the rating criteria
described above under "Quality Requirements." The Fund is designed for investors
in higher tax brackets who are seeking a relatively high amount of tax-free
income with stability of principal and less price volatility than would normally
be associated with intermediate-term and longer-term Municipal Securities.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. However, the Fund may from time to time, during temporary defensive
periods, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit,
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commercial paper, or bankers' acceptances; (iv) repurchase agreements
collateralized by U.S. Government obligations or other "money market"
instruments; or (v) securities issued by other investment companies that invest
in high quality, short-term Municipal Securities. For more information including
applicable quality requirements, see "Quality Requirements" above and
"Investments, Strategies and Risks" below.
In seeking to achieve its investment objective, the Tax- Exempt Fund may
invest in "private activity bonds" (see "Investments, Strategies and Risks --
Municipal Securities"), the interest on which may be subject to the federal
alternative minimum tax. Investments in such securities, however, will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not exceed
20% of the Fund's total assets when added together with any taxable investments
held by the Fund.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns Trust Shares of the
Funds.
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MONEY MARKET INSTRUMENTS
"Money Market" instruments include bank obligations and commercial paper.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation, or by
a savings and loan association or savings bank that is insured by the Federal
Deposit Insurance Corporation. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations.
Investments in bank obligations are limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase. Investments in non-negotiable time deposits are limited to no more
than 5% of the Money Market Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulations which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Investments in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks will be made only when the Investment Adviser
believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition
under the federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) Paper is normally resold to other
institutional investors through or with the assistance of investment dealers
which make a market in Section 4(2) Paper, thus providing liquidity.
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The Money Market and Tax-Exempt Funds may also purchase Rule 144A securities.
See "Investment Limitations."
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses, and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held by
the Tax-Exempt Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity revenue bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
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The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment, but not a legal obligation, of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by the Fund.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. The Fund
treats variable rate demand notes as maturing on the later of the date of the
next interest rate adjustment or the date on which the Fund may next tender the
security for repurchase.
Municipal Securities purchased by the Tax-Exempt Fund in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit a guarantee with
respect to a Municipal Security held by the Tax-Exempt Fund, including a change
in the credit quality of any such bank or financial institution, could result in
a loss to the Fund and adversely effect the value of its Shares. As described
above under "Money Market Instruments", letters of credit and guarantees issued
by foreign banks and financial institutions involve certain risks in addition to
those similar instruments issued by domestic banks and financial institutions.
TENDER OPTION BONDS
The Tax-Exempt Fund may purchase tender option bonds and similar securities.
A tender option bond generally has a long
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maturity and bears interest at a fixed rate substantially higher than prevailing
short-term tax-exempt rates, and is coupled with an agreement by a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, usually upon not more
than seven days notice or at periodic intervals, to tender their securities to
the institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in the Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Investment Adviser will monitor, on an ongoing basis, the creditworthiness of
the issuer of the tender option bond, the financial institution providing the
option, and any custodian holding the underlying long-term bond. The bankruptcy,
receivership, or default of any of the parties to the tender option bond will
adversely affect the quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating
rate instruments. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic
adjustment of the interest rate whenever some other specified interest rate
changes. Some variable and floating rate obligations are direct lending
arrangements between the purchaser and the issuer and there may be no active
secondary market. However, in the case of variable and floating rate
obligations with a demand feature, a Fund may demand payment of principal and
accrued interest at a time specified in the instrument or may resell the
instrument to a third party. In the event an issuer of a variable or floating
rate obligation defaulted on its payment obligation, a Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default. Variable or
floating rate instruments acquired by the Government and U.S. Treasury Funds are
similar in form, but, because they would be issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, may have a more active
secondary market. Substantial holdings of variable and floating rate
instruments could reduce portfolio liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually specified
date and price ("repurchase agreements"). Repurchase agreements will only be
entered into with financial institutions such as banks and broker/dealers that
are deemed to be creditworthy by the Investment Adviser under guidelines
approved by Galaxy's Board of Trustees. No Fund will enter into repurchase
agreements with Fleet or any of its affiliates. Unless a repurchase agreement
has a remaining maturity of seven days or less or may be terminated on demand
upon notice of seven days or less, the repurchase agreement will be considered
an illiquid security and will be subject to the 10% limit described in
Investment Limitations Nos. 5 and 8 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. The Tax-Exempt Fund's investment in repurchase agreements will be,
under normal market conditions, subject to the 20% overall limit on taxable
obligations.
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The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
SECURITIES LENDING -- MONEY MARKET AND GOVERNMENT FUNDS
The Money Market and Government Funds may lend their portfolio securities to
financial institutions such as banks and broker/dealers in accordance with their
investment limitations. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail financially.
Any portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, and will be made only
to borrowers deemed by the Investment Adviser to be of good standing and only
when, in the Investment Adviser's judgment, the income to be earned from the
loan justifies the attendant risks. The Funds currently intend to limit the
lending of their portfolio securities so that, at any given time, securities
loaned by a Fund represent not more than one-third of the value of its total
assets.
GUARANTEED INVESTMENT CONTRACTS -- MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts ("GICs")
issued by United States insurance companies. Pursuant to such contracts, the
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
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ASSET-BACKED SECURITIES -- MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The Fund
will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information.
INVESTMENT COMPANY SECURITIES -- TAX-EXEMPT FUND
The Tax-Exempt Fund may invest in securities issued by other open-end
investment companies that invest in high quality, short-term Municipal
Securities and that meet the applicable quality requirements described above
under "Quality Requirements" and that determine their net asset value per share
based on the amortized cost or penny-rounding method. Investments in other
investment companies will cause the Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Such securities may be acquired by the Fund
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund currently intends to limit its investments in other
investment companies so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund. The Fund
will invest in other investment companies primarily for the purpose of investing
its short-term cash which has not as yet been invested in other portfolio
instruments.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT FUND
The Tax-Exempt Fund may purchase Municipal Securities on a "when-issued"
basis. When-issued transactions, which involve a commitment by the Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later) permits the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. When-issued transactions involve the risk, however,
that the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected
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that, absent unusual market conditions, commitments by the Fund to purchase
when-issued securities will not exceed 25% of the value of its total assets.
These transactions will not be entered into for speculative purposes, but only
in furtherance of the Fund's investment objective.
In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Securities held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Fund's option specified Municipal Securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. Stand-by commitments acquired by the Fund would be valued at zero in
determining the Fund's net asset value. The default or bankruptcy of a
securities dealer giving such a commitment would not affect the quality of the
Municipal Securities purchased by the Fund. However, without a stand-by
commitment, these securities could be more difficult to sell. The Fund will
enter into stand-by commitments only with those dealers whose credit the
Investment Adviser believes to be of high quality.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects. To the extent that the
Fund's assets are concentrated in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the peculiar risks presented by
such projects to a greater extent than it would be if its assets were not so
invested.
CERTAIN INVESTMENT POLICIES OF THE U.S. TREASURY AND GOVERNMENT FUNDS
The U.S. Treasury and Government Funds may purchase securities on a
"when-issued" basis, as described under "Other Investment Policies of the
Tax-Exempt Fund."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
each Fund, except the U.S. Treasury Fund, may enter into repurchase
agreements with respect to portfolio securities, and (iii) the Money
Market and Government Funds may lend portfolio securities against
collateral consisting of cash or securities that are consistent with the
Fund's permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Invest in obligations having remaining maturities in excess of
one year, except that certain variable and floating rate instruments and
securities subject to repurchase agreements may bear longer maturities
(provided certain provisions are met).
3. Purchase securities of any one issuer, other than U.S. Government
obligations, if immediately after such purchase more than 5% of the value
of its total assets would be invested in the securities of such issuer
(the "5% limitation"), except that up to 25% of the value of its total
assets may be invested without regard to this limitation.
In addition, the Tax-Exempt Fund may not:
4. Borrow money or issue senior securities, except from banks for
temporary purposes, and then in amounts not in excess of 10% of the value
of its total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of its total assets at the time of such borrowing. The Fund
will not purchase any portfolio securities while borrowings in excess of
5% of its total assets are outstanding.
5. Knowingly invest more than 10% of the value of its total assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days and other securities which are not
readily marketable.
6. Purchase any securities that would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the United
States, any state or territory, any possession
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of the U.S. Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities, or political subdivisions.
In addition, the Money Market, Government and U.S. Treasury Funds may not:
7. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10% of
the value of a Fund's total assets at the time of such borrowing (provided
that the Money Market and Government Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment policies and in
amounts not in excess of 10% of the value of their respective total assets
at the time of such borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of
a Fund's total assets at the time of such borrowing. A Fund will not
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
8. Invest more than 10% of the value of a Fund's total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time deposits
and other securities which are not readily marketable.
In addition to the foregoing limitations, the Money Market Fund may not
purchase securities that would cause 25% or more of the value of a Fund's total
assets at the time of purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry;
provided, however, that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or by domestic banks or U.S. branches of foreign banks; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No 3. above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security, or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of
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a guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 7 above, each of the Money
Market and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of the limitation.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the Statement of Additional Information relating to the Funds in
order to comply with applicable laws and regulations, including the provisions
of and regulations under the 1940 Act. In particular, each Fund will comply with
the various requirements of Rule 2a-7 under the 1940 Act, which regulates money
market mutual funds. In accordance with Rule 2a-7, the Money Market Fund is
subject to the 5% limitation contained in Investment Limitation No. 3 above as
to all of its assets; however in accordance with such Rule, the Money Market
Fund will be able to invest more than 5% (but no more than 25%) of its total
assets in the securities of a single issuer for a period of up to three business
days after the purchase thereof, provided that the Fund may not hold more than
one such investment at any one time. Subject to Investment Limitation No. 2
above, each Fund will determine the effective maturity of its respective
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by Rating Agencies, according to Rule 2a-7.
Except with respect to Investment Limitation No. 2 above, a Fund may change
these operating policies to reflect changes in the laws and regulations without
the approval of its shareholders.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales
of certain securities to qualified institutional buyers. A Fund's investment
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
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Funds' 10% limitation on purchases of illiquid instruments, Rule 144A securities
will not be considered to be illiquid if the Investment Adviser has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
PRICING OF SHARES
Net asset value per Share of each Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
of a Fund by dividing the value of all securities and other assets attributable
to a particular series of Shares of the Fund, less the liabilities attributable
to Shares of that series of the Fund, by the number of outstanding Shares of the
Fund.
The assets in each Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy seeks to maintain the net asset value per
share of each Fund at $1.00, there can be no assurance that the net asset value
per share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and, with respect to each Fund other
than the Tax-Exempt Fund, to participants in employer-sponsored defined
contribution
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plans (such institutions and plans are referred to herein collectively as
"Institutions"). Trust Shares sold to such investors ("Customers") will be held
of record by Institutions. The Institution is responsible for transmitting to
the Distributor orders for purchases of Trust Shares and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Beneficial ownership of Trust Shares will be recorded by the
Institution and reflected in the account statements it provides to its
Customers. Confirmations of purchases and redemptions of Trust Shares will be
sent to the appropriate Institution. Purchases of Trust Shares will be effected
only on days on which the Distributor, Galaxy's custodian and the purchasing
Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Funds and
share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts
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maintained by their Customers, and may also require that Customers maintain
minimum account balances with respect to Trust Shares.
Trust Shares of the Funds (other than the Tax-Exempt Fund) may also be
available for purchase through different types of retirement plans offered by an
Institution to its Customers. Information pertaining to such plans is available
directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of each Fund is declared daily as a dividend to
the persons who are shareholders of the respective Funds immediately after the
11:00 a.m. pricing of Shares on the day of declaration. A Fund's net income for
dividend purposes consists of all accrued income, whether taxable or tax-exempt,
plus discount earned on the Fund's assets attributable to Trust Shares, less
amortization of premium on such assets and accrued
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expenses attributable to Trust Shares of the Fund. Dividends on each Share of
the Funds are determined in the same manner, irrespective of series, but may
differ in the amount because of the difference in the expenses paid by the
respective series. None of the Funds expect to realize net capital gains.
However, if any such gains are realized, they will be paid out to shareholders
no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customer's accounts at their respective Institutions.
TAXES
FEDERAL
In General. Each of the Funds qualified during its last taxable year and
intends to continue to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
relieves each Fund of liability for federal income taxes to the extent its
earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, a Fund's investment company
taxable income will be its taxable income (including interest), subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The Money Market, Government and U.S. Treasury Funds intend to distribute
substantially all of their respective investment company taxable income and net
tax-exempt income each year. Such dividends will be taxable as ordinary income
to each Fund's shareholders who are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional Trust
Shares. (Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) Because all of each Fund's net
investment income is expected to be derived from earned interest, it is
anticipated
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that no part of any distribution will be eligible for the dividends received
deduction for corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
The Tax-Exempt Fund. The Tax-Exempt Fund's policy is to pay dividends with
respect to each taxable year equal to at least the sum of 90% of its net
exempt-interest income and 90% of its investment company taxable income, if any.
Dividends derived from exempt-interest income ("exempt-interest dividends") may
be treated by the Fund's shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless, under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If the Tax-Exempt Fund should hold certain "private activity bonds" issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their federal alternative minimum taxable income for purposes of
determining liability (if any) for the 26% to 28% alternative minimum tax for
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. Shareholders
receiving Social Security benefits should note that all exempt-interest
dividends will be taken into account in determining the taxability of such
benefits.
Dividends from the Tax-Exempt Fund which are derived from taxable income
or from long-term or short-term capital gains will be subject to federal income
tax, whether such dividends are paid in the form of cash or additional Trust
Shares of the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Fund may be taxable to shareholders under state or local law as dividend income,
even though all or a portion of such distributions may be derived from interest
on tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
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The U.S. Treasury Fund is structured to provide shareholders, to the
extent permissible by federal and state law, with income that is exempt or
excluded from taxation at the state and local level. Many states, by statute,
judicial decision or administrative action, have taken the position that
dividends of a regulated investment company, such as the U.S. Treasury Fund,
that are attributable to interest on direct U.S. Treasury obligations or
obligations of certain U.S. Government agencies, are the functional equivalent
of interest from such obligations and are, therefore, exempt from state and
local income taxes.
Shareholders should consult their own tax advisers about the status of
distributions from the Funds in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Funds. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets at December 31, 1996 of $___ billion.
Fleet, which commenced operations in 1984, also provides investment management
and advisory services to individual and institutional clients, and manages the
other portfolios of Galaxy: the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut
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Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Funds, makes decisions with respect to and places orders for all
purchases and sales of their portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the following annual
rates: with respect to the Money Market, Government and Tax-Exempt Funds, .40%
of the average daily net assets of each Fund, and with respect to the U.S.
Treasury Fund, .40% of the first $750,000,000 of the average daily net assets of
the Fund plus .35% of the average daily net assets of the Fund in excess of
$750,000,000. Fleet may from time to time, in its discretion, waive advisory
fees payable by the Funds in order to help maintain a competitive expense ratio,
and may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. Fleet has advised Galaxy that, with respect to the
Money Market, Government and Tax-Exempt Funds, Fleet intends to waive advisory
fees payable to it by each Fund in an amount equal to 0.05% of the average daily
net assets of each Fund to the extent that a Fund's net assets exceed
$750,000,000. For the fiscal year ended October 31, 1996, Fleet received
advisory fees (after waivers) at the effective annual rates of .__%, .__%, .__%,
and .__% of the average daily net assets of the Money Market Fund, Government
Fund, Tax-Exempt Fund and U.S. Treasury Fund, respectively.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Funds, but such banking laws and regulations do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. The Investment
Adviser, custodian and Institutions that are banks or bank affiliates are
subject to such banking laws and regulations.
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Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Funds' method of
operations would affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Funds and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Funds, FDISG was entitled to be paid fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Portfolios, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion.
In addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive all or a
portion of the administration fee payable to it by the Funds, either voluntarily
or pursuant to applicable statutory expense limitations. For the fiscal year
ended October 31, 1996, the Money Market, Government, Tax-Exempt and U.S.
Treasury Funds paid FDISG administration fees at the effective annual rate of
.___% of each Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of Shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class A
shares (Retail A Shares), Class A-Special
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Series 1 shares (Trust Shares) and Class A-Special Series 2 shares (Retail B
Shares), each series representing interests in the Money Market Fund; Class B
shares (Retail A Shares) and Class B-Special Series 1 shares (Trust Shares),
both series representing interests in the Government Fund; Class E shares
(Retail A Shares) and Class E-Special Series 1 shares (Trust Shares), both
series representing interests in the Tax-Exempt Fund; and Class F shares (Retail
A Shares) and Class F-Special Series 1 shares (Trust Shares), both series
representing interests in the U.S. Treasury Fund. Each Fund is classified as a
diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Funds'
Retail A Shares and the Money Market Fund's Retail B Shares and these other
portfolios, which are offered through separate prospectuses, contact the
Distributor at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by that Fund except as follows: Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below and holders of Retail B Shares of the
Money Market Fund bear the fees described in the prospectus for such shares that
are paid under Galaxy's Distribution and Services Plan at an annual rate of up
to .75% of the average daily net asset value of such Fund's outstanding Retail B
Shares. Currently, these payments are not made with respect to a Fund's Trust
Shares. In addition, shares of each series in a Fund bear differing transfer
agency expenses. Standardized yield quotations are computed separately for each
series of shares. The difference in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Funds are sold without a sales charge. Retail B
Shares of the Money Market Fund acquired in an exchange of Retail B Shares of
the CDSC Funds are subject to a maximum contingent deferred sales charge of
5.0% and automatically convert to Retail A Shares six years after the date of
purchase of such exchanged Retail B Shares. Retail A and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value
of $.001, represents an equal proportionate interest in the related Fund with
other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
fractional votes for fractional Shares held, and will vote in the aggregate and
not by class or series, 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 or series.
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Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares in consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by such Customers. Services under the Shareholder Services
Plan may include aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with the Distributor; processing
dividend payments from a Fund; providing Customers with information as to their
positions in Retail A Shares; providing sub-accounting with respect to Retail A
Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Such services are intended to supplement the services
provided by FDISG as administrator and transfer agent and are described more
fully in the Statement of Additional Information under "Shareholder Services
Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these service agreements for each Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of the
Investment Adviser, pursuant to which Fleet Bank performs certain sub-account
and administrative functions ("Sub-Account Services") on a per-account basis
with respect to Trust Shares of each Fund (other than the Tax-Exempt Fund) held
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by defined contribution plans, including maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Fleet Bank is
compensated by FDISG for the Sub-Account Services and in connection therewith
the transfer agency fees payable by Trust Shares of the Money Market, Government
and U.S. Treasury Funds to FDISG have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of these Funds
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Funds are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the
Funds. Galaxy bears the expenses incurred in the Funds' operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with FDISG); SEC fees; state securities
qualification fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; advisory, administration,
shareholder servicing, Rule 12b-1 distribution, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
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PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives and
to other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, such data is reported in national financial publications
such as Donoghue's Money Fund Report(R), a widely recognized independent
publication that monitors the performance of mutual funds. Also, the Funds'
yield data may be reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal, and The
New York Times, or in publications of a local or regional nature. The taxable
money market Funds' performance may also be compared to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. The performance and yield data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The yields of the Funds will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. Each Fund
may also advertise the "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Funds is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment. Also, the Tax-Exempt Fund
may from time to time advertise a "tax-equivalent yield" to demonstrate the
level of taxable yield necessary to produce an after-tax yield equivalent to
that achieved by the Fund. The "tax-equivalent yield" will be computed by
dividing the tax-exempt portion of the Fund's yield by a denominator consisting
of one minus a stated federal income tax rate and adding the product to that
portion, if any, of the Fund's yield which is not tax-exempt.
In addition, the U.S. Treasury Fund may calculate a "state flow through
yield" which shows the level of taxable yield needed to produce an after-tax
yield equivalent to a particular state's tax-exempt yield achieved by the Fund.
The "state flow through yield" refers to that portion of income which is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities and which qualifies for exemption from state taxes. The
yield calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of
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one minus a stated income tax rate. For illustrative purposes, state flow
through yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Funds' yields will fluctuate and any quotation of yield should not be
considered as representative of future performance of the Funds. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of a Fund will not be included in calculations of
yield.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding Shares" of Galaxy, a particular Fund or a particular series of
shares means, with respect to the approval of an investment advisory agreement,
distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of Galaxy, such Fund or such series of
shares, or (b) 67% or more of the shares of Galaxy, such Fund or such series of
shares present at a meeting if more than 50% of the outstanding shares of
Galaxy, such Fund or series of shares are represented at the meeting in person
or by proxy.
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RETAIL
THE GALAXY FUND
Money Market Fund
Government Fund
U.S. Treasury Fund
Tax-Exempt Fund
Connecticut Municipal Money Market Fund
Massachusetts Municipal Money Market Fund
Prospectus
February 28, 1997
<PAGE> 128
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS...................................................................
EXPENSE SUMMARY..............................................................
FINANCIAL HIGHLIGHTS.........................................................
INVESTMENT OBJECTIVES AND POLICIES...........................................
In General..........................................................
Quality Requirements................................................
Money Market Fund...................................................
Government Fund.....................................................
U.S. Treasury Fund..................................................
Tax-Exempt Fund.....................................................
Connecticut Municipal Money Market Fund.............................
Massachusetts Municipal Money Market Fund...........................
INVESTMENTS, STRATEGIES AND RISKS............................................
U.S. Government Obligations.........................................
Money Market Instruments............................................
Municipal Securities................................................
Tender Option Bonds.................................................
Repurchase and Reverse Repurchase Agreements........................
Securities Lending -- Money Market and Government
Funds......................................................
Guaranteed Investment Contracts -- Money Market Fund................
Asset-Backed Securities -- Money Market Fund........................
Investment Company Securities -- Tax-Exempt Money
Market Funds...............................................
Other Investment Policies of the Tax-Exempt Money
Market Funds...............................................
Certain Investment Policies of the U.S. Treasury and
Government Funds...........................................
Connecticut Investment Risks........................................
Massachusetts Investment Risks......................................
INVESTMENT LIMITATIONS.......................................................
PRICING OF SHARES............................................................
HOW TO PURCHASE AND REDEEM SHARES............................................
Distributor.........................................................
Purchase of Shares..................................................
Purchase Procedures -- Customers of Institutions....................
Purchase Procedures -- Direct Investors.............................
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PAGE
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Other Purchase Information..........................................
Redemption Procedures -- Customers of Institutions..................
Redemption Procedures -- Direct Investors...........................
Other Redemption Information........................................
INVESTOR PROGRAMS............................................................
Exchange Privilege..................................................
Retirement Plans....................................................
Automatic Investment Program and Systematic Withdrawal
Plan.......................................................
Payroll Deduction Program...........................................
College Investment Program..........................................
Checkwriting........................................................
Direct Deposit Program..............................................
INFORMATION SERVICES.........................................................
Galaxy Information Center -- 24 Hour Information
Service....................................................
Voice Response System...............................................
Galaxy Shareholder Services.........................................
DIVIDENDS AND DISTRIBUTIONS..................................................
TAXES ....................................................................
Federal ...........................................................
State and Local.....................................................
Miscellaneous.......................................................
MANAGEMENT OF THE FUNDS......................................................
Investment Adviser..................................................
Authority to Act as Investment Adviser..............................
Administrator.......................................................
DESCRIPTION OF GALAXY AND ITS SHARES.........................................
Shareholder Services Plan ..........................................
Distribution and Services Plan......................................
Affiliate Agreement for Sub-Account Services........................
CUSTODIAN AND TRANSFER AGENT.................................................
EXPENSES ....................................................................
PERFORMANCE AND YIELD INFORMATION............................................
MISCELLANEOUS................................................................
-ii-
<PAGE> 130
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding
Westboro, Massachusetts initial purchases and
01581-5108 current performance, call
1-800-628-0414. For additional
purchases, redemptions,
exchanges and other share-
holder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus relates to six separate money market portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy, each having its own investment objective and policies:
The MONEY MARKET FUND'S investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund invests in "money market" instruments with remaining maturities of one
year or less, such as domestic and foreign bank certificates of deposit,
bankers' acceptances and commercial paper (including variable and floating rate
obligations) in addition to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
The GOVERNMENT FUND'S investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund invests in obligations with remaining maturities of one year or less
which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
The U.S. TREASURY FUND'S investment objective is to seek current income
with liquidity and stability of principal. The Fund invests in securities with
remaining maturities of one year or less which are issued or guaranteed as to
principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. The Fund invests
at least 65% of its total assets in direct U.S. Government obligations.
The TAX-EXEMPT FUND'S investment objective is to seek as high a level
of current interest income exempt from federal income tax as is consistent with
stability of principal. The Fund invests substantially all of its assets in high
quality debt obligations issued by or on behalf of states, territories, and
<PAGE> 131
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities, and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax ("Municipal Securities"). The Fund's portfolio
securities will generally have remaining maturities of not more than one year.
The CONNECTICUT MUNICIPAL MONEY MARKET FUND'S investment objective is
to provide current income exempt from federal regular income tax and the
Connecticut state income tax on individuals, trusts and estates, consistent with
relative stability of principal and liquidity. The Fund invests primarily in
Connecticut Municipal Securities (as defined below), including securities of
states, territories and possessions of the United States which are not issued by
or on behalf of Connecticut or its political subdivisions and financing
authorities, but which are exempt from the Connecticut state income tax on
individuals, trusts and estates (the "CSIT"). The Fund's portfolio securities
will generally have remaining maturities of not more than thirteen months. The
Fund is a non-diversified investment portfolio under the Investment Company Act
of 1940, as amended (the "1940 Act").
The MASSACHUSETTS MUNICIPAL MONEY MARKET FUND'S investment objective is
to provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with relative
stability of principal and liquidity. The Fund invests primarily in
Massachusetts Municipal Securities (as defined below), including securities of
states, territories and possessions of the United States which are not issued by
or on behalf of Massachusetts or its political subdivisions and financing
authorities, but which are exempt from income taxes imposed by the Commonwealth
of Massachusetts. The Fund's portfolio securities will generally have remaining
maturities of not more than thirteen months. The Fund is a non-diversified
investment portfolio under the 1940 Act.
THE CONNECTICUT MUNICIPAL MONEY MARKET FUND AND THE MASSACHUSETTS
MUNICIPAL MONEY MARKET FUND ARE CONCENTRATED IN SECURITIES ISSUED BY, OR
ENTITIES WITHIN, THE STATE OF CONNECTICUT AND THE COMMONWEALTH OF MASSACHUSETTS,
RESPECTIVELY, AND EACH SUCH FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS
ASSETS IN A SINGLE ISSUER. THEREFORE, INVESTMENT IN THESE FUNDS MAY BE RISKIER
THAN AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
This Prospectus describes (i) Retail A Shares in the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds, (ii) Retail B Shares in the
Money Market Fund, and (iii) Shares in the Connecticut Municipal Money Market
and Massachusetts Municipal
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<PAGE> 132
Money Market Funds (which presently issue only one series of shares). Such
Retail A Shares, Retail B Shares and Shares are referred to herein
collectively as "Retail Shares". Retail Shares (other than Retail B Shares in
the Money Market Fund) are offered to customers ("Customers") of FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises,Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks, and other qualified banks, savings and loan associations
and broker/dealers ("Institutions"). Retail Shares (other than Retail B Shares
in the Money Market Fund) may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own accounts or for the accounts of others ("Direct
Investors"). Retail B Shares in the Money Market Fund are not offered for
purchase and are available only to the holders of Retail B Shares in Galaxy's
Short-Term Bond, High Quality Bond, Tax-Exempt Bond, Equity Value, Equity
Growth, Small Company Equity, Asset Allocation, and Growth and Income Funds who
wish to exchange their Retail B Shares in such Funds for Retail B Shares in the
Money Market Fund. Retail B Shares bear distribution fees, and are assessed a
contingent deferred sales charge upon redemption.
Galaxy is also authorized to issue an additional series of shares
("Trust Shares") in the Money Market, Government, U.S. Treasury and Tax-Exempt
Funds, which are offered under a separate prospectus primarily to investors
maintaining qualified accounts at bank and trust institutions, including
institutions affiliated with Fleet Financial Group, Inc., and with respect to
each Fund except the Tax-Exempt Fund, to participants in employer-sponsored
defined contribution plans. Retail A Shares, Retail B Shares and Trust Shares
in a Fund represent equal pro rata interests in the Fund, except that they bear
different expenses and charges. See "Financial Highlights," "Management of the
Funds" and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 AMOUNT INVESTED. THERE
-3-
<PAGE> 133
IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Funds
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information
about the Funds, contained in the respective Statements of Additional
Information relating to the Funds and bearing the same date, has been filed with
the Securities and Exchange Commission. The current Statements of Additional
Information are available upon request without charge by contacting Galaxy at
its telephone numbers or address shown above. The Statements of Additional
Information, as they may be amended from time to time, are incorporated by
reference in their entireties into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-4-
<PAGE> 134
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios having separate investment objectives and policies. This
Prospectus describes six of Galaxy's money market funds: THE MONEY MARKET FUND,
GOVERNMENT FUND, U.S. TREASURY FUND, TAX-EXEMPT FUND, CONNECTICUT MUNICIPAL
MONEY MARKET FUND AND MASSACHUSETTS MUNICIPAL MONEY MARKET FUND. See "Investment
Objectives and Policies" and "Investments, Strategies and Risks." Prospectuses
for Galaxy's INSTITUTIONAL TREASURY MONEY MARKET, EQUITY VALUE, EQUITY GROWTH,
EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET ALLOCATION,
SMALL CAP VALUE, GROWTH AND INCOME, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT
INCOME, HIGH QUALITY BOND, CORPORATE BOND, TAX-EXEMPT BOND, NEW YORK MUNICIPAL
BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND
MUNICIPAL BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: Who advises the Funds?
A: The Funds are advised by Fleet Investment Advisors Inc.
("Fleet" or the "Investment Adviser"), an indirect wholly-owned subsidiary of
Fleet Financial Group, Inc. Fleet Financial Group, Inc. is a financial services
company with total assets as of December 31, 1996 of approximately $____
billion. See "Management of the Funds -- Investment Adviser."
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How to buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors, Inc.
Retail Shares (other than Retail B Shares in the Money Market Fund) may be
purchased on behalf of customers ("Customers") of FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares
<PAGE> 135
(other than Retail B Shares in the Money Market Fund) may also be sold to
individuals, corporations or other entities, who submit a purchase application
to Galaxy, purchasing either for their own accounts or for the accounts of
others ("Direct Investors"). Retail B Shares in the Money Market Fund are not
offered for purchase and are available only to holders of Retail B Shares in
certain of Galaxy's portfolios who wish to exchange their Retail B Shares in
such portfolios for Retail B Shares in the Money Market Fund. Retail B Shares
carry higher operating expenses than other Retail Shares, and are subject to a
contingent deferred sales charge. Six years after the date of purchase of the
exchanged Retail B Shares, Retail B Shares of the Money Market Fund will
automatically convert to Retail A Shares. Purchase and redemption information
for both Direct Investors and Customers is provided below under "How to
Purchase and Redeem Shares." Except as provided below under "Investor
Programs", the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum investment requirements for investors participating in the
Automatic Investment Program described below. Institutions may require
Customers to maintain certain minimum investments in Retail Shares of the
Funds.
Q: When are dividends paid?
A: Dividends from net investment income of each Fund are declared
daily and paid monthly. Net realized capital gains of each Fund, if any, are
distributed at least annually. See "Dividends and Distributions."
Q: What potential risks are presented by the Funds'
investment practices?
A: The Tax-Exempt Fund, Connecticut Municipal Money Market Fund and
Massachusetts Municipal Money Market Fund invest primarily in Municipal
Securities, Connecticut Municipal Securities and Massachusetts Municipal
Securities, respectively. The achievement of the investment objective of each of
these Funds is dependent upon the ability of the issuers of such Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. In addition, because the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds are non-diversified, their investment
returns may be dependent upon the performance of a smaller number or particular
type of securities relative to a diversified portfolio. Each Fund (other than
the Money Market Fund) may purchase eligible securities on a "when-issued" basis
and the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may purchase eligible securities on a "delayed settlement" basis.
In addition, the Tax-Exempt, Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may acquire "stand-by commitments"
with respect to
-2-
<PAGE> 136
Municipal Securities held in their portfolios. The value of a Fund's portfolio
securities will generally vary inversely with changes in prevailing interest
rates. See "Investment Objectives and Policies" and "Investments, Strategies and
Risks".
Q: What shareholder privileges are offered by the Funds?
A: Investors may exchange Retail A Shares of the Money Market,
Government, Tax-Exempt and U.S. Treasury Funds and Shares of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds having a
value of at least $100 for Retail A Shares of any other portfolio offered by
Galaxy or otherwise advised by Fleet or its affiliates in which the investor has
an existing account. Retail B Shares of the Money Market Fund may be exchanged
for Retail B Shares of any other Galaxy portfolio which offers Retail B Shares.
Galaxy offers Individual Retirement Accounts ("IRAs"), which can be established
by contacting Galaxy's distributor. Retail Shares are also available for
purchase through Simplified Employee Pension Plan ("SEP"), Multi-Employee
Retirement Plan ("MERP") and Keogh Plan accounts, which can be established
directly with Fleet Brokerage Securities, Inc. or its affiliates. Galaxy also
offers an Automatic Investment Program which allows Direct Investors to
automatically invest in Retail Shares of the Funds on a monthly or quarterly
basis as well as other shareholder privileges. See "Investor Programs."
-3-
<PAGE> 137
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Retail
Shares of each Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
MONEY MONEY GOVERN- U.S. TAX- CONNECTICUT MASSACHUSETTS
MARKET MARKET MENT TREASURY EXEMPT MUNICIPAL MUNICIPAL
FUND FUND FUND FUND FUND MONEY MARKET MONEY MARKET
(RETAIL A (RETAIL B (RETAIL A (RETAIL A (RETAIL A FUND FUND
SHARES) SHARES SHARES) SHARES) SHARES) (SHARES) (SHARES)
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers)....... . % . % . % . % . % . % . %
---- ---- ---- ---- ---- ---- ----
12b-1 Fees ........................... None %(1) None None None None None
----
Other Expenses (After Fee
Waivers and Expense
Reimbursements)....................... . % ___% . % . % . % . % . %
---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (After
Fee Waivers and
Expense Reimbursements)............... . % % . % . % . % . % . %
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ------------------------------
(1) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund (Retail A Shares).............................. $__ $__ $__ $__
Money Market Fund (Retail B Shares)*............................. $__ $__ $__ $__**
Government Fund (Retail A Shares) ............................... $__ $__ $__ $__
U.S. Treasury Fund (Retail A Shares)............................. $__ $__ $__ $__
Tax-Exempt Fund (Retail A Shares)................................ $__ $__ $__ $__
Connecticut Municipal Money Market
Fund (Shares).................................................. $__ $__ $__ $__
Massachusetts Municipal Money Market
Fund (Shares).................................................. $__ $__ $__ $__
</TABLE>
* These expense figures do not reflect the imposition of the deferred
sales charge which will be deducted upon the redemption of Retail B
Shares of the Money Market Fund received in an exchange transaction for
Retail B Shares in a CDSC Fund of Galaxy. See "Description of Galaxy
and Its Shares."
** Based on the conversion of Retail B Shares to Retail A Shares after six
years (applies to Retail B Shares received in an exchange transaction
for Retail B Shares of a CDSC Fund). See "How to Purchase and Redeem
Shares -- Purchase of Shares."
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds bears
directly or indirectly. The information contained in the Expense Summary and
Example with
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<PAGE> 138
respect to Retail A Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds and Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds is based on expenses
incurred by the Funds during the last fiscal year, restated to reflect the
expenses which each Fund expects to incur during the current fiscal year with
respect to such Retail Shares. The information contained in the Expense Summary
and Example with respect to Retail B Shares of the Money Market Fund is based
on expenses the Fund expects to incur during the current fiscal year with
respect to such Shares. Without voluntary fee waivers and/or expense
reimbursements by the Investment Adviser and/or Administrator, Advisory Fees
would be .40%, .40%, .40%, .40%, .40% and .40%, Other Expenses would be __%,
__%, __%, __%, ___% and __% and Total Fund Operating Expenses would be __%,
__%, __%, __%, ___% and __% for Retail A Shares/Shares of the Money Market
Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt Fund, Connecticut
Municipal Money Market Fund and Massachusetts Municipal Money Market Fund,
respectively, and Advisory Fees would be .40%, Other Expenses would be ___% and
Total Fund Operating Expenses would be ___% for Retail B Shares of the Money
Market Fund. For more complete descriptions of these costs and expenses, see
"Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus, and the financial statements and notes incorporated by reference
into the respective Statements of Additional Information relating to the Funds.
Any fees that are charged by affiliates of Fleet or any other Institution
directly to their Customer account for services related to an investment in
Retail Shares of the Funds are in addition to and not reflected in the fees and
expenses described above. Direct Investors are charged a $5.00 fee if
redemption proceeds are paid by wire.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
-5-
<PAGE> 139
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, each of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds offered a single series of shares. As of such
date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and each of these Funds began offering a new
series of shares designated as Trust Shares. This Prospectus describes the
Retail A Shares of these Funds and the Retail B Shares of the Money Market
Fund. Trust Shares in these Funds are offered under a separate prospectus.
Retail A Shares, Retail B Shares and Trust Shares in a Fund represent equal pro
rata interests in the Fund, except that (i) Retail A Shares of a Fund bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .10% of the average daily net asset value of the Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Money Market Fund are subject to a
contingent deferred sales charge and bear the expenses incurred under Galaxy's
Distribution and Services Plan at an annual rate of up to .75% of the average
daily net asset value of such Fund's outstanding Retail B Shares, and (iii)
Retail A Shares, Retail B Shares and Trust Shares bear differing transfer
agency expenses. See "Management of the Funds" and "Description of Galaxy and
Its Shares."
The financial highlights presented below for the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds have been audited by
(______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds for
the fiscal year ended October 31, 1996 (the "Annual Report"). Such financial
highlights should be read in conjunction with the financial statements contained
in the Annual Report and (_______________________) into the Statement of
Additional Information relating to these Funds. During the periods shown, Retail
B Shares were not offered by the Money Market Fund. More information about the
performance of each of these Funds is also contained in the Annual Report, which
may be obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
-6-
<PAGE> 140
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
=================================================================
1996 1995
---- ----
RETAIL A RETAIL
SHARES SHARES 1994 1993 1992
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
Income from Investment Operations:
Net investment income(3,4)............................. 0.05 0.03 0.03 0.04
Net realized and unrealized gain (loss)
on investments..................................... - - - -
-------- -------- -------- -------
Total from Investment Operations: 0.05 0.03 0.03 0.04
-------- -------- -------- -------
Less Dividends:
Dividends from net investment income................... (0.05) (0.03) (0.03) (0.04)
Dividends from net realized capital gains(5)....... - - - -
-------- -------- -------- -------
Total Dividends................................. (0.05) (0.03) (0.03) (0.04)
-------- -------- -------- -------
Net increase (decrease) in net asset value............... - - - -
-------- -------- -------- -------
Net Asset Value, End of Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
Total Return(6).......................................... 5.23% 3.35% 2.78% 4.07%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $580,762 $797,399 $577,558 $590,911
Ratios to average net assets:
Net investment income including reimbursement/.........
waiver............................................... 5.12% 3.38% 2.74% 3.74%
Operating expenses including reimbursement/
waiver............................................... 0.74% 0.64% 0.63% 0.58%
Operating expenses excluding reimbursement/
waiver............................................... 0.76% 0.64% 0.63% 0.58%
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
=======================================================================
PERIOD
ENDED
OCTOBER 31,
1991 1990 1989 1988 1987 (1,2)
---- ---- ---- ---- -----------
<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(3,4)............................. 0.06 0.08 0.09 0.07 0.06
Net realized and unrealized gain (loss)
on investments..................................... - - - - -
----- ----- ----- ----- --------
Total from Investment Operations: 0.06 0.08 0.09 0.07 0.06
----- ------ ------ ------ --------
Less Dividends:
Dividends from net investment income................... (0.06) (0.08) (0.09) (0.07) (0.06)
Dividends from net realized capital gains(5)....... - - - - -
----- ------ ----- ----- --------
Total Dividends................................. (0.06) (0.08) (0.09) (0.07) (0.06)
----- ------ ----- ----- --------
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(6).......................................... 6.40% 8.11% 9.09% 7.08% 6.09%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $415,541 $444,303 $410,121 $210,712 $192,400
Ratios to average net assets:
Net investment income including reimbursement/.........
waiver............................................... 6.24% 7.82% 8.73% 6.92% 6.27%(8)
Operating expenses including reimbursement/
waiver............................................... 0.59% 0.59% 0.58% 0.59% 0.52%(8)
Operating expenses excluding reimbursement/
waiver............................................... 0.59% 0.59% 0.59% 0.59% 0.57%(8)
</TABLE>
- -------------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on November 17, 1986.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the year ended and October 31,
1989 and the period ended October 31, 1987 was $0.09 and $0.06,
respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by the Investment Adviser and/or Administrator
for the fiscal years ended October 31, 1996 and 1995 were $____ and $0.05,
respectively.
(5) Represents less than $0.01 per share for the years 1992 and 1987.
(6) Total return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.35%.
(7) Not Annualized.
-7-
<PAGE> 141
(8) Annualized.
-8-
<PAGE> 142
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
--------------------------------------------------------------------------------
1996 1995
---- ----
RETAIL A RETAIL
SHARES SHARES 1994 1993 1992 1991
------ ------ ---- ---- ---- ----
<S> <C> <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(3),(4)................. 0.05 0.03 0.03 0.04 0.06
Net realized and
unrealized gain (loss)
on investments............................. -- -- -- -- --
-------- -------- --------- -------- --------
Total from Investment
Operations:............................. 0.05 0.03 0.03 0.04 0.06
-------- -------- --------- -------- --------
Less Dividends:
Dividends from net
investment income.......................... (0.05) (0.03) (0.03) (0.04) (0.06)
Dividends from net
realized capital gains(5).................. -- -- -- -- --
-------- -------- --------- -------- --------
Total Dividends......................... (0.05) (0.03) (0.03) (0.04) (0.06)
-------- -------- --------- -------- --------
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(6).............................. 5.20% 3.49% 2.83% 4.19% 6.25%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)............................. $320,795 $759,106 $685,304 $636,338 $436,232
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................... 5.11% 3.36% 2.79% 3.67% 6.05%
Operating expenses
including reimbursement/
waiver..................................... 0.73% 0.54% 0.55% 0.53% 0.56%
Operating expenses
excluding reimbursement/
waiver................................. 0.74% 0.54% 0.55% 0.53% 0.56%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
-------------------------------------------
PERIOD
ENDED
OCTOBER 31,
1990 1989 1988 1987(1),(2)
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................................. $1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income(3,4)................. 0.08 0.09 0.07 0.06
Net realized and
unrealized gain (loss)
on investments............................. -- -- -- --
------- ------ ----- ------
Total from Investment
Operations:............................. 0.08 0.09 0.07 0.06
------- ------ ------ ------
Less Dividends:
Dividends from net
investment income.......................... (0.08) (0.09) (0.07) (0.06)
Dividends from net
realized capital gains(5).................. -- -- -- --
------- ------ ------ ------
Total Dividends......................... (0.08) (0.09) (0.07) (0.06)
-------- ----- ------ ------
Net increase (decrease)
in net asset value......................... -- -- -- --
-------- ------ ------ ------
Net Asset Value, End
of Period.................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ====== ====== ======
Total Return(6).............................. 8.10% 8.82% 6.91% 6.08%(7)
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)............................. $335,443 $303,181 $141,545 $178,100
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................... 7.80% 8.59% 6.73% 6.38%(8)
Operating expenses
including reimbursement/
waiver..................................... 0.56% 0.60% 0.60% 0.53%(8)
Operating expenses
excluding reimbursement/
waiver................................. 0.57% 0.61% 0.60% 0.57%(8)
</TABLE>
-9-
<PAGE> 143
- --------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on November 17, 1986.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal years ended October
31, 1990 and 1989 and the period ended October 31, 1987 was $0.08, $0.09
and $0.06, respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by the Investment Adviser and/or Administrator
for the fiscal years ended October 31, 1996 and 1995 were $___ and $0.05,
respectively.
(5) Represents less than $0.01 per share for years 1992, 1990, 1989, 1988 and
1987.
(6) Total return for 1994 includes the effect of the voluntary capital
contribution of $2.3 million from the Investment Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
(7) Not Annualized.
(8) Annualized.
-10-
<PAGE> 144
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
----------------------------------------------------------------
1996 1995
---- ------ PERIOD ENDED
RETAIL A RETAIL OCTOBER 31,
SHARES SHARES 1994 1993 1992 1991 (1),(2)
------ ------ ---- ---- ---- ---------
<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(3) ........... 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments ................ -- -- -- -- --
-------- -------- -------- -------- --------
Total from Investment ....... 0.05 0.03 0.03 0.04 0.04
-------- -------- -------- -------- --------
Operations:
Less Dividends:
Dividends from net investment
income ........................... (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized capital
gains ............................ -- -- -- -- --
-------- -------- -------- -------- --------
Total Dividends .............. (0.05) (0.03) (0.03) (0.04) (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(4) ...................... 4.99% 3.30% 2.75% 3.69% 4.51%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .... $318,621 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............. 4.90% 3.24% 2.71% 3.51% 4.26%(6)
Operating expenses including
reimbursement/waiver ............. 0.73% 0.56% 0.55% 0.49% 0.27%(6)
Operating expenses excluding
reimbursement/waiver ............. 0.73% 0.56% 0.55% 0.57% 0.65%(6)
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated Retail Shares (now
designated Retail A Shares) and the Fund began issuing a second series of
shares designated as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the year ended October 31, 1992 and the
period ended October 31, 1991 was $0.04 and $0.04, respectively.
(4) Total return for 1994 includes the effect of the voluntary capital
contribution of $1 million from the Investment Adviser in order to partially
offset losses realized on the sale of certain securities held by the Fund.
Without this capital contribution, the total return would have been 3.30%.
(5) Not Annualized.
(6) Annualized.
-11-
<PAGE> 145
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
---------------------------------------------------------------------
1996 1995
---- ----
RETAIL A RETAIL
SHARES SHARES 1994 1993 1992 1991
------ ------ ---- ---- ---- ----
<S> <C> <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(3),(4)............... 0.03 0.02 0.02 0.03 0.04
Net realized and unrealized gain
(loss) on investments.................. -- -- -- -- --
----- ----- ----- ----- -----
Total from Investment Operations:........ 0.03 0.02 0.02 0.03 0.04
----- ----- ----- ----- -----
Less Dividends:
Dividends from net investment
income ........................ (0.03) (0.02) (0.02) (0.03) (0.04)
Dividends from net realized
capital gains ........................ -- -- -- -- --
----- ----- ----- ----- -----
Total Dividends:........................ (0.03) (0.02) (0.02) (0.03) (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................................. 3.16% 2.24% 1.93% 2.71% 4.51%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $127,056 $271,050 $301,399 $223,173 $194,098
Ratios to average net assets:
Net investment income
including reimbursement/waiver.......... 3.12% 2.12% 1.92% 2.64% 4.37%
Operating expenses
including reimbursement/waiver.......... 0.68% 0.58% 0.59% 0.57% 0.60%
Operating expenses excluding
reimbursement/waiver.................... 0.71% 0.58% 0.59% 0.57% 0.60%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
-------------------------
PERIOD
ENDED
OCTOBER 31,
1990 1989 1988(1),(2)
---- ---- ---------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period........................ $1.00 $1.00 $1.00
----- ----- -----
Income from Investment
Operations:
Net investment income(3),(4)............... 0.05 0.06 0.02
Net realized and unrealized gain
(loss) on investments.................. -- -- --
----- ----- -----
Total from Investment Operations:........ 0.05 0.06 0.02
----- ----- -----
Less Dividends:
Dividends from net investment
income ........................ (0.05) (0.06) (0.02)
Dividends from net realized
capital gains ........................ -- -- --
----- ----- -----
Total Dividends:........................ (0.05) (0.06) (0.02)
----- ----- -----
Net increase (decrease) in net asset
value ....................... -- -- --
----- ----- -----
Net Asset Value, End of Period............... $1.00 $1.00 $1.00
===== ===== =====
Total Return................................. 5.51% 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $119,377 $131,358 $41,319
Ratios to average net assets:
Net investment income
including reimbursement/waiver.......... 5.37% 5.82% 5.42%(6)
Operating expenses
including reimbursement/waiver.......... 0.60% 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver.................... 0.61% 0.61% 0.72%(6)
</TABLE>
- -----------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on June 23, 1988.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal years ended October
31, 1990 and 1989 and the period ended October 31, 1988 was $0.05, $0.06
and $0.02, respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by the Investment Adviser and/or Administrator
for the fiscal year ended October 31, 1995 was $0.03.
(5) Not Annualized.
(6) Annualized.
-12-
<PAGE> 146
The Connecticut Municipal Money Market Fund and Massachusetts Municipal
Money Market Fund commenced operations on October 4, 1993 and October 5, 1993,
respectively, as separate investment portfolios (the "Predecessor Connecticut
Fund" and the "Predecessor Massachusetts Fund", respectively, and collectively,
the "Predecessor Funds") of The Shawmut Funds, which was organized as a
Massachusetts business trust. On December 4, 1995, these Predecessor Funds were
reorganized as new investment portfolios of Galaxy. Prior to the reorganization,
the Predecessor Connecticut Fund offered and sold two series of shares of
beneficial interest, Investment Shares and Trust Shares. The shareholders of
both series received the same series of shares in the Connecticut Municipal
Money Market Fund in connection with the reorganization. Unlike the Trust
Shares, the Investment Shares of the Predecessor Connecticut Fund were similar
to the Shares of the Connecticut Municipal Money Market Fund. Accordingly, the
Trust Shares of the Predecessor Connecticut Fund have been excluded from the
financial highlights. Prior to the reorganization, the Predecessor Massachusetts
Fund offered and sold shares of beneficial interest that were similar to Shares
of the Massachusetts Municipal Money Market Fund.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Shares of the Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds for the fiscal year
ended October 31, 1996 and (ii) the investment results of Investment Shares of
the Predecessor Funds (the series that is similar to the Shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) for the fiscal years ended October 31, 1995 and October 31, 1994 and the
fiscal period ended October 31, 1993. The information about the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds for the
fiscal year ended October 31, 1996 has been audited by [_________], Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Funds dated October 31, 1996 (the "Annual Report").
The information about the Predecessor Connecticut Municipal Money Market and
Predecessor Massachusetts Municipal Money Market Funds for the fiscal years
ended October 31, 1995 and October 31, 1994 and the fiscal period ended October
31, 1993 was audited by [____________], independent accountants for the
Predecessor Funds, whose report is contained in The Shawmut Funds' Annual Report
to Shareholders for the fiscal year ended October 31, 1995 (the "Shawmut Annual
Report"). The financial highlights should be read in conjunction with the
financial statements and notes thereto contained in the Annual Report and the
Shawmut Annual Report and (_______________________) into the Statement of
Additional Information relating to the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds. More information about the
performance of the Funds is contained
-13-
<PAGE> 147
in the Annual Report which may be obtained without charge by contacting Galaxy
at its telephone numbers or address provided above.
-14-
<PAGE> 148
CONNECTICUT MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1996 1995 1994 1993 (1),(2)
-------------------------------------------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Income from Investment Operations
Net investment income(3) (4)........................... 0.03 0.02 --
Net realized and unrealized gain (loss) on
investments ......................................... -- -- --
---------- ---------- ----------
Total from Investment
Operations:(3) .................................... 0.03 0.02 --
---------- ---------- ----------
Less Dividends:
Dividends from net investment
income(3) ........................................... (0.03) (0.02) --
Dividends from net realized
gains ............................................... -- -- --
---------- ---------- ----------
Total Dividends:(5) ................................. (0.03) (0.02) --
---------- ---------- ----------
Net increase (decrease) in
net asset value ....................................... -- -- --
---------- ---------- ----------
Net Asset Value, End of Period .......................... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return(5) ......................................... 2.94% 1.83% 0.14%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 71,472 $ 80,663 $ 6,582
Ratios to average net assets:
Net investment income
including reimbursement/waiver ...................... 2.88% 1.99% 2.12%(7)
Operating expenses including
reimbursement/waiver ................................ 0.82% 0.78% 0.36%(7)
Operating expenses excluding
reimbursement/waiver ................................ 1.29% 1.50% 5.82%(7)
</TABLE>
- ------------------
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy with a single series of shares. Prior to the
reorganization, the Predecessor Fund offered and sold two series of shares,
Investment Shares and Trust Shares. In connection with the reorganization,
the predecessor shareholders exchanged shares of each series for Shares in
the Galaxy Connecticut Municipal Money Market Fund.
(3) Represents less than $0.01 per share for year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or other parties for the year ended October 31, 1994
and the period ended October 31, 1993 were $0.01 and $0.00, repectively.
(5) Calculation does not include sales charge for Investment Shares of the
Predecessor Fund.
(6) Not Annualized.
(7) Annualized.
-15-
<PAGE> 149
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1996 1995 1994 1993 (1),(2)
-------------------------------------------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Income from Investment Operations
Net investment income(4) (5).......................... 0.03 0.02 --
Net realized and unrealized gain (loss) on
investments ........................................ -- -- --
---------- ---------- ----------
Total from Investment
Operations:(4) ................................... 0.03 0.02 --
---------- ---------- ----------
Less Dividends:
Dividends from net investment
income(4) .......................................... (0.03) (0.02) --
Dividends from net realized
gains .............................................. -- -- --
---------- ---------- ----------
Total Dividends:(4) ................................ (0.03) (0.02) --
---------- ---------- ----------
Net increase (decrease) in
net asset value ...................................... -- -- --
---------- ---------- ----------
Net Asset Value, End of Period ......................... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return ........................................... 3.21% 1.99% 0.12%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 40,326 $ 31,516 $ 1,237
Ratios to average net assets:
Net investment income
including reimbursement/waiver ..................... 3.16% 2.00% 2.75%(7)
Operating expenses including
reimbursement/waiver ............................... 0.57% 0.53% 0.11%(7)
Operating expenses excluding
reimbursement/waiver ............................... 1.06% 1.21% 35.42%(7)
</TABLE>
- ------------------
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund) of The Shawmut Funds.
(2) The Fund sold its shares without class designation.
(3) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold one series of shares. In connection with the
reorganization, the predecessor shareholders exchanged shares for Shares in
the Galaxy Massachusetts Municipal Money Market Fund.
(4) Represents less than $0.01 per share for year 1993.
(5) Net investment income per share before reimbursment/waiver of fees by the
Investment Adviser and/or other parties for the period ended October 31,
1993 was $(0.01).
(6) Not Annualized.
(7) Annualized.
-16-
<PAGE> 150
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The Investment Adviser will use its best efforts to achieve each Fund's
investment objective, although such achievement cannot be assured. The
investment objective of a Fund may not be changed without the approval of the
holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted herein under "Tax-Exempt Fund", "Connecticut
Municipal Money Market Fund" and "Massachusetts Municipal Money Market Fund" and
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program. Each Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less in an
effort to maintain a stable net asset value per share of $1.00. The value of the
Funds' portfolio securities will generally vary inversely with changes in
prevailing interest rates.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the
applicable quality requirements described below. The Money Market Fund will not
purchase a security (other than a U.S. Government security) unless the security
or the issuer with respect to comparable securities (i) is rated by at least
two nationally recognized statistical rating organizations ("Rating Agencies")
(such as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service,
Inc. ("Moody's") or Fitch Investors Services, L.P. ("Fitch")) in the highest
category for short-term debt securities, (ii) is rated by the only Rating
Agency that has issued a rating with respect to such security or issuer in such
Rating Agency's highest category for short-term debt, or (iii) if not rated,
the security is determined to be of comparable quality. The Tax-Exempt Fund,
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money
Market Fund (collectively, the "Tax-Exempt Money Market Funds") will not
purchase a security (other than a U.S. Government security) unless the security
(i) is rated by at least two such Rating Agencies in one of the two highest
categories for short-term debt securities, (ii) is rated by the only Rating
Agency that has assigned a rating with respect to such security in one of such
Rating Agency's two highest categories for short-term debt, or (iii) if not
rated, the security is determined to be of comparable quality. These rating
categories are determined without regard to sub-categories and gradations. The
Funds will follow applicable regulations in determining whether a security
rated by more than one Rating Agency can be treated as being in the highest or,
with respect to the Tax-Exempt Money Market Funds one of the two highest,
short-term rating categories. See "Investment Limitations" below.
-17-
<PAGE> 151
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, the Investment Adviser will acquire the
security if it determines that the security is of comparable quality to
securities that have received the requisite ratings. For example, with respect
to the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds, the Investment Adviser will generally treat Connecticut Municipal
Securities or Massachusetts Municipal Securities, as the case may be, as
eligible portfolio securities if the issuer has received long-term bond ratings
within the two highest rating categories by a Rating Agency with respect to
other bond issues. The Investment Adviser also considers other relevant
information in its evaluation of unrated short-term securities.
MONEY MARKET FUND
The Money Market Fund's investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund seeks to achieve its objective by investing in "money market"
instruments that are determined by the Investment Adviser to present minimal
credit risk and meet certain rating criteria. Instruments that may be purchased
by the Money Market Fund include obligations of domestic and foreign banks
(including negotiable certificates of deposit, non-negotiable time deposits,
savings deposits, and bankers' acceptances); commercial paper (including
variable and floating rate notes); obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and repurchase agreements issued
by financial institutions such as banks and broker/dealers. These instruments
have remaining maturities of one year or less (except for certain variable and
floating rate notes and securities underlying certain repurchase agreements).
For more information, including applicable quality requirements, see "Quality
Requirements" above and "Investments, Strategies and Risks" below.
GOVERNMENT FUND
The Government Fund's investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund seeks to achieve its objective by investing in obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to such
obligations. These instruments have remaining maturities of one year or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Investments, Strategies and Risks" below.
-18-
<PAGE> 152
U.S. TREASURY FUND
The U.S. Treasury Fund's investment objective is to seek current income
with liquidity and stability of principal. The Fund seeks to achieve its
objective by investing in those securities issued or guaranteed as to principal
and interest by the U.S. Government or by agencies or instrumentalities thereof,
the interest income from which generally will not be subject to state income tax
by reason of current federal law. Such instruments may include, but are not
limited to, securities issued by the U.S. Treasury and by certain government
agencies or instrumentalities such as the Federal Home Loan Banks, Federal Farm
Credit Banks and the Student Loan Marketing Association. The Fund invests at
least 65% of its total assets in direct U.S. Government obligations.
Shareholders residing in a particular state that has an income tax law should
determine through consultation with their own tax advisers whether such interest
income, when distributed by the Fund, will be considered by the state to have
retained exempt status and whether the Fund's capital gain and other income, if
any, when so distributed will be subject to the state's income tax. See "Taxes."
Due to state income tax considerations, the Fund will not invest in
other securities, such as repurchase agreements and reverse repurchase
agreements, except under extraordinary circumstances such as when appropriate
U.S. Government obligations are unavailable.
Portfolio securities held by the Fund have remaining maturities of one
year or less (with certain exceptions). The Fund may also invest in certain
variable and floating rate instruments as described under "Investments,
Strategies and Risks" -- Money Market Instruments." For more information,
including applicable quality requirements, see "Quality Requirements" above and
"Investments, Strategies and Risks" below.
TAX-EXEMPT FUND
The Tax-Exempt Fund's investment objective is to seek as high a level
of current interest income exempt from federal income tax as is consistent with
stability of principal by investing substantially all of its assets in Municipal
Securities that present minimal credit risk and meet the rating criteria
described above under "Quality Requirements." The Fund is designed for investors
in higher tax brackets who are seeking a relatively high amount of tax-free
income with stability of principal and less price volatility than would normally
be associated with intermediate-term and longer-term Municipal Securities.
-19-
<PAGE> 153
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. However, the Fund may from time to time, during temporary defensive
periods, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit, commercial paper, or
bankers' acceptances; (iv) repurchase agreements collateralized by U.S.
Government obligations or other "money market" instruments; or (v) securities
issued by other investment companies that invest in high quality, short-term
Municipal Securities. For more information including applicable quality
requirements, see "Quality Requirements" above and "Investments, Strategies and
Risks" below.
In seeking to achieve its investment objective, the Tax-Exempt Fund
may invest in "private activity bonds" (see "Investments, Strategies and Risks
- -- Municipal Securities"), the interest on which may be subject to the federal
alternative minimum tax. Investments in such securities, however, will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not exceed
20% of the Fund's total assets when added together with any taxable investments
held by the Fund.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund's investment objective is
to provide current income exempt from federal regular income tax and the CSIT,
consistent with stability of principal and liquidity. The Fund attempts to
achieve this objective by investing in a portfolio of Connecticut Municipal
Securities (as defined below) with remaining maturities of thirteen months or
less at the time of purchase. As a matter of fundamental policy that cannot be
changed without shareholder approval, the Fund invests its assets so that at
least 80% of its annual interest income is exempt from federal regular income
tax or at least 80% of the total value of its assets is invested in obligations
the interest income from which is exempt from federal regular income tax.
Under normal circumstances, at least 65% of the value of the Fund's
assets will be invested in debt obligations issued by or on behalf of the State
of Connecticut, its political subdivisions, or public instrumentalities, state
or local authorities, districts or similar public entities created under
Connecticut law, and obligations of territories and possessions of the United
States
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and any political subdivision or financing authority of any of these, the
interest income from which is, in the opinion of qualified legal counsel, exempt
from both federal regular income tax and the CSIT ("Connecticut Municipal
Securities"). Examples of Connecticut Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than thirteen months without demand features); and tender option bonds. See
"Investments, Strategies and Risks" below.
From time to time on a temporary basis, when the Investment Adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term non-Connecticut municipal tax-exempt obligations
or other taxable, temporary investments. All temporary investments will satisfy
the same credit quality standards as Connecticut Municipal Securities. See
"Quality Requirements" above. Temporary investments include: investments in
other mutual funds; notes issued by or on behalf of municipal or corporate
issuers; marketable obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements. Although the Fund
is permitted to make taxable, temporary investments, there is no current
intention of generating income subject to federal regular income tax or the
CSIT.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund's investment objective is
to provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with stability of
principal and liquidity. The Fund attempts to achieve this objective by
investing in a portfolio of Massachusetts Municipal Securities (as defined
below) with remaining maturities of thirteen months or less at the time of
purchase. As a matter of fundamental policy that cannot be changed without
shareholder approval, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax or at least 80%
of the total value of its assets are invested in obligations the interest income
from which is exempt from federal regular income tax.
Under normal circumstances, at least 65% of the value of the Fund's
assets will be invested in debt obligations issued by or on behalf of the
Commonwealth of Massachusetts and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political sub-
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division, or financing authority of any of these, the interest income from which
is, in the opinion of qualified legal counsel, exempt from federal regular
income tax and the income taxes imposed by the Commonwealth of Massachusetts
upon non-corporate taxpayers ("Massachusetts Municipal Securities"). Examples of
Massachusetts Municipal Securities include, but are not limited to, municipal
commercial paper and other short-term notes; variable rate demand notes;
municipal bonds (including bonds having remaining maturities of less than
thirteen months without demand features); and tender option bonds. See
"Investments, Strategies and Risks" below.
From time to time on a temporary basis, when the Investment Adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term non-Massachusetts municipal tax-exempt
obligations or other taxable, temporary investments. All temporary investments
will satisfy the same credit quality standards as Massachusetts Municipal
Securities. See "Quality Requirements" above. For a description of the types of
temporary investments permitted to be made by the Fund, see "Connecticut
Municipal Money Market Fund" above. Although the Fund is permitted to make
taxable, temporary investments, there is no current intention of generating
income subject to federal regular income tax or the income taxes imposed by the
Commonwealth of Massachusetts.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than 10 years. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
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Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns Retail Shares of
the Funds.
MONEY MARKET INSTRUMENTS
"Money Market" instruments include bank obligations and
commercial paper.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank that is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank that is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investments in bank obligations are limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Investments in non-negotiable time deposits are limited to no more
than 5% of the Money Market Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional investment
risks, including future political and economic developments, the possible
imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when the
Investment Adviser believes that the credit risk with respect to the instrument
is minimal.
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Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition
under the federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) Paper is normally resold to other
institutional investors through or with the assistance of investment dealers
which make a market in Section 4(2) Paper, thus providing liquidity. The
Money Market and each Tax-Exempt Money Market Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, health- related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses, and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be
held by the Tax-Exempt Money Market Funds are "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit, and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of
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the facility being financed. Private activity bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity revenue bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
The Funds' portfolios may also include "moral obligation" securities,
which are normally issued by special-purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide a Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow a Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit a Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The
Tax-Exempt Money Market Funds treat variable rate demand notes as maturing on
the later of the date of the next interest rate adjustment or the date on which
a Fund may next tender the security for repurchase.
Municipal Securities purchased by the Tax-Exempt Money Market Funds in
some cases may be insured as to the timely payment of principal and interest.
There is no guarantee, however, that the insurer will meet its obligations in
the event of a default in payment by the issuer. In other cases, Municipal
Securities may be backed by letters of credit or guarantees issued by domestic
or foreign banks or other financial institutions which are not subject to
federal deposit insurance. Adverse developments affecting the banking industry
generally or a particular bank or financial institution that has provided its
credit or guarantee with respect to a Municipal Security held by a Tax-Exempt
Money Market Fund, including a change in the credit quality of any such bank or
financial institution, could result in a loss to the Fund and adversely affect
the value of its shares. As described above under "Money Market Instruments",
letters of credit and guarantees issued by foreign banks and financial
institutions involve certain risks in addition to those
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of similar instruments issued by domestic banks and financial institutions.
TENDER OPTION BONDS
The Tax-Exempt Money Market Funds may purchase tender option bonds and
similar securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Investment Adviser will monitor, on an ongoing basis, the creditworthiness of
the issuer of the tender option bond, the financial institution providing the
option, and any custodian holding the underlying long-term bond. The bankruptcy,
receivership, or default of any of the parties to the tender option bond will
adversely affect the quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating
rate instruments. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic
adjustment of the interest rate whenever some other specified interest rate
changes. Some variable and floating rate obligations are direct lending
arrangements between the purchaser and the issuer and there may be no active
secondary market. However, in the case of variable and floating rate
obligations with a demand feature, a Fund may demand payment of principal and
accrued interest at a time specified in the instrument or may resell the
instrument to a third party. In the event an issuer of a variable or floating
rate obligation defaulted on its payment obligation, a Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default. Variable or
floating rate instruments acquired by the Government and U.S. Treasury Funds are
similar in form, but, because they would be issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, may have a more active
secondary market. Substantial holdings of variable and floating rate
instruments could reduce portfolio liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
specified date and price ("repurchase agreements"). Repurchase agreements will
only be entered into with financial institutions such as banks and
broker/dealers that are deemed to be creditworthy by the Investment Adviser
under guidelines approved by Galaxy's Board of Trustees. No Fund will enter into
repurchase agreements with Fleet or any of its affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% limit described
in Investment Limitations Nos. 5 and 8 under "Investment Limitations" below with
respect to the Money Market, Government, U.S. Treasury and Tax-Exempt Funds, and
to the 10% limit described under "Investment Limitations" below with respect to
the Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the
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agreement and held by a Fund at not less than the agreed upon repurchase price.
If the seller defaulted on its repurchase obligation, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying securities (including accrued interest) were less than the
repurchase price (including accrued interest) under the agreement. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court action.
Income on repurchase agreements is taxable. The Tax-Exempt Fund's investments in
repurchase agreements will be, under normal market conditions, subject to such
Fund's 20% overall limit on taxable obligations.
The Money Market and Government Funds may also borrow funds for
temporary purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). A reverse repurchase
agreement involves the risk that the market value of the securities sold by a
Fund may decline below the repurchase price. A Fund would pay interest on
amounts obtained pursuant to a reverse repurchase agreement.
SECURITIES LENDING -- MONEY MARKET AND GOVERNMENT FUNDS
The Money Market and Government Funds may lend their portfolio
securities to financial institutions such as banks and broker/dealers in
accordance with their investment limitations. Such loans would involve risks of
delay in receiving additional collateral or in recovering the securities loaned
or even loss of rights in the collateral should the borrower of the securities
fail financially. Any portfolio securities purchased with cash collateral would
also be subject to possible depreciation. Loans will generally be short-term,
and will be made only to borrowers deemed by the Investment Adviser to be of
good standing and only when, in the Investment Adviser's judgment, the income to
be earned from the loan justifies the attendant risks. The Funds currently
intend to limit the lending of their portfolio securities so that, at any given
time, securities loaned by a Fund represent not more than one-third of the value
of its total assets.
GUARANTEED INVESTMENT CONTRACTS -- MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts
("GICs") issued by United States insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at
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negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
ASSET-BACKED SECURITIES -- MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another, such as motor vehicle receivables and credit card receivables. The
Fund will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information.
INVESTMENT COMPANY SECURITIES -- TAX-EXEMPT MONEY MARKET FUNDS
The Tax-Exempt Money Market Funds may invest in securities issued by
other investment companies limited, with respect to the Tax-Exempt Fund, to
open-end investment companies that invest in high quality, short-term Municipal
Securities, that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Such securities may be acquired by a Fund within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
in other investment companies so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; and (c) not more than 3% of
the outstanding voting stock of any one investment company will be owned by the
Fund. A Fund will invest in other investment companies primarily for the purpose
of investing its short-term cash which has not as yet
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been invested in other portfolio instruments. However, from time to time, on a
temporary basis, the Connecticut Municipal Money Market Fund and Massachusetts
Municipal Money Market Fund may invest exclusively in one other investment
company managed similarly to the particular Fund.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT MONEY MARKET FUNDS
Each of the Tax-Exempt Money Market Funds may purchase Municipal
Securities on a "when-issued" basis. The Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may also purchase Municipal
Securities on a "delayed settlement" basis. When-issued transactions, which
involve a commitment by a Fund to purchase particular securities with payment
and delivery taking place at a future date (perhaps one or two months later)
permit the Fund to lock in a price or yield on a security it intends to
purchase, regardless of future changes in interest rates. Delayed settlement
describes settlement of a securities transaction in the secondary market
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place. It is expected that, absent unusual market conditions,
commitments by the Fund to purchase securities on a when-issued or delayed
settlement basis will not exceed 25% of the value of its total assets. These
transactions will not be entered into for speculative purposes, but only in
furtherance of a Fund's investment objective.
In addition, each of the Tax-Exempt Money Market Funds may acquire
"stand-by commitments" with respect to Municipal Securities held by it. Under a
stand-by commitment, a dealer agrees to purchase at a Fund's option specified
Municipal Securities at a specified price. Each Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. Stand-by commitments
acquired by a Fund would be valued at zero in determining the Fund's net asset
value. The default or bankruptcy of a securities dealer giving such a commitment
would not affect the quality of the Municipal Securities purchased by a Fund.
However, without a stand-by commitment, these securities could be more difficult
to sell. A Fund will enter into stand-by commitments only with those dealers
whose credit the Investment Adviser believes to be of high quality.
Although the Tax-Exempt Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securities
the interest on which is paid solely from revenues of similar projects. To the
extent that the Fund's assets are concentrated in Municipal Securities payable
from
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revenues on similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so invested.
The Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds are non-diversified investment portfolios. As such, there is
no limit on the percentage of assets which can be invested in any single issuer.
An investment in one of these Funds, therefore, will entail greater risk than
would exist in a diversified investment portfolio because the higher percentage
of investments among fewer issuers may result in greater fluctuation in the
total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in a Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio was diversified among more issuers. The
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds intend to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of a Fund's taxable year,
with regard to at least 50% of its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
CERTAIN INVESTMENT POLICIES OF THE U.S. TREASURY AND GOVERNMENT FUNDS
The U.S. Treasury and Government Funds may purchase securities on a
"when-issued" basis, as described under "Other Investment Policies of the
Tax-Exempt Money Market Funds."
CONNECTICUT INVESTMENT RISKS
Yields on Connecticut Municipal Securities that may be purchased by the
Connecticut Municipal Money Market Fund depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut or its
municipalities could impact the Fund's portfolio. The ability of the Connecticut
Municipal Money Market Fund to achieve its investment objective also depends on
the continuing ability of the issuers of Connecticut Municipal Securities and
demand features, or the issuers or guarantors of either, to meet their
obligations for the payment of interest and principal when due.
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Investing in Connecticut Municipal Securities which meet the
Connecticut Municipal Money Market Fund's quality standards may not be possible
if the State of Connecticut or its municipalities do not maintain their current
credit ratings. An expanded discussion of the current economic risks associated
with the purchase of Connecticut Municipal Securities is contained in the
Statement of Additional Information.
Fiscal stress is reflected in the State's economic and revenue
forecasts, a rising debt burden that reflects a significant increase in bond
activity since fiscal 1987-88, a cumulative general fund deficit for fiscal
1990-91 of over $965 million, and uncertainty concerning the solutions for these
imbalances. Accumulated surpluses in a budget stabilization fund created in 1983
to protect against future deficit problems were exhausted in 1990. The lack of a
contingency fund balance, combined with reduced revenue-raising flexibility in
the near term, places additional constraints on managing these financial
problems and any others that may arise. As a result of recurring budgetary
problems, Connecticut's general obligation bonds were downgraded by S&P from AA+
to AA in April 1990 and, in September 1991, to AA-; by Moody's from Aa1 to Aa in
April 1990; and by Fitch from AA+ to AA in March 1995.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed.
Regional economic difficulties, reductions in revenues, and increased expenses
could lead to further fiscal problems for the State and its political
subdivisions, authorities, and agencies. This could result in declines in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their obligations.
MASSACHUSETTS INVESTMENT RISKS
The Massachusetts Municipal Money Market Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's Shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the
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value of the Fund's Shares may fluctuate more widely than the value of shares of
a portfolio investing in securities of issuers in a number of different states.
The ability of Massachusetts and its political subdivisions to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their fiscal conditions generally. The amount of tax
and other revenues available to governmental issuers of Massachusetts Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Massachusetts. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Massachusetts Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Massachusetts or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Massachusetts Municipal Securities to meet its obligations (including
a reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the values of other Massachusetts Municipal Securities as well.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to a Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the respective Statements
of Additional Information under "Investment Objectives and Policies."
The Money Market, Government, U.S. Treasury and Tax-Exempt
Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, (ii) each Fund, except the U.S. Treasury Fund, may enter into
repurchase agreements with respect to portfolio securities, and (iii)
the Money Market and Government Funds may lend portfolio securities
against collateral consisting of cash or securities that are consistent
with the Fund's permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
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2. Invest in obligations having remaining maturities in excess
of one year, except that certain variable and floating rate instruments
and securities subject to repurchase agreements may bear longer
maturities (provided certain provisions are met).
3. Purchase securities of any one issuer, other than U.S.
Government obligations, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer (the "5% limitation"), except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Tax-Exempt Fund may not:
4. Borrow money or issue senior securities, except from banks
for temporary purposes, and then in amounts not in excess of 10% of the
value of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of
such borrowing. The Fund will not purchase any portfolio securities
while borrowings in excess of 5% of its total assets are outstanding.
5. Knowingly invest more than 10% of the value of its total
assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days and other securities which
are not readily marketable.
6. Purchase any securities that would cause 25% or more of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the
United States, any state or territory, any possession of the U.S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities, or political subdivisions.
In addition, the Money Market, Government and U.S. Treasury Funds may
not:
7. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of a Fund's total assets at the time of such
borrowing (provided that the Money Market and Government Funds may
borrow pursuant to reverse repurchase agreements in accordance with
their
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investment policies and in amounts not in excess of 10% of the value of
their respective total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of a Fund's total assets at
the time of such borrowing. A Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding.
8. Invest more than 10% of the value of a Fund's total assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
In addition, the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may not:
9. Borrow money directly or pledge securities except, under
certain circumstances, each Fund may borrow up to one-third of the
value of its total assets and pledge up to 10% of the value of its
total assets to secure such borrowings.
The following investment limitation with respect to the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds may be
changed by Galaxy's Board of Trustees without shareholder approval (shareholders
will be notified before any material change in this limitation becomes
effective):
10. The Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds will not invest more than 5% of their
respective total assets in industrial development bonds or other
Municipal Securities when the payment of principal and interest is the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of
any predecessor.
The Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds may purchase restricted securities, which are any securities
in which a Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws. Certain restricted securities may be considered liquid pursuant
to guidelines established by the Board of Trustees. To the extent restricted
securities are deemed illiquid, each Fund will limit their purchase, together
with other securities considered to be illiquid, to 10% of its net assets.
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In addition to the foregoing limitations, the Money Market Fund may not
purchase securities that would cause 25% or more of the value of a Fund's total
assets at the time of purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry;
provided, however, that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or by domestic banks or U.S. branches of foreign banks; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No 3. above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security, or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 7 above, each of the Money
Market and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of a
Fund's portfolio securities will not constitute a violation of the limitation.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the respective Statements of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, each Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act which regulates money
market mutual funds. In accordance with Rule 2a-7, the Money Market Fund is
subject to the 5% limitation contained in Investment Limitation No. 3 above as
to all of its assets; however in accordance with such Rule, the Money Market
Fund will be able to invest more than 5% (but no more than 25%)
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of its total assets in the securities of a single issuer for a period of up to
three business days after the purchase thereof, provided that the Fund may not
hold more than one such investment at any one time. Subject to Investment
Limitation No. 2 above, each Fund will determine the effective maturity of its
respective investments, as well as its ability to consider a security as having
received the requisite short-term ratings by Rating Agencies, according to Rule
2a-7. Except with respect to Investment Limitation No. 2 above, a Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales
of certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation on purchases of illiquid instruments described above,
Rule 144A securities will not be considered to be illiquid if the Investment
Adviser has determined, in accordance with guidelines established by the Board
of Trustees, that an adequate trading market exists for such securities.
PRICING OF SHARES
Net asset value per Share of each Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
of a Fund by dividing the value of all securities and other assets attributable
to a particular series of Shares of the Fund, less the liabilities attributable
to Shares of that series of the Fund, by the number of outstanding Shares of
that series of the Fund.
The assets in each Fund are valued based upon the amortized cost
method. Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy seeks to maintain the net asset
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value per Share of each Fund at $1.00, there can be no assurance that a Fund's
net asset value per share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by
Galaxy's distributor, 440 Financial Distributors, Inc. (the
"Distributor"), a wholly-owned subsidiary of First Data Investor
Services Group, Inc. ("FDISG"). The Distributor is a registered
broker/dealer with principal offices located at 4400 Computer
Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Distributor has established several procedures to enable different
types of investors to purchase Retail Shares of the Funds. Retail Shares (other
than Retail B Shares in the Money Market Fund) may be purchased by FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, saving and loan associations and
broker/dealers ("Institutions") on behalf of their customers ("Customers").
Retail Shares (other than Retail B Shares in the Money Market Fund) may also be
purchased by individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing directly for their own accounts or for the
accounts of others ("Direct Investors"). Purchases may take place only on days
on which the Distributor, Galaxy's custodian and Galaxy's transfer agent are
open for business ("Business Days"). If an Institution accepts a purchase order
from a Customer on a non-Business Day, the order will not be executed until it
is received and accepted by the Distributor on a Business Day in accordance with
the Distributor's procedures.
Retail B Shares in the Money Market Fund are not offered for purchase
and are available only to the holders of Retail B Shares in certain of Galaxy's
portfolios who wish to exchange their Retail B Shares in such Funds for Retail
B Shares in the Money Market Fund. See "Investor Programs - Exchange
Privilege." Six years after the date of purchase of the exchanged Retail B
Shares, Retail B Shares of the Money Market Fund will automatically convert to
Retail A Shares. The purpose of the conversion is to relieve the holders of
Retail B Shares of the higher operating expenses charged to Retail B Shares.
The conversion from Retail B Shares to Retail A Shares will take place at the
net asset value of each series of Shares at the time of the conversion. Upon
such
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conversion, an investor would hold Retail A Shares subject to the operating
expenses for Retail A Shares discussed below. Upon each conversion of Retail B
Shares that were not acquired through reinvestment of dividends or
distributions, a proportionate amount of Retail B Shares that were acquired
through reinvestment of dividends or distributions will likewise automatically
convert to Retail A Shares.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of
Institutions through their Institution. The Institution is responsible for
transmitting Customer purchase orders to the Distributor and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Retail Shares purchased by Institutions on behalf of their Customers
will normally be held of record by the Institutions and beneficial ownership of
Retail Shares will be recorded by the Institutions and reflected in the account
statements provided to their Customers. Galaxy's transfer agent may establish an
account of record for each Customer of an Institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular Institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a Customer with a copy to the
Institution, or will be furnished directly to the Customer by the Institution.
Other procedures for the purchase of Retail Shares established by Institutions
in connection with the requirements of their Customer accounts may apply.
Customers wishing to purchase Retail Shares through their Institution should
contact such entity directly for appropriate purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to each Fund
in which a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
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Subsequent investments in an existing account in any Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund in
which the additional investment is being made to Galaxy at the address above
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained from the Distributor, or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. If a Direct Investor's check does not clear, the purchase will be
cancelled.
Purchases by Wire. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("FDISG"), Galaxy's
transfer agent. Prior to making any purchase by wire, a Direct Investor must
telephone the Distributor at 1-800-628-0413 to place an order and to obtain
instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to The Galaxy Fund, P.O. Box
5108, 4400 Computer Drive, Marlboro, Massachusetts 01581-5108. Applications may
be obtained by calling the Distributor at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been received by the
Distributor. Direct Investors making subsequent investments by wire should
follow the instructions above.
OTHER PURCHASE INFORMATION
Investment Minimums. Except as provided in "Investor Programs" below,
the minimum initial investment by a Direct Investor, or initial aggregate
investment by an Institution investing on behalf of its Customers, is $2,500.
The minimum investment for subsequent purchases is $100. The minimum investment
requirement with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under
"Retirement Plans") is $500 (including spousal IRA accounts). There are no
minimum investment requirements for Direct Investors participating in the
Automatic Investment Program described below. Customers may
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agree with a particular Institution to varying minimum initial and minimum
subsequent purchase requirements with respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement. The issuance of Retail
Shares to Direct Investors and Institutions is recorded on the books of Galaxy
and share certificates will not be issued.
Effective Time of Purchases. A purchase order for Retail Shares in a
Fund received and accepted by the Distributor by 11:00 a.m. (Eastern Time) on a
Business Day will be executed at the net asset value per share next determined
after receipt of the order and will receive the dividend declared on the day of
purchase if Galaxy's custodian receives the purchase price in federal funds or
other immediately available funds by 11:00 a.m. (Eastern Time) that day.
Purchase orders received after 11:00 a.m. (Eastern Time) and prior to 4:00 p.m.
(Eastern Time) on a Business Day for which such funds have been received by 4:00
p.m. will be effective as of 4:00 p.m., and investors will begin receiving
dividends the following day. Purchase orders made by Direct Investors are not
effective until the amount to be invested has been converted to federal funds.
In those cases in which a Direct Investor pays for Retail Shares by check,
federal funds will generally become available two Business Days after a purchase
order is received. In certain circumstances, Galaxy may not require that amounts
invested by Institutions on behalf of their Customers be converted into federal
funds. If an Institution accepts a purchase order from a Customer on a non-
Business Day, the order will not be executed until it is received and accepted
by the Distributor on a Business Day in accordance with the above procedures.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset per share next
determined after receipt of the order by the Distributor, except that proceeds
from the redemption of Retail B Shares in the Money Market Fund will be reduced
by the amount of any applicable contingent deferred sales charge. When
redeeming Retail Shares in the Money Market Fund, Customers of Institutions and
Direct Investors should indicate whether they are redeeming Retail A Shares or
Retail B Shares in the Fund. If a Customer or Direct Investor owns both Retail
A Shares and Retail B Shares in the Money Market Fund, the Retail A Shares will
be redeemed first unless the Customer or Direct Investor indicates otherwise.
Galaxy reserves the right to transmit redemption proceeds within seven days
after receiving the redemption order if, in its judgment, an earlier payment
could adversely affect a Fund.
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REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares
in accordance with procedures governing their accounts at Institutions. It is
the responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Direct Investors may redeem all or part of their Retail Shares in
accordance with any of the procedures described below.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Retail Shares may be redeemed by a
Direct Investor by submitting a written request for redemption
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Marlboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and
the number and series, if applicable, of Retail Shares to be redeemed, (ii)
identify the shareholder account number and tax identification number, and (iii)
be signed by each registered owner exactly as the shares are registered. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 90 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. The guarantor of a
signature must be a bank which is a member of the FDIC, a trust company, a
member firm of a national securities exchange or any other eligible guarantor
institution. The Distributor will not accept guarantees from notaries public.
The Distributor may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the Distributor
receives all required documents in proper form. The Funds ordinarily will make
payment for Retail Shares redeemed by mail within three Business Days after
proper receipt by the Distributor of the redemption request. Questions with
respect to the proper form
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for redemption requests should be directed to the Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000 or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. See "Redemption by Mail" above for
details regarding signature guarantees.
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing the Distributor by wire or telephone to wire
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by the
Distributor.
Direct Investors may request that Retail Shares be redeemed and
redemption proceeds be wired on the same day if telephone redemption
instructions are received by the Distributor by 11:00 a.m. (Eastern Time) on the
day of redemption. Retail Shares redeemed and wired on the same day will not
receive the dividend declared on the day of redemption. Redemption requests made
after 11:00 a.m. (Eastern Time) will receive the dividend declared on the day of
redemption, and redemption proceeds will be wired the following Business Day. To
request redemption of Retail Shares by wire, Direct Investors should call the
Distributor at 1-800-628-0413.
In order to arrange for redemption by wire or telephone after an
account has been opened or to change the bank or account designated to receive
redemption proceeds, a written request must be sent to Galaxy at the address
listed above under "Redemption by Mail." Such requests must be signed by the
investor and accompanied by a signature guarantee (see "Redemption by Mail"
above for details regarding signature guarantees). Further documentation may be
requested from corporations, executors, administrators, trustees, or guardians.
If, due to temporary adverse conditions, Direct Investors are unable to effect
telephone transactions, Direct Investors are encouraged to follow the procedures
for transactions by wire or mail which are described above.
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Galaxy reserves the right to refuse a wire or telephone redemption if
it believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authenticity of telephone instructions, it may be liable for
losses due to unauthorized or fraudulent telephone transactions.
No redemption by a Direct Investor in any Fund will be processed until
Galaxy has received a completed application with respect to the Direct
Investor's account.
If any portion of the Retail Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected, which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and federal
funds.
OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement
plan accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail Shares of a
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her Retail Shares.
Galaxy may redeem Retail Shares involuntarily or make payment for
redemption in securities if it appears appropriate to do so in light of Galaxy's
responsibilities under the 1940 Act. See the respective Statements of Additional
Information under "Net Asset Value" or "Net Asset Value -- Connecticut Municipal
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Money Market and Massachusetts Municipal Money Market Funds" for examples of
when such redemptions might be appropriate.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares (Shares in the case of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) in a Fund having a value of at least $100 for Retail A Shares in any of
the other Funds or portfolios offered by Galaxy or otherwise advised by Fleet
or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares in the Money Market Fund for Retail B
Shares in Galaxy's Short-Term Bond, High Quality Bond, Tax-Exempt Bond, Equity
Value, Equity Growth, Small Company Equity, Asset Allocation, and Growth and
Income Funds in which the Direct Investor or Customer maintains an existing
account, provided that the Retail B Shares acquired in the exchange may legally
be sold in the state of the investor's residence.
Unless an exception applies, a front-end sales charge will be charged
in connection with exchanges of Retail A Shares of a Fund for Retail A Shares of
Galaxy's non-money market portfolios. Retail B Shares may be exchanged without
the payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemptions of Retail B Shares, the holding period of
the Retail B Shares originally held will be added to the holding period of the
Retail B Shares acquired through exchange.
The minimum initial investment to establish a new account in another
eligible Fund by exchange, except for the Institutional Treasury Money Market
Fund, is $2,500 unless, with respect to Direct Investors, at the time of the
exchange the Direct Investor elects, with respect to the Fund into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Treasury
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail
Shares of a Fund and the investment of the redemption proceeds in Retail Shares
of another Fund or portfolio offered by Galaxy or, with respect to Retail A
Shares, otherwise advised by Fleet or its affiliates. The redemption will be
made at the per
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share net asset value next determined after the exchange request is received.
The Retail Shares of a Fund or portfolio to be acquired will be purchased at the
net asset value per Share next determined after acceptance of the exchange
request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call the Distributor at 1-800-628-0413. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other eligible Funds should request and
review the prospectuses for these Funds prior to making an exchange (call
1-800-628-0414 for a prospectus). Telephone all exchanges to 1-800-628-0413. See
"How to Purchase and Redeem Shares - Redemption Procedures - Direct Investors
Redemption by Wire" above for a description of Galaxy's policy regarding
telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
Galaxy does not charge any exchange fee. Institutions may charge such
fees with respect to either all exchange requests or with respect to any request
which exceeds the permissible number of free exchanges during a particular
period. Customers of Institutions should contact their respective Institutions
for applicable information.
For federal income tax purposes, an exchange of Retail Shares is a
taxable event and, accordingly, a capital gain or loss may be realized by an
investor. Before making an exchange request, a Customer or Direct investor
should consult a tax or other financial adviser to determine the tax
consequences.
RETIREMENT PLANS
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Retail Shares of the Funds, other than the Tax-Exempt Money Market
Funds, are available for purchase in connection with the following tax-deferred
prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500
(including a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan
for sole proprietors, partnerships and corporations. The minimum initial
investment for a SEP account is $500.
Multi-Employee Retirement Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Sections
401(k) and 403(b) of the Internal Revenue Code. The minimum initial investment
for a MERP is $500.
Keogh Plans, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are
not subject to the minimum investment provisions described above under "How to
Purchase and Redeem Shares - Other Purchase Information." Detailed information
concerning eligibility, service fees and other matters related to these plans,
and the form of application, is available from Galaxy's Distributor (call
1-800-628-0413) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities, Inc. (call 1- 800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares (minimum of $50 per transaction) each month or each quarter.
Provided a Direct Investor's financial institution allows automatic withdrawals,
Retail Shares are purchased by transferring funds from a Direct Investor's
checking, bank money market, NOW or savings account designated by the Direct
Investor. The account designated will be debited in the specified amount and
Retail Shares will be purchased on a monthly or quarterly basis, on any Business
Day designated by a Direct Investor. If the designated day falls on a weekend or
holiday, the purchase will be made on the Business Day closest to the designated
day. Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated.
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The Systematic Withdrawal Plan permits a Direct Investor to
automatically redeem Retail Shares on a monthly, quarterly, semi-annual, or
annual basis on any Business Day designated by a Direct Investor, if the account
has a starting value of at least $10,000. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
The maintenance of a Systematic Withdrawal Plan may be disadvantageous for
holders of Retail B Shares of the Money Market Fund due to the effect of the
contingent deferred sales charge.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits an
investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist investors who want to finance a college savings plan. See "Investor
Programs -- Automatic Investment Program and Systematic Withdrawal Plan" for
information on the Automatic Investment Program. Galaxy reserves the right to
redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Purchase and Redeem Shares -- Other Redemption Information" above for further
information.
Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from Galaxy's Distributor (call
1-800-628-0413).
CHECKWRITING
Checkwriting is available for Direct Investors. A charge for use of the
checkwriting privilege may be imposed by Galaxy. There is no limit to the number
of checks a Direct Investor may write per month in an amount per check of $250
or more. To obtain checks, a Direct Investor must complete the signature card
that accompanies the account application. To establish this checkwriting service
after opening an account in a Fund, Direct Investors must contact the
Distributor by telephone (1-800-628- 0414) or mail to obtain a signature card. A
signature guarantee
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may be required. A DIRECT INVESTOR WILL RECEIVE THE DAILY DIVIDENDS DECLARED ON
THE RETAIL SHARES TO BE REDEEMED UP TO THE DAY THAT A CHECK IS PRESENTED TO THE
CUSTODIAN FOR PAYMENT. Upon 30 days' written notice to Direct Investors, the
checkwriting privilege may be modified or terminated. An account in a Fund may
not be closed by writing a check.
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE The Galaxy
Information Center provides Fund performance and investment information 24 hours
a day, 7 days a week. To access the Galaxy Information Center just call
1-800-628-0414.
VOICE RESPONSE SYSTEM -- The Voice Response System provides Direct
Investors automated access to Fund and account information as well as the
ability to make telephone exchanges and redemptions. These transactions are
subject to the terms and conditions described under Investor Programs. To access
the Voice Response System, just call 1-800-FOR-GLXY (367-4599) from any
touch-tone telephone and follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES -- For account information and recent
exchange transactions, Direct Investors can call Galaxy Shareholder Services
Monday through Friday, between the hours of 9:00 a.m. to 5:00 p.m. (Eastern
Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
The Funds' yields reflect any fee waivers in effect, represent past
performance and will vary. If fee waivers are in
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effect and fees are not waived, yields would be reduced. Past performance is no
guarantee of future results. Current yield refers to income earned by a Fund's
investments over a 7-day period. It is then annualized and stated as a
percentage of the investment. Effective yield is the same as current yield
except that it assumes the income earned by an investment in a Fund will be
reinvested. An investment in any one of the Funds is neither insured nor
guaranteed by the U.S. Government nor is there any assurance the Funds will be
able to maintain a stable net asset value of $1.00 per share.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of each Fund is declared daily as a dividend
to the persons who are shareholders of the respective Funds immediately after
the 11:00 a.m. pricing of shares on the day of declaration. Net investment
income for dividend purposes is determined separately for each series of shares
of a Fund and consists of all accrued income, whether taxable or tax-exempt,
plus discount earned on the Fund's assets attributable to each series of shares,
less amortization of premium on such assets and accrued expenses attributable to
each series of shares of the Fund. None of the Funds expect to realize net
capital gains. However, if any such gains are realized, they will be paid out to
shareholders no less frequently than annually.
Dividends are paid monthly within five Business Days after the end of
each calendar month or within five Business Days after a shareholder's complete
redemption of Retail Shares in a Fund. Institutions, unless they request
otherwise, will automatically receive dividends and distributions in cash.
Institutions may pay dividends to Customers in cash or reinvest such cash
distributions in additional shares. Direct Investors will have the option as
provided on the application of electing to (a) automatically receive dividends
and distributions in additional Retail Shares of the same series of a Fund at
the net asset value of such Retail Shares on the payment date or (b) receive
dividends and distributions in cash. Any revocation of such election must be
made in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent"
below) and will become effective with respect to dividends paid after its
receipt.
TAXES
FEDERAL
In General. Each of the Funds qualified during its last taxable year
and intends to continue to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
relieves each Fund of
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liability for federal income taxes to the extent its earnings are distributed in
accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, a Fund's investment company
taxable income will be its taxable income (including interest) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The Money Market, Government and U.S. Treasury Funds intend to distribute
substantially all of their respective investment company taxable income and net
tax-exempt income each year. Such dividends will be taxable as ordinary income
to each Fund's shareholders who are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional
Retail Shares. (Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) Because all of each Fund's net
investment income is expected to be derived from earned interest, it is
anticipated that no part of any distribution will be eligible for the dividends
received deduction for corporations.
Dividends declared in October, November or December of any year that
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
The Tax-Exempt Money Market Funds. It is the policy of each Tax-Exempt
Money Market Fund to pay dividends with respect to each taxable year equal to at
least the sum of 90% of its net exempt-interest income and 90% of its investment
company taxable income, if any. Dividends derived from exempt-interest income
("exempt-interest dividends") may be treated by a Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless, under the circumstances applicable to a particular shareholder,
exclusion would be disallowed. (See the respective Statements of Additional
Information under "Additional Information Concerning Taxes.")
If a Tax-Exempt Money Market Fund should hold certain "private activity
bonds" issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Fund that is attributable to
interest on such bonds in their federal alternative minimum taxable income for
purposes of determining liability (if any) for
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the 26% to 28% alternative minimum tax for individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. Shareholders receiving Social Security benefits
should note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
Dividends from a Tax-Exempt Money Market Fund which are derived from
taxable income or from long-term or short-term capital gains will be subject to
federal income tax, whether such dividends are paid in the form of cash or
additional Retail Shares of the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the
Tax-Exempt Money Market Funds may be taxable to shareholders under state or
local law as dividend income, even though all or a portion of such distributions
may be derived from interest on tax-exempt obligations which, if realized
directly, would be exempt from such income taxes.
Dividends paid by the Connecticut Municipal Money Market Fund that
qualify as exempt-interest dividends for federal income tax purposes will not be
subject to the Connecticut personal income tax, on individuals, trusts and
estates, to the extent that they are derived from Connecticut Municipal
Securities. Other Fund dividends and distributions, whether received in cash or
additional shares, are subject to this tax, except that capital gain dividends
derived from obligations issued by or on behalf of the State of Connecticut, its
political subdivisions, or public instrumentalities, state or local authorities,
districts or similar public entities created under Connecticut law are not
subject to the tax. Dividends and distributions paid by the Fund that constitute
items of tax preference for purposes of the federal alternative minimum tax,
other than any derived from Connecticut Municipal Securities, could cause
liability for the net Connecticut minimum tax, applicable to investors subject
to the Connecticut personal income tax who are required to pay the federal
alternative minimum tax.
Dividends paid by the Connecticut Municipal Money Market Fund,
including those that qualify as exempt-interest dividends for federal income tax
purposes, are taxable for purposes of the Connecticut Corporation Business Tax;
however, 70% (100% if the investor owns at least 20% of the total voting power
and value of the Fund's shares) of amounts that are treated as dividends and not
as exempt-interest dividends or capital gain dividends for federal income tax
purposes are deductible for purposes of this tax, but no deduction is allowed
for expenses
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related thereto. Shares of the Fund are not subject to property tax by the State
of Connecticut or its political subdivisions.
Distributions by the Massachusetts Municipal Money Market Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional Shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
The U.S. Treasury Fund is structured to provide shareholders, to the
extent permissible by federal and state law, with income that is exempt or
excluded from taxation at the state and local level. Many states, by statute,
judicial decision or administrative action, have taken the position that
dividends of a regulated investment company, such as the Fund, that are
attributable to interest on direct U.S. Treasury obligations or obligations of
certain U.S. Government agencies, are the functional equivalent of interest from
such obligations and are, therefore, exempt from state and local income taxes.
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction
of Galaxy's Board of Trustees. The Funds' Statements of Additional Information
contain the names of and general background information concerning the Trustees.
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INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets at December 31, 1996 of $____
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other portfolios of Galaxy: the Institutional Treasury Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Funds, makes decisions with respect to and places orders for all
purchases and sales of their portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the following annual rates:
with respect to the Money Market, Government and Tax-Exempt Funds, .40% of the
average daily net assets of each Fund, and with respect to the U.S. Treasury,
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds, .40% of the first $750,000,000 of average daily net assets of each Fund
plus .35% of the average daily net assets of each Fund in excess of
$750,000,000. Fleet may from time to time, in its discretion, waive advisory
fees payable by the Funds in order to help maintain a competitive expense
ratios, and may from time to time allocate a portion of its advisory fees to
Fleet Trust Company or other subsidiaries of Fleet Financial Group, Inc. in
consideration for administrative and shareholder support services which they
provide to beneficial shareholders. Fleet has advised Galaxy that, with respect
to the Money Market, Government and Tax-Exempt Funds, Fleet intends to waive
advisory fees payable to it by each Fund in an amount equal to 0.05% of the
average daily net assets of each Fund to the extent that a Fund's net assets
exceed $750,000,000. For the fiscal year ended October 31, 1996, Fleet received
advisory fees (after fee waivers) at the effective annual rates of .__%, .__%,
.__% and .__% of the average daily net assets of the Money Market Fund,
Government Fund, Tax-Exempt Fund and U.S. Treasury Fund, respectively. For the
period from December 4, 1995 through October 31, 1996, Fleet received advisory
fees (after fee waivers) at the effective annual rates of ____% and ____% of the
average daily net assets
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of the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds, respectively.
The Predecessor Connecticut Municipal Money Market and Predecessor
Massachusetts Municipal Money Market Funds bore advisory fees during the period
from November 1, 1995 through December 3, 1995 pursuant to the investment
advisory agreement then in effect with Shawmut Bank, N.A., their former adviser,
at the effective annual rates of ___% and ___%, respectively, of such
Predecessor Funds' average daily net assets after fee waivers. Without fee
waivers, each Predecessor Fund would have borne advisory fees at the annual rate
of .50 of 1% of its average daily net assets.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Retail
Shares of the Funds, but such banking laws and regulations do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. The Investment
Adviser, custodian and Institutions that are banks or bank affiliates are
subject to such banking laws and regulations.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Funds' method of
operations would affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG") located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and
operation. FDISG also serves as administrator to the other
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portfolios of Galaxy. Effective September 5, 1996, FDISG is entitled to receive
administration fees, computed daily and paid monthly, at the annual rate of .09%
of the first $2.5 billion of combined average daily net assets of the Funds and
the other portfolios offered by Galaxy (collectively, the "Portfolios"), .085%
of the next $2.5 billion of combined average daily net assets and .075% of
combined average daily net assets over $5 billion. Prior to September 5, 1996,
for the services provided to the Funds, FDISG was entitled to receive
administration fees, computed daily and paid monthly, at the annual rate of .09%
of the first $2.5 billion of the combined average daily net assets of the
Portfolios, .085% of the next $2.5 billion of combined average daily net assets
and .08% of combined average daily net assets over $5 billion. In addition,
FDISG also receives a separate annual fee from each Portfolio for certain fund
accounting services. From time to time, FDISG may waive all or a portion of the
administration fee payable to it by the Funds, either voluntarily or pursuant to
applicable statutory expense limitations. For the fiscal year ended October 31,
1996, the Money Market, Government, Tax-Exempt and U.S. Treasury Funds paid
FDISG administration fees at the effective annual rate of .___% of each Fund's
average daily net assets. For the period from December 4, 1995 through October
31, 1996, the Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds paid FDISG administration fees at the effective annual rate
of ____% of each Fund's average daily net assets.
The Predecessor Connecticut Municipal Money Market and Predecessor
Massachusetts Municipal Money Market Funds bore administration fees during the
period from November 1, 1995 through December 3, 1995 pursuant to the
administration agreement then in effect with Federated Administrative Services,
their prior administrator, at the effective annual rate of ____% of each such
Predecessor Fund's average daily net assets after fee waivers.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class A
Shares (Retail A Shares), Class A -- Special Series 1 Shares (Trust Shares) and
Class A -- Special Series 2 Shares (Retail B Shares), each series representing
interests in the Money Market Fund; Class B Shares (Retail A Shares) and Class B
- -- Special Series 1 Shares (Trust Shares), both series representing interests in
the Government Fund; Class E Shares
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(Retail A Shares) and Class E -- Special Series 1 Shares (Trust Shares), both
series representing interests in the Tax-Exempt Fund; Class F Shares (Retail A
Shares) and Class F -- Special Series 1 Shares (Trust Shares), both series
representing interests in the U.S. Treasury Fund; Class V Shares, representing
interests in the Connecticut Municipal Money Market Fund; and Class W Shares,
representing interests in the Massachusetts Municipal Money Market Fund. Each
Fund (other than the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds) is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in other portfolios of
Galaxy. For information regarding Trust Shares of the Money Market, Government,
U.S. Treasury and Tax-Exempt Funds and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Money Market, Government, U.S. Treasury
and Tax-Exempt Funds bear their pro rata portion of all operating expenses paid
by a particular Fund except as follows: Holders of a Fund's Retail A Shares bear
the fees that are paid to Institutions under Galaxy's Shareholder Services Plan
described below and holders of Retail B Shares of the Money Market Fund bear the
fees that are paid under Galaxy's Distribution and Services Plan described
below. Currently, these payments are not made with respect to a Fund's Trust
Shares. In addition, shares of each series in a Fund bear differing transfer
agency expenses. Standardized yield quotations are computed separately for each
series of shares. The difference in the expenses paid by the respective series
will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001, represents an equal proportionate interest in the related Fund
with other Shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
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SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares (Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds) in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares of a Fund beneficially owned by such Customers. Such
services are intended to supplement the services provided by FDISG as
administrator and transfer agent, and are described more fully in the Statements
of Additional Information under "Shareholder Services Plan." Services under the
Shareholder Services Plan may include: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from a Fund; providing Customers with
information as to their positions in Retail A Shares; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to Customers. Such services are intended to
supplement the services provided by FDISG as administrator and transfer agent,
and are described more fully in the Statements of Additional Information under
"Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to Retail A Shares of the Funds (Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds) and Trust Shares of the
Money Market, Government, U.S. Treasury and Tax-Exempt Funds, as of the date of
this Prospectus, Galaxy intends to enter servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
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DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Retail B Shares of the Money Market
Fund. Under the Distribution and Services Plan, Galaxy may pay (a) the
Distributor or another person for expenses and activities intended to result in
the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) Institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
Institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments
by Galaxy (i) for distribution expenses may not exceed the annualized rate of
.65% of the average daily net assets attributable to the Money Market Fund's
outstanding Retail B Shares, and (ii) to an Institution for shareholder liaison
services and/or administrative support services may not exceed the annual rates
of .25% and .25%, respectively, of the average daily net assets attributable to
the Money Market Fund's outstanding Retail B Shares which are owned of record or
beneficially by that Institution's Customers for whom the Institution is the
dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Prospectus, Galaxy intends to limit the
Money Market Fund's payments for shareholder liaison and administrative support
services under the Plan to an aggregate fee of not more than .10% (on an
annualized basis) of the average daily net asset value of Retail B Shares owned
of record or beneficially by Customers of Institutions.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank will perform certain
sub-account and administrative
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functions ("Sub-Account Services") on a per-account basis with respect to Trust
Shares of the Money Market, Government and U.S. Treasury Funds held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Money Market, Government and U.S. Treasury Funds
to FDISG have been increased by an amount equal to these fees. In substance,
therefore, the holders of Trust Shares of these Funds indirectly bear these
fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Funds are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the
Funds. Galaxy bears the expenses incurred in the Funds' operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with FDISG); SEC fees; state securities
qualification fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; advisory, administration,
shareholder servicing, Rule 12b-1 distribution, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
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PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives and
to other relevant indexes or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, such data is reported in national financial publications
such as Donoghue's Money Fund Report(R), a widely recognized independent
publication that monitors the performance of mutual funds. Also, the Funds'
yield data may be reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal, and The
New York Times, or in publications of a local or regional nature. The taxable
money market Funds' performance may also be compared to the average yields
reported by the Bank Rate Monitor for money market deposit accounts offered by
the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas. The performance will be calculated separately
for Trust Shares, Retail A Shares and/or Retail B Shares of the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds.
The yields of the Funds will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. Each Fund
may also advertise the "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Funds is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment. Also, each of the
Tax-Exempt Money Market Funds may from time to time advertise a "tax-equivalent
yield" to demonstrate the level of taxable yield necessary to produce an
after-tax yield equivalent to that achieved by the Fund. The "tax-equivalent
yield" will be computed by dividing the tax-exempt portion of a Fund's yield by
a denominator consisting of one minus a stated federal income tax rate and
adding the product to that portion, if any, of the Fund's yield which is not
tax-exempt.
In addition, the U.S. Treasury Fund may calculate a "state flow through
yield" which shows the level of taxable yield needed to produce an after-tax
yield equivalent to a particular state's tax-exempt yield achieved by the Fund.
The "state flow through yield" refers to that portion of income which is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities and which qualifies for exemption from state taxes. The
yield calculation assumes that 100% of the interest income is exempt from state
personal income tax. A
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<PAGE> 194
"state flow through yield" will be computed by dividing the tax-exempt portion
of the Fund's yield by a denominator consisting of one minus a stated income tax
rate. For illustrative purposes, state flow through yields assume the payment of
state income tax rates of 3%, 7% or 11%.
The Funds' yields will fluctuate and any quotation of yield should not
be considered as representative of future performance of the Funds. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Retail Shares of a Fund will not be included in calculations of
yield.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding Shares" of Galaxy, a particular Fund or a particular series of
shares means, with respect to the approval of an investment advisory agreement,
a distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of Galaxy, such Fund or such series of
shares, or (b) 67% or more of the shares of Galaxy, such Fund or such series of
shares present at a meeting if more than 50% of the outstanding shares of
Galaxy, such Fund or such series of shares are represented at the meeting in
person or by proxy.
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<PAGE> 195
THE GALAXY FUND
INSTITUTIONAL TREASURY MONEY MARKET FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 196
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS.................................................................
EXPENSE SUMMARY............................................................
INVESTMENT OBJECTIVE AND POLICIES..........................................
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION......................
Treasury Obligations..............................................
"When-Issued" Securities .........................................
INVESTMENT LIMITATIONS.....................................................
PRICING OF SHARES..........................................................
HOW TO PURCHASE AND REDEEM SHARES..........................................
Distributor.......................................................
Purchase of Shares................................................
Purchase Procedures...............................................
Other Purchase Information........................................
Redemption Procedures ............................................
Other Redemption Information......................................
EXCHANGE PRIVILEGE.........................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES ..................................................................
Federal .........................................................
State and Local...................................................
Miscellaneous.....................................................
MANAGEMENT OF THE FUND.....................................................
Investment Adviser................................................
Authority to Act as Investment Adviser............................
Administrator.....................................................
DESCRIPTION OF GALAXY AND ITS SHARES.......................................
CUSTODIAN AND TRANSFER AGENT...............................................
EXPENSES ..................................................................
PERFORMANCE AND YIELD INFORMATION..........................................
MISCELLANEOUS..............................................................
<PAGE> 197
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 initial purchases and current
performance, call
1-800-628-0414. For
additional purchases,
redemptions, exchanges and
other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes the INSTITUTIONAL TREASURY MONEY MARKET FUND
(the "Fund") offered by Galaxy.
The Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests in obligations with
remaining maturities of 397 days or less which are issued or guaranteed by the
U.S. Treasury, the interest income from which generally will not be subject to
state income tax by reason of current federal law.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc. and
affiliates. The shares described in this Prospectus ("Shares") are offered to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions").
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
read this Prospectus and retain it for future reference. Additional information
about the Fund, contained in the Statement of Additional Information relating to
the Fund and bearing the same date, has been filed with the Securities and
Exchange Commission. The current Statement of Additional Information is
available upon request without charge by contacting Galaxy at its telephone
numbers or address shown above. The Statement of Additional Information, as it
may be amended from time to time, is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY,
THE U.S.
<PAGE> 198
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
FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
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<PAGE> 199
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly
known as a mutual fund) that offers investors the opportunity to invest in
different investment portfolios having separate investment objectives and
policies. This Prospectus describes Galaxy's INSTITUTIONAL TREASURY MONEY MARKET
FUND. See "Investment Objective and Policies" and "Types of Obligations and
Other Investment Information." Galaxy also offers twenty-three other investment
portfolios, the MONEY MARKET, GOVERNMENT, TAX- EXEMPT, U.S. TREASURY,
CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, EQUITY
VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY,
ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, SHORT-TERM BOND,
INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND, TAX-EXEMPT
BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS
MUNICIPAL BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS. The Prospectuses for these
Funds may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUND?
A: The Fund is advised by Fleet Investment Advisors Inc.
("Fleet" or the "Investment Adviser"), an indirect wholly-owned
subsidiary of Fleet Financial Group, Inc. Fleet Financial Group,
Inc. is a financial services company with total assets as of
December 31, 1996 of approximately $____ billion. See
"Management of the Fund -- Investment Adviser."
Q: WHAT ADVANTAGES DOES THE FUND OFFER?
A: The Fund offers a professionally managed diversified
investment portfolio and the economic advantages of block trading in portfolio
securities, and provides detailed accounting and safekeeping for securities. The
Fund also offers the availability of a family of twenty-four mutual funds should
your investment goals change.
Q: HOW TO BUY AND REDEEM SHARES?
A: The Fund is distributed by 440 Financial Distributors, Inc.
Shares may be purchased on behalf of Customers of FIS Securities, Inc., Fleet
Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Share purchase and redemption information is provided below
under "How to Purchase and Redeem Shares." The minimum initial investment for
Institutions purchasing on behalf of their Customers is $2,000,000. There is no
minimum investment
<PAGE> 200
for subsequent purchases. Institutions may require Customers to maintain certain
minimum investments in Shares of the Funds.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Fund are
declared daily and paid monthly. Net realized capital gains of
the Fund, if any, are distributed at least annually. See
"Dividends and Distributions."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUND?
A: Investors may exchange Shares of the Fund having a value of at
least $100 for Shares of any other portfolio offered by Galaxy or otherwise
advised by Fleet or its affiliates in which the investor has an existing
account, provided that such shares may legally be sold in the state of the
investor's residence.
-2-
<PAGE> 201
EXPENSE SUMMARY
Set forth below is a summary of the Fund's operating expenses. Examples
based on the summary are also shown.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
---------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Advisory Fees
(After Fee Waivers) ............. %
----
12b-1 Fees............................ None
Other Expenses (After Fee Waivers and
Expense Reimbursements ............. 0. %
----
Total Fund Operating Expenses
(After Fee Waivers and
Expense Reimbursements)............. 0. %
</TABLE>
----
- ----------------------
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$--- $--- $--- $---
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses the Fund expects to incur during the current fiscal year.
Without voluntary fee waivers and expense reimbursements by the Investment
Adviser and/or Administrator, "Advisory Fees" would be .20%, Other Expenses
would be .__%, and Total Fund Operating Expenses would be .__%. For more
complete descriptions of these costs and expenses, see "Management of the Fund"
in this Prospectus and the financial statements and notes incorporated by
reference into the Statement of Additional Information relating to the Fund. Any
fees that are charged by affiliates of Fleet or any other institutions directly
to their customer accounts for services related to an investment in Shares of
the Fund are in addition to and not reflected in the fees and expenses described
above.
-3-
<PAGE> 202
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
-4-
<PAGE> 203
FINANCIAL HIGHLIGHTS
The financial highlights presented below set forth certain information
concerning the Fund's investment results for the periods presented. The
financial highlights have been audited by (_______________________), Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Fund for the fiscal year ended October 31, 1996
(the "Annual Report"). Such financial highlights should be read in conjunction
with the financial statements contained in the Annual Report and [____________]
into the Statement of Additional Information. More information about
the performance of the Fund is contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone numbers or address
provided above.
INSTITUTIONAL TREASURY
MONEY MARKET FUND
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------- ------------
1996 1995 1994 OCTOBER 31, 1993(1)
---- ---- ---- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ...................... $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------
Income From Investment Operations:
Net investment income(2) ................. 0.05 0.04 0.02
Net realized and unrealized
gain(loss) on investments ........... -- -- --
-------- -------- ---------
Total From Investment
Operations ............................... 0.05 0.04 0.02
-------- -------- ---------
Less Dividends:
Dividends from net
investment income ................... (0.05) (0.04) (0.02)
Dividends from net realized
capital gains ....................... -- -- --
-------- -------- ---------
Total Dividends .......................... (0.05) (0.04) (0.02)
-------- -------- ---------
Net increase(decrease) in net
asset value .................................... -- -- --
-------- -------- ---------
Net Asset Value,
End of Period ............................ $ 1.00 $ 1.00 $ 1.00
======== ======== =========
Total Return ..................................... 5.53% 3.56% 1.59%(3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ......................................... $506,692 $326,225 158,890
Ratio to average net assets:
Net investment income including
reimbursement/waiver ................ 5.38% 3.63% 2.85%(4)
Operating expenses including reimbursement
/waiver ............................. 0.17% 0.17% 0.14%(4)
Operating expenses including reimbursement
/waiver
Operating expenses excluding reimbursement
/waiver ............................. 0.33% 0.39% 0.46%(4)
</TABLE>
(1) The Fund commenced operations on April 15, 1993.
(2) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1996, 1995 and 1994 and for the period ended October 31, 1993 were
$_____, $0.05, $0.04 and $0.01, respectively.
(3) Not Annualized.
(4) Annualized.
-5-
<PAGE> 204
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund seeks to achieve its objective by
investing in obligations issued or guaranteed as to payment of principal and
interest by the U.S. Treasury ("Treasury Obligations") with remaining maturities
of 397 days or less (except for certain variable and floating rate notes). The
interest income from these obligations generally will not be subject to state
income tax by reason of current federal law. See "Types of Obligations and Other
Investment Information."
The Investment Adviser will use its best efforts to achieve the
investment objective of the Fund, although such achievement cannot be assured.
The investment objective of the Fund may not be changed without the approval of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program. The Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less in an effort to maintain a stable net asset value
per share of $1.00.
TYPES OF OBLIGATIONS AND
OTHER INVESTMENT INFORMATION
TREASURY OBLIGATIONS
Treasury Obligations include obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, which are supported by the full faith and credit of the
U.S. Treasury. Treasury Obligations have historically involved little risk of
loss of principal. However, due to fluctuations in interest rates, the market
value of Treasury Obligations may vary during the period a shareholder owns
Shares of the Fund.
Treasury Obligations may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Because there
may not always be an active secondary market for these instruments, substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
-6-
<PAGE> 205
"WHEN-ISSUED" SECURITIES
The Fund may purchase Treasury Obligations on a "when-issued" basis.
"When-issued" securities are securities purchased at a stated price and yield in
which delivery and payment takes place at a later date. The Fund will generally
not pay for such securities or start earning interest on them until they are
received. Securities purchased on a "when-issued" basis are recorded as an asset
and are subject to changes in value based upon changes in the general level of
interest rates. It is expected that, absent unusual market conditions,
commitments by the Fund to purchase "when-issued" securities will not exceed 25%
of the value of its total assets. The Fund does not intend to purchase
"when-issued" securities for speculative purposes, but only in furtherance of
its investment objective.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies.
2. Invest in obligations having remaining maturities in excess
of 397 days, except that certain variable and floating rate instruments
may bear longer maturities (provided certain provisions are met).
3. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of the Fund's total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of such borrowing. The Fund will not purchase
securities while borrowings in excess of 5% of its total assets are
outstanding.
4. Invest more than 10% of the value of the Fund's total
assets in illiquid securities.
-7-
<PAGE> 206
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated by dividing the value of all
securities and other assets belonging to the Fund, less the liabilities charged
to the Fund, by the number of outstanding Shares of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to the Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy seeks to maintain the net asset value per
share of the Fund at $1.00, there can be no assurance that the net asset value
per Share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
Shares may be purchased by FIS Securities, Inc., Fleet Brokerage
Securities Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, saving and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases may take
place only
-8-
<PAGE> 207
on days on which the Distributor, Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an Institution accepts a purchase
order from a Customer on a non-Business Day, the order will not be executed
until it is received and accepted by the Distributor on a Business Day in
accordance with the Distributor's procedures.
PURCHASE PROCEDURES
Purchase orders for Shares are placed by Customers of Institutions
through their Institution. The Institution is responsible for transmitting
Customer purchase orders to the Distributor and for wiring required funds in
payment to Galaxy's custodian on a timely basis. The Distributor is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Shares
purchased by Institutions on behalf of their Customers will normally be held of
record by the Institutions and beneficial ownership of Shares will be recorded
by the Institutions and reflected in the account statements provided to their
Customers. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Share purchases and
redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
OTHER PURCHASE INFORMATION
The minimum initial aggregate investment by an Institution investing on
behalf of its Customers is $2,000,000. There is no minimum investment for
subsequent purchases. Customers may agree with a particular Institution to vary
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement. The issuance of Shares to
Institutions is recorded on the books of Galaxy and Share certificates will not
be issued.
A purchase order for Shares in the Fund received and accepted by the
Distributor by 11:00 a.m. (Eastern Time) on a Business Day will be executed at
the net asset value per Share next determined after receipt of the order and
will receive the dividend declared on the day of purchase if Galaxy's custodian
receives the purchase price in federal funds or other immediately
-9-
<PAGE> 208
available funds by 11:00 a.m. (Eastern Time) that day. Purchase orders received
after 11:00 a.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time) on a
Business Day for which such funds have been received by 4:00 p.m. will be
effective as of 4:00 p.m., and investors will begin receiving dividends the
following day. In certain circumstances, Galaxy may not require that amounts
invested by Institutions on behalf of their Customers be converted into federal
funds. If an Institution accepts a purchase order from a Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by the Distributor on a Business Day in accordance with the above
procedures.
REDEMPTION PROCEDURES
Customers of Institutions may redeem all or part of their Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and credit its Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments to an
Institution is imposed by Galaxy, although the Institution may charge its
Customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from the Institutions.
OTHER REDEMPTION INFORMATION
Galaxy requires that an Institution maintain an average balance of $2
million in an account. If the balance in such account falls below that minimum,
the Institution may be obliged by Galaxy to redeem all of the Shares in the
account.
Redemption orders are effected at the net asset value per Share next
determined after receipt and acceptance of the order. Galaxy reserves the right
to wire redemption proceeds within seven days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect a Fund.
Galaxy may redeem Shares involuntarily or make payment for redemption
in securities if it appears appropriate to do so in light of Galaxy's
responsibilities under the Investment Company Act of 1940, as amended (the "1940
Act"). See the Statement of Additional Information under "Net Asset Value," for
examples of when such redemptions might be appropriate.
-10-
<PAGE> 209
EXCHANGE PRIVILEGE
Customers of Institutions may, after appropriate prior authorization,
exchange Shares of the Fund having a value of at least $100 for Retail A Shares
or Shares, as the case may be, of any of the other portfolios offered by Galaxy
or otherwise advised by Fleet or its affiliates in which the Customer maintains
an existing account, provided that such other Shares may legally be sold in the
state of the Customer's residence. The minimum initial investment to establish
an account by exchange in another portfolio offered by Galaxy or otherwise
advised by Fleet or its affiliates is $2,500.
An exchange involves a redemption of all or a portion of the Shares of
the Fund and the investment of the redemption proceeds in shares of another
portfolio offered by Galaxy or otherwise advised by Fleet or its affiliates. The
redemption will be made at the per Share net asset value next determined after
the exchange request is received. The shares of the portfolio to be acquired
will be purchased at the net asset value per share next determined after
acceptance of the exchange request, plus any applicable sales charge. Unless an
exception applies, a front-end sales charge will be charged in connection with
an exchange of Shares of the Fund for Retail A Shares of Galaxy's non-money
market portfolios.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Customers of
Institutions should call their Institution. Customers exercising the exchange
privilege into other eligible funds should request and review the prospectuses
for these funds prior to making an exchange (call 1-800-628-0414 for a
prospectus). Telephone all exchanges to 1-800-628-0413.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the Securities and Exchange Commission ("SEC").
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Galaxy does not charge any exchange fee. Institutions may charge such
fees either with respect to all exchange requests or with respect to any request
which exceeds the permissible number of free exchanges during a particular
period. Customers of Institutions should contact their Institution for
applicable information.
For federal income tax purposes, an exchange of Shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, an investor should consult a tax or other
financial adviser to determine the tax consequences.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend
to the persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of Shares on the day of declaration. Net income for dividend purposes
consists of all accrued income plus discount earned on the Fund's assets, less
amortization of premium on such assets and accrued expenses attributable to the
Fund. The Fund does not expect to realize net capital gains. However, if any
such gains are realized, they will be paid out to shareholders no less
frequently than annually.
Dividends are paid monthly within five Business Days after the end of
each calendar month or within five Business Days after a shareholder's complete
redemption of Shares in a Fund. Institutions, unless they request otherwise,
will automatically receive dividends and distributions in cash. Institutions may
pay dividends to Customers in cash or reinvest such cash distributions in
additional Shares.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income. In general, the Fund's investment company taxable income will be its
taxable
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income (including interest) subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income each year. Such
dividends will be taxable as ordinary income to the Fund's shareholders who are
not currently exempt from federal income taxes, whether such income is received
in cash or reinvested in additional Shares. Because all of the Fund's net
investment income is expected to be derived from earned interest, it is
anticipated that no part of any distribution will be eligible for the dividends
received deduction for corporations.
Dividends declared in October, November or December of any year that
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
The Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Fund, that are attributable to
interest on Treasury Obligations are the functional equivalent of interest from
such obligations and are, therefore, exempt from state and local income taxes.
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised at least annually as to the federal
income tax consequences of distributions made that year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of
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Additional Information contains the names of and general background information
concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets at December 31, 1996 of $____
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Money Market, Government,
Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value,
Growth and Income, Short-Term Bond, Intermediate Government Income, High Quality
Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Funds, makes decisions with respect to and places orders for all
purchases and sales of their portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees from the Fund, computed daily and paid monthly, at the
annual rate of .20% of the average daily net assets of the Fund. Fleet may from
time to time, in its discretion, waive advisory fees payable by the Fund in
order to help maintain a competitive expense ratio, and may from time to time
allocate a portion of its advisory fees to Fleet Trust Company or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and shareholder support services which they provide to beneficial shareholders.
For the fiscal year ended October 31, 1996, Fleet received advisory fees (after
fee waivers) at the effective annual rate of .__% of the Fund's average daily
net assets.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from
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issuing, underwriting, selling or distributing securities such as Shares of the
Fund, but such banking laws and regulations do not prohibit such a bank holding
company or affiliate from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations.
Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Fund's method of
operations would affect a Fund's net asset value per Share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located
at 4400 Computer Drive, Westboro, Massachusetts 01581-5108,
serves as the Fund's administrator. FDISG is a wholly-owned
subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
the combined average daily net assets of the Fund and the other portfolios
offered by Galaxy (collectively, the "Portfolios"), .085% of the next $2.5
billion of combined average daily net assets and .075% of combined average daily
net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to be paid fees, computed daily and
paid monthly, at the annual rate of .09% of the first $2.5 billion of the
combined average daily net assets of the Portfolios, .085% of the next $2.5
billion of combined average daily net assets and .08% of combined average daily
net assets over $5 billion. In addition, FDISG also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
FDISG may waive all or a portion of the administration fee payable to it by the
Fund, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, FDISG received
administration fees (after fee waivers) at the effective annual rate of .___% of
the Fund's average daily net assets.
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<PAGE> 214
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of Shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Class S shares representing interests in the
Institutional Treasury Money Market Fund, which is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interest in
other investment portfolios of Galaxy. For information concerning these other
portfolios, which are offered through other prospectuses, contact the
Distributor at 1-800-628-0414.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001, represents an equal proportionate interest in the related Fund
with other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
fractional votes for fractional Shares held, and will vote in the aggregate and
not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as Galaxy's transfer and dividend disbursing agent. Services performed by
both entities for the Fund are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
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<PAGE> 215
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their advisory and administrative services for the Fund.
Galaxy bears the expenses incurred in the Fund's operations. Such expenses
include taxes; interest; fees (including fees paid to its Trustees and officers
who are not affiliated with FDISG); SEC fees; state securities qualification
fees; costs of preparing and printing prospectuses for regulatory purposes and
for distribution to shareholders; advisory, administration, fund accounting and
custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; cost of
independent pricing service; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to those of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
Donoghue's Money Fund Report(R), A widely recognized independent publication
that monitors the performance of mutual funds. Also, the Fund's yield data may
be reported in national financial publications including, but not limited to,
Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York
Times, or in publications of a local or regional nature. The Fund's performance
may also be compared to the average yields reported by the Bank Rate Monitor for
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas.
The yield of the Fund will refer to the income generated over a
seven-day period identified in the advertisement. This income is annualized,
i.e., the income during a particular week is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment. The Fund
may also advertise the "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
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<PAGE> 216
In addition, the Fund may calculate a "state flow through yield" which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The "state flow
through yield" refers to that portion of income which is derived from interest
income on Treasury Obligations and which qualifies for exemption from state
taxes. The yield calculation assumes that 100% of the interest income is exempt
from state personal income tax. A "state flow through yield" will be computed by
dividing the tax-exempt portion of the Fund's yield by a denominator consisting
of one minus a stated income tax rate. For illustrative purposes, state flow
through yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Fund's yield will fluctuate and any quotation of yield should not
be considered as representative of future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that yield is generally a
function of the kind and quality of the instruments held in a portfolio,
portfolio maturity, operating expenses, and market conditions. Any fees charged
by Institutions with respect to accounts of Customers that have invested in
Shares of the Fund will not be included in calculations of yield.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding Shares" of either the Fund or Galaxy means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the lesser
of (a) more than 50% of the outstanding Shares of the Fund or Galaxy, or (b) 67%
or more of the Shares of the Fund or Galaxy present at a meeting if more than
50% of the outstanding Shares of the Fund or Galaxy are represented at the
meeting in person or by proxy.
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THE GALAXY FUND
Statement of Additional Information
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Treasury Money Market Fund
February 28, 1997
<PAGE> 218
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectuses (the "Prospectuses") for the Money
Market, Government, Tax-Exempt, U.S. Treasury and Institutional Treasury Money
Market Funds, each dated February 28, 1997, of The Galaxy Fund ("Galaxy"), as
they may from time to time be supplemented or revised. This Statement of
Additional Information is incorporated by reference in its entirety into each
Prospectus. No investment in shares of the Funds should be made without reading
the Prospectuses. Copies of the Prospectuses may be obtained by writing Galaxy
c/o First Data Investor Services Group, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581-5180 or by calling Galaxy at 1-800-628-0414.
<PAGE> 219
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE GALAXY FUND...................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................... 1
Variable and Floating Rate Obligations......................... 1
Bank Obligations............................................... 1
Asset-Backed Securities........................................ 2
Municipal Securities........................................... 2
When-Issued Securities......................................... 5
Stand-By Commitments........................................... 5
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities.................................. 6
U.S. Government Securities..................................... 6
Portfolio Securities Generally................................. 7
Additional Investment Limitations.............................. 7
NET ASSET VALUE...................................................... 9
DIVIDENDS............................................................ 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 11
DESCRIPTION OF SHARES................................................ 12
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 15
In General..................................................... 15
Tax-Exempt Fund................................................ 17
State Taxation................................................. 17
TRUSTEES AND OFFICERS................................................ 18
Shareholder and Trustee Liability.............................. 22
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS.................................................. 23
Custodian and Transfer Agent................................... 26
PORTFOLIO TRANSACTIONS............................................... 26
SHAREHOLDER SERVICES PLAN............................................ 28
DISTRIBUTION AND SERVICES PLAN....................................... 29
DISTRIBUTOR.......................................................... 30
AUDITORS............................................................. 31
COUNSEL.............................................................. 31
PERFORMANCE AND YIELD INFORMATION.................................... 32
</TABLE>
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Page
MISCELLANEOUS...................................................... 33
FINANCIAL STATEMENTS..................................................... FS-1
APPENDIX A................................................................ A-1
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-four investment
portfolios.
This Statement of Additional Information relates to five of those
investment portfolios: the Money Market Fund, Government Fund, Tax-Exempt Fund,
U.S. Treasury Fund and Institutional Treasury Money Market Fund (the "Funds").
This Statement of Additional Information provides additional investment
information with respect to the Funds and should be read in conjunction with the
current Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as described
in their Prospectuses. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet" or the "Investment Adviser"), the investment adviser to
the Funds, must determine that such instrument is comparable to rated
instruments eligible for purchase by the Funds and will consider the earning
power, cash flows and other liquidity ratios of the issuers and guarantors of
such notes and will continuously monitor their financial status in order to meet
payment on demand. In determining average weighted portfolio maturity of each of
these Funds, a variable or floating rate instrument issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof will be deemed to have a
maturity equal to the period remaining until the obligation's next interest rate
adjustment.
Variable and floating rate obligations held by the Funds may have
maturities of more than one year, provided the Funds are entitled to payment of
principal upon not more than 30 days' notice or at specified intervals not
exceeding one year (upon not more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by the
Funds will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
BANK OBLIGATIONS
For purposes of the Money Market Fund's investment policy with respect to
bank obligations, the assets of a bank or savings institution will be deemed to
include the assets of its U.S. and foreign branches.
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ASSET-BACKED SECURITIES
The Money Market Fund may purchase asset-backed securities. Asset-backed
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in an underlying pool of assets, or as
debt instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt Fund include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding
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obligations, the payment of general operating expenses, and the extension of
loans to public institutions and facilities. Private activity bonds that are
issued by or on behalf of public authorities to finance various privately
operated facilities are "Municipal Securities" if the interest paid thereon is
exempt from regular federal income tax and not treated as a specific tax
preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Tax-Exempt Fund's portfolio may also
include "moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a
nationally recognized statistical rating organization ("Rating Agency"), such as
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P") and Fitch Investors Services, L.P. ("Fitch"), described in the
Prospectuses for the Fund and in Appendix A hereto, represent such rating
services' opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and rating
may have different yields. Municipal Securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to its
purchase by the Tax-Exempt Fund, an issue of Municipal Securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund.
The payment of principal and interest on most securities purchased by the
Tax-Exempt Fund will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Tax-Exempt Fund's
Prospectuses. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal
or state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment
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of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Tax-Exempt Fund may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Tax-Exempt Fund may invest
in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectuses for the Fund including applicable maturity restrictions.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt Fund and the liquidity and value of
their respective portfolios. In such an event, the Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities
and to the exemption of interest thereon from federal income tax
are rendered by bond counsel to the respective issuers at the
time of issuance. Neither the Tax-Exempt Fund nor Fleet will
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review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
WHEN-ISSUED SECURITIES
When the Tax-Exempt Fund or Institutional Treasury Money Market Fund
agrees to purchase securities on a "when-issued" basis, the Fund's custodian
will set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. In the event of a decline in the value of the
securities that the custodian has set aside, the Fund may be required to place
additional assets in the separate account in order to ensure that the value of
the account remains equal to the amount of the Fund's commitment. A Fund's net
assets may fluctuate to a greater degree if it sets aside portfolio securities
to cover such purchase commitments than if it sets aside cash. Because the Fund
sets aside liquid assets to satisfy its purchase commitments in the manner
described, its liquidity and ability to manage its portfolio might be affected
in the event its commitments to purchase "when-issued" securities exceeded 25%
of the value of its assets.
When a Fund engages in "when-issued" transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous for a security. For purposes of determining the average weighted
maturity of the Fund's portfolio, the maturity of "when-issued" securities is
calculated from the date of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
The Tax-Exempt Fund may acquire "stand-by commitments" with respect to
Municipal Securities held by it. Under a stand-by commitment, a dealer agrees to
purchase from the Fund, at the Fund's option, specified Municipal Securities at
a specified price. Stand-by commitments are exercisable by the Fund at any time
before the maturity of the underlying Municipal Security, and may be sold,
transferred or assigned by the Fund only with respect to the underlying
instruments.
Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, the Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities acquired subject to the commitment. Where the Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund.
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The Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Fund's Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
The Fund will acquire stand-by commitments solely to facilitate liquidity
and does not intend to exercise its rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining the Fund's net asset
value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF
PORTFOLIO SECURITIES
Each Fund, except the U.S. Treasury and Institutional Treasury Money
Market Funds, may enter into repurchase agreements. The repurchase price under a
repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreements).
Securities subject to repurchase agreements will be held by a Fund's custodian
or sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended (the "1940 Act").
Each Fund, except the U.S. Treasury and Institutional Treasury Money
Market Funds, may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, the Fund will place in a segregated
custodial account liquid assets such as cash or liquid securities equal to the
repurchase price (including accrued interest). The Fund will monitor the account
to ensure such equivalent values are maintained. Reverse repurchase agreements
are considered to be borrowings by a Fund under the 1940 Act.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Government Fund in connection with such loans would
be invested in short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; cash collateral received by the
other Funds would be invested in high quality, short-term "money market"
instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities
(hereinafter, "U.S. Government obligations") that may be held by
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the Funds include, without limitation, direct obligations of the U.S. Treasury,
and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm
Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
The U.S. Treasury and Institutional Treasury Money Market Funds will
invest in those securities issued or guaranteed as to principal and interest by
the U.S. Government or by agencies or instrumentalities thereof, the interest
income from which, under current law, generally will not be subject to state
income tax by reason of federal law.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Investment Adviser, pursuant
to guidelines established by the Board, will promptly consider such an event in
determining whether the Fund involved should continue to hold the obligation.
The Board of Trustees or the Investment Adviser may continue to hold the
obligation if retention is in accordance with the interests of the Fund and
applicable regulations of the Securities and Exchange Commission.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
2. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
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extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
3. Purchase or sell real estate; except that each taxable
Fund may purchase securities that are secured by real
estate, and the Money Market Fund may purchase
securities of issuers which deal in real estate or
interests therein; and except that the Tax-Exempt Fund
may invest in Municipal Securities secured by real
estate or interests therein; however the Funds will not
purchase or sell interests in real estate limited
partnerships.
4. Purchase or sell commodities or commodity contracts or invest in
oil, gas or other mineral exploration or development programs or
mineral leases.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
6. Invest in companies for the purpose of exercising
management or control.
7. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization or acquisition of assets; provided,
however, that the Tax-Exempt and Institutional Treasury
Money Market Funds may acquire such securities in
accordance with the 1940 Act; and provided, further,
that the Institutional Treasury Money Market Fund may
only invest up to 5% of its total assets in shares of
other investment companies which are registered under
the 1940 Act and which invest only in securities that
the Fund could acquire directly.
In addition to the above limitations:
1. The Money Market Fund may not purchase any securities other than
"money-market" instruments, some of which may be subject to
repurchase agreements, but the Fund may make interest-bearing
savings deposits not in excess of 5% of the value of its total
assets at the time of deposit and may make time deposits.
2. The Government Fund may not purchase securities other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, some of which may be subject to
repurchase agreements.
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<PAGE> 229
3. The Tax-Exempt Fund may not invest in industrial revenue bonds where
the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of
continuous operation.
4. The Funds may not purchase foreign securities, except
that the Money Market Fund may purchase certificates of
deposit, bankers' acceptances, or other similar
obligations issued by U.S. branches of foreign banks or
foreign branches of U.S. banks.
The investment restrictions described below are not fundamental policies
of Galaxy and may be changed by Galaxy's Board of Trustees. These
non-fundamental investment policies require that:
(A) the Funds may not purchase any security if, as a result, the Fund
would then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation for
less than three years; and
(B) the Funds may not invest in warrants (other than warrants acquired by
a Fund as part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of a Fund's net assets or if, as a result, more than 2%
of a Fund's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by applicable
state securities laws.
NET ASSET VALUE
Galaxy uses the amortized cost method of valuation to value shares of the
Funds. In order to use the amortized cost method, the Funds comply with the
various quality and maturity restrictions specified in Rule 2a-7 ("Rule 2a-7")
promulgated under the 1940 Act. Pursuant to this method, a security is valued at
its initial acquisition cost, as adjusted for amortization of premium or
accretion of discount, regardless of the impact of fluctuating interest rates on
the market value of the security. Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by or under the direction of
Galaxy's Board of Trustees. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the security. The value of securities in each of these
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Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security is held to maturity, no gain
or loss will be realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than one year
(397 days with respect to the Institutional Treasury Money Market Fund) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Trustees will promptly
consider what action, if any, should be initiated. If the Board of Trustees
believes that the extent of any deviation from a Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or existing investors, it has agreed to take such steps as it considers
appropriate to eliminate or reduce, to the extent reasonably practicable, any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the number
of a Fund's outstanding shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
DIVIDENDS
As stated, Galaxy uses its best efforts to maintain the net asset value
per share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by any of the Funds, it is possible that a
Fund's net asset value per share may fall below $1.00. Should Galaxy incur or
anticipate any unusual or unexpected significant expense or loss which would
affect disproportionately the income of a Fund for a
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particular period, the Board of Trustees would at that time consider whether to
adhere to the present dividend policy with respect to the Funds or to revise it
in order to ameliorate to the extent possible the disproportionate effect of
such expense or loss on the income of the Fund experiencing such effect. Such
expense or loss may result in a shareholder's receiving no dividends for the
period in which it holds shares of a Fund and in its receiving upon redemption a
price per share lower than that which it paid.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by 440 Financial
Distributors, Inc. (the "Distributor"), and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, Retail A Shares of the Money Market, Government,
Tax-Exempt and U.S. Treasury Funds, and shares of the Institutional Treasury
Money Market Fund, are sold to customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks,
and other qualified banks, savings and loan associations and broker/dealers
("Institutions"). As described in the applicable Prospectus, Retail A Shares of
the Money Market, Government, Tax-Exempt and U.S. Treasury Funds may also be
sold to individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own accounts or for the
accounts of others ("Direct Investors"). As described in the applicable
Prospectus, Retail B Shares of the Money Market Fund are not offered for
purchase and are available only to the holders of Retail B Shares in Galaxy's
Short-Term Bond, High Quality Bond, Tax-Exempt Bond, Equity Value, Equity
Growth, Small Company Equity, Asset Allocation and Growth and Income Fund ("CDSC
Funds") who wish to exchange their Retail B Shares in such CDSC Funds for Retail
B Shares in the Money Market Fund. As described in the applicable Prospectuses,
Trust Shares in the Money Market, Government, Tax-Exempt and U.S. Treasury Funds
are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and with respect to each of these Funds except the Tax-Exempt Fund, to
participants in employer-sponsored defined contribution plans.
Retail B Shares of the Money Market Fund are subject to a maximum
contingent deferred sales charge of 5.00% if such Shares are sold within six
years of the date of purchase of the exchanged Retail B Shares of a CDSC Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise
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or undesirable, Galaxy may make payment wholly or partly in securities or other
property. Such redemptions will only be made in "readily marketable" securities.
In such an event, a shareholder would incur transaction costs in selling the
securities or other property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of twenty-four
classes of shares, each representing interests in one of twenty-four separate
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Treasury Money Market Fund, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity Fund,
Small Company Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High
Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund. As stated in the applicable Prospectuses,
two separate series of shares (Retail A Shares and Trust Shares) of the Money
Market, Government, Tax-Exempt and U.S. Treasury Funds (plus a third series of
shares, i.e. Retail B Shares, of the Money Market Fund) are offered under
separate Prospectuses to different categories of investors. The Institutional
Treasury Money Market Fund offers only one series of shares.
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Shares have no preemptive rights and only such conversion or exchange rights as
the Board of Trustees may grant in its discretion. When issued for payment as
described in the Prospectuses, shares will be fully paid and non-assessable.
Except as noted below with respect to the Shareholder Services Plan (which is
currently applicable only to Retail A Shares of a Fund), the Distribution and
Services Plan for Retail B Shares of the Money Market Fund, and differing
transfer agency fees, Trust Shares, Retail A Shares and Retail B Shares bear pro
rata the same expenses and are entitled equally to a Fund's dividends and
distributions. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the Fund involved
in liquidation, based on the number of shares of the Fund held by each
shareholder, except that currently a Fund's Retail A Shares would be solely
responsible for the Fund's payments to Service Organizations under the
Shareholder Services Plan and the Money Market Fund's Retail B Shares would be
solely responsible for the Fund's payments to the Distributor and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only Retail A
Shares and Trust Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to Galaxy's Shareholder Services Plan for
Retail A and Trust Shares and only Retail B Shares of the Money Market Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Distribution and Services Plan for Retail B Shares. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by Galaxy, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as Galaxy shall not
be deemed to have been effectively acted upon unless approved by the holders of
a majority of the outstanding shares of each Fund affected by the matter. A
particular Fund is deemed to be affected by a matter unless it is clear that the
interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under the Rule, the approval of
an investment advisory agreement or any change in an investment objective or
fundamental investment policy would be effectively acted upon with respect to a
Fund only if approved by
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a majority of the outstanding shares of such Fund (irrespective of series
designation). However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
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ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders (including amounts derived from
interest on Municipal Securities) would be taxable as ordinary income, to the
extent of the current and accumulated earnings and profits of the Fund, and
would be eligible for the dividends received deduction in the case of corporate
shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year (the "90% distribution requirement"). In
addition, each Fund must satisfy certain requirements with respect to the source
of its income for a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "90% gross income test").
The Treasury Department may, by regulation, exclude from qualifying income
foreign currency gains which are not directly related to a Fund's principal
business of investing in stock or securities, or options and futures with
respect to stock or securities. Any income derived by a Fund from a partnership
or trust is treated for this purpose as derived with respect to the Fund's
business of investing in stock, securities or currencies, only to the
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extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
A Fund will not be treated for a taxable year as a regulated investment
company under the Code if 30% or more of the Fund's gross income for such year
is derived from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in Section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. Although proposed legislation would repeal the
30% test, it is unclear if or when such legislation would become effective.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange of
Fund Shares, if the shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the Shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (an
effective marginal rate of 39% applies in the case of corporations having
taxable income between $100,000 and $335,000, and an effective marginal rate of
38% applies in the case of corporations having taxable income between
$15,000,000 and $18,333,333).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net
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income (excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
TAX-EXEMPT FUND
As stated in the Prospectuses for the Tax-Exempt Fund, an investment in
the Fund is not intended to constitute a balanced investment program. Shares of
the Fund would not be suitable for tax-exempt institutions and may not be
suitable for retirement plans qualified under Section 401 of the Code, H.R. 10
plans and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, not only would the shareholder not gain any
additional benefit from the Fund's dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed.
In order for the Tax-Exempt Fund to pay exempt-interest dividends for any
taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of the Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, the Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by the Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by the Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
Shareholders should note that, upon the sale or exchange of Fund Shares,
if the shareholder has not held such Shares for more than six months, any loss
on the sale or exchange of those Shares will be disallowed to the extent of the
exempt dividends received with respect to the Shares.
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STATE TAXATION
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law, distributions
of net investment income may be taxable to shareholders as dividend income even
though a substantial portion of such distributions may be derived from interest
on U.S. Government obligations which, if realized directly, would be exempt from
such income taxes. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director,
Vicks Lithograph & Trustee Vicks Lithograph &
Printing Corporation Printing Corporation
Commercial Drive (book manufacturing and
P.O. Box 270 commercial printing);
Yorkville, NY 13495 Director, Utica Fire
Age 62 Insurance Company;
Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual
Insurance Company;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
</TABLE>
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<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
John T. O'Neill1 President, Executive Vice President
Hasbro, Inc. Treasurer & and CFO, Hasbro, Inc.
200 Narragansett Trustee (toy and game
Park Drive manufacturer), since
Pawtucket, RI 02862 1987; Trustee, The Galaxy
Age 55 VIP Fund; Trustee, Galaxy
Fund II; Managing
Partner, KPMG Peat
Marwick (accounting
firm), 1986.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee,
Age 55 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media,
10725 Quail Covey Road Inc. (broadcast
Boynton Beach, FL services);
33436 Director/Trustee,
Age 70 Lexington Funds;
President and CEO, Media
General Broadcast
Services, Inc. (1986 to
1989); Chairman,
Executive Committee,
Compton International,
Inc. (advertising
agency); Trustee, Keuka
College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
James M. Seed Trustee Chairman and President,
The Astra Ventures, The Astra Projects,
Inc. Incorporated (land
One Citizens Plaza development); President,
Providence, RI 02903 The Astra Ventures,
Age 55 Incorporated (previously,
Buffinton Box Company
manufacturer of cardboard
boxes); Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II;
Commissioner, Rhode
Island Investment
Commission.
</TABLE>
-19-
<PAGE> 240
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor;
2468 Ohio Street President, Ames &
Bangor, ME 04401 Wellman, from 1978 to
Age 65 1991; President, Pingree
Associates, Inc., from
1974 until 1990;
Director, Essex County
Gas Company, until
January 1994; Director,
Maine Mutual Fire
Insurance Co.; Member,
Maine Finance Authority;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath,
Bank Building Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice First Data Investor
First Data Investor President Services Group, Inc.,
Services Group, Inc. and 1992 to present; Vice
4400 Computer Drive Assistant President, Investment
Westboro, MA 01581 Treasurer Marketing and Strategic
Age 36 Planning, Manufacturers
and Traders Trust Co.,
1990 to 1992.
</TABLE>
- -------------------------
(1.) An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
Effective November 1, 1996, each trustee receives an annual aggregate fee
of $29,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $500 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each
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<PAGE> 241
telephone Board committee meeting in which the trustee participates. The
Chairman of the Boards of the Trusts is entitled to an additional annual
aggregate fee in the amount of $4,000, and the President and Treasurer of the
Trusts is entitled to an additional annual aggregate fee of $2,500 for their
services in these respective capacities. The foregoing trustees' and officers'
fees are allocated among the portfolios of the Trusts based on their relative
net assets.
For the fiscal year ended October 31, 1996, each trustee was authorized to
receive an annual aggregate fee of $18,000 for his services as a trustee of
Galaxy and Galaxy VIP plus a separate annual fee of $5,000 for his services as a
trustee of Galaxy II, in addition to meeting fees of $1,500 for each in-person
Galaxy Board meeting attended, $1,500 for each in-person Galaxy VIP Board
meeting attended not held concurrently with a Galaxy Board meeting, and $750 for
each Galaxy II Board meeting attended, and reimbursement for expenses incurred
in attending meetings. Annual fees to the Chairman of the Boards and the
President and Treasurer of the Trusts were the same as the current fees as were
the fees for telephone and Board committee meetings.
Beginning March 1, 1996, each trustee is also entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of First Data Investor Services Group, Inc., ("FDISG")
receives any compensation from Galaxy for acting as an officer. No person who is
an officer, director or employee of Fleet, or any of its affiliates, or of the
Sub-Adviser, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
-21-
<PAGE> 242
<TABLE>
<CAPTION>
==========================================================================================
Pension or Total
Retirement Compensation
Benefits from Galaxy
Aggregate Accrued as and Fund
Name of Compensation Part of Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $______ None $______
Trustee
- ------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $______ None $______
Chairman & Trustee
- ------------------------------------------------------------------------------------------
Donald B. Miller** $______ None $______
Trustee
- ------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $______ None $______
Trustee
- ------------------------------------------------------------------------------------------
John T. O'Neill $______ None $______
President, Treasurer &
Trustee
- ------------------------------------------------------------------------------------------
James M. Seed** $______ None $______
Trustee
==========================================================================================
</TABLE>
- -----------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund
and Galaxy Fund II.
** Deferred compensation in the amounts of $________ and $________ accrued
during Galaxy's fiscal year ended October 31, 1996 for Messrs. Miller and
Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or
-22-
<PAGE> 243
omissions outside such capacity or some other reason. The Declaration of Trust
also provides that Galaxy shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of Galaxy, and shall
satisfy any judgment thereon. Thus, the risk of shareholder liability is limited
to circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. The Investment Adviser has also agreed to pay
all expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.
For the services provided and expenses assumed by Fleet, Galaxy paid Fleet
for the fiscal year ended October 31, 1994 advisory fees of $2,680,260 with
respect to the Money Market Fund; and $2,595,929 with respect to the Government
Fund. For the fiscal years ended October 31, 1995 and October 31, 1996, Galaxy
paid Fleet advisory fees (net of fee waivers) of $3,321,036 and $___________,
respectively, with respect to the Money Market Fund; and $3,551,367 and
$__________,
-23-
<PAGE> 244
respectively, with respect to the Government Fund. For the same
periods, Fleet waived advisory fees of $142,311 and $_________, respectively,
with respect to the Money Market Fund; and $63,124 and $__________,
respectively, with respect to the Government Fund.
For the fiscal year ended October 31, 1994, Galaxy paid Fleet advisory
fees of $1,082,702 with respect to the Tax-Exempt Fund; and $1,890,386 with
respect to the U.S. Treasury Fund. For the fiscal years ended October 31, 1995
and October 31, 1996, Galaxy paid Fleet advisory fees (net of expense
reimbursements) of $1,138,568 and $__________, respectively, with respect to the
Tax-Exempt Fund; and $2,126,647 and $_________, respectively, with respect to
the U.S. Treasury Fund. For the same periods, Fleet reimbursed expenses in the
amounts of $36,228 and $________, respectively, with respect to the Tax-Exempt
Fund; and $17,558 and $______________, respectively, with respect to the U.S.
Treasury Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet received advisory fees (net of fee waivers) of $91,691, $387,361
and $_______, respectively, with respect to the Institutional Treasury Money
Market Fund. For the same periods, Fleet waived advisory fees of $317,212,
$387,360 and $________, respectively, with respect to the Institutional Treasury
Money Market Fund.
The advisory agreement provides that the Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of its duties under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. Unless sooner terminated, the advisory agreement
will continue in effect with respect to a particular Fund until August 10, 1997,
and thereafter from year to year as long as such continuance is approved at
least annually (i) by the vote of a majority of trustees who are not parties to
such advisory agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a
majority of the outstanding shares of such Fund. The term "majority of the
outstanding shares of such Fund" means, with respect to approval of an advisory
agreement, the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The advisory agreement may be terminated by
Galaxy or by
-24-
<PAGE> 245
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
Fleet Bank, an affiliate of the Investment Adviser, is paid a fee for
sub-account and administrative services performed with respect to Trust Shares
of the Funds (other than the Tax-Exempt Fund) held by defined contribution
plans. Pursuant to an agreement between Fleet Bank and FDISG, Fleet Bank is paid
$21.00 per year for each defined contribution plan participant account. As of
October 31, 1996, there were approximately ______ defined contribution plan
participant sub-accounts invested in Trust Shares of the Funds; thus it is
expected that Fleet Bank will receive annually approximately $_______ for
sub-account services. FDISG bears this expense directly, and shareholders of
Trust Shares of the Funds, except the Tax-Exempt Fund, bear this expense
indirectly through fees paid to FDISG for transfer agency services.
FDISG serves as Galaxy's administrator. Under the administration
agreement, FDISG has agreed to maintain office facilities for Galaxy, furnish
Galaxy with statistical and research data, clerical, accounting, and bookkeeping
services, certain other services such as internal auditing services required by
Galaxy, and compute the net asset value and net income of the Funds. FDISG
prepares the Funds' annual and semi-annual reports to the Securities and
Exchange Commission, federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, FDISG, a wholly-owned
subsidiary of First Data Corporation, acquired all of the assets of 440
Financial Group of Worcester, Inc.
For the fiscal years ended October 31, 1993, October 31, 1995 and October
31, 1996, FDISG and/or its predecessors received administration fees of
$567,866, $763,921 and $_______, respectively, with respect to the Money Market
Fund; $544,223, $799,533 and $_______, respectively, with respect to the
Government Fund; $227,241, $257,052 and $________, respectively, with respect to
the Tax-Exempt Fund; and $396,349, $469,163 and $_______, respectively, with
respect to the U.S. Treasury Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, FDISG and/or its predecessors received administration fees (net of fee
waivers) of $86,068, $125,448
-25-
<PAGE> 246
and $_______, respectively, with respect to the Institutional Treasury Money
Market Fund and waived administration fees of $137,300, $213,577 and $_______,
respectively, with respect to such Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of each
Fund; (iii) collect and make disbursements of money on behalf of each Fund; (iv)
collect and receive all income and other payments and distributions on account
of each Fund's portfolio securities; (v) respond to correspondence from security
brokers and others relating to its duties; and (vi) make periodic reports to the
Board of Trustees concerning the Funds' operations. Chase Manhattan is
authorized to select one or more banks or trust companies to serve as
sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. The assets of the Funds are
held under bank custodianship in compliance with the 1940 Act.
FDISG also serves as Galaxy's transfer agent and dividend disbursing agent
pursuant to a Transfer Agency Agreement ("Transfer Agency Agreement"). Under the
Transfer Agency Agreement, FDISG has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders of
record, including reports to shareholders, dividend and distribution notices and
proxy materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
-26-
<PAGE> 247
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Investment Adviser will normally deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but since brokerage
commissions are normally not paid on money market instruments, it should not
have a material effect on the net income of any of these Funds.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, the
Investment Adviser, FDISG, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Fund has acquired during its most recent fiscal year. At
October 31, 1996, ___________
- --------------------------------------------------------------.
Investment decisions for each Fund are made independently from those for
the other Funds and for any other investment companies and accounts advised or
managed by Fleet. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund, another portfolio of Galaxy,
and/or another investment company or account, the transaction will be averaged
as to price, and available investments allocated as to amount, in a manner which
Fleet believes to be equitable to the Fund and such other portfolio, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or sold by such Fund. To the extent permitted by law, Fleet may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for its other portfolios, or other investment companies or accounts in order to
obtain best execution.
-27-
<PAGE> 248
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, except the Institutional
Treasury Money Market Fund, Galaxy may enter into agreements ("Servicing
Agreements") pursuant to its Shareholder Services Plan ("Services Plan") with
Institutions and other organizations (including Fleet Bank and its affiliates)
(collectively, "Service Organizations") pursuant to which Service Organizations
will be compensated by Galaxy for providing certain administrative and support
services to Customers who are the beneficial owners of Retail A Shares and Trust
Shares of a Fund (other than the Institutional Treasury Money Market Fund). As
of October 31, 1996, Galaxy had entered into Servicing Agreements only with
Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agree to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
For the fiscal years ended October 31, 1995 and October 31, 1996, payments
to Service Organizations totaled $451,861 and $_______, respectively, with
respect to Retail A Shares of the Money Market Fund; $269,314 and $____________,
respectively, with respect to Retail A Shares of the Government Fund; $115,812
and $____________, respectively, with respect to Retail A Shares of the
Tax-Exempt Fund; and $261,774 and $____________, respectively, with respect to
Retail A Shares of the U.S.
Treasury Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their
-28-
<PAGE> 249
shareholders by affording Galaxy greater flexibility in connection with the
efficient servicing of the accounts of the beneficial owners of Retail A Shares
of the Funds. Any material amendment to Galaxy's arrangements with Service
Organizations must be approved by a majority of Galaxy's Board of Trustees
(including a majority of the Disinterested Trustees). So long as Galaxy's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of Galaxy's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of Galaxy will be committed to the
discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Money Market Fund. The 12b-1 Plan is described in the applicable Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed .65% (annualized) of the average daily net assets attributable to
such Fund's outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to such Fund's outstanding Retail B Shares which are owned
of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Statement of Additional
Information, Galaxy intends to limit the Money Market Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .10% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of the
Money Market Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder
-29-
<PAGE> 250
approval, and that any other type of material amendment must be approved by a
majority of the Board of Trustees, and by a majority of the trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan or in
any related agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments (the "Disinterested Trustees").
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Money Market Fund and holders of
Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a majority of
the Disinterested Trustees and is terminable at any time with respect to the
Fund by a vote of a majority of such Trustees or by vote of the holders of a
majority of the Retail B Shares of the Fund. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to the
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of the
Fund, by the Distributor or by the Service Organization. An agreement will also
terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
440 Financial Distributors, Inc., a wholly-owned subsidiary of FDISG,
serves as Galaxy's Distributor. On March 31, 1995, FDISG acquired all of the
issued and outstanding stock of the Distributor. Prior to that time, the
Distributor was a wholly-owned subsidiary of 440 Financial Group of Worcester,
Inc. and an indirect subsidiary of State Mutual Life Assurance Company of
America.
Unless otherwise terminated, the Distribution Agreement among Galaxy, the
Distributor and its parent, FDISG, remains in effect until May 31, 1997, and
thereafter will continue from year to year upon annual approval by Galaxy's
Board of Trustees, or by the vote of a majority of the outstanding shares of
Galaxy and by the vote of a majority of the Board of Trustees of Galaxy who are
not parties to the Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement will terminate in the event of its assignment, as defined in the 1940
Act.
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<PAGE> 251
The Distributor is entitled to the payment of contingent deferred sales
charges upon the redemption of Retail B Shares of the Money Market Fund. As of
the date of this Statement of Additional Information, no Retail B Shares of the
Money Market Fund had been issued.
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the Funds
during the fiscal year ended October 31, 1996:
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Money Market N/A $0 $ $
Treasury N/A N/A $ $
Tax-Exempt N/A N/A $ $
U.S. Treasury N/A N/A $ $
Institutional N/A N/A $ $
Treasury
Money Market
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan that have been adopted by Galaxy (see
"Shareholder Services Plan" and "Distribution and Services Plan" above).
AUDITORS
[______________________], independent certified public accountants, with
offices at [______________________], serve as auditors to Galaxy. The financial
highlights for the respective Funds included in their Prospectuses and the
financial statements in Galaxy's Annual Report to Shareholders with respect to
the Funds [___________] into this Statement of Additional Information for the
respective fiscal periods ended October 31 of each calendar year have been
audited by [_____________________] for the periods included in their report
thereon which appears therein.
COUNSEL
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<PAGE> 252
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107,
are counsel to Galaxy and will pass upon certain legal matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Money Market,
Government, Tax-Exempt, U.S. Treasury and Institutional Treasury Money Market
Funds are computed by: (1) determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in a Fund having a
balance of one share at the beginning of a seven-day period, for which the yield
is to be quoted, (2) dividing the net change in account value by the value of
the account at the beginning of the base period to obtain the base period
return, and (3) annualizing the results (i.e., multiplying the base period
return by (365/7)). The net change in the value of the account in each Fund
includes the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, and all fees that are charged by a Fund to all shareholder
accounts in proportion to the length of the base period, other than
non-recurring account and sales charges. For any account fees that vary with the
size of the account, the amount of fees charged is computed with respect to the
Fund's mean (or median) account size. The capital changes to be excluded from
the calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
effective compound yield quotation for each Fund is computed by adding 1 to the
unannualized base period return (calculated as described above), raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result.
The current yield for the Money Market, Government, Tax-Exempt, U.S.
Treasury and Institutional Treasury Money Market Funds may be obtained by
calling the Distributor at the telephone numbers provided on the cover page of
the Prospectus. For the seven-day period ended October 31, 1996, the annualized
yields for Retail A Shares of the Money Market, Government, Tax-Exempt and U.S.
Treasury Funds were ____%, ____%, ____% and ____%, respectively, and the
effective yields for Retail A Shares of such Funds for the same period were
____%, ____%, ____% and ____%, respectively. For the seven-day period ended
October 31, 1996, the annualized and effective yields for the Institutional
Treasury Money Market Fund were ____% and ____%, respectively.
For a seven-day period ended October 31, 1996, the annualized yields for
Trust Shares of the Money Market,
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Government, Tax-Exempt and U.S. Treasury Funds were ____%, ____%, ____% and
____%, respectively, and the effective yields of Trust Shares of such Funds were
____%, ____%, ____% and ____%, respectively.
In addition, the Tax-Exempt Fund may calculate a "tax equivalent yield."
The tax equivalent yield for the Fund is computed by dividing that portion of
the Fund's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the Fund's computed yield that is
not tax-exempt. Tax equivalent yields assume the payment of Federal income taxes
at a rate of 31%. Based on the foregoing calculation, the tax equivalent yield
of the Tax-Exempt Fund for the 7-day period ended October 31, 1996 for Retail A
Shares was ____%. The tax-equivalent yield for Trust Shares of the Tax-Exempt
Fund for the seven-day period ended October 31, 1996 was ____%.
In addition, the U.S. Treasury Fund and Institutional Treasury Money
Market Fund may calculate a "state flow through yield," which shows the level of
taxable yield needed to produce an after-tax yield equivalent to a particular
state's tax-exempt yield achieved by the Fund. The "state flow through yield"
refers to that portion of income that is derived from interest income on direct
obligations of the U.S. Government, its agencies or instrumentalities and which
qualifies for exemption from state taxes. The yield calculation assumes that
100% of the interest income is exempt from state personal income tax. A "state
flow through yield" is computed by dividing that portion of a Fund's yield which
is tax-exempt by one minus a stated income tax rate. For illustration purposes,
state flow through yields assume the payment of state income taxes at the rates
of 3%, 7% or 11%. Based on the foregoing calculation and assuming state income
tax rates of 3%, 7% and 11%, the state flow through yields for the 7- day period
ended October 31, 1996 for Retail A Shares of the U.S. Treasury Fund were ____%,
____% and ____%, respectively.
The state flow through yields for the seven-day period ended October 31,
1996 were ____%, ____% and ____%, respectively, with respect to the
Institutional Treasury Money Market Fund.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares in
that particular series of the Fund, together with all income, earnings, profits,
and proceeds derived from the investment thereof, including any proceeds from
the sale of such investments, any funds or payments derived from any
reinvestment of such proceeds and a portion of any general assets of Galaxy not
belonging to a particular series
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or Fund. In determining the net asset value of a particular Series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows:
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1996 have been filed with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") are [_______________] this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
fiscal year ended October 31, 1996 have been audited by Galaxy's independent
accountants, [________________], whose report thereon also appears in such
Annual Reports and is [______________________________]. The Financial
Statements in such Annual Reports have been [_________________] in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, L.P. ("Fitch"), Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), IBCA Limited and IBCA Inc. ("IBCA") and Thomson
BankWatch ("Thomson").
Corporate and Tax-Exempt Bond Ratings
The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Securities that are
rated "A" have protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Securities
that are rated "BBB" have below average protection factors but are still
considered sufficient for prudent investment. Considerable variability in risk
is present during economic cycles. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Fitch for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. AAA
bonds are considered to be investment grade and of the highest credit quality.
The obligor is judged to have an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A bonds
are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
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conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
may modify a rating of Aa, A or Baa by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon
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completion of construction or elimination of the basis of the
condition.
The four highest ratings of IBCA for tax-exempt and corporate bonds are
AAA, AA, A and BBB. IBCA assesses the investment quality of unsecured debt with
an original maturity of more than one year, which is issued by bank holding
companies and their principal banking subsidiaries. Obligations rated AAA by
IBCA have the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to increase investment
risk significantly. Obligations for which there is a very low expectation of
investment risk are rated AA. Obligations rated A have a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although changes in business, economic or financial conditions may lead
to increased investment risk. Obligations rated BBB currently have a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories. IBCA may append a rating of plus (+) or
minus (-) to a rating to denote relative status within a major rating category.
Corporate and Tax-Exempt Commercial Paper Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. Duff 3 indicates satisfactory liquidity and other protection factors
qualify such issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.
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Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. F-1 securities possess very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 securities possess good
credit quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories. F-3 securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade. Fitch may also
use the symbol "LOC" with its short-term ratings to indicate that the rating is
based upon a letter of credit issued by a commercial bank.
S&P's commercial paper ratings are current assessments of the likelihood
of timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics will be denoted with a plus (+) designation.
Issues rated A-2 by S&P indicate that capacity for timely payment on these
issues is satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1. Issues rated A-3 have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes and circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only a speculative capacity for timely
payment.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of
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the characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a good capacity for timely repayment.
Obligations rated A3 are supported by a satisfactory capacity for timely
repayment. Obligations are rated B if there is an uncertainty as to the capacity
to ensure timely repayment.
Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation TBW-3
represents the lowest investment grade category and indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
Tax-Exempt Note Ratings
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated SP-3
are issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the
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differences between short-term credit risk and long-term risk. Loans bearing the
designation MIG-1 or VMIG-1 are of the best quality, enjoying strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. Loans bearing the designation
MIG-2 or VMIG-2 are of high quality, with margins of protection ample although
not so large as with loans rated MIG-1 or VMIG-1. Loans bearing the designation
MIG-3 or VMIG-3 are of favorable quality with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established. Loans bearing the designation MIG-4 or VMIG-4 are
of adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
Connecticut Municipal Money Market Fund
Massachusetts Municipal Money Market Fund
Growth and Income Fund
Small Cap Value Fund
February 28, 1997
<PAGE> 262
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectuses (the "Prospectuses") for the
Connecticut Municipal Money Market, Massachusetts Municipal Money Market, Growth
and Income and Small Cap Value Funds of The Galaxy Fund ("Galaxy"), each dated
February 28, 1997, as they may from time to time be supplemented or revised.
This Statement of Additional Information is incorporated by reference in its
entirety into each such Prospectus. No investment in shares of the Funds should
be made without reading the Prospectuses. Copies of the Prospectuses may be
obtained by writing Galaxy c/o First Data Investor Services Group, Inc., 4400
Computer Drive, Westboro, Massachusetts 01581- 5108 or by calling Galaxy at
1-800-628-0414. Capitalized terms used herein but not otherwise defined have the
same meanings as in the Prospectuses.
<PAGE> 263
TABLE OF CONTENTS
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THE GALAXY FUND.............................................................................................
INVESTMENT OBJECTIVES AND POLICIES..........................................................................
Acceptable Investments - Money Market Funds
Types of Acceptable Investments - Money Market Funds...............................................
Types of Investments - Equity Funds...............................................................
Money Market Instruments...........................................................................
U.S. Government Obligations .......................................................................
When-Issued and Delayed Delivery Transactions.....................................................
Stand-By Commitments...............................................................................
Munipreferred Securities...........................................................................
Variable Rate Demand Notes.........................................................................
Temporary Investments..............................................................................
Restricted and Illiquid Securities.................................................................
Repurchase Agreements, Reverse Repurchase Agreements...............................................
and Lending of Portfolio Securities..............................................................
Derivative Securities..............................................................................
Portfolio Securities Generally.....................................................................
Portfolio Turnover.................................................................................
Special Considerations Relating to Connecticut.....................................................
Municipal Securities.............................................................................
Additional Investment Limitations..................................................................
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS.........................................................
DIVIDENDS - MONEY MARKET FUNDS..............................................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................................................
DESCRIPTION OF SHARES.......................................................................................
ADDITIONAL INFORMATION CONCERNING TAXES.....................................................................
In General.........................................................................................
Connecticut Municipal Money Market and Massachusetts...............................................
Municipal Money Market Funds.....................................................................
Growth and Income and Small Cap Value Funds........................................................
Taxation of Certain Financial Instruments..........................................................
State Taxation.....................................................................................
Massachusetts State Income Tax.....................................................................
TRUSTEES AND OFFICERS.......................................................................................
Shareholder and Trustee Liability..................................................................
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS.........................................................................................
Custodian and Transfer Agent.......................................................................
</TABLE>
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<TABLE>
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PORTFOLIO TRANSACTIONS......................................................................................
SHAREHOLDER SERVICES PLAN...................................................................................
DISTRIBUTION AND SERVICES PLAN..............................................................................
DISTRIBUTOR.................................................................................................
AUDITORS ...................................................................................................
COUNSEL ...................................................................................................
PERFORMANCE AND YIELD INFORMATION...........................................................................
Yield Quotations -- Connecticut Municipal Money....................................................
Market and Massachusetts Municipal Money Market Funds..............................................
Tax-Equivalency Tables - Connecticut Municipal.....................................................
Money Market and Massachusetts Municipal Money
Market Funds.....................................................................................
Yield and Performance of the Growth and ...........................................................
Income and Small Cap Value Funds.................................................................
MISCELLANEOUS...............................................................................................
FINANCIAL STATEMENTS........................................................................................
APPENDIX A.................................................................................................. A-1
APPENDIX B.................................................................................................. B-1
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management company currently
offering shares of beneficial interest in twenty-four investment portfolios.
This Statement of Additional Information provides additional investment
information with respect to the Connecticut Municipal Money Market Fund and
Massachusetts Municipal Money Market Fund (collectively, the "Money Market
Funds"), and with respect to the Growth and Income Fund and Small Cap Value Fund
(collectively, the "Equity Funds") (the Money Market Funds and Equity Funds are
referred to herein collectively as the "Funds"), and should be read in
conjunction with the current Prospectuses for the Funds.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Growth and Income and Small Cap Value Funds commenced operations on
October 4, 1993, October 5, 1993, December 14, 1992 and December 14, 1992,
respectively, as separate investment portfolios (the "Predecessor Connecticut
Municipal Money Market Fund", "Predecessor Massachusetts Municipal Money Market
Fund", "Predecessor Growth and Income Fund" and "Predecessor Small Cap Value
Fund", respectively, and collectively, the "Predecessor Funds") of The Shawmut
Funds, which was organized as a Massachusetts business trust. On December 4,
1995, the Predecessor Funds were reorganized as new portfolios of Galaxy. Prior
to the reorganization, the Predecessor Funds offered and sold shares of
beneficial interest that were similar to Galaxy's Trust Shares and Retail A
Shares.
INVESTMENT OBJECTIVES AND POLICIES
ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS
The Connecticut Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of Connecticut and of other states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
both federal regular income tax and Connecticut state income tax imposed upon
non-corporate taxpayers ("Connecticut Municipal Securities").
The Massachusetts Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from both federal regular income tax and income taxes imposed by
the Commonwealth of Massachusetts
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imposed upon non-corporate taxpayers ("Massachusetts Municipal Securities").
From time to time, such as when suitable Municipal Securities are not
available, the Money Market Funds may invest a portion of their respective
assets in cash. Any portion of a Money Market Fund's assets maintained in cash
will reduce the amount of assets in Municipal Securities and thereby reduce the
Money Market Fund's yield.
TYPES OF ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS
Examples of Municipal Securities are:
- municipal notes and commercial paper;
- general obligation serial bonds sold with differing
maturity dates;
- refunded municipal bonds; and
- all revenue bonds, including industrial development
bonds.
TYPES OF INVESTMENTS - EQUITY FUNDS
The Growth and Income Fund invests principally in a
professionally-managed and diversified portfolio of common stocks of companies
with prospects for above average growth and dividends or of companies where
significant fundamental changes are taking place. The Growth and Income Fund
will seek to invest in equity securities of companies that are projected to show
earnings growth superior to the Standard & Poor's 500 Composite Stock Index.
Although the Growth and Income Fund may invest in other securities and in money
market instruments, it is the Growth and Income Fund's policy, under normal
market conditions, to invest at least 65% of its assets in equity securities.
The securities in which the Growth and Income Fund may invest include foreign
securities, as described in the Prospectuses.
The Small Cap Value Fund invests primarily in a diversified portfolio
of equity securities of companies that have a market value capitalization of up
to $1 billion to achieve long-term capital appreciation and current income.
Under normal circumstances, the Small Cap Value Fund will invest at least 65% of
its total assets in growth and income equity securities. In addition, the Small
Cap Value Fund may invest as described below, and as described in the
Prospectuses.
The Equity Funds intend to limit their respective investments in
foreign securities, which are not freely traded on United States securities
exchanges or the over-the-counter market
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in the form of depository receipts, to no more than 5% of their respective total
assets.
MONEY MARKET INSTRUMENTS
The Equity Funds may invest in the following money market instruments:
- instruments of domestic banks and savings and loans if they
have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation;
and
- prime commercial paper (rated A-1 by Standard & Poor's Ratings
Group, Prime-1 by Moody's Investors Service, Inc., or F-1 by
Fitch Investors Service, L.P.)
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. Government obligations in which the Equity Funds may
invest generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by U.S.
Government agencies or instrumentalities. These securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow an amount limited to a
specific line of credit from the U.S. Treasury;
- the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or
instrumentalities; or
- the credit of the agency or instrumentality issuing the
obligations.
Examples of U.S. Government agencies and instrumentalities that are
permissible investments and may not always receive financial support from the
U.S Government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
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WHEN-ISSUED SECURITIES AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or
"delayed settlement" basis, the Fund's custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. In the event of a decline in the value of the securities that the
custodian has set aside, the Fund may be required to place additional assets in
the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash.
When a Fund engages in when-issued or delayed settlement transactions,
it relies on the seller to consummate the trade. Failure of the seller to do so
may result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from a Fund,
at the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by the Fund at any time before the maturity
of the underlying Municipal Security, and may be sold, transferred or assigned
by the Fund only with respect to the underlying instruments.
Although stand-by commitments are often available without the payment
of any direct or indirect consideration, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for Municipal Securities that are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
The Money Market Funds will enter into stand-by commitments only with
banks and broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, a Fund's Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
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The Money Market Funds will acquire stand-by commitments solely to
facilitate liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments will be valued at zero in determining a
Fund's net asset value.
MUNIPREFERRED SECURITIES
The Money Market Funds may purchase interests in Municipal Securities
that are offered in the form of a security representing a diversified portfolio
of investment grade bonds. These securities provide investors, such as the Money
Market Funds, with liquidity and income exempt from federal regular income tax
and some state income taxes.
VARIABLE RATE DEMAND NOTES
Variable interest rates generally reduce changes in the market value of
Municipal Securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable rate Municipal Securities than for fixed
income obligations.
The terms of these variable rate demand instruments require payment of
principal and accrued interest from the issuer of the Municipal Securities, the
issuer of the participation interest or a guarantor of either issuer.
TEMPORARY INVESTMENTS
The Money Market Funds may also invest in high quality temporary
investments during times of unusual market conditions for defensive purposes.
From time to time, such as when suitable Municipal Securities are not
available, the Money Market Funds may invest a portion of their respective
assets in cash. Any portion of a Money Market Fund's assets maintained in cash
will reduce the amount of assets in Municipal Securities and thereby reduce the
Fund's yield.
RESTRICTED AND ILLIQUID SECURITIES
The Equity Funds may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Equity Funds, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the purchaser
must be in an exempt transaction.
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Section 4(2) commercial paper is normally resold to other institutional
investors like the Equity Funds through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Equity Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities that meet the criteria for
liquidity established by Galaxy's Board of Trustees are quite liquid. The Equity
Funds intend, therefore, to treat the restricted securities that meet the
criteria for liquidity established by the Board of Trustees, including Section
4(2) commercial paper (as determined by the Equity Funds' Investment Adviser),
as liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Equity Funds do not intend to subject such paper to the limitation applicable to
restricted securities.
The ability of the Board of Trustees to determine the liquidity of
certain restricted securities is permitted under a Securities and Exchange
Commission (the "SEC") Staff position set forth in the adopting release for Rule
144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive,
safe-harbor for certain secondary market transactions involving securities
subject to restrictions on resale under federal securities laws. The Rule
provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. Galaxy, on behalf of the Equity Funds, believes that the Staff
of the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination to the Board
of Trustees. The Board of Trustees considers the following criteria in
determining the liquidity of certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the
security and the number of other potential buyers;
- dealer undertakings to make a market in the security;
and
- the nature of the security and the nature of the
marketplace trades.
Investing in Rule 144A securities could have the effect of increasing the level
of a Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. The Funds
expect that less than
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5% of their respective net assets will be invested in Rule 144A securities
during the current fiscal year.
REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND LENDING
OF PORTFOLIO SECURITIES
Each Fund may enter into repurchase agreements, which are arrangements
in which banks, broker/dealers, and other recognized financial institutions sell
U.S. Government securities or other securities to the Funds and agree at the
time of sale to repurchase them at a mutually agreed upon time and price within
one year from the date of acquisition. A Fund requires its custodian to take
possession of the securities subject to a repurchase agreement and these
securities are marked to market daily. To the extent that the original seller
does not repurchase the securities from a Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by a Fund might be delayed pending court action. The Funds believe
that, under the regular procedures normally in effect for custody of a Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Funds will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker/dealers, which
are deemed by the Funds' Investment Adviser to be creditworthy pursuant to
guidelines established by the Board of Trustees.
The Equity Funds may also enter into reverse repurchase agreements.
These transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund
in a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
The collateral received when the Equity Funds lend portfolio securities
must be valued daily and, should the market value of
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the loaned securities increase, the borrower must furnish additional collateral
to the Funds. During the time portfolio securities are on loan, the borrower
pays a Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Funds or the borrower. The Funds may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS
An Equity Fund may purchase and sell put options on its portfolio
securities as described in the Prospectuses.
STOCK INDEX FUTURES AND OPTIONS
The Equity Funds may utilize stock index futures contracts and options
on stocks, stock indices, and stock index futures contracts for the purposes of
managing cash flows into and out of a Fund's portfolio and potentially reducing
transactional costs. The Funds may not use stock index futures contracts and
options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of
the Equity Funds, the Funds may attempt to hedge all or a portion of their
respective portfolios through the purchase of listed put options on stocks,
stock indices and stock index futures contracts. These options will be used as a
form of forward pricing to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives the Funds, in return for a premium, the
right to sell the underlying security to the writer (seller) at a specified
price during the term of the option. Put options on stock indices are similar to
put options on stocks except for the delivery requirements. Instead of giving
the Funds the right to make delivery of stock at a specified price, a put option
on a stock index gives the Funds, as holders, the right to receive an amount of
cash upon exercise of the option.
The Equity Funds may also write covered call options. As the writer of
a call option, the Funds have the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of the
exercise price.
An Equity Fund may only: (1) buy listed put options on stock indices
and stock index futures contracts; (2) buy listed put options on securities held
in its portfolio; and (3) sell listed call options either on securities held in
its portfolio or
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on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any such additional
consideration). A Fund will maintain its positions in securities, option rights,
and segregated cash subject to puts and calls until the options are exercised,
closed or expired. A Fund may also enter into stock index futures contracts. A
stock index futures contract is a bilateral agreement which obligates the seller
to deliver (and the purchaser to take delivery of) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of trading of the contract and the price at which the
agreement is originally made. There is no physical delivery of the stocks
constituting the index, and no price is paid upon entering into a futures
contract.
In general, option contracts are closed out prior to their expiration.
An Equity Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or U.S. government securities approximately equal to
5% - 10% of the contract value. This amount is known as "initial margin", and it
is subject to change by the exchange or board of trade on which the contract is
traded. Subsequent payments to and from the broker are made on a daily basis as
the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins", and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market". A Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is accomplished by
the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming that all
contractual obligations have been satisfied. Therefore, the margin utilized in
futures contracts is readily distinguishable from the margin employed in
security transactions, since the margin employed in futures contracts does not
involve the borrowing of funds to finance the transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
An Equity Fund will not enter into futures contracts to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of its total assets. Further, an Equity
Fund will enter into stock index futures contracts only for bona fide hedging
purposes or such other purposes permitted under Part 4 of the regulations
promulgated by the Commodity Futures Trading Commission. Also, an Equity Fund
may not enter into stock index futures contracts and options to the extent that
the value of such contracts would
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exceed 20% of the Fund's total net assets and may not purchase put options to
the extent that more than 5% of the value of the Fund's total assets would be
invested in premiums on open put option positions.
INDEXED SECURITIES
The Equity Funds may invest in indexed securities whose value is linked
to foreign currencies, interest rates, commodities, indices or other financial
indicators. Most indexed securities are short- to intermediate-term fixed-income
securities whose values at maturity or interest rates rise or fall according to
the change in one or more specified underlying instruments. Indexed securities
may be positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself.
SWAP AGREEMENTS
As one way of managing their exposure to different types of
investments, the Equity Funds may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and floors. In
a typical interest rate swap, one party agrees to make regular payments equal to
a floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer or an interest rate cap rate falls below
an agreed upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
Swap agreements will tend to shift the Equity Funds' investment
exposure from one type of investment to another. For example, if an Equity Fund
agreed to exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may
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increase or decrease the overall volatility of an Equity Fund's investments and
its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Equity Funds' performance. Swap agreements are subject to risks related to
the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Equity Funds may also suffer
losses if they are unable to terminate outstanding swap agreements or reduce
their exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Equity Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. An Equity Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by an
Equity Fund to purchase or sell a specific currency at a specified price and
future date, which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Equity Funds may enter into foreign currency hedging transactions
in an attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated portfolio position. Since consideration of
the prospect for currency parities will be incorporated into a Fund's long-term
investment decisions, neither Equity Fund will routinely enter into foreign
currency hedging transactions with
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respect to portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Investment Adviser, pursuant
to guidelines established by the Board, will promptly consider such an event in
determining whether the Fund involved should continue to hold the obligation.
The Board of Trustees or the Investment Adviser may continue to hold the
obligation if retention is in accordance with the interests of the particular
Fund and applicable regulations of the Securities and Exchange Commission.
PORTFOLIO TURNOVER
A Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A high rate
of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by the
Fund's shareholders.
SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL
SECURITIES
The ability of the issuers of Connecticut Municipal Securities to pay
the principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such matters
as the ability of issuers to raise sufficient tax and
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other revenues to meet their needs, the availability of aid from other
governmental bodies, and the burdens that may be imposed on issuers by law or
necessity. To the extent that the Connecticut Municipal Money Market Fund
invests in obligations that are not general obligations of their issuers,
payments of principal and interest will depend on all factors affecting the
revenue sources from which payments thereon are to be derived. The value of the
obligations held by the Fund would be adversely affected not only by any actual
inability of their issuers to pay the principal and interest thereon, but also
by a public perception that such ability is in doubt.
Investors should be aware that manufacturing has historically been
Connecticut's single most important economic activity. The State's
manufacturing industry is diversified, but from 1970 to 1995 manufacturing
employment declined 35.5%. During this period, employment in other
non-agricultural establishments (including government) increased 69.7%,
particularly in the service, trade, and finance categories. In 1995,
manufacturing accounted for only 17.9% of total nonagricultural employment in
Connecticut. Defense-related business plays an important role in the
Connecticut economy, and economic activity has been affected by the volume of
defense contracts awarded to Connecticut firms. On a per capita basis, defense
awards in Connecticut have traditionally been among the highest in the nation,
but reductions in defense spending have had a substantial adverse impact on
Connecticut's economy, and the State's largest defense contractors have
announced substantial labor force reductions to occur over the next several
years.
The average unemployment rate (seasonally adjusted) in Connecticut
increased from a low of 3.0% in 1988 to 7.5% in 1992 and, after a number of
important changes in the method of calculation, was reported to be 5.5% in
1995. Pockets of more significant unemployment and poverty exist in some of
Connecticut's cities and towns, the economic conditions of which are causing
them severe financial problems, resulting in some cases in the reporting of
operating and accumulated deficits. Connecticut is in a recession the depth and
duration of which are uncertain.
The State recorded operating deficits in its General Fund for fiscal
1987-88, 1988-89, 1989-90, and 1990-91 of $115,600,000, $28,000,000,
$259,000,000, and $809,000,000, respectively. In the fall of 1991, the State
issued $965,712,000 of Economic Recovery Notes to help fund its accumulated
General Fund deficit. Largely as a result of the enactment in 1991 of a general
income tax on resident and non-resident individuals, trust, and estates the
State's General Fund ended fiscal 1991-92, 1992-93, 1993-94, 1994-95, and
1995-96 with operating surpluses of $110,000,000, $113,500,000, $19,700,000,
$80,500,000, and $250,000,000, respectively.
The General Fund is the main operating fund of the State. The three
major revenue sources for the General Fund are the personal income tax, the
sales and use taxes, and the corporation business tax, all of which are
sensitive to changes in the level of economic activity in the State. Since its
enactment, the personal income tax has superseded the other two as the largest
revenue source for the State's General Fund. Motor fuel taxes and other
transportation-related taxes are paid into a Special Transportation Fund while
all other tax revenues are carried in the General Fund.
The repair and maintenance of the State's highways and bridges will
require major expenditures in the near term. The State has adopted legislation
that provides for, among other things, the issuance of special tax obligation
bonds, the proceeds of which will be used to pay for improvements to the
State's transportation system. The bonds are payable solely from motor vehicle
and other transportation-related taxes and fees deposited in the Special
Transportation Fund. However, the amount of revenues is dependent on the
occurrence of future events, including a possible rise in fuel prices, and may
thus differ materially from projected amounts. The cost of this infrastructure
program, to be met from federal, State and local funds, is currently estimated
at $11.2 billion. The State expects to issue $4.2 billion of special tax
obligation bonds over a sixteen-year period commenced July 1, 1984 to finance a
major portion of the State's share of such costs.
The tax revenues of Connecticut municipalities are derived only from ad
valorem taxes on real and tangible personal property. Problems inherent with
these taxes impose practical limitations on the ability of Connecticut
municipalities to raise additional tax revenues. The U.S. Census Bureau reports
that, at the time of the 1990 census, Connecticut's capital city of Hartford was
the eighth poorest city in the nation based on the percentage of its residents
living in poverty; the same report indicates that four of Connecticut's largest
cities ranked among the 130 poorest cities in the nation by the same measure.
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ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their
Prospectuses, the Funds are subject to the following investment limitations,
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" in the Prospectuses):
1. No Fund may sell any securities short or purchase any
securities on margin, but each Fund may obtain such
short-term credits as may be necessary for clearance of
transactions, in the case of a Money Market Fund, or
the clearance of purchases and sales of portfolio
securities, in the cash of an Equity Fund. A deposit
or payment by an Equity Fund of initial or variation
margin in connection with futures contracts or related
options transactions is not considered the purchase of
a security on margin.
2. No Fund may issue senior securities except that each
Fund may borrow money or engage in reverse repurchase
agreements in amounts up to one-third of the value of
its total assets, including the amounts borrowed; and
except to the extent that the Equity Funds may enter
into futures contracts. No Fund will borrow money or
engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the
portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous. No
Fund will purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
3. No Fund may mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases,
a Fund may only mortgage, pledge, or hypothecate assets
having a market value not exceeding 10% of the value of
total assets at the time of purchase. For purposes of
this limitation, the following will not be deemed to be
pledges of an Equity Fund's assets: (a) the deposit of
assets in escrow in connection with the writing of
covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral
arrangements with respect to: (i) the purchase and sale
of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts.
Margin deposits from the purchase and sale of futures
contracts and related options are not deemed to be a
pledge.
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4. No Fund may purchase or sell real estate or real estate
limited partnerships, although each Fund may invest in
securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
5. No Fund may purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the
extent that an Equity Fund may engage in transactions
involving financial futures contracts or options on
financial futures contracts.
6. No Fund may underwrite any issue of securities, except as a
Fund may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies and
limitations.
7. No Fund may lend any of its assets except that a Money
Market Fund may acquire publicly or non-publicly issued
Connecticut or Massachusetts Municipal Securities (as
defined in their Prospectuses) or temporary investments
or enter into repurchase agreements, in accordance with
their respective investment objectives, policies,
limitations and Galaxy's Declaration of Trust; and
except that an Equity Fund may lend portfolio
securities up to one-third the value of its total
assets. This limitation shall not prevent an Equity
Fund from purchasing or holding money market
instruments, repurchase agreements, obligations of the
U.S. Government, its agencies or instrumentalities,
variable rate demand notes, bonds debentures, notes,
certificates of indebtedness, or certain debt
instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of
Trust.
8. With respect to at least 50% of its total assets, a
Money Market Fund will invest no more than 5% of its
total assets in the securities of a single issuer and
no more than 25% of its total assets in the securities
of a single issuer at the close of each quarter of each
fiscal year. Under this limitation, each governmental
subdivision, including states, territories, possessions
of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar
entities will be considered a separate issuer if its
assets and revenues are separate from those of the
governmental body creating it and the security is
backed only by its own assets and revenues. Industrial
development bonds backed only by the assets and revenue
of a nongovernmental user are considered to be issued
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solely by that user. If, in the case of an industrial
development bond or government-issued security, a
governmental or other entity guarantees the security,
such guarantee would be considered a separate security
issued by the guarantor, as well as the other issuer,
subject to limited exclusions allowed by the 1940 Act.
9. With respect to securities comprising 75% of the value
of its total assets, no Equity Fund will purchase
securities issued by any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if,
as a result, more than 5% of the value of its total assets
would be invested in the securities of that issuer. An Equity
Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer.
10. No Money Market Fund may purchase securities, if, as a
result of such purchase, 25% or more of the value of
the Fund's total assets would be invested in any one
industry or in industrial development bonds or other
securities, the interest upon which is paid from
revenues of similar types of projects. However, a
Money Market Fund may invest as temporary investments
more than 25% of the value of its assets in cash or
cash items, securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities, or
instruments secured by these money market instruments
and repurchase agreements.
11. No Equity Fund will invest 25% of more of the value of
its total assets in any one industry (other than
securities issued by the U.S. Government, its agencies
or instrumentalities). However, an Equity Fund may
invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or instruments secured
by these money market instruments, such as repurchase
agreements.
12. No Money Market Fund will invest more than 10% of its net
assets in securities subject to restrictions on resale under
the Securities Act of 1933.
The following limitations may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
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13. Each Fund will limit its investments in other
investment companies to not more than 3% of the total
outstanding voting stock of any investment company;
will invest no more than 5% of its total assets in any
one investment company; and will invest no more than
10% of its total assets in investment companies in
general. However, these limitations are not applicable
if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of
assets.
The Money Market Funds will limit their respective investments
in the securities of other investment companies to those of
money market funds which are of comparable or better portfolio
quality and have investment objectives and policies similar to
their own. Rule 2a-7 under the 1940 Act requires that the
Money Market Funds limit their investments to instruments
that, in the opinion of the Trustees, present minimal credit
risk and that, if rated, meet minimum rating standards set
forth in Rule 2a-7 under the 1940 Act. If the instruments are
not rated, the Trustees must determine that they are of
comparable quality. Shares of investment companies purchased
by the Money Market Funds will meet these same criteria and
will have investment policies consistent with Rule 2a-7 of the
1940 Act.
The Equity Funds will purchase the securities of other
investment companies only in open market transactions
involving only customary broker's commissions. It should be
noted that investment companies incur certain expenses such as
management fees, and therefore any investment by an Equity
Fund in shares of another investment company would be subject
to such duplicate expenses.
14. No Fund may purchase or retain the securities of any issuer if
the officers and Trustees of Galaxy or the Investment Adviser,
owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's
securities.
15. No Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases; except
that the Equity Funds may purchase the securities of issuers
which invest in or sponsor such programs.
16. No Money Market Fund may purchase or sell puts, calls,
straddles, spreads, or any combination thereof, except that
each such Fund may purchase Municipal Securities
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accompanied by agreements of sellers to repurchase them at the
Fund's option.
17. No Equity Fund may purchase put options on securities, unless
the securities are held in the Fund's portfolio and not more
than 5% of the value of the Fund's total assets would be
invested in premiums on open put option positions.
18. No Equity Fund may write call options on securities, unless
the securities are held in the Fund's portfolio or unless the
Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further
payment. No Equity Fund may write call options in excess of 5%
of the value of its total assets.
19. No Equity Fund may invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operation of any predecessor.
20. No Money Market Fund may invest more than 5% of the value of
its total assets in industrial development bonds where the
payment of principal and interest are the responsibility of
companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation
of any predecessor.
21. No Money Market Fund may invest more than 10%, and no
Equity Fund will invest more than 15%, of the value of
its respective net assets in illiquid securities,
including repurchase agreements providing for
settlement in more than seven days after notice, non-
negotiable fixed time deposits with maturities over
seven days, and certain securities not determined by
the Board of Trustees to be liquid.
22. No Equity Fund may invest more than 10% of its total assets in
securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain
other restricted securities which meet the criteria for
liquidity as established by the Board of Trustees.
23. No Equity Fund may invest in companies for the purpose
of exercising management or control.
24. No Equity Fund may invest more than 5% of its net assets in
warrants. No more than 2% of this 5% may be
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warrants which are not listed on the New York Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in violation of
such restriction.
For purposes of their respective policies and limitations, the Funds
consider certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
The Funds do not intend to borrow money in excess of 5% of the value of
their respective net assets or invest more than 5% of their respective total
assets in securities of foreign issuers during the next twelve months.
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS
Galaxy uses the amortized cost method of valuation to value shares of
the Money Market Funds. In order to use the amortized cost method, the Funds
comply with the various quality and maturity restrictions specified in Rule 2a-7
promulgated under the 1940 Act. Pursuant to this method, a security is valued at
its initial acquisition cost, as adjusted for amortization of premium or
accretion of discount, regardless of the impact of fluctuating interest rates on
the market value of the security. Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by or under the direction of
Galaxy's Board of Trustees. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the security. The value of securities in each of these
Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security is held to maturity, no gain
or loss will be realized.
The Money Market Funds invest only in instruments that meet the
applicable quality requirements of Rule 2a-7 and maintain a dollar-weighted
average portfolio maturity appropriate to their objective of maintaining a
stable net asset value per share,
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provided that neither of these Funds will purchase any security deemed to have a
remaining maturity (as defined in the 1940 Act) of more than thirteen months nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Money Market Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Board of Trustees, at such intervals as it deems appropriate, to
determine the extent, if any, to which the net asset value per share of each
Money Market Fund, calculated by using available market quotations, deviates
from $1.00 per share. In the event such deviation exceeds one-half of one
percent, the Board of Trustees will promptly consider what action, if any,
should be initiated. If the Board of Trustees believes that the extent of any
deviation from a Money Market Fund's $1.00 amortized cost price per share may
result in material dilution or other unfair results to new or existing
investors, it has agreed to take such steps as it considers appropriate to
eliminate or reduce, to the extent reasonably practicable, any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity; shortening the average portfolio maturity; withholding or reducing
dividends; redeeming shares in kind; reducing the number of a Money Market
Fund's outstanding shares without monetary consideration; or utilizing a net
asset value per share determined by using available market quotations.
DIVIDENDS - MONEY MARKET FUNDS
As stated, Galaxy uses its best efforts to maintain the net asset value
per share of each Money Market Fund at $1.00. As a result of a significant
expense or realized or unrealized loss incurred by any of the Funds, it is
possible that a Fund's net asset value per share may fall below $1.00. Should
Galaxy incur or anticipate any unusual or unexpected significant expense or loss
which would affect disproportionately the income of a Fund for a particular
period, the Board of Trustees would at that time consider whether to adhere to
the present dividend policy with respect to these Funds or to revise it in order
to ameliorate to the extent possible the disproportionate effect of such expense
or loss on the income of the Fund experiencing such effect. Such expense or loss
may result in a shareholder's receiving no dividends for the period in which it
holds shares of a Fund and in its receiving upon redemption a price per share
lower than that which it paid.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by 440 Financial
Distributors, Inc. (the "Distributor"), and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, shares of the Money Market Funds, Retail A Shares of
the Equity Funds and Retail B Shares of the Growth and Income Fund are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As described
in the applicable Prospectuses, shares of the Money Market Funds, Retail A
Shares of the Equity Funds and Retail B Shares of the Growth and Income Fund may
also be sold to individuals, corporations or other entities, who submit a
purchase application to Galaxy, purchasing either for their own accounts or for
the accounts of others ("Direct Investors"). As described in the applicable
Prospectuses, Trust Shares in the Equity Funds are offered to investors
maintaining qualified accounts at bank and trust institutions, including
institutions affiliated with Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans.
Retail A Shares of the Equity Funds are sold to Direct Investors and
Customers at the public offering price based on a Fund's net asset value plus a
front-end sales charge as described in the applicable Prospectus. Retail B
Shares of the Growth and Income Fund are sold to Direct Investors and Customers
at the net asset value next determined after a purchase order is received but
are subject to a contingent deferred sales charge which is payable on redemption
of such shares as described in the applicable Prospectus.
Retail A Shares of the Equity Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exceptions as described in the
applicable Prospectus. An illustration of the computation of the offering price
per share of the Equity Funds, using the value of each Fund's net assets and
number of outstanding Retail A Shares at the close of business on October 31,
1996, is as follows:
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<TABLE>
<CAPTION>
Growth and Small Cap
Income Fund Value Fund
----------- ----------
<S> <C> <C>
Net Assets............... $ $
Outstanding Shares.
Net Asset Value Per
Share.................... $ $
Sales Charge (3.75% of
the offering price)...... $ $
Offering to Public....... $ $
</TABLE>
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of
payment for Shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the Securities and Exchange Commission
(the "SEC") exists making disposal of a Fund's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC by
order has permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of twenty-four
classes of shares, each representing interests in one of twenty-four separate
investment portfolios: Money Market Fund,
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Government Fund, Tax-Exempt Fund, U.S. Treasury Fund, Institutional Treasury
Money Market Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Equity Value Fund, Equity Growth Fund, Equity
Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Short-Term Bond
Fund, Intermediate Government Income Fund, High Quality Bond Fund, Corporate
Bond Fund, Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund.
As stated in the applicable Prospectuses, two separate series of shares
(Retail A Shares and Trust Shares) of the Equity Funds (plus a third series of
shares, i.e. Retail B Shares, of the Growth and Income Fund) are offered under
separate Prospectuses to different categories of investors. Each Money Market
Fund offers only one series of shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of the Equity Funds
and to shares of the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds), the Distribution and Services Plan for Retail B
Shares of the Growth and Income Fund, and differing transfer agency fees, Trust
Shares, Retail A Shares and Retail B Shares bear pro rata the same expenses and
are entitled equally to a Fund's dividends and distributions. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available for
distribution. Shareholders of a Fund are entitled to participate in the net
distributable assets of the particular Fund involved in liquidation, based on
the number of shares of the Fund that are held by each shareholder, except that
currently each Equity Fund's Retail A Shares (shares of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds) would be
solely responsible for the Fund's payments to Service Organizations under the
Shareholder Services Plan and the Growth and Income Fund's Retail B Shares would
be solely responsible for the Fund's payments to the Distributor and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters,
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except that only Retail A Shares and Trust Shares of a Fund (shares of the Money
Market Funds) will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Shareholder Services Plan for Retail A and
Trust Shares and only Retail B Shares of the Growth and Income Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Distribution and Services Plan for Retail B Shares. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by Galaxy, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as Galaxy shall not
be deemed to have been effectively acted upon unless approved by the holders of
a majority of the outstanding Shares of each Fund affected by the matter. A
particular Fund is deemed to be affected by a matter unless it is clear that the
interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under the Rule, the approval of
an investment advisory agreement or any change in fundamental investment policy
would be effectively acted upon with respect to a Fund only if approved by a
majority of the outstanding Shares of such Fund (irrespective of series
designation). However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding Shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration that may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price that is equal to their net asset value
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<PAGE> 289
and that may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert a
Fund's assets into money and, in connection therewith, to cause all outstanding
shares of the Fund involved to be redeemed at their net asset value; or (c)
combine the assets belonging to a Fund with the assets belonging to another Fund
of Galaxy and, in connection therewith, to cause all outstanding shares of any
Fund to be redeemed at their net asset value or converted into Shares of another
class of Galaxy's shares at the net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder may receive in payment
for such shares, due to changes in the market prices of the Fund's portfolio
securities, an amount that is more or less than the original investment. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the Fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations
generally affecting the Funds of Galaxy and their shareholders that are not
described in the Funds' Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
Each Fund of Galaxy is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and each Fund intends to
qualify as a "regulated investment company" under the Code. By following this
policy, each Fund expects to eliminate or reduce to a nominal amount the federal
income taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders (including amounts derived from
interest on Municipal Securities) would be taxable as ordinary income, to the
extent of the current and accumulated earnings and profits of the particular
Fund, and would be eligible for the dividends received deduction in the case of
corporate shareholders.
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<PAGE> 290
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year (the "90% distribution requirement"). In
addition, each Fund must satisfy certain requirements with respect to the source
of its income for a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "90% gross income test").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
A Fund will not be treated for a taxable year as a regulated investment
company under the Code if 30% or more of the Fund's gross income for such year
is derived from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in Section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received upon
exercise constitute the proceeds of sale, and the difference between the
proceeds and the cost of the securities subject to the call is capital gain or
loss. Premiums from expired call options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
Federal income tax
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purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on futures
contracts, and other financial instruments subject to the mark-to-market rules
described below under "Taxation of Certain Financial Instruments," the Internal
Revenue Service (the "Service") has ruled in private letter rulings issued to
other registered investment companies that a gain realized from such a contract,
option or financial instrument will be treated as being derived from a security
held for three months or more (regardless of the actual period for which the
contract, option or instrument is held) if the gain arises as a result of a
constructive sale under the mark-to-market rules, and will be treated as being
derived from a security held for less than three months only if the contract,
option or instrument is terminated (or transferred) during the taxable year
(other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract, option or instrument is acquired and the
termination date. Although a private letter ruling is binding on the Service
only with respect to the taxpayer receiving the ruling, it is anticipated that
the Service would take the same position with respect to the Funds. Increases
and decreases in the value of a Fund's forward contracts, futures contracts,
options on futures contracts and other investments that qualify as part of a
"designated hedge," as defined in Section 851(g) of the Code, may be netted for
purposes of determining whether the 30% test is met.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange of
Fund shares, if the shareholder has not held such shares for more than six
months, any loss on the sale or exchange of those shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (an
effective marginal rate of 39% applies in the case of corporations having
taxable income between $100,000 and $335,000, and an effective marginal rate of
38% applies in the case of corporations having taxable income between
$15,000,000 and $18,333,333).
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A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS MUNICIPAL
MONEY MARKET FUNDS
Shareholders are not required to pay the federal income tax on any
dividends received from the funds that represent net interest on tax-exempt
Municipal Securities.
In the case of a corporate shareholder, dividends of the Funds that
represent interest on Municipal Securities may be subject to the 25% corporate
alternative minimum tax. The corporate alternative minimum tax treats 75% of the
excess of a taxpayer's pre-tax 'adjusted current earning' over the taxpayer's
alternative minimum taxable income as a tax preference item. Since "earnings and
profits" generally includes the full amount of any Fund's dividend, and
alternative minimum taxable income does not include the portion of a Fund's
dividend attributable to municipal securities that are not private activity
bonds, 75% of the difference will be included in the calculation of the
corporation's alternative minimum tax.
Dividends of any of the Funds representing net interested income on
some temporary investments, and any realized net short-term gains are taxed as
ordinary income. Long-term capital gains distributions ar taxed as long-term
capital gains, regardless of the length of time the Fund shares have been held
the by the shareholder. These tax consequences apply whether dividend are
received in cash or as additional shares. Information on the tax status of
dividends and distributions is provided annually.
GROWTH AND INCOME AND SMALL CAP VALUE FUNDS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares.
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Capital gains experienced by the Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the 90% distribution requirement, on the
income or gain qualifying under the 90% gross income test and on their ability
to comply with the 30% test described above.
Generally, futures contracts and options on futures contracts held by
the Equity Funds and certain foreign currency contracts entered into by the
Equity Funds (as described above) (collectively, the "Instruments") at the close
of their taxable year are treated for federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell, related options and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain (if any) with respect to the other part of the straddle, and
to certain wash sales regulations. Under short sales rules, which also are
applicable, the holding period of the securities forming part of the straddle
(if they have not been held for the long-term holding period) will be deemed not
to begin prior to termination of the straddle. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40%-60% rule" and "mark-to-market," but gains and
losses will be subject to such short sales, wash sales and loss
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deferral rules and the requirement to capitalize interest and carrying charges.
Under Temporary Regulations, a Fund would be allowed (in lieu of the foregoing)
to elect either (1) to offset gains or losses from portions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, "the 40%-60% rule" will apply to the net gain or
loss attributable to the Instruments, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term,
and no more than 40% of any net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order
to be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury Department
has not issued any such regulations. Other foreign currency contracts entered
into by an Equity Fund may result in the creation of one or more straddles for
federal income tax purposes, in which case certain loss deferral, short sales,
and wash sales rules and the requirement to capitalize interest and carrying
charges may apply.
Some of the non-U.S. dollar denominated investments that an Equity Fund
may make, such as foreign securities, European Depository Receipts and foreign
currency contracts, may be subject to the provisions of Subpart J of the Code,
which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S dollar. The
types of transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and non-equity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
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value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or loss
deferral rules under the Code. Gain or loss attributable to the foreign currency
component of transactions engaged in by the Equity Funds, which is not subject
to the special currency rules (such as foreign equity investments other than
certain preferred stocks), is treated as capital gain or loss and is not
segregated from the gain or loss on the underlying transaction.
The Funds may be subject to U.S. Federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities that have income tax
laws, the treatment of a Fund and its shareholders under such laws may differ
from their treatment under Federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
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MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Massachusetts Municipal Money Market
Fund who are subject to Massachusetts income taxation will not be required to
pay Massachusetts income tax on that portion of their dividends which is
attributable to interest earned on
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Massachusetts tax-free municipal obligations, gain from the sale of certain of
such obligations, interest earned on obligations of the Untied States and
interest earned on obligations of United States territories or possessions to
the extent interest on such obligations is exempt from taxation by the state
pursuant to Federal law. All remaining dividends will be subject to
Massachusetts income tax.
If a shareholder of the Massachusetts Municipal Money Market Fund is a
Massachusetts business corporation or any foreign business corporation that
exercises its charter, qualifies to do business, actually does business or owns
or uses any part of its capital, plant or other property in Massachusetts, then
it will be subject to Massachusetts excise taxation either as a tangible
property corporation or as an intangible property corporation. If the corporate
shareholder is a tangible property corporation, it will be taxed upon its net
income allocated to Massachusetts and the value of certain tangible property. If
it is an intangible property corporation, it will be taxed upon its net income
and net worth allocated to Massachusetts. Net income is gross income less
allowable deductions for Federal income tax purposes, subject to specified
modifications. Dividends received from the Massachusetts Municipal Money Market
Fund are includable in gross income and generally may not be deducted by a
corporate shareholder in computing its net income. The corporation's shares in
the Massachusetts Municipal Money Market Fund are not includable in the
computation of the tangible property base of a tangible property corporation,
but are includable in the computation of the net worth base of an intangible
property corporation.
Shares of Massachusetts Municipal Money Market Fund will be exempt from
local property taxes in Massachusetts.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
Dwight E. Vicks, Jr. Chairman & President & Director,
Vicks Lithograph & Trustee Vicks Lithograph &
Printing Corporation Printing Corporation
Commercial Drive (book manufacturing and
P.O. Box 270 commercial printing);
Yorkville, NY 13495 Director, Utica Fire
Age 62 Insurance Company;
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Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual
Insurance Company;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Executive Vice President
Hasbro, Inc. Treasurer & and CFO, Hasbro, Inc.
200 Narragansett Trustee (toy and game
Park Drive manufacturer), since
Pawtucket, RI 02862 1987; Trustee, The Galaxy
Age 55 VIP Fund; Trustee, Galaxy
Fund II; Managing
Partner, KPMG Peat
Marwick (accounting
firm), 1986.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee,
Age 55 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media,
10725 Quail Covey Road Inc. (broadcast
Boynton Beach, FL 33436 services);
Age 70 Director/Trustee,
Lexington Funds;
President and CEO, Media
General Broadcast
Services, Inc. (1986 to
1989); Chairman,
Executive Committee,
Compton International,
Inc. (advertising
agency); Trustee, Keuka
College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
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Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
James M. Seed Trustee Chairman and President,
The Astra Ventures, The Astra Projects,
Inc. Incorporated (land
One Citizens Plaza development); President,
Providence, RI 02903 The Astra Ventures,
Age 55 Incorporated (previously,
Buffinton Box Company
manufacturer of cardboard
boxes); Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II;
Commissioner, Rhode
Island Investment
Commission.
Bradford S. Wellman(1) Trustee Private Investor;
2468 Ohio Street President, Ames &
Bangor, ME 04401 Wellman, from 1978 to
Age 65 1991; President, Pingree
Associates, Inc., from
1974 until 1990;
Director, Essex County
Gas Company, until
January 1994; Director,
Maine Mutual Fire
Insurance Co.; Member,
Maine Finance Authority;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath,
Bank Building Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice First Data Investor
First Data Services President Services Group, Inc.,
Group, Inc. and 1992 to present; Vice
4400 Computer Drive Assistant President, Investment
Westboro, MA 01581-5108 Treasurer Marketing and Strategic
Age 36 Planning, Manufacturers
and Traders Trust Co.,
1990 to 1992.
- --------------------------
(1) An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
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Effective November 1, 1996, each trustee receives an annual aggregate
fee of $29,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund
("Galaxy VIP") and Galaxy Fund II ("Galaxy") (collectively, the "Trusts"), plus
an additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in- person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $500 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets.
For the fiscal year ended October 31, 1996, each trustee was authorized
to receive an annual aggregate fee of $18,000 for his services as a trustee of
Galaxy and Galaxy VIP plus a separate annual fee of $5,000 for his services as a
trustee of Galaxy II, in addition to meeting fees of $1,500 for each in-person
Galaxy Board meeting attended, $1,500 for each in-person Galaxy VIP Board
meeting attended not held concurrently with a Galaxy Board meeting, and $750 for
each Galaxy II Board meeting attended, and reimbursement for expenses incurred
in attending meetings. Annual fees to the Chairman of the Boards and the
President and Treasurer of the Trusts were the same as the current fees as were
the fees for telephone and Board committee meetings.
Beginning March 1, 1996, each trustee is also entitled to participate
in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
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No employee of First Data Investor Services Group, Inc., ("FDISG")
receives any compensation from Galaxy for acting as an officer. No person who is
an officer, director or employee of Fleet, or any of its affiliates, or of the
Sub-Adviser, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees
received by Galaxy's trustees for the fiscal year ended October 31, 1996:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
--------------- ----------- -------- -----------
<S> <C> <C> <C>
Bradford S. Wellman $________ None $________
Trustee
Dwight E. Vicks, Jr. $________ None $________
Chairman and Trustee
Donald B. Miller** $________ None $________
Trustee
Rev. Louis DeThomasis $________ None $________
Trustee
John T. O'Neill $________ None $________
President, Treasurer
and Trustee
James M. Seed** $________ None $________
Trustee
</TABLE>
- --------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund
and Galaxy Fund II.
** Deferred compensation in the amounts of $________ and $________ accrued
during Galaxy's fiscal year ended October 31, 1996 for Messrs. Miller
and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
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Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. The Investment Adviser has also agreed to pay
all expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.
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<PAGE> 303
For the period from December 4, 1995 to October 31, 1996, Fleet
received advisory fees (net of fee waivers) of $______, $_____, $_____ and
$_____ with respect to the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund and Growth and
Income Fund, respectively, and waived advisory fees of $______, $______, $_____
and $_______ with respect to the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund and Growth and
Income Fund, respectively.
For the period from November 1, 1995 to December 3, 1995, Shawmut Bank,
N.A. ("Shawmut"), the investment adviser for the Predecessor Funds, earned the
following advisory fees: $______, $______, $______ and $______ with respect to
the Predecessor Connecticut Municipal Money Market Fund, Predecessor
Massachusetts Municipal Money Market Fund, Predecessor Small Cap Value Fund and
Predecessor Growth and Income Fund, respectively.
For the fiscal year ended October 31, 1995, Shawmut earned the
following advisory fees: Predecessor Connecticut Municipal Money Market Fund,
$544,556, of which $177,977 was voluntarily waived and $35,932 was reimbursed in
expenses; Predecessor Massachusetts Municipal Money Market Fund, $168,202, of
which $108,318 was voluntarily waived and $46,320 was reimbursed in expenses;
Predecessor Growth and Income Fund, $2,067,505, of which $365,382 was
voluntarily waived; and Predecessor Small Cap Value Fund, $1,304,952, of which
$304,915 was voluntarily waived.
For the fiscal year ended October 31, 1994, Shawmut earned the
following advisory fees: Predecessor Connecticut Municipal Money Market Fund,
$305,260, of which $50,074 was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $136,636 of which $20,737 was voluntarily waived;
Predecessor Growth and Income Fund, $1,720,866, of which $344,173 was
voluntarily waived; and Predecessor Small Cap Value Fund, $1,180,502, of which
$295,126 was voluntarily waived.
In addition, Shawmut reimbursed other operating expenses for the fiscal
year ended October 31, 1994, for the following Predecessor Funds: Predecessor
Connecticut Municipal Money Market Fund, $222,800 and Predecessor Massachusetts
Municipal Money Market Fund, $149,809, respectively.
The advisory agreement provides that the Investment Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Funds in connection with the performance of its duties under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of
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the Investment Adviser in the performance of its duties or from reckless
disregard by it of its duties and obligations thereunder. Unless sooner
terminated, the advisory agreement will continue in effect with respect to a
particular Fund until August 10, 1997, and thereafter from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
Fleet Bank, an affiliate of the Investment Adviser, is paid a fee for
sub-account and administrative services performed with respect to Trust Shares
of the Equity Funds held by defined contribution plans. Pursuant to an agreement
between Fleet Bank and FDISG, Fleet will be paid $21.00 per year for each
defined contribution plan participant sub-account. As of October 31, 1996, there
were approximately _____ defined contribution plan participant sub-accounts
invested in Trust Shares of the Equity Funds; thus it is expected that Fleet
Bank will receive annually $_______ for sub-account services. FDISG bears this
expense directly, and shareholders of Trust Shares of the Equity Funds bear this
expense indirectly through fees paid to FDISG for transfer agency services.
FDISG serves as Galaxy's administrator. Under the administration
agreement, FDISG has agreed to maintain office facilities for Galaxy, furnish
Galaxy with statistical and research data, clerical, accounting, and bookkeeping
services, certain other services such as internal auditing services required by
Galaxy, and compute the net asset value and net income of the Funds. FDISG
prepares the Funds' annual and semi-annual reports to the Securities and
Exchange Commission, Federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records and generally assists in all aspects of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was
440 Financial Group of Worcester, Inc., a wholly-owned subsidiary of State
Mutual Life Assurance Company of America. On
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March 31, 1995, FDISG, a wholly-owned subsidiary of First Data Corporation,
acquired all of the assets of 440 Financial Group of Worcester, Inc.
For the period December 4, 1995 through October 31, 1996, FDISG
received administration fees of $______, $______, $_____ and $_______ with
respect to the Connecticut Municipal Money Market Fund, Massachusetts Municipal
Money Market Fund, Small Cap Value Fund and Growth and Income Fund,
respectively.
For the period from November 1, 1995 to December 3, 1995, Federated
Administrative Services ("Federated"), a subsidiary of Federated Investors,
served as administrator of the Predecessor Funds and earned the following
administrative fees: Predecessor Connecticut Municipal Money Market Fund,
$______, none of which was waived; Predecessor Massachusetts Municipal Money
Market Fund, $______, none of which was waived; Predecessor Small Cap Value
Fund, $________, none of which was waived; and Predecessor Growth and Income
Fund, $_______, none of which was waived.
For the fiscal year ended October 31, 1995, Federated earned the
following administrative fees: Predecessor Connecticut Municipal Money Market
Fund, $109,347, none of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $50,000, none of which was voluntarily waived;
Predecessor Small Cap Value Fund, $131,149, none of which was voluntarily
waived; and Predecessor Growth and Income Fund, $207,280, none of which was
voluntarily waived.
For the fiscal year ended October 31, 1994, Federated earned the
following administrative fees: Predecessor Connecticut Municipal Money Market
Fund, $77,039, of which $3,405 was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $50,000, none of which was voluntarily waived;
Predecessor Growth and Income Fund, $184,829, none of which was voluntarily
waived; and Predecessor Small Cap Value Fund, $126,698, none of which was
voluntarily waived.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of each
Fund; (iii) collect and make disbursements of money on behalf of each Fund; (iv)
collect and receive all income and other payments and distributions on account
of each Fund's portfolio securities; (v) respond to correspondence from security
brokers and others relating to its duties; and (vi) make periodic
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reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur
as a result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Equity Funds upon prior approval by the Board
of Trustees in accordance with the regulations of the SEC, for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the United States. The assets of the Funds are held under bank custodianship in
compliance with the 1940 Act.
Shawmut Bank, N.A. ("Shawmut") served as custodian to the Predecessor
Funds and was entitled to receive a fee based upon a sliding scale ranging from
a minimum of .011% to a maximum of .02% as percentage of net Fund assets, plus
certain transaction costs.
For the period November 1, 1995 through December 3, 1995, Shawmut
earned the following custody fees: Predecessor Connecticut Municipal Money
Market Fund, $_______, all of which was voluntarily waived; Predecessor
Massachusetts Municipal Money Market Fund, $______, all of which was voluntarily
waived; Predecessor Small Cap Value Fund, $_______, all of which was voluntarily
waived; and Predecessor Growth and Income Fund, $_______, all of which was
voluntarily waived.
For the fiscal year ended October 31, 1995, Shawmut earned the
following custody fees: Predecessor Connecticut Municipal Money Market Fund,
$21,791, all of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $12,000, all of which was voluntarily waived;
Predecessor Growth and Income Fund, $41,361, all of which was voluntarily
waived; and Predecessor Small Cap Value Fund, $26,112, all of which was
voluntarily waived.
For the fiscal year ended October 31, 1994, Shawmut earned the
following custody fees: Predecessor Connecticut Municipal Money Market Fund,
$12,215, all of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $12,000, all of which was voluntarily waived;
Predecessor Growth and Income Fund, $34,400, all of which was voluntarily
waived; and Predecessor Small Cap Value Fund, $23,598, all of which was
voluntarily waived.
FDISG also serves as Galaxy's transfer agent and dividend disbursing
agent pursuant to a Transfer Agency Agreement ("Transfer Agency Agreement").
Under the Transfer Agency
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Agreement, FDISG has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Money Market Funds are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with the
issuer of an instrument. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down.
Transactions in equity securities on U.S. stock exchanges for the
Equity Funds involve the payment of negotiated brokerage commissions. On U.S.
stock exchanges on which commissions are negotiated, the cost of transactions
may vary among different brokers. Transactions in the over-the-counter market
are generally principal transactions with dealers and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Investment Adviser will normally
deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere or as described below.
For the period December 4, 1995 through October 31, 1995, the Growth
and Income and Small Cap Value Funds paid $_______ and $_______, respectively,
in brokerage commissions on brokerage transactions. For the period November 1,
1995 through December 3, 1995 and for the fiscal years ended October 31, 1995
and 1994, the Predecessor Growth and Income and Predecessor Small Cap Value
Funds paid $______, $250,125 and $384,037 and $_______, $58,543, $89,793,
respectively, in brokerage commissions on brokerage transactions.
The Equity Funds may engage in short-term trading to achieve their
investment objectives. Portfolio turnover may vary greatly from year to year as
well as within a particular year. The Money Market Funds do not intend to seek
profits from short-term trading. Their annual portfolio turnover will be
relatively high, but since brokerage commissions are normally not paid on money
market instruments, it should not have a material effect on the net income of
either of these Funds.
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In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, the
Investment Adviser, FDISG, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers
or dealers" that the Funds have acquired during Galaxy's most recent fiscal
year. At October 31, 1996, .
---------------------------------------------------
Investment decisions for each Fund are made independently from those
for the other Funds and for any other investment companies and accounts advised
or managed by Fleet. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund, another portfolio of Galaxy,
and/or another investment company or account, the transaction will be averaged
as to price, and available investments allocated as to amount, in a manner which
Fleet believes to be equitable to the Fund and such other portfolio, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or sold by such Fund. To the extent permitted by law, Fleet may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for its other portfolios, or other investment companies or accounts in order to
obtain best execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for the Funds, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for providing certain
administrative and support services to Customers who are the beneficial owners
of Retail A Shares and Trust Shares of the Equity Funds and shares of the Money
Market Funds. As of October 31, 1995, Galaxy had entered into Servicing
Agreements only with Fleet Bank and affiliates.
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Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan described above requires that, with respect to
those Funds which declare dividends on a daily basis, the Service Organization
agree to waive a portion of the servicing fee payable to it under the Services
Plan to the extent necessary to ensure that the fees required to be accrued with
respect to the Retail A Shares of such Funds (shares of the Money Market Funds)
on any day do not exceed the income to be accrued to such shares on that day.
For the period December 4, 1995 through October 31, 1995, payments to
Service Organizations totaled $_______ with respect to shares of the Connecticut
Municipal Money Market Fund, $_______ with respect to shares of the
Massachusetts Municipal Money Market Fund, $________ with respect to Retail A
Shares of the Growth and Income Fund, and $_______ with respect to Retail A
Shares of the Small Cap Value Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that
has been adopted by Galaxy's Board of Trustees in connection with the offering
of Retail A Shares of the Equity Funds and shares of the Money Market Funds.
Pursuant to the Plan, the Board of Trustees reviews, at least quarterly, a
written report of the amounts paid under the Servicing Agreements and the
purposes for which the expenditures were made. In addition, the arrangements
with Service Organizations must be approved annually by a majority of Galaxy's
trustees, including a majority of the trustees who are not "interested persons"
of Galaxy as defined in the 1940 Act and who have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Equity Funds and shares of the Money Market Funds. Any material
amendment to Galaxy's arrangements with Service Organizations must be approved
by a majority of Galaxy's Board of Trustees (including a majority of the
Disinterested Trustees). So long as Galaxy's arrangements with Service
Organizations are in effect, the selection and nomination of the members of
Galaxy's Board of Trustees who are not "interested persons" (as defined in the
1940 Act) of Galaxy will be committed to the discretion of such Disinterested
Trustees.
Investment Shares of the Predecessor Funds were subject to a Plan
adopted pursuant to Rule 12b-1 under the 1940 Act (the "Shawmut Plan"). The
Shawmut Plan permitted the payment of fees
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to administrators (including broker/dealers and depository institutions such as
commercial banks and savings and loan associations) for distribution and
administrative services. The Shawmut Plan was designed to stimulate
administrators to provide distribution and administrative support services to
the Predecessor Funds and their shareholders.
For the period from November 1, 1995 to December 3, 1995, the
Predecessor Connecticut Municipal Money Market Fund paid $______ in 12b-1 fees,
of which $________ was voluntarily waived; the Predecessor Small Cap Value Fund
paid $______ in 12b-1 fees, of which $________ was voluntarily waived; and the
Predecessor Growth and Income Fund paid $______ in 12b-1 fees, of which
$________ was voluntarily waived. During the same period, the Predecessor
Massachusetts Municipal Money Market Fund did not accrue 12b-1 fees.
For the fiscal years ended October 31, 1994 and October 31, 1995, the
Predecessor Connecticut Municipal Money Market Fund paid $217,698 and $377,953,
respectively, in 12b-1 fees, of which $108,849 and $188,976, respectively, was
voluntarily waived. During the same periods, the Predecessor Massachusetts
Municipal Money Market Fund did not accrue 12b-1 fees. For the fiscal years
ended October 31, 1994 and October 31, 1995, the Predecessor Growth and Income
and Predecessor Small Cap Value Funds paid $29,532 and $166,932 and $89,974 and
$111,535, respectively, in 12b-1 fees, of which $14,766 and $83,466 and $44,987
and $55,768, respectively, was voluntarily waived.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Growth and Income Fund. The 12b-1 Plan is described in the applicable
Prospectus.
Under the 12b-1 Plan,, payments by Galaxy (i) for distribution expenses
may not exceed .65% (annualized) of the average daily net assets attributable to
such Fund's outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to such Fund's outstanding Retail B Shares which are owned
of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Statement of Additional
Information, Galaxy intends to limit the Growth and Income Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset
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<PAGE> 311
value of Retail B Shares owned of record or beneficially by Customers of
Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of the
Growth and Income Fund may bear for distribution pursuant to the 12b-1 Plan
without shareholder approval, and that any other type of material amendment must
be approved by a majority of the Board of Trustees, and by a majority of the
trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest in the operation of
the 12b-1 Plan or in any related agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments (the "Disinterested
Trustees").
For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Growth and
Income Fund bore $________ in distribution fees and $________ in shareholder
servicing fees. For the fiscal year ended October 31, 1996, all amounts paid
under the 12b-1 Plan were attributable to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Growth and Income Fund and
holders of Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a
majority of the Disinterested Trustees and is terminable at any time with
respect to the Growth and Income Fund by a vote of a majority of such Trustees
or by vote of the holders of a majority of the Retail B Shares of the Fund. Any
agreement entered into pursuant to the 12b-1 Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Disinterested Trustees, by vote of the holders of a majority of
the Retail B Shares of the Fund, by the Distributor or by the Service
Organization. An agreement will also terminate automatically in the event of its
assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined
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in the 1940 Act) must be committed to the discretion of such Disinterested
Trustees.
DISTRIBUTOR
440 Financial Distributors, Inc., a wholly-owned subsidiary of FDISG,
serves as Galaxy's Distributor. On March 31, 1995, 440 Financial acquired all of
the issued and outstanding stock of the Distributor. Prior to that time, the
Distributor was a wholly-owned subsidiary of 440 Financial Group of Worcester,
Inc. and an indirect subsidiary of State Mutual Life Assurance Company of
America.
Unless otherwise terminated, the Distribution Agreement among Galaxy
and the Distributor and its parent First Data, remains in effect until May 31,
1997, and thereafter will continue from year to year upon annual approval by
Galaxy's Board of Trustees, or by the vote of a majority of the outstanding
shares of Galaxy and by the vote of a majority of the Board of Trustees of
Galaxy who are not parties to the Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
The Distributor is entitled to the payment of a front-end sales charge
on the sale of Retail A Shares of the Equity Funds as described in the
applicable Prospectus. For the period December 4, 1995 through October 31, 1996,
the Distributor received front-end sales charges in connection with Retail A
Share purchases as follows: Growth and Income Fund -- $_______; and Small Cap
Value Fund -- $________.
The Distributor is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Growth and Income
Fund. For the period from March 4, 1996 (date of the initial public offering of
Retail B Shares) through October 31, 1996, the Distributor received $________ in
contingent deferred sales charges in connection with redemptions of Retail B
Shares of the Growth and Income Fund. All such amounts were paid over to
affiliates of Fleet.
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the Funds
during the fiscal year ended October 31, 1996:
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<TABLE>
<CAPTION>
Brokerage
Net Compensation Commissions
Underwriting on Redemption in Connection
Discounts and and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Connecticut N/A N/A $ $
Municipal Money
Market
Massachusetts N/A N/A $ $
Municipal Money
Market
Growth and Income $ $ $ $
Small Cap Value $ N/A $ $
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such
amounts were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan that have been adopted by Galaxy (see
"Shareholder Services Plan" and "Distribution and Services Plan"
above).
AUDITORS
[______________________], independent certified public accountants,
with offices at [____________________________], serve as auditors to Galaxy. The
financial highlights for the Funds for the fiscal year ended October 31,1996
including in their Prospectuses and the financial statements for the fiscal year
ended October 31, 1996 contained in Galaxy's Annual Report to Shareholders and
[_______________________] into the Statement of Additional Information have been
audited by [__________] for the period included in their report which appears
therein.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107, are counsel to Galaxy and will pass
upon certain legal matters on its behalf. The law firm of Day, Berry & Howard,
Cityplace, Hartford, Connecticut 06103-3499, serves as special Connecticut
counsel to Galaxy and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the Connecticut Municipal Money
Market Fund concerning Connecticut taxes and the description of special
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<PAGE> 314
considerations relating to Connecticut Municipal Securities. The
law firm of Ropes & Gray, One International Place, Boston, Massachusetts
02110-2624, serves as special Massachusetts counsel to Galaxy and has reviewed
the portion of the Prospectuses with respect to the Massachusetts Municipal
Money Market Fund concerning Massachusetts taxes and the description of special
considerations relating to Massachusetts Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
YIELD QUOTATIONS -- CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS
The standardized, annualized seven-day yields for the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds are
computed by: (1) determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account in a Fund having a balance of
one share at the beginning of a seven-day period, for which the yield is to be
quoted, (2) dividing the net change in account value by the value of the account
at the beginning of the base period to obtain the base period return, and (3)
analyzing the results (i.e., multiplying the base period return by (365/7)). The
net change in the value of the account in each Fund includes the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, and all fees
that are charged by a Fund to all shareholder accounts in proportion to the
length of the base period, other than non-recurring account and sales charges.
For any account fees that vary with the size of the account, the amount of fees
charged is computed with respect to the Fund's mean (or median) account size.
The capital changes to be excluded from the calculation of the net change in
account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective compound yield quotation
for each Fund is computed by adding 1 to the unannualized base period return
(calculated as described above), raising the sum to a power equal to 365 divided
by 7, and subtracting 1 from the result.
The current yield for the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may be obtained by calling the
Distributor at the telephone numbers provided on the cover page of the
applicable Prospectus. For the seven-day period ended October 31, 1996, the
annualized and effective yields of the Connecticut Municipal Money Market Fund
were ____% and ____%, respectively. For the seven-day period ended October 31,
1996, the annualized and effective yields of the Massachusetts Municipal Money
Market Fund was were ____% and ____%, respectively.
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In addition, the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may calculate a "tax equivalent yield." The tax
equivalent yield for a Fund is computed by dividing that portion of the Fund's
yield which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's computed yield that is not
tax-exempt. Tax equivalent yields of the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds assume a 32.50% and 40.00% respective
combined Federal and state tax rate and indicate what each Fund would have had
to earn to equal its actual yield, assuming that income earned by the Fund is
100% tax-exempt. The tax-equivalent yields for the Connecticut Municipal Money
Market Fund and Massachusetts Municipal Money Market Fund, for the seven-day
period ended October 31, 1996 were ____% and ____%, respectively.
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds may use tax-equivalency tables in advertising and sales
literature. The interest earned by the municipal securities in the Funds'
respective portfolios generally remain free from Federal regular income tax, and
from the regular personal income tax imposed by Connecticut and
Massachusetts.(1) As the tables below indicate, "tax-free" investments are
attractive choices for investors, particularly in times of narrow spreads
between "tax-free" and taxable yields.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase Federal deductions.
The charts below are for illustrative purposes only and use tax
brackets that went into effect beginning January 1, 1994. These are not
indicators of past or future performance of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds.
- --------
(1) Some portion of either Fund's income may be subject to the federal
alternative minimum tax and state and local regular or alternative
minimum taxes.
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<PAGE> 316
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF CONNECTICUT
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Join
Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single
Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
</TABLE>
Tax-Exempt
Yield:
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
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TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF MASSACHUSETTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 27.00% 40.00% 43.00% 48.00% 51.60%
Joint
Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single
Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
</TABLE>
Tax-Exempt
Yield:
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>
YIELD AND PERFORMANCE OF THE GROWTH AND INCOME AND SMALL CAP
VALUE FUNDS
The Growth and Income and Small Cap Value Funds' 30-day (or one month)
standard yields described in their Prospectuses are calculated separately for
each series of shares in each Fund in accordance with the method prescribed by
the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1 )6 - 1]
cd
Where: a = dividends and interest earned by a
Fund during the period;
b = expenses accrued for the period
(net of reimbursements);
c = average daily number of shares
outstanding during the period,
entitled to receive dividends; and
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d = maximum offering price per share on
the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts and to the particular series of shares in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the offering
price per share (variable "d" in the formula). The Funds' maximum offering price
per Retail A Share for purposes of the formula will include the maximum sales
load imposed by the Funds -- currently 3.75% of the per share offering price.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
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<PAGE> 319
With respect to mortgage or other receivables-backed obligations that
are expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV l/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
l, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000 less
any applicable sales charge; and
n = period covered by the computation, expressed
in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date
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(reflecting any sales load charged upon such reinvestment), (2) all recurring
fees charged to all shareholder accounts are included, and (3) for any account
fees that vary with the size of the account, a mean (or median) account size in
the Fund during the periods is reflected. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period. In addition, the Equity Funds' Retail Shares average
annual total return and aggregate total return quotations will reflect the
deduction of the maximum sales load charged in connection with the purchase of
Retail Shares.
For the period ended October 31, 1996, the 30-day yields for Retail A
Shares of the Growth and Income and Small Cap Value Funds were ____% and _____%,
respectively, and the 30-day yields for Trust Shares of the Growth and Income
Fund and Small Cap Value Fund were ____% and ____%, respectively.
The average annual total returns for the one-year period ended October
31, 1996 and for the period from February 12, 1993 (date of initial public
offering) to October 31, 1996 were _____% and _____%, respectively, for Retail A
Shares of the Growth and Income Fund and _____% and _____%, respectively, for
Retail A Shares of the Small Cap Value Fund. The average annual total returns
for the one-year period ended October 31, 1996 and for the period from December
14, 1992 (date of initial public offering) to October 31, 1996 were _____% and
_____%, respectively, for Trust Shares of the Growth and Income Fund, and _____%
and _____%, respectively, for Trust Shares of the Small Cap Value Fund.
The aggregate total returns for Retail A Shares of the Growth and
Income Fund and Small Cap Value Fund for the period from February 12, 1993 (date
of initial public offering) to October 31, 1996 were _____% and _____%,
respectively. The aggregate total returns for Trust Shares of the Growth and
Income Fund and Small Cap Value Fund for the period December 14, 1992 (date of
initial public offering) to October 31, 1996 were _____% and _____%,
respectively.
For the period ended October 31, 1996, the 30-day yield for Retail B
Shares of the Growth and Income Fund was ____%. The average annual total return
for the period from March 4, 1996 (date of initial public offering) to October
31, 1996 was $____ for Retail B Shares of the Growth and Income Fund.
As stated in the Funds' Prospectuses, the Funds may also calculate
total return quotations without deducting the maximum sales charge imposed on
purchases of Retail Shares. The effect
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<PAGE> 321
of not deducting the sales charge will be to increase the total return
reflected.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a Fund" or "assets
belonging to a particular series of a Fund" means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or that particular
series of the Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds and a portion of any general assets of Galaxy not belonging to a
particular series or Fund. In determining the net asset value of a particular
Fund or series of a Fund, assets belonging to the particular Fund or series of
the Fund are charged with the direct liabilities in respect of that Fund or
series and with a share of the general liabilities of Galaxy, which are
allocated in proportion to the relative asset values of the respective series
and Funds at the time of allocation. Subject to the provisions of Galaxy's
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets with
respect to a particular series or Fund, are conclusive.
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolio were as follows:
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1996 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements")
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<PAGE> 322
[___________________] this Statement of Additional Information. The
Financial Statements included in the Annual Reports for the Funds for the fiscal
year ended October 31, 1996 have been audited by Galaxy's independent
accountants, ______________________________, whose reports thereon also appear
in such Annual Reports and [___________________________________]. The Financial
Statements in such Annual Reports [___________________________] in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The Shawmut Funds' Annual Report to Shareholders with respect to the
Predecessor Funds for the fiscal year ended October 31, 1995 has been filed
with the Securities and Exchange Commission. The financial statements in such
Annual Report (the "Shawmut Financial Statements") [___________________] this
Statement of Additional Information. The Shawmut Financial Statements included
in the Annual Report for the Predecessor Funds for the fiscal year ended
October 31, 1995 have been audited by ____________________, independent
accountants for the Predecessor Funds, whose report thereon also appears in
such Annual Report and [_________________________________]. The Shawmut
Financial Statements in such Annual Report [___________________________] in
reliance upon the report of said firm of independent accountants given upon
their authority as experts in accounting and auditing.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, L.P. ("Fitch"),
Standard & Poor's Ratings Group, ("S&P"), Moody's Investors Service, Inc.
("Moody's"), IBCA Limited and IBCA Inc. ("IBCA") and Thomson BankWatch
("Thomson").
Corporate and Tax-Exempt Bond Ratings
The five highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A, BBB and BB. Securities rated AAA are of
the highest credit quality. The risk factors are considered to be negligible,
being only slightly more than for risk-free U.S. Treasury debt. Securities rated
AA are of high credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Securities
that are rated "A" have protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress. Securities that are rated "BBB" have below average protection factors
but are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles. Securities that are rated
BB are considered to be below investment grade but are deemed likely to meet
obligations when due. The AA, A, BBB and BB ratings may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
The five highest ratings of Fitch for tax-exempt and corporate bonds
are AAA, AA, A, BBB and BB. Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. A bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. BBB bonds are
considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is
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considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings. BB bonds are considered to be speculative investments and
represent the likelihood of timely payment of principal and interest in
accordance with the terms of obligation for issues not in default.
The five highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A, BBB and BB. Bonds rated AAA bear the highest rating assigned by S&P
to a debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay principal. Bonds rated AA by S&P are
judged by it to have a very strong capacity to pay interest and repay principal,
and they differ from AAA issues only in small degree. Bonds rated A are
considered to have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds of a higher rated category.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for higher rated categories. Bonds rated BB have less
near-term vulnerability to default than other speculative issues. However, such
bonds face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lend to inadequate capacity to meet
timely interest and principal payments. The AA, A, BBB and BB ratings may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.
The five highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A, Baa and Ba. Tax-exempt and corporate bonds rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to bonds which are of
"high quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
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present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds rated Ba provide questionable protection of
interest and principal and indicate some speculative elements. Moody's may
modify a rating of Aa, A, Baa or Ba by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon completion of construction or elimination of the basis of the
condition.
The five highest ratings of IBCA for tax-exempt and corporate bonds are
AAA, AA, A, BBB and BB. IBCA assesses the investment quality of unsecured debt
with an original maturity of more than one year, which is issued by bank holding
companies and their principal banking subsidiaries. Obligations rated AAA by
IBCA have the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to increase investment
risk significantly. Obligations for which there is a very low expectation of
investment risk are rated AA. Obligations rated A have a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although changes in business, economic or financial conditions may lead
to increased investment risk. Obligations rated BBB currently have a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories. Obligations rated BB represent a low
degree of speculation and indicate a possibility of investment risk developing.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote relative
status within a major rating category.
Corporate and Tax-Exempt Commercial Paper Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment.
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Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. Duff 3 indicates satisfactory liquidity
and other protection factors qualify such issues as to investment grade. Risk
factors are larger and subject to more variation. Nevertheless, timely payment
is expected. Duff 4 indicates speculative investment characteristics.
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. F-1 securities possess very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 securities possess good
credit quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories. F-3 securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade. Fitch may also
use the symbol "LOC" with its short-term ratings to indicate that the rating is
based upon a letter of credit issued by a commercial bank.
S&P's commercial paper ratings are current assessments of the
likelihood of timely payment of debt considered short-term in the relevant
market. Issues assigned A-1 ratings, in S&P's opinion, indicate that the degree
of safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation. Issues rated A-2 by S&P indicate that capacity for timely payment
on these issues is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues rated A-3 have an adequate capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes and circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only a speculative capacity
for timely payment.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of
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Moody's "have a superior capacity for repayment of short-term promissory
obligations." Principal repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity. Issuers rated Prime-2 (or related
supporting institutions) have a strong capacity for repayment of short-term
promissory obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a good capacity for timely repayment.
Obligations rated A3 are supported by a satisfactory capacity for timely
repayment. Obligations are rated B if there is an uncertainty as to the capacity
to ensure timely repayment.
Thomson commercial paper ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation TBW-3
represents the lowest investment grade category and indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
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Tax-Exempt Note Ratings
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated SP-3
are issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated MIG and variable rate demand obligations are designated
VMIG. Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high quality,
with margins of protection ample although not so large as with loans rated MIG-1
or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of favorable
quality with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Fitch uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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APPENDIX B
As stated in the applicable Prospectuses, the Growth and Income Equity
and Small Cap Value Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which
they hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
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Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
Example of Futures Contract Sale. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The adviser wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
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In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Example of Futures Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset
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by the 5 point gain realized by closing out the futures contract purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. Margin Payments
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to
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the broker. At any time prior to expiration of the futures contract, the adviser
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the
Equity Funds as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments that are the subject of the hedge. The price of the
futures may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the instruments
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the instruments being hedged has moved in an unfavorable
direction, a Fund would be in a better position than if it had not hedged at
all. If the price of the instruments being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the futures.
If the price of the futures moves more than the price of the hedged instruments,
the Funds involved will experience either a loss or gain on the futures, which
will not be completely offset by movements in the price of the instruments which
are the subject of the hedge. To compensate for the imperfect correlation of
movements in the price of instruments being hedged and movements in the price of
futures contracts, a Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of instruments being hedged if the volatility over
a particular time period of the prices of such instruments has been greater than
the volatility over such time period of the futures, or if otherwise deemed to
be appropriate by the investment adviser. Conversely, a Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the instruments being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by the Investment Adviser. It is also possible that, where a Fund
had sold futures to hedge its portfolio against a decline in the market, the
market may advance and the value of instruments held in the Fund may decline. If
this occurred, the Fund would lose money on the futures and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern
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as to possible further market decline or for other reasons, the Fund will
realize a loss on the futures contract that is not offset by a reduction in the
price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Equity
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures
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contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Equity Funds is also subject to the
adviser's ability to predict correctly movements in the direction of the market.
For example, if a particular Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Funds
may have to sell securities at a time when it may be disadvantageous to do so.
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TRUST
THE GALAXY FUND
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Prospectus
February 28, 1997
<PAGE> 337
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY...................................................... 4
FINANCIAL HIGHLIGHTS ................................................ 5
INVESTMENT OBJECTIVES AND POLICIES................................... 10
Short-Term Bond Fund............................................. 10
Intermediate Government Income Fund.............................. 12
High Quality Bond Fund....................................... 13
Special Risk Considerations.................................. 14
Other Investment Policies and Risk
Considerations............................................. 15
INVESTMENT LIMITATIONS............................................... 26
PRICING OF SHARES.................................................... 28
HOW TO PURCHASE AND REDEEM SHARES.................................... 29
Distributor.................................................. 29
Purchase of Shares........................................... 29
Redemption of Shares......................................... 30
DIVIDENDS AND DISTRIBUTIONS.......................................... 31
TAXES... 31
Federal...................................................... 31
State and Local.............................................. 32
MANAGEMENT OF THE FUNDS.............................................. 33
Investment Adviser........................................... 33
Authority to Act as Investment Adviser....................... 34
Administrator................................................ 35
DESCRIPTION OF GALAXY AND ITS SHARES................................. 35
Shareholder Services Plan.................................... 37
Affiliate Agreement for Sub-Account Services................. 38
CUSTODIAN AND TRANSFER AGENT......................................... 38
EXPENSES............................................................. 38
PERFORMANCE AND YIELD INFORMATION.................................... 39
MISCELLANEOUS........................................................ 40
<PAGE> 338
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding initial
Westboro, Massachusetts purchases and current
01581-5108 performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes three series of Galaxy's shares
(collectively, the "Trust Shares") which represent interests in three separate
investment portfolios (individually, a "Fund," collectively, the "Funds")
offered to investors by Galaxy, each having its own investment objective and
policies:
The SHORT-TERM BOND FUND'S investment objective is to seek a
high level of current income consistent with preservation of capital. Under
normal market and economic conditions, the Fund will invest substantially all of
its assets in debt obligations of domestic and foreign issuers rated at the time
of purchase within the four highest rating categories of Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which,
if unrated, are of comparable quality) and in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
The INTERMEDIATE GOVERNMENT INCOME FUND'S investment
objective is to seek the highest level of current income consistent with prudent
risk of capital. Subject to this objective, the Fund's investment adviser will
consider the total rate of return on portfolio securities in managing the Fund.
Under normal market and economic conditions, the Fund will invest substantially
all of its assets in debt obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, in debt obligations rated at the
time of purchase within the three highest rating categories of S&P or Moody's
(or which, if unrated, are of comparable quality) and "money market"
instruments. The Fund was previously known as the Intermediate Bond Fund.
The HIGH QUALITY BOND FUND'S investment objective is to seek a
high level of current income consistent with prudent risk of capital. Under
normal market and economic conditions, the Fund will invest substantially all of
its assets in high quality debt obligations that are rated at the time of
purchase within the three highest rating categories of S&P
<PAGE> 339
or Moody's (or which, if unrated, are of comparable quality) and in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and other "money market" instruments.
This Prospectus describes Trust Shares in each Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in the Intermediate Government Income Fund, and two additional series of
shares, Retail A shares and Retail B Shares, in each of the Short-Term Bond Fund
and High Quality Bond Fund (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail Shares are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares in a Fund represent equal pro rata interests in the Fund, except
they bear different expenses which reflect the difference in the range of
services provided to them. See "Financial Highlights," "Management of the Funds"
and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc.
and sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future
-2-
<PAGE> 340
reference. Additional information about the Funds, contained in the Statement of
Additional Information relating to the Funds and bearing the same date, has been
filed with the Securities and Exchange Commission. The current Statement of
Additional Information is available upon request without charge by contacting
Galaxy at its telephone numbers or address shown above. The Statement of
Additional Information, as it may be amended from time to time, is incorporated
by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-3-
<PAGE> 341
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by each Fund with respect to its Trust Shares, and
(ii) the operating expenses for Trust Shares of each Fund. Examples based on the
table are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE HIGH
SHORT-TERM GOVERNMENT QUALITY
BOND FUND INCOME FUND BOND FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load................................................ None None None
Sales Load on Reinvested Dividends........................ None None None
Deferred Sales Load....................................... None None None
Redemption Fees........................................... None None None
Exchange Fees............................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)......................... .__% .__% .__%
12b-l Fees................................................ None None None
Other Expenses (After Fee Waivers
and Expense Reimbursements)............................ . % . % . %
---- ---- ----
Total Fund Operating Expenses
(After Fee Waivers and Expense
Reimbursements)....................................... . % . % . %
==== ==== ====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return, and (2) redemption of your investment at the
end of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund............................................. $__ $__ $__ $___
Intermediate Government Income Fund . . . . $__ $__ $__ $___
High Quality Bond Fund . . . . . . . . . . $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in the Funds
will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by each Fund during the last
fiscal year, restated to reflect the expenses that each Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, "Advisory Fees" would be .75%, .75% and .75%, Other Expenses
would be .___%, .___% and .___%, and Total Fund Operating Expenses would be
.___%, .___% and .___% for Trust Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds, respectively. For more complete
descriptions of these costs and expenses, see "Management of the Funds" and
"Description of Galaxy and Its Shares" in this Prospectus and the financial
-4-
<PAGE> 342
statements and notes incorporated by reference into the Statement of Additional
Information. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Funds are in addition
to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in the Intermediate Government Income Fund, and two additional series of
shares, Retail A Shares and Retail B Shares, in each of the Short-Term Bond Fund
and High Quality Bond Fund. As described below under "Description of Galaxy and
Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal
pro rata interests in a Fund, except that (i) effective October 1, 1994 Retail A
Shares of a Fund bear the expenses incurred under Galaxy's Shareholder Services
Plan for Retail A Shares and Trust Shares at an annual rate of up to .15% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B Shares of a Fund bear the expenses incurred under Galaxy's Distribution
and Services Plan for Retail B Shares at an annual rate of up to .80% of the
average daily net asset value of the Fund's outstanding Retail B Shares, and
(iii) Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses. Retail Shares are offered under a separate prospectus.
The financial highlights presented below for the Short- Term
Bond, Intermediate Government Income and High Quality Bond Funds have been
audited by [___________________], Galaxy's independent accountants, whose report
is contained in Galaxy's Annual Report to Shareholders relating to the Funds
dated October 31, 1996 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in the Annual
Report and (_______________________) into the Statement of Additional
Information. Information in the financial highlights for periods prior to the
fiscal year ended October 31, 1994 reflects the investment results of both
Retail A Shares and Trust Shares of the Funds (Retail A Shares of the
Intermediate Government Income Fund were first offered during the fiscal year
ended October 31, 1992). More information about the performance of each Fund is
also contained in the Annual Report, which may be obtained without
-5-
<PAGE> 343
charge by contacting Galaxy at its telephone numbers or address
provided above.
-6-
<PAGE> 344
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD.)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,2 OCTOBER 31,
1996 1995 1994 1993(2) 1992(1),(2)
----------------------------------- ----------- -----------
TRUST SHARES
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 9.73 $ 10.30 $ 10.09 $ 10.00
--------- --------- ---------- ---------
Income from Investment Operations:
Net Investment Income(3),(4).........
Net realized and unrealized 0.57 0.44 0.47 0.42
gain (loss) on investments.........
0.33 (0.51) 0.22 0.09
--------- ---------- ---------- ---------
Total from Investment
Operations:..................... 0.90 (0.07) 0.69 0.51
--------- ---------- ---------- ---------
Less Dividends:
Dividends from net investment
income............................. (0.57) (0.44) (0.47) (0.42)
Dividends from net realized
capital gains...................... -- -- (0.01) --
Dividends in excess of net
realized capital gains............. -- (0.06) -- --
--------- ---------- ----------- --------
Total Dividends:.................. (0.57) (0.50) (0.48) (0.42)
--------- ---------- ----------- ---------
Net increase (decrease) in net
asset value......................... 0.33 (0.57) 0.21 0.09
--------- ---------- ----------- ---------
Net Asset Value, End of Period......... $ 10.06 $ 9.73 $ 10.30 $ 10.09
========= ========== =========== =========
Total Return........................... 9.55% (0.66%) 6.98% 5.21%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)...... $ 35,088 $ 39,843 $ 85,211 $ 57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses including
reimbursement/waiver............. 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses excluding
reimbursement/waiver............. 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate................ 289% 233% 100% 114%(5)
</TABLE>
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before waiver of fees by
the Investment Adviser and/or Administrator for the years ended October 31,
1996, 1995 and 1994 were $______, $0.54 and $0.42, respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the year ended October 31, 1993 and for
the period ended October 31, 1992 were $0.45 and $0.40, respectively.
(5) Not Annualized.
(6) Annualized.
-7-
<PAGE> 345
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD.)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED OCTOBER 31,(2)
OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990 1989
---------------------- -------------------------------------------------------
TRUST SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............. $ 9.68 $ 10.72 $ 10.83 $ 10.46 $ 9.73 $10.27 $10.40
------- ------- -------- -------- ------- ------ ------
Income from Investment
Operations:
Net Investment Income(3),(4)..... 0.64 0.57 0.65 0.71 0.73 0.76 0.82
Net realized and
unrealized gain
(loss) on investments.......... 0.60 (1.03) 0.10 0.40 0.71 (0.56) 0.16
------- -------- -------- -------- ------ ------- ------
Total from Investment
Operations:.................. 1.24 (0.46) 0.75 1.11 1.44 0.20 0.98
------- -------- -------- -------- ------ ------- ------
Less Dividends:
Dividends from net
investment income.............. (0.64) (0.56) (0.64) (0.74) (0.71) (0.74) (0.96)
Dividends in excess of
net investment income.......... -- (0.01) (0.03) -- -- -- --
Dividends from net
realized capital gains......... -- -- (0.19) -- -- -- (0.15)
Dividends in excess of net
realized capital gains......... -- (0.01) -- -- -- -- --
------- ------- --------- ------- ----- ------ -------
Total Dividends: .............. (0.64) (0.58) (0.86) (0.74) (0.71) (0.74) (1.11)
------- ------- --------- -------- ----- ------- -------
Net increase (decrease) in
net asset value................. 0.60 (1.04) (0.11) 0.37 0.73 (0.54) (0.13)
------- ------- --------- -------- ------ ------- -------
Net Asset Value, End of
Period.......................... $ 10.28 $ 9.68 $ 10.72 $ 10.83 $10.46 $ 9.73 $10.27
======= ======= ========= ======== ====== ======= =======
Total Return....................... 13.18% (4.39%) 7.06% 10.95% 15.35% 2.06% 10.22%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)......................... $186,037 $212,144 $447,359 $199,135 $99,942 $80,645 $71,400
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver.......................... 6.39% 5.61% 6.03% 6.52% 7.25% 7.69% 8.19%
Operating expenses
including reimbursement/
waiver.......................... 0.73% 0.75% 0.80% 0.80% 0.96% 0.98% 0.99%
Operating expenses
excluding reimbursement/
waiver.......................... 0.94% 0.95% 1.00% 0.94% 0.96% 0.99% 1.00%
Portfolio Turnover Rate............ 145% 124% 153% 103% 150% 162% 112%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1988(1),(2)
-----------
<S> <C>
Net Asset Value,
Beginning of Period.............. $10.00
------
Income from Investment
Operations:
Net Investment Income(3),(4)..... 0.11
Net realized and
unrealized gain
(loss) on investments.......... 0.29
------
Total from Investment
Operations:.................. 0.40
------
Less Dividends:
Dividends from net
investment income.............. --
Dividends in excess of
net investment income.......... --
Dividends from net
realized capital gains......... --
Dividends in excess of net
realized capital gains......... --
-----
Total Dividends: .............. --
-----
Net increase (decrease) in
net asset value................. 0.40
------
Net Asset Value, End of
Period.......................... $10.40
======
Total Return....................... 3.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)......................... $58,318
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver.......................... 6.41%(6)
Operating expenses
including reimbursement/
waiver.......................... 0.98%(6)
Operating expenses
excluding reimbursement/
waiver.......................... 1.00%(6)
Portfolio Turnover Rate............ 41%(5)
</TABLE>
(1) The Fund (formerly known as the Intermediate Bond Fund) commenced
operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Retail
and Trust Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares.".
(3) Net investment income per share for Trust Shares before waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1996, 1995 and 1994 were $_____, $0.62 and $0.54, respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the years ended October 31, 1993, 1992,
1990 and 1989 were $0.63, $0.70 $0.73, and $0.82, respectively.
(5) Not Annualized.
(6) Annualized.
-8-
<PAGE> 346
HIGH QUALITY BOND FUND
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD.)
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
OCTOBER 31, October 31,(2)
1996 1995 1994 1993 1992
-------------------------------- -------------------------
TRUST SHARES
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 9.54 $ 11.37 $ 10.60 $ 10.35
------- --------- ---------- --------
Income from Investment
Operations:
Net Investment Income(3),(4)... 0.64 0.65 0.66 0.68
Net realized and
unrealized gain
(loss) on investments......... 1.09 (1.56) 0.93 0.36
------- ------- ---------- --------
Total from Investment
Operations:................. 1.73 (0.91) 1.59 1.04
------- ------- ---------- --------
Less Dividends:
Dividends from net
investment income............. (0.64) (0.65) (0.66) (0.71)
Dividends from net
realized capital
gains......................... -- -- (0.16) (0.08)
Dividends in excess of
net realized capital
gains......................... -- (0.27) -- --
------- ------- ------- --------
Total Dividends:............. (0.64) (0.92) (0.82) (0.79)
------- ------- --------- --------
Net increase (decrease)
in net asset value............. 1.09 (1.83) 0.77 0.25
------- ------ ---------- --------
Net Asset Value, End of
Period......................... $ 10.63 $ 9.54 $ 11.37 $ 10.60
======= ====== ========== ========
Total Return..................... 18.66% (8.39%) 15.63% 10.32%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)................. $134,631 $118,776 $ 162,594 $108,774
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver........................ 6.33% 6.28% 5.98% 6.55%
Operating expenses
including reimbursement/
waiver........................ 0.85% 0.78% 0.76% 0.87%
Operating expenses
excluding reimbursement/
waiver........................ 1.07% 0.98% 0.96% 0.94%
Portfolio Turnover Rate.......... 110% 108% 128% 121%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
October 31,
1991(1),(2)
--------------
<S> <C>
Net Asset Value,
Beginning of Period............ $ 10.00
---------
Income from Investment
Operations:
Net Investment Income(3),(4)... 0.64
Net realized and
unrealized gain
(loss) on investments......... 0.33
---------
Total from Investment
Operations:................. 0.97
---------
Less Dividends:
Dividends from net
investment income............. (0.62)
Dividends from net
realized capital
gains......................... --
Dividends in excess of
net realized capital
gains......................... --
------
Total Dividends:............. (0.62)
---------
Net increase (decrease)
in net asset value............. 0.35
--------
Net Asset Value, End of
Period......................... $ 10.35
========
Total Return..................... 10.04%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)................. $ 57,580
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver........................ 7.25%(6)
Operating expenses
including reimbursement/
waiver........................ 0.95%(6)
Operating expenses
excluding reimbursement/
waiver........................ 0.95%(6)
Portfolio Turnover Rate.......... 145%(5)
</TABLE>
- ---------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
(3) Net investment income per share for Trust Shares before waiver of fees
by the Investment Adviser and/or Administrator for the years ended
October 31, 1996, 1995 and 1994 were $_____, $0.62 and $0.63,
respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the years ended October 31, 1993, 1992
and 1991 were $0.63, $0.67 and $0.64, respectively.
-9-
<PAGE> 347
(5) Not Annualized.
(6) Annualized.
-10-
<PAGE> 348
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet" or the "Investment
Adviser") will use its best efforts to achieve each Fund's investment objective,
although such achievement cannot be assured. The investment objective of a Fund
may not be changed without the approval of the holders of its outstanding shares
(as defined under "Miscellaneous"). Except as noted below under "Investment
Limitations," a Fund's investment policies may be changed without shareholder
approval. An investor should not consider an investment in the Funds to be a
complete investment program.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's investment objective is to seek a
high level of current income consistent with preservation of capital. The Fund
will invest substantially all of its assets in corporate debt obligations of
domestic and foreign corporations such as bonds and debentures, obligations
convertible into common stock, "money market" instruments such as bank
obligations and commercial paper, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and asset-backed and
mortgage-backed securities. The Fund may also invest, from time to time, in
obligations issued by state or local governmental issuers ("municipal
securities"). The purchase of municipal securities may be advantageous when, as
a result of prevailing economic, regulatory or other circumstances, the
performance of such securities, on a pretax basis, is comparable to that of
corporate or U.S. debt obligations. The Short-Term Bond Fund may also enter
into interest rate futures contracts to hedge against changes in market values.
See "Other Investment Policies and Risk Considerations." Under normal market
and economic conditions, at least 65% of the Fund's total assets will be
invested in bonds and debentures, subject to the quality standards described
below. The Fund will not invest in common stock, and any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will
invest substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories of S&P (AAA, AA, A and
BBB) or Moody's (Aaa, Aa, A and Baa) (or which, if unrated, are determined by
the Investment Adviser to be of comparable quality) and in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
"money market" instruments such as those listed below under "Other Investment
Policies and Risk Considerations." Debt obligations rated within the four
highest rating categories assigned by S&P or Moody's are considered to be
investment grade. Debt obligations rated in the lowest of the four highest
rating categories assigned by S&P or Moody's are considered to
-11-
<PAGE> 349
have speculative characteristics, even though they are of investment grade
quality, and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher grade debt obligations. Under normal market and
economic conditions at least 65% of the Fund's total assets will be invested in
debt obligations rated in the three highest rating categories assigned by S&P
or Moody's. Unrated securities will be determined to be of comparable quality
to rated debt obligations if, among other things, other outstanding obligations
of the issuers of such securities are rated BBB/Baa or better. When, in the
opinion of the Investment Adviser, a defensive investment posture is warranted,
the Fund may invest temporarily and without limitation in high-quality,
short-term money market instruments. See Appendix A to the Statement of
Additional Information for a description of S&P's and Moody's rating
categories.
In addition, the Fund may invest in obligations of foreign
banks and in obligations issued or guaranteed by foreign governments or any of
their political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to U.S.
Municipal Securities except that the income derived therefrom is fully subject
to U.S. federal taxation. These instruments are denominated in either Canadian
or U.S. dollars and have an established over-the-counter market in the United
States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 35% of its total assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt
obligations of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will
have an average weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Short-Term Bond Fund.
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INTERMEDIATE GOVERNMENT INCOME FUND
The Intermediate Government Income Fund's investment objective
is to seek the highest level of current income consistent with prudent risk of
capital. Subject to this objective, the Investment Adviser will consider the
total rate of return on securities in managing the Fund. The Fund will invest in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in corporate debt obligations such as bonds and debentures,
obligations convertible into common stock and "money market" instruments, such
as bank obligations and commercial paper, and asset-backed and mortgage-backed
securities. The Fund may also invest, from time to time, in municipal
securities. See "Investment Objectives and Policies -- Short-Term Bond Fund."
The Intermediate Government Income Fund may also enter into interest rate
futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations." The Fund will not invest in
common stock, and any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
Under normal market and economic conditions, the Fund will
invest substantially all of its assets in debt obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, debt obligations
rated, at the time of purchase, within the three highest rating categories of
S&P (AAA, AA and A) or Moody's (Aaa, Aa and A) (or which, if unrated, are
determined by the Investment Adviser to be of comparable quality) and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Unrated securities will be determined to be of
comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated A or
better. Notwithstanding the foregoing, under normal market and economic
conditions, at least 65% of the Fund's assets will be invested in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. When, in the opinion of the Investment Adviser, a defensive
investment posture is warranted, the Fund may invest temporarily and without
limitation in high quality, short-term "money market" instruments. See Appendix
A to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
In addition, the Fund may invest in obligations issued by
Canadian Provincial Governments and in debt obligations of supranational
entities. See "Investment Objectives and Policies -- Short-Term Bond Fund."
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The Fund may also invest in dollar-denominated high quality debt obligations of
U.S. corporations issued outside the United States.
The Investment Adviser expects that under normal market
conditions the Fund's portfolio securities will have an average weighted
maturity of three to ten years.
The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Intermediate Government Income Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund's investment objective is to seek
a high level of current income consistent with prudent risk of capital. The
Fund will invest substantially all of its assets in corporate debt obligations
such as bonds and debentures, obligations convertible into common stock, "money
market" instruments such as bank obligations and commercial paper, obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and asset-backed and mortgage-backed securities. The Fund may also invest, from
time to time, in municipal securities. See "Investment Objectives and Policies
- -- Short-Term Bond Fund." The High Quality Bond Fund may also enter into
interest rate futures contracts to hedge against changes in market values of
fixed-income instruments that the Fund holds or intends to purchase. See "Other
Investment Policies and Risk Considerations." At least 65% of the Fund's total
assets will be invested in non-convertible bonds. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will
invest substantially all of its assets in high quality debt obligations that
are rated, at the time of purchase, within the three highest rating categories
of S&P (AAA, AA, and A) or Moody's (Aaa, Aaa and A) (or, if unrated, are
determined by the Investment Adviser to be of comparable quality) and in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and "money market" instruments such as those listed below
under "Other Investment Policies." Unrated securities will be determined to be
of comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated A or
better. When, in the opinion of the Investment Adviser, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high
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quality, short-term "money market" instruments. See Appendix A to the Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
In addition, the Fund may invest in obligations issued by
Canadian Provincial Governments and in debt obligations of supranational
entities. See "Investment Objectives and Policies -- Short-Term Bond Fund."
The Fund may also invest in dollar-denominated high quality debt obligations of
U.S. corporations issued outside the United States.
The Fund seeks to provide a current yield greater than that
generally available from a portfolio of high quality short-term obligations. The
High Quality Bond Fund's average weighted maturity will vary from time to time
depending on, among other things, current market and economic conditions and the
comparative yields on instruments with different maturities. The Fund adjusts
its average weighted maturity and its holdings of corporate and U.S. Government
debt securities in a manner consistent with the Investment Adviser's assessment
of prospective changes in interest rates. The success of this strategy depends
upon the Investment Adviser's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates. The high quality
credit criteria applied to the selection of portfolio securities are intended to
reduce adverse price changes due to credit considerations. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the High Quality Bond Fund.
SPECIAL RISK CONSIDERATIONS
Investments by the Short-Term Bond Fund in foreign securities
may involve higher costs than investments in U.S. securities, including higher
transaction costs, as well as the imposition of additional taxes by foreign
governments. In addition, foreign investments may include additional risks,
including the difficulty of predicting interest rate patterns and fluctuations
in currency exchange rates, less complete financial information about the
issuers, less market liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding taxes on interest
income, the possible seizure or nationalization of foreign holdings, the
possible establishment of exchange controls, or the adoption of
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other governmental restrictions, might adversely affect the payment of principal
and interest on foreign obligations. In addition, foreign issuers in general may
be subject to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Although the Short-Term Bond Fund may invest in securities
denominated in foreign currencies, the Fund values its securities and other
assets in U.S. dollars. As a result, the net asset value of the Fund's shares
may fluctuate with U.S. dollar exchange rates as well as with price changes of
the Fund's foreign securities in the various local markets and currencies.
Thus, an increase in the value of the U.S. dollar compared to the currencies in
which the Fund makes its foreign investments could reduce the effect of
increases and magnify the effect of decreases in the price of the Fund's
foreign securities in their local markets. Conversely, a decrease in the value
of the U.S. dollar will have the opposite effect of magnifying the effect of
increases and reducing the effect of decreases in the prices of the Fund's
foreign securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on
convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which one or more of the Funds have the power to utilize. Some may be
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Funds may, in accordance with their investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than ten years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still
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others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit, and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but
different government regulation which may limit the amount and types of their
loans and the interest rates that may be charged. In addition, the profitability
of the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks
and of U.S. branches of foreign banks may subject a Fund to additional risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when the Investment Adviser
believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending
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arrangements between the purchaser and the issuer and there may be no active
secondary market. However, in the case of variable and floating rate obligations
with a demand feature, a Fund may demand payment of principal and accrued
interest at a time specified in the instrument or may resell the instrument to a
third party. In the event that an issuer of a variable or floating rate
obligation defaulted on its payment obligation, a Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default. The Funds may
also purchase Rule 144A securities. See "Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities
which may be held by the Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Each Fund's portfolio may also include "moral obligation"
securities, which are normally issued by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Opinions relating to the validity of municipal securities and
to the exemption of interest thereon from regular federal income tax are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Funds nor the Investment Adviser will review the proceedings
relating to the issuance of municipal securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal securities purchased by the Funds may include rated
and unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with
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respect to a particular variable or floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to a Fund will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
Repurchase and Reverse Repurchase Agreements
Each Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by a Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund holding such obligation would
suffer a loss to the extent that the proceeds from a sale of the underlying
securities (including accrued interest) were less than the repurchase price
(including accrued interest) under the agreement. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price. A Fund would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
Securities Lending
Each Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional
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collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Funds currently intend to limit the lending
of their portfolio securities so that, at any given time, securities loaned by a
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Funds may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause a
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). Each Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Funds, other investment portfolios of Galaxy, and any
other investment companies advised by the Investment Adviser.
Interest Rate Futures Contracts
The Funds may enter into contracts (both purchases and sales)
which provide for the future delivery of fixed-income securities (commonly known
as interest rate futures contracts). The Funds will not engage in futures
transactions for speculation, but only to hedge against changes in the market
values of securities which the Funds hold or intend to purchase. The Funds will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission ("CFTC")
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and the Securities and Exchange Commission. The purchase of futures instruments
in connection with securities which a Fund intends to purchase will require an
amount of cash and/or U.S. Government obligations, equal to the market value of
the outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of each Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the
Funds to a number of risks. Successful use of futures by a Fund is subject to
the ability of the Investment Adviser to predict correctly movements in the
direction of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, a Fund may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which it holds or intends to purchase or a Fund may be unable to
close a futures position in the event of adverse price movements. All income
from investments in futures contracts will be taxable. Additional information
concerning futures transactions, including special rules regarding the taxation
of such transactions, is contained in Appendix B to the Statement of Additional
Information.
When-Issued, Forward Commitment and Delayed Settlement
Transactions
Each Fund may purchase eligible securities on a "when- issued"
basis and may purchase or sell securities on a "forward commitment" basis. Each
of the Funds may also purchase or sell eligible securities on a "delayed
settlement" basis. When-issued and forward commitment transactions, which
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), permit the Fund to lock in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued, forward commitment
and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be
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less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of the value
of a Fund's total assets absent unusual market conditions. In the event a Fund's
forward commitments, when-issued purchases and delayed settlements ever exceeded
25% of the value of its total assets, the Fund's liquidity and the ability of
the Investment Adviser to manage the Fund may be adversely affected. The Funds
do not intend to engage in "when-issued" purchases, "forward commitments" and
delayed settlements for speculative purposes, but only in furtherance of their
investment objectives.
Stand-By Commitments
Each Fund may acquire "stand-by commitments" with respect to
municipal securities held by them. Under a "stand-by commitment," a dealer
agrees to purchase, at a Fund's option, specified municipal securities at a
specified price. The Funds will acquire "stand-by commitments" solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The Funds expect that "stand-by commitments"
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, a Fund may pay for a
"stand-by commitment" either separately in cash or by paying a higher price for
municipal securities which are acquired subject to the commitment (thus reducing
the yield otherwise available for the same securities). "Stand-by commitments"
acquired by a Fund would be valued at zero in determining the Fund's net asset
value.
Asset-Backed Securities
Each Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
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Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgaged-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers,
and special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Mortgage Dollar Rolls
Each Fund may enter into mortgage "dollar rolls" in which a
Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to
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repurchase similar (same type, coupon and maturity) but not identical securities
on a specified future date not exceeding 120 days. During the roll period, a
Fund loses the right to receive principal and interest paid on the securities
sold. However, the Fund would benefit to the extent of any difference between
the price received for the securities sold and the lower forward price for the
future purchase (often referred to as the "drop") or fee income plus the
interest earned on the cash proceeds of the securities sold until the settlement
date of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of a Fund compared with
what such performance would have been without the use of mortgage dollar rolls.
All cash proceeds will be invested in instruments that are permissible
investments for each Fund. The Funds will hold and maintain in a segregated
account until the settlement date cash, U.S. Government securities or other
liquid, high grade debt securities in an amount equal to the forward purchase
price.
For financial reporting and tax purposes, the Funds propose to
treat mortgage dollar rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale. The Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Mortgage dollar rolls involve certain risks. If the
broker-dealer to whom a Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities may be
restricted and the instrument which the Fund is required to repurchase may be
worth less than an instrument which the Fund originally held. Successful use of
mortgage dollar rolls may depend upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with their investment objective, each
of the Funds may purchase Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations. These
participations, which may be issued by the U.S. Government or by private issuers
such as banks and other institutions are issued at their "face value," and may
include stripped mortgage-backed securities ("SMBS"), which are derivative
multi-class mortgage securities. Stripped securities, particularly SMBS, may
exhibit greater price
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volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that
receive different proportions of the interest and principal distributions from
a pool of mortgage-backed obligations. A common type of SMBS will have one
class receiving all of the interest, while the other class will receive all of
the principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments generally is extremely
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS which are not issued by the
U.S. Government (or a U.S. Government agency or instrumentality) are considered
illiquid by the Funds. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by Galaxy's Board of Trustees if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of net asset value per share.
Guaranteed Investment Contracts
Each Fund may invest in guaranteed investment contracts
("GICs") issued by United States and Canadian insurance companies. Pursuant to
GICs, a Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Funds' limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
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Bank Investment Contracts
Each Fund may invest in bank investment contracts ("BICs")
issued by banks that meet the quality and asset size requirements for banks
described above under "U.S. Government Obligations and Money Market
Instruments." Pursuant to BICs, cash contributions are made to a deposit account
at the bank in exchange for payments at negotiated, floating or fixed interest
rates. A BIC is a general obligation of the issuing bank. BICs are considered
illiquid securities and will be subject to the Funds' limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
Derivative Securities
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, interest rate futures, certain asset-backed
and mortgage-backed securities, and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Funds will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with its day-to-day management of the Funds, how they will be used in
furtherance of each Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies --
Derivative Securities"
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in the Statement of Additional Information relating to the Funds
for additional information.
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover may result in the
realization of substantial capital gains and involves correspondingly greater
transaction costs. To the extent that net capital gains are realized,
distributions derived from such gains are treated as ordinary income for federal
income tax purposes. See "Financial Highlights" and "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to any Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) each Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate
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any assets except in connection with any such borrowing and in amounts
not in excess of the lesser of the dollar amounts borrowed or 10% of
the value of a Fund's total assets at the time of such borrowing. No
Fund will purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be invested
without regard to this limitation.
In addition, the Funds may not purchase any securities which
would cause 25% or more of the value of a Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each
Fund intends to limit any borrowings (including reverse repurchase agreements)
to not more than 10% of the value of its total assets at the time of such
borrowing, and (b) mortgage dollar rolls entered into by the Funds that are not
accounted for as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
A Fund's investment in Rule 144A securities could have the effect of increasing
the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing
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these securities. For purposes of the limitation on purchases of illiquid
instruments described under Investment Limitation No. 3 above, Rule 144A
securities will not be considered illiquid if the Investment Adviser has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of a Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Funds is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time), on each day on which the Exchange is open
for trading. Currently, the holidays which Galaxy observes are New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated separately for each series of Shares
by dividing the value of all securities and other assets attributable to a
particular series of Shares of a Fund, less the liabilities attributable to
Shares of that series of the Fund, by the number of outstanding Shares of that
series of the Fund.
The Funds' assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that Galaxy's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
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Galaxy reserves the right to reject any purchase order, in
whole or in part. The issuance of Trust Shares is recorded on the books of the
Funds and share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts. Investors should contact their Institution (in the case
of employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirement with respect to Trust Shares, Institutions may
impose such requirements on the accounts maintained by their Customers, and may
also require that Customers maintain minimum account balances with respect to
Trust Shares.
Trust Shares of the Funds may also be available for purchase
through different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
Share next determined after receipt and acceptance of the order by the
Distributor. Payment for redemption orders received by the Distributor on a
Business Day will normally be wired the following Business Day to the
Institution. Payment for redemption orders which are received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
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Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. Each Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon 60
days' written notice, if the value of the account is less than $250 as a result
of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared
daily and paid monthly. Dividends on each share of the Funds are determined in
the same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of a
Fund at the net asset value of such shares on the payment date. Such election,
or any revocation thereof, must be communicated in writing by an Institution on
behalf of Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends
to continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves a Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that a Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, a Fund's investment company taxable income
will be its taxable income, including dividends, interest and short-term capital
gains (the excess of net short-term capital gain over net long-term capital
loss), subject to certain adjustments and excluding the excess of any net
long-term capital
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gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to each Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by a Fund of the excess of its net long-term
capital gain over its respective net short-term capital loss is taxable to
shareholders as long-term capital gain, regardless of how long the shareholder
has held shares and whether such gains are received in cash or reinvested in
additional shares. Such distributions are not eligible for the dividends
received deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by a Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying shares of a Fund on or just
before the record date of a capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Funds depending upon the tax
basis of such shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important Federal tax
considerations generally affecting the Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
than those of the federal income tax law described above.
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MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $_____
billion at December 31, 1996. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to Fleet Trust Company and
other individual and institutional clients, and manages the other investment
portfolios of Galaxy: the Money Market, Government, Tax-Exempt, U.S. Treasury,
Connecticut Municipal Money Market, Massachusetts Municipal Money Market,
Institutional Treasury Money Market, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value,
Growth and Income, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with each Fund's investment policies, Fleet manages
each Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to
the Funds, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an annual rate of .75% of the average daily net
assets of each Fund. The fee for the Funds is higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that it is
not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory
fees payable by the Funds in order to help maintain a competitive expense ratio
and may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a
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portion of the advisory fees payable to it by the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds such that it is entitled to
receive an advisory fee at the annual rate of .55% of each such Fund's average
daily net assets, but Fleet may, in its discretion, revise or discontinue this
waiver at any time. For the fiscal year ended October 31, 1996, Fleet received
advisory fees (after fee waivers) at the effective annual rates of .__%, .__%
and .__%, respectively, of the Short- Term Bond, Intermediate Government Income
and High Quality Bond Funds' average daily net assets.
The Short-Term Bond Fund's portfolio manager, Perry J. Vieth, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Vieth, a Vice President, has over eleven years of experience as
an investment manager and previously managed the Shawmut Limited Term Income
Fund for Shawmut Investment Advisors and was a manager of Fuji Securities,
Inc.'s derivative products group. He also was responsible for fixed income risk
management at NationsBank CRT. Mr. Vieth has managed the Short-Term Bond Fund
since March 1, 1996.
The Intermediate Government Income Fund's portfolio manager, Marie H.
Schofield, is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield, a Vice President, has been with Fleet since
1991 and has been engaged in providing investment management services for over
twenty years. She has managed the Intermediate Government Income Fund since
December 1, 1996.
Ms. Schofield also serves as portfolio manager of the High Quality
Bond Fund and is primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield began serving as co-portfolio
manager of the Fund on March 1, 1996 and has been sole portfolio manager of the
Fund since April 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an
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investment company or from purchasing shares of such a company as agent for and
upon the order of customers. The Investment Adviser, custodian and Institutions
which have agreed to provide shareholder support services that are banks or bank
affiliates are subject to such banking laws and regulations. Should legislative,
judicial, or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Funds, Galaxy might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Funds' method of operation would not affect a Fund's net
asset value per share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administrator fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Funds and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Funds, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Funds, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, FDISG
received administration fees at the effective annual rate of .___% of each
Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such
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authority, the Board of Trustees has authorized the issuance of an unlimited
number of Shares in each series of the Funds as follows: Class D shares (Trust
Shares) and Class D-Special Series 1 shares (Retail A Shares), both series
representing interests in the Intermediate Government Income Fund; Class J-
Series 1 shares (Trust Shares), Class J-Series 2 shares (Retail A Shares) and
Class J-Series 3 shares (Retail B shares), each series representing interests in
the High Quality Bond Fund; and Class L-Series 1 shares (Trust Shares), Class
L-Series 2 shares (Retail A Shares) and Class L-Series 3 shares (Retail B
shares), each series representing interests in the Short-Term Bond Fund. Each
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in the other portfolios of Galaxy. For information
regarding the Funds' Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of
all operating expenses paid by that Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Holders of Retail B Shares of the
Short-Term Bond Fund and High Quality Bond Fund bear the fees described in the
prospectus for such Shares that are paid under Galaxy's Distribution and
Services Plan at an annual rate not to exceed .80% of the average daily net
asset value of a Fund's outstanding Retail B Shares. Currently, these payments
are not made with respect to a Fund's Trust Shares. In addition, Shares of each
series in a Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of Shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Funds are sold with a maximum
front-end sales charge of 3.75%. Retail B Shares of the Short-Term Bond Fund
and High Quality Bond Fund are sold with a maximum contingent deferred sales
charge of 5.0% and automatically convert to Retail B Shares of the same Fund
six years after the date of purchase. Retail A and Retail B Shares have certain
exchange and other privileges which are not available with respect to Trust
Shares.
Each Share of Galaxy (irrespective of series designation) has
a par value of $.001 per share, represents an equal proportionate interest in
the related Fund with other Shares of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
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Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A Shares and
are intended to supplement the services provided by FDISG as administrator and
transfer agent to the shareholders of record of Retail A Shares. Institutions
may also receive up to one-half of this fee for providing one or more of the
following services to such Customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to Customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such Customers; providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in Galaxy's Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Funds, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
owners of Retail A Shares in connection with their accounts with such
Institutions. Any such fees would be in addition to any amounts which may be
received by an Institution
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under the Shareholder Services Plan. Under the terms of each servicing agreement
entered into with Galaxy, Institutions are required to provide to their
Customers a schedule of any fees that they may charge in connection with
Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") on a
per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Funds to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of
these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as the custodian of the Funds' assets.
Chase Manhattan may employ sub-custodians for the Short-Term Bond Fund upon
approval of the Trustees in accordance with the regulations of the SEC, for the
purpose of providing custodial services for the Fund's foreign assets held
outside the United States. First Data Investor Services Group, Inc. ("FDISG"), a
wholly-owned subsidiary of First Data Corporation, serves as the Funds' transfer
and dividend disbursing agent. Services performed by both entities for the Funds
are described in the Statement of Additional Information. Communications to
FDISG should be directed to FDISG at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds'
-39-
<PAGE> 377
operations. Such expenses include taxes; interest; fees (including fees paid to
its trustees and officers who are not affiliated with FDISG); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Funds also pay for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yields of the Funds may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant bond indexes or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of the Funds may be compared to data
prepared by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yields of the
Funds. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Funds.
The standard yield is computed by dividing a Fund's average
daily net investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
-40-
<PAGE> 378
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of a Fund's operations, or on a
year-by-year basis. Each Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in a Fund for the specified period. Both methods of calculating total
return assume that dividend and capital gain distributions made by a Fund during
the period are reinvested in Fund Shares.
Performance and yields of the Funds will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in a Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged directly by Institutions with
respect to accounts of Customers that have invested in Trust Shares of a Fund
will not be included in calculations of yield and performance.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how to such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of Galaxy or a particular Fund means, with
respect to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
Galaxy or such Fund, or (b) 67% or more of the shares of Galaxy or such Fund
present at a meeting if more than 50% of
-41-
<PAGE> 379
the outstanding shares of Galaxy or such Fund are represented at the meeting in
person or by proxy.
-42-
<PAGE> 380
TRUST
THE GALAXY FUND
SHORT-TERM BOND FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 381
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY.................................................... 3
FINANCIAL HIGHLIGHTS............................................... 4
INVESTMENT OBJECTIVE AND POLICIES.................................. 6
In General................................................ 6
Special Risk Consideration................................ 8
Other Investment Policies and Risk Considerations......... 8
INVESTMENT LIMITATIONS............................................. 20
PRICING OF SHARES.................................................. 21
HOW TO PURCHASE AND REDEEM SHARES.................................. 22
Distributor............................................... 22
Purchase of Shares........................................ 22
Redemption of Shares...................................... 24
DIVIDENDS AND DISTRIBUTIONS........................................ 24
TAXES.............................................................. 25
Federal................................................... 25
State and Local........................................... 26
MANAGEMENT OF THE FUNDS............................................ 26
Investment Adviser........................................ 26
Authority to Act as Investment Adviser.................... 27
Administrator............................................. 28
DESCRIPTION OF GALAXY AND ITS SHARES............................... 29
CUSTODIAN AND TRANSFER AGENT....................................... 31
EXPENSES........................................................... 31
PERFORMANCE AND YIELD INFORMATION.................................. 32
MISCELLANEOUS...................................................... 33
</TABLE>
<PAGE> 382
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding initial
Westboro, Massachusetts purchases and current
01581-5108 performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the Short-Term Bond Fund (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek a high level of current
income consistent with preservation of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
debt obligations of domestic and foreign issuers rated at the time of purchase
within the three highest rating categories of Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if unrated,
are of comparable quality) and in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and "money market" instruments.
This prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loan
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares represent equal pro rata interests in the
Fund, except they bear different expenses which reflect the difference in the
range of services provided to them. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
<PAGE> 383
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information bearing the same
date, has been filed with the Securities and Exchange Commission. The current
Statement of Additional Information is available upon request without charge by
contacting Galaxy at its telephone numbers or address shown above. The Statement
of Additional Information, as it may be amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 384
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Fund with respect to its Trust Shares, and (ii) the
operating expenses for Trust Shares of the Fund. Examples based on the table are
also shown.
<TABLE>
<CAPTION>
SHORT-TERM
SHAREHOLDER TRANSACTION EXPENSES BOND FUND
<S> <C>
Sales Load.................................... None
Sales Load on Reinvested Dividends.................. None
Deferred Sales Load........................... None
Redemption Fees............................... None
Exchange Fees................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees
(After Fee Waivers)......................... .__%
12b-1 Fees.................................... None
Other Expenses (After Fee
Waivers and Expense
Reimbursements) ............................ . %
----
Total Fund Operating Expenses
(After Fee Waivers and
Expense Reimbursements)..................... . %
====
</TABLE>
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund............................. $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. They are based on expenses incurred by the Fund during
the last fiscal year, restated to reflect expenses which the Fund expects to
incur during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75%, Other Expenses would be ___% and
Total Fund Operating Expenses would be 1.08% for Trust Shares of the Fund. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its Shares" in this Prospectus and the
financial statements and notes incorporated by reference into the Statement of
Additional
-3-
<PAGE> 385
Information. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Fund are in addition to
and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994, Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan for Retail A Shares and Trust Shares at an annual rate of up to
.15% of the average daily net asset value of the Fund's outstanding Retail A
Shares, (ii) Retail B Shares of the Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan for Retail B shares at an annual rate of
up to .80% of the average daily net asset value of the Fund's outstanding Retail
B Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses. Retail Shares are offered under a separate
prospectus.
The financial highlights presented below have been audited by
[______________], Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1996 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
(_______________________) into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Retail A Shares
and Trust Shares of the Fund. More information about the performance of the Fund
is also contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-4-
<PAGE> 386
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD.)
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
October 31, October 31,(2) October 31,
1996 1995 1994 1993(2) 1992(1)(2)
------------------------------------------- ---- -------
Trust Shares
------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 9.73 $10.30 $10.09 $10.00
------ ------ ------ ------
Income from Investment Operations
Net Investment Income(3)(4)..................... 0.57 0.44 0.47 0.42
Net realized and unrealized
gain (loss) on investments................... 0.33 (0.51) 0.22 0.09
------ ------ ------ ------
Total from Investment Operations:....... 0.90 (0.07) 0.69 0.51
------ ------ ------ ------
Less Dividends:
Dividends from net
investment income............................ (0.57) (0.44) (0.47) (0.42)
Dividends from net
realized capital gains....................... -- -- (0.01) --
Dividends in excess of
net realized capital gains................... -- (0.06) -- --
------- ------- ------ ------
Total Dividends:......................... (0.57) (0.50) (0.48) (0.42)
------- ------- ------ ------
Net increase (decrease) in net
asset value.................................. 0.33 (0.57) 0.21 0.09
------ ------- ------ ------
Net Asset Value, End of Period................... $10.06 $ 9.73 $10.30 $10.09
====== ======= ====== ======
Total Return..................................... 9.55% (0.66%) 6.98% 5.21%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................ $35,088 $39,843 $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses including
reimbursement/waiver.......................... 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses excluding
reimbursement/waiver.......................... 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate.......................... 289% 233% 100% 114%(5)
</TABLE>
- -----------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
(3) Net investment income per share for Trust Shares before waiver and/or
of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $_____, $0.54 and $0.42,
respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the year ended October 31, 1993 and
for the period ended October 31, 1992 were $0.45 and $0.40,
respectively.
(5) Not Annualized.
(6) Annualized.
-5-
<PAGE> 387
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current
income consistent with preservation of capital. The Fund will invest
substantially all of its assets in corporate debt obligations of domestic and
foreign corporations, such as bonds and debentures, obligations convertible
into common stock, "money market" instruments such as bank obligations and
commercial paper, obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and asset-backed and mortgage-backed securities.
The Fund may also invest, from time to time, in obligations issued by state and
local governmental issuers ("municipal securities"). The purchase of municipal
securities may be advantageous when, as a result of prevailing economic,
regulatory or other circumstances, the performance of such securities, on a
pretax basis, is comparable to that of corporate or U.S. debt obligations. The
Fund may also enter into interest rate futures contracts to hedge against
changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to
the quality standards described below. The Fund will not invest in common
stock, and any common stock received through the conversion of convertible debt
obligations will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories of S&P (AAA, AA, A and BBB)
or Moody's (Aaa, Aa, A and Baa) (or which, if unrated, are determined by the
Investment Adviser to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Debt obligations rated within the four highest rating
categories of S&P or Moody's are considered to be investment grade. Debt
obligations rated in the lowest of the four highest rating categories assigned
by S&P or Moody's are considered to have speculative characteristics, even
though they are of investment grade quality, and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in debt obligations rated in the three
highest rating categories assigned by S&P or Moody's. Unrated securities will
be determined to be of comparable quality to rated debt obligations if, among
other things, other outstanding obligations of the issuers of such securities
are rated BBB/Baa or better. When, in the opinion of the Investment Adviser, a
defensive investment posture
-6-
<PAGE> 388
is warranted, the Fund may invest temporarily and without limitation in
high-quality, short-term money market instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations of foreign banks and
in obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to
U.S. municipal securities except that the income derived therefrom is fully
subject to U.S. federal taxation. These instruments are denominated in either
Canadian or U.S. dollars and have an established over-the-counter market in the
United States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples of those include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the
InterAmerican Development Bank. Obligations of supranational entities may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may not invest more than 35% of its total assets in the
securities of foreign issuers. The Fund may also invest in dollar-denominated
debt obligations of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will have an
average weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Short-Term Bond Fund.
The Investment Adviser will use its best efforts to achieve the Fund's
investment objective, although its achievement cannot be assured. The investment
objective of the Fund may not be changed without the approval of the holders of
a majority of its outstanding shares (as defined under "Miscellaneous"). Except
as noted below under "Investment Limitations," the Fund's investment policies
may be changed without shareholder approval. An investor should not consider an
investment in the Fund to be a complete investment program.
-7-
<PAGE> 389
SPECIAL RISK CONSIDERATIONS
Investments by the Fund in foreign securities may involve higher costs
than investments in U.S. securities, including higher transaction costs, as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks, including the difficulty of
predicting interest rate patterns and fluctuations in currency exchange rates,
less complete financial information about the issuers, less market liquidity,
and political instability. Future political and economic developments, the
possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
In addition, foreign issuers in general may be subject to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's foreign
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
foreign investments could reduce the effect of increases and magnify the effect
of decreases in the price of the Fund's foreign securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's foreign securities in their local markets.
In addition to favorable and unfavorable currency exchange rate developments,
the Fund is subject to the possible imposition of exchange control regulations
or freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be succesful.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities,
-8-
<PAGE> 390
which differ only in their interest rates, maturities and time of issuance:
Treasury Bills have initial maturities of one year or less; Treasury Notes have
initial maturities of one to ten years; and Treasury Bonds generally have
initial maturities of more than ten years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government- sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing,
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reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks. The Fund will invest in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks only when the Investment
Adviser believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities which may be
held by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
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Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal securities purchased by the Fund may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as
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banks and broker/dealers and agreeing to repurchase them at a mutually specified
date and price ("reverse repurchase agreements"). Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by the Investment Adviser.
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Interest Rate Futures Contracts
The Fund may enter into contracts (both purchases and sales) which
provide for the future delivery of fixed-income securities (commonly known as
interest rate futures contracts). The Fund will not engage in futures
transactions for speculation, but only to hedge against changes in the market
values of securities which the Fund holds or intend to purchase. The Fund will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the Securities and Exchange Commission
("SEC"). The purchase of futures instruments in connection with securities which
the Fund intends to purchase will require an amount of cash and/or U.S.
Government obligations, equal to the market value of the outstanding futures
contracts, to be deposited in a segregated account to collateralize the position
and thereby insure that the use of such futures is unleveraged. The Fund will
limit its hedging transactions in futures contracts so that, immediately after
any such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract is
traded does not exceed 5% of the Fund's total assets after taking into account
any unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of the Fund's total assets may be covered by
such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the ability
of the Investment Adviser to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, the Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which the Fund holds
or intends to purchase or may be unable to close a futures position in the event
of adverse price movements. Additional information concerning futures
transactions is contained in Appendix B to the Statement of Additional
Information.
When-Issued, Forward Commitment and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. The Fund may
also purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and
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forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of the value
of the Fund's total assets absent unusual market conditions. In the event the
Fund's forward commitments, when-issued purchases and delayed settlements ever
exceeded 25% of the value of its total assets, the Fund's liquidity and the
ability of the Investment Adviser to manage the Fund may be adversely affected.
The Fund does not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of
their investment objectives.
Stand-by Commitments
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Fund's option, specified municipal securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund expects that stand-by commitments will generally be
availible without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the
yield otherwise available for the same securities). Stand-by commitments
acquired by the Fund would be valued at zero in determining the Fund's net
asset value.
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly
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payment consisting of interest and principal payments. Additional payment may be
made out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund from investing in mortgaged-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage obligations are considered to be investment companies, investments in
such obligations will be subject to the percentage limitations described under
"Investment Company Securities" above.
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the
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mortgage dollar roll, the use of this technique will diminish the investment
performance of the Fund compared with what such performance would have been
without the use of mortgage dollar rolls. All cash proceeds will be invested in
instruments that are permissible investments for the Fund. The Fund will hold
and maintain in a segregated account until the settlement date cash, U.S.
Government securities or other liquid, high grade debt securities in an amount
equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom the Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, the Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value", and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market
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value of the class consisting entirely of principal payments generally is
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because
their cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS which are not issued by the
U.S. Government (or a U.S. Government agency or instrumentality) are considered
illiquid by the Fund. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by the Trust's Board of Trustees
if they can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of net asset value per
share.
Guaranteed Investment Contracts
The Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, the Fund
makes cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Fund will only purchase GICs that
are issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Fund's 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
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Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, interest rate futures, certain asset-backed and mortgage-backed
securities and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine in connection
with its day-to-day management of the Fund, how they will be used in furtherance
of the Fund's investment objective. It is possible, however, that the Investment
Adviser's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Fund will, because of the risks
discussed above, incur loss as a result of its investments in derivative
securities. See " Investment Objectives and Policies -- Derivative Securities"
in the Statement of Additional Information relating to the fund for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate
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of portfolio turnover may result in the realization of substantial capital gains
and involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for Federal income tax purposes. See "Financial Highlights" and
"Taxes -- Federal."
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INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) the Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic banks
for temporary purposes and then in amounts not in excess of 10% of the
value of its total assets at the time of such borrowing (provided that
the Fund may borrow pursuant to reverse repurchase agreements in
accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets
at the time of such borrowing. The Fund will not purchase securities
while borrowing (including reverse repurchase agreements) in excess of
5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities
in excess of seven days, time deposits with maturities in excess of
seven days, restricted securities, non-negotiable time deposits and
other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in such issuer, except
that up to 25% of the value of its total assets may be invested without
regard to this limitation.
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In addition, the Fund may not purchase any securities which would cause
25% or more of the value of the Fund's total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Fund
intends to limit any borrowings (including reverse repurchase agreements) to
not more than 10% of the value of its total assets at the time of such
borrowing, and (b) mortgage dollar rolls entered into by the Fund that are not
accounted for as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. The Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered illiquid if
the Investment Adviser has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
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Thanksgiving Day, and Christmas Day. Net asset value per Share of the Fund for
purposes of pricing sales and redemptions is calculated separately for each
series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to the shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor, 440
Financial Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc.. The Distributor is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to
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the Distributor orders for purchases of Trust Shares and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Beneficial ownership of Trust Shares will be recorded by the
Institution and reflected in the account statements it provides to its
Customers. Confirmations of purchases and redemptions of Trust Shares will be
sent to the appropriate Institution. Purchases of Trust Shares will be effected
only on days on which the Distributor, Galaxy's custodian and the purchasing
Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that Galaxy's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part. The issuance of Trust Shares is recorded on the books of the Fund and
share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirement with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by its Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the
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Institutions to its Customers. Information pertaining to such plans is available
directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired the
following Business Day to the Institution. Payment for redemption orders which
are received on a non-Business Day will normally be wired to the Institution on
the next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and
paid monthly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect
to have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting
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and payment of dividends to Customers will be in accordance with the procedures
governing such Customers' accounts at their respective Institutions.
TAXES
FEDERAL
In General
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for Federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from Federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Its is anticipated that
no part of any distribution will qualify for the dividends received deduction
for corporations.
Distribution by the Fund of the excess of its respective net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if
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such dividends are actually paid during January of the following year.
If you are considering buying Shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange Shares of the Fund depending upon the tax basis
of such shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important Federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
Federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, Tax-Exempt, U.S. Treasury, Institutional Treasury Money
Market, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and Income,
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Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fee for the Fund is higher than fees paid by most other
mutual funds, although the Board of Trustees of Galaxy believes that it is not
higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Fund in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fees payable to it by the Fund so that it is entitled to receive an advisory fee
at the annual rate of .55% of the Fund's average daily net assets, but Fleet may
in its discretion revise or discontinue this waiver at any time. For the fiscal
year ended October 31, 1996, Fleet received advisory fees (after fee waivers) at
the effective annual rate of .__% of the Fund's average daily net assets.
The Fund's portfolio manager, Perry J. Vieth, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr. Vieth, a
Vice President, has over eleven years of experience as an investment manager and
previously managed the Shawmut Limited Term Income Fund for Shawmut Investment
Advisors and was a manager of Fuji Securities, Inc.'s derivative products group.
He also was responsible for fixed income risk management at NationsBank CRT. Mr.
Vieth has managed the Fund since March 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from
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sponsoring, organizing, controlling, or distributing the shares of a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Trust Shares of the Fund, but do not prohibit
such a bank holding company or its affiliates or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
customers. The Investment Adviser, custodian and Institutions which have agreed
to provide shareholder support services that are banks or bank affiliates are
subject to such banking laws and regulations. Should legislative, judicial, or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Fund, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Fund's method of operation would not affect the Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Fund, FDISG was entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Portfolios, .085% of the next $2.5 billion of
combined average daily net assets and .08% of combined average daily net assets
over $5 billion. In addition, FDISG also receives a separate annual fee from
each Portfolio for certain fund accounting services. From time to time, FDISG
may waive all or a portion of the administration fee payable to it by the Fund,
either voluntarily or pursuant to applicable statutory expense limitations. For
the fiscal year ended October 31, 1996, FDISG received administration fees at
the effective rate of .___% of the Fund's average daily net assets.
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DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class L - Series 1 shares (Trust Shares), Class L Series 2 shares (Retail A
Shares) and Class L - Series 3 shares (Retail B Shares), each series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interests in
the other portfolios of Galaxy. For information regarding the Fund's Retail
Shares and these other portfolios, which are offered through separate
prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A and Retail B Shares bear the fees that are paid to Institutions under
Galaxy's Shareholder Services Plan described below. Holders of the Fund's Retail
B Shares bear the fees described in the prospectus for such shares that are paid
under Galaxy's Distribution and Services Plan at an annual rate not to exceed
.80% of the average daily net asset value of the Fund's outstanding Retail B
shares. Currently, these payments are not made with respect to the Fund's Trust
Shares. In addition, shares of each series in the Fund bear differing transfer
agency expenses. Standardized yield and total return quotations are computed
separately for each series of shares. The differences in the expenses paid by
the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A and Retail B Shares
have certain exchange and other privileges which are not available with respect
to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related Fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional
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share held, and will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of Retail A Shares. Institutions may also receive up
to one-half of this fee for providing one or more of the following services to
such Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with the Distributor; processing
dividend payments from the Fund; providing periodic mailings to Customers.
Institutions may also receive up to one-half of this fee for providing one or
more of these additional services to such Customers; providing Customers with
information as to their positions in Retail A Shares; responding to Customers
inquiries; and providing a service to invest the assets of Customers in Retail A
Shares. These services are described more fully in Galaxy's Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these service agreements for the Fund to no more than
.15% (on an annualized basis) of the average daily net asset value of the Retail
A Shares of the Fund beneficially owned by Customers of Institutions. Galaxy
understands that Institutions may charge fees to their customers who are owners
of Retail A Shares in connection with their accounts with such Institutions. Any
such fees would be in addition to any amounts which may be received by an
Institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, Institutions are required to
provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
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<PAGE> 412
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemption of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation serves as the Funds' transfer and dividend disbursing
agent. Services performed by both entities for the Fund are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Fund. Galaxy bears the expenses
incurred in the Fund's operations. Such expenses include taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, Rule 12b-1
distribution, fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain
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insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholders' reports and shareholder meetings; and
any extraordinary expenses. The Fund also pays for brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indexes or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by the Fund during the period
are reinvested in Fund Shares.
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Performance and yields of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged directly by Institutions with
respect to accounts of Customers that have invested in Trust Shares of the Fund
will not be included in calculations of yield and performance. The portfolio
manager of the Fund and other investment professionals may from time to time
discuss in advertising, sales literature or other material, including periodic
publications, various topics of interest to shareholders and prospective
investors. The topics may include but are not limited to the advantages and
disadvantages of investing in tax-deferred and taxable investments; Fund
performance and how such performance may compare to various market indices;
shareholder profiles and hypothetical investor scenarios; the economy; the
financial and capital markets; investment strategies and techniques; investment
products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or such
Fund, or (b) 67% or more of the shares of Galaxy or such Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or such Fund are
represented at the meeting in person or by proxy.
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<PAGE> 415
RETAIL
THE GALAXY FUND
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Prospectus
February 28, 1997
<PAGE> 416
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS...........................................................
EXPENSE SUMMARY......................................................
FINANCIAL HIGHLIGHTS.................................................
INVESTMENT OBJECTIVES AND POLICIES...................................
Short-Term Bond Fund.........................................
Intermediate Government Income Fund..........................
High Quality Bond Fund.......................................
Special Risk Considerations..................................
Other Investment Policies and
Risk Considerations........................................
INVESTMENT LIMITATIONS...............................................
PRICING OF SHARES....................................................
HOW TO PURCHASE SHARES...............................................
Distributor..................................................
General......................................................
Purchase Procedures -- Customers of
Institutions...............................................
Purchase Procedures -- Direct Investors......................
Other Purchase Information...................................
Applicable Sales Charges - Retail A Shares...................
Quantity Discounts...........................................
Applicable Sales Charges - Retail B Shares...................
Characteristics of Retail A Shares and
Retail B Shares............................................
Factors to Consider When Selecting Retail A
Shares or Retail B Shares..................................
HOW TO REDEEM SHARES.................................................
General......................................................
Redemption Procedures -- Customers of
Institutions...............................................
Redemption Procedures -- Direct Investors....................
Other Redemption Information.................................
INVESTOR PROGRAMS....................................................
Exchange Privilege...........................................
Retirement Plans.............................................
Automatic Investment Program and
Systematic Withdrawal Plan.................................
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<PAGE> 417
PAGE
----
Payroll Deduction Program....................................
College Investment Program...................................
Direct Deposit Program.......................................
INFORMATION SERVICES.................................................
Galaxy Information Center....................................
Voice Response System........................................
Galaxy Shareholder Services..................................
DIVIDENDS AND DISTRIBUTIONS..........................................
TAXES................................................................
Federal......................................................
State and Local..............................................
MANAGEMENT OF THE FUNDS..............................................
Investment Adviser...........................................
Authority to Act as Investment Adviser.......................
Administrator................................................
DESCRIPTION OF GALAXY AND ITS SHARES.................................
Shareholder Services Plan....................................
Distribution and Services Plan...............................
Affiliate Agreement for Sub-Account Services.................
CUSTODIAN AND TRANSFER AGENT.........................................
EXPENSES ............................................................
PERFORMANCE AND YIELD INFORMATION....................................
MISCELLANEOUS........................................................
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THE GALAXY FUND
4400 Computer Drive For applications and
Westboro, Massachusetts information regarding
01581-5108 initial purchases and current
performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to three separate investment portfolios (individually, a
"Fund," collectively, the "Funds") offered to investors by Galaxy. Each Fund has
its own investment objective and policies:
The SHORT-TERM BOND FUND'S investment objective is to seek a high level
of current income consistent with preservation of capital. Under normal market
and economic conditions, the Fund will invest substantially all of its assets
in debt obligations of domestic and foreign issuers rated at the time of
purchase within the four highest rating categories of Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
The INTERMEDIATE GOVERNMENT INCOME FUND'S investment objective is to
seek the highest level of current income consistent with prudent risk of
capital. Subject to this objective, the Fund's investment adviser will consider
the total rate of return on portfolio securities in managing the Fund. Under
normal market and economic conditions, the Fund will invest substantially all
of its assets in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, in debt obligations rated at the time of
purchase within the three highest rating categories of S&P or Moody's (or
which, if unrated, are of comparable quality) and in "money market"
instruments. The Intermediate Government Income Fund was previously known as
the Intermediate Bond Fund.
The HIGH QUALITY BOND FUND'S investment objective is to seek a high
level of current income consistent with prudent risk of capital. Under normal
market and economic conditions, the Fund will invest substantially all of its
assets in high quality debt obligations that are rated at the time of purchase
within the three highest rating categories of S&P or Moody's (or which, if
unrated, are of comparable quality) and in
<PAGE> 419
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and "money market" instruments.
This Prospectus describes the Retail A Shares representing interests in
each Fund and the Retail B Shares representing interests in the Short-Term Bond
and High Quality Bond Funds (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail A Shares are sold with a
front-end sales charge. Retail B Shares are sold with a contingent deferred
sales charge. Retail Shares are offered to customers ("Customers") of FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks, and other qualified banks, savings and loan associations
and broker/dealers ("Institutions"). Retail Shares may also be purchased
directly by individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own account or for the
accounts of others ("Direct Investors"). Galaxy is also authorized to issue
another series of shares in each Fund ("Trust Shares"), which are offered under
a separate prospectus primarily to investors maintaining qualified accounts at
bank and trust institutions, including institutions affiliated with Fleet
Financial Group, Inc., and to participants in employer-sponsored defined
contribution plans. Retail A Shares, Retail B Shares and Trust Shares in a Fund
represent equal pro rata interests in the Fund, except they bear different
expenses which reflect the difference in the range of services provided to them.
See "Financial Highlights," "Management of the Funds" and "Description of Galaxy
and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference.
-2-
<PAGE> 420
Additional information about the Funds, contained in the Statement of Additional
Information relating to the Funds and bearing the same date, has been filed with
the Securities and Exchange Commission. The current Statement of Additional
Information is available upon request without charge by contacting Galaxy at its
telephone numbers or address shown above. The Statement of Additional
Information, as it may be amended from time to time, is incorporated by
reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-3-
<PAGE> 421
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's SHORT-TERM BOND, INTERMEDIATE GOVERNMENT
INCOME and HIGH QUALITY BOND FUNDS. Prospectuses for Galaxy's MONEY MARKET,
GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET,
MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL TREASURY MONEY MARKET,
EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY
EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, CORPORATE BOND,
TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND,
MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS may be
obtained by calling 1- 800-628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet" or
the "Investment Adviser"), an indirect wholly-owned subsidiary of Fleet
Financial Group, Inc. Fleet Financial Group, Inc. is a financial services
company with total assets as of December 31, 1996 of approximately $_____
billion. See "Management of the Funds -- Investment Adviser."
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors, Inc. Retail
Shares of the Funds are sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Shares may also be
purchased on behalf of Customers of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
-4-
<PAGE> 422
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Funds may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .15% of the average
daily net asset value of such Shares. Retail B Shares of the Short-Term Bond and
High Quality Bond Funds may be purchased at their net asset value subject to a
contingent deferred sales charge ("CDSC"). The CDSC is paid on certain Share
redemptions made within six years of the purchase date at the maximum rate of
5.00% of the lower of (i) the net asset value of the redeemed Shares or (ii) the
original purchase price of the redeemed Shares. Retail B Shares are currently
subject to shareholder servicing and distribution fees of up to .80% of the
average daily net asset value of such Shares. Share purchase and redemption
information for both Direct Investors and Customers of Institutions is provided
below under "How to Purchase Shares" and "How to Redeem Shares." Except as
provided below under "Investor Programs," the minimum initial investment for
Direct Investors and the minimum initial aggregate investment for Institutions
purchasing on behalf of their Customers is $2,500. The minimum investment for
subsequent purchases is $100. There are no minimum investment requirements for
investors participating in the Automatic Investment Program described below.
Institutions may require Customers to maintain certain minimum investments in
Retail Shares. See "How to Purchase Shares" below.
Q: When are dividends paid?
A: Dividends from net investment income of the Funds are declared daily
and paid monthly. Net realized capital gains of the Funds are distributed at
least annually. Dividends and distributions are paid in cash, although
shareholders may choose to have dividends and distributions automatically
reinvested in additional Shares of the same series of Shares with respect to
which the dividend or distribution was declared without sales or CDSC charges.
See "Dividends and Distributions."
Q: What potential risks are presented by the Funds' investment
practices?
A: The Short-Term Bond Fund invests primarily in corporate debt
obligations rated within the four highest rating categories of S&P or Moody's.
Corporate debt obligations rated in the lowest of the four highest rating
categories of Moody's or S&P are considered to have speculative
characteristics, even though they are of investment grade quality. The
Intermediate Government Income and High Quality Bond Funds invest in such
obligations rated within the three highest rating categories of S&P or Moody's.
The Short-Term Bond Fund may invest in the debt obligations of foreign
corporations and banks and in obligations issued or guaranteed by
-5-
<PAGE> 423
foreign governments or any of their political subdivisions or instrumentalities.
Each Fund may invest in dollar-denominated debt obligations of
U.S. corporations issued outside the United States. The Funds may lend their
securities and enter into repurchase agreements and reverse repurchase
agreements with qualifying banks and broker/dealers. In addition, each Fund may
enter into interest rate futures contracts. The Funds may purchase eligible
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" or "delayed settlement" basis. In addition, the Funds may
acquire "stand-by commitments" with respect to obligations issued by state or
local governmental issuers ("municipal securities") held in their respective
portfolios. The value of the Funds' portfolio securities will generally vary
inversely with changes in prevailing interest rates. See "Investment Objectives
and Policies."
Q: What shareholder privileges are offered by the Funds?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Short-Term Bond and High Quality Bond Funds may be exchanged for
Retail B Shares of any other Galaxy portfolio which offers Retail B Shares. In
either case, exchanges are not subject to sales or additional CDSC charges.
Galaxy offers Individual Retirement Accounts ("IRAs"), Simplified Employee
Pension Plans ("SEP") and Keogh Plan accounts, which can be established by
contacting Galaxy's distributor. Retail Shares are also available for purchase
through Multi-Employee Retirement Plans ("MERP") accounts which can be
established by Customers directly with Fleet Brokerage Securities, Inc. or its
affiliates. Galaxy also offers an Automatic Investment Program which allows
investors to automatically invest in Retail Shares on a monthly or quarterly
basis, as well as certain other shareholder privileges. See "Investor Programs."
-6-
<PAGE> 424
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and/or Retail B Shares,
and (ii) the operating expenses for Retail A Shares and/or Retail B Shares of
each Fund. Shareholder Transaction Expenses are charges you pay when buying or
selling shares of the Funds. Annual Fund Operating Expenses are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the table are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE
SHORT-TERM GOVERNMENT HIGH QUALITY
BOND FUND INCOME FUND BOND FUND
------------------------------------ ----------------- -----------------------------------
SHAREHOLDER TRANSACTION EXPENSES (RETAIL A SHARES) (RETAIL B SHARES) (RETAIL A SHARES) (RETAIL A SHARES) (RETAIL B SHARES)
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Maximum Front End Sales Charge
Imposed on Purchases (as a
percentage of offering price) ....... 3.75%(1) None 3.75%(1) 3.75% None
Maximum Deferred Sales Charge (as a
percentage of offering price) ....... None 5.00%(2) None None None
Sales Charge Imposed on
Reinvested Dividends ................ None None None None None
Redemption Fees(3) .................... None None None None None
Exchange Fees ......................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fees
(After Fee Waivers) ................. . % . % . % . % . %
---- ---- ---- ---- ----
12b-1 Fees(4) ......................... None None None None None
Other Expenses (After
Fee Waivers and
Expenses Reimbursements) ............ % % % % %
---- ---- ---- ---- ====
Total Fund Operating
Expenses (After Fee Waivers
and Expense Reimbursements) ......... % % % % %
==== ==== ==== ==== ====
</TABLE>
- -----------------------
(1) Reduced front-end sales charge may be available. See "How to Purchase and
Redeem Shares -- Applicable Sales Charges - Retail A Shares."
(2) This amount applies to redemptions during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase and Redeem Shares -- Applicable Sales Charge - Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid
by wire.
(4) Retail A Shares do not currently charge 12b-1 fees. Long-term investors in
Retail B Shares (as well as investors in Retail A Shares if 12b-1 fees are
charged in the future) may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
-7-
<PAGE> 425
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund (Retail A Shares)(1)................. $ $ $ $
----- ----- ----- -----
Short-Term Bond Fund (Retail B Shares)
Assuming complete redemption at
end of period (2)....................................... $ $ $ $ (3)
----- ----- ----- -----
Assuming no redemption.................................. $ $ $ $ (3)
----- ----- ----- -----
Intermediate Bond Fund (Retail A Shares)(1)............... $ $ $ $
----- ----- ----- -----
High Quality Bond Fund (Retail A Shares)(1)............... $ $ $ $
----- ----- ----- -----
High Quality Bond Fund (Retail B Shares)
Assuming complete redemption at
end of period(2)........................................ $ $ $ $ (3)
----- ----- ----- -----
Assuming no redemption.................................. $ $ $ $ (3)
----- ----- ----- -----
</TABLE>
(1) Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
(2) Assumes deduction of maximum applicable contingent deferred sales
charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six
years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A and/or Retail
B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example is based on expenses incurred by
each Fund during the last fiscal year, restated to reflect the expenses that
each Fund expects to incur during the current fiscal year on its Retail A and/or
Retail B Shares. Without voluntary fee waivers and/or expense reimbursements by
the Investment Adviser, "Advisory Fees" would be .75% and .75% for Retail A
Shares and Retail B Shares, respectively, of the Short-Term Bond Fund, .75% for
Retail A Shares of the Intermediate Government Income Fund and .75% and .75% for
Retail A Shares and Retail B Shares, respectively, of the High Quality Bond
Fund, Other Expenses would be ____% and ____% for Retail A Shares and Retail B
Shares, respectively, of the Short-Term Bond Fund, ___% for Retail A Shares of
the Intermediate Government Income Fund, and ___% and ___% for Retail A Shares
and Retail B Shares, respectively, of the High Quality Bond Fund and Total Fund
Operating Expenses would be ____% and ____% for Retail A Shares and Retail B
Shares, respectively, of the Short-Term Bond Fund, ___% for Retail A Shares of
the Intermediate Government Income Fund and ___% and ___% for Retail A Shares
and Retail B Shares, respectively, of the High Quality Bond Fund. For more
complete descriptions of these costs and expenses, see "How to Purchase Shares,"
"How to Redeem Shares," "Management of the Funds" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the
-8-
<PAGE> 426
Statement of Additional Information. Any fees charged by affiliates of Fleet or
other Institutions directly to their Customer Accounts for services related to
an investment in Retail Shares of the Funds are in addition to and not reflected
in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN.
-9-
<PAGE> 427
FINANCIAL HIGHLIGHTS
This Prospectus describes Retail A Shares in each Fund and Retail B
Shares in the Short-Term Bond and High Quality Bond Funds. Galaxy is also
authorized to issue an additional series of shares in each Fund ("Trust
Shares"), which are offered under a separate prospectus. Retail A Shares, Retail
B Shares and Trust Shares represent equal pro rata interests in each Fund,
except that effective October 1, 1994 (i) Retail A Shares of the Funds bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .15% of the average daily net asset value of each Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Short-Term Bond and High Quality
Bond Funds bear the expenses incurred under Galaxy's Distribution and Services
Plan at an annual rate of up to .80% of the average daily net asset value of
each such Fund's outstanding Retail B Shares, and (iii) Retail A Shares, Retail
B Shares and Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
[_________________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in Galaxy's Annual Report
and (_______________________) into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflect the investment results of both Retail A Shares
and Trust Shares of the Funds (Retail A Shares of the Intermediate Government
Income Fund were first offered during the fiscal year ended October 31, 1992).
More information about the performance of each Fund is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-10-
<PAGE> 428
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
OCTOBER 31, 1996 1995 1994
---------------- ------------------------------
RETAIL A SHARES RETAIL B SHARES(3) RETAIL SHARES
---------------------------------- ------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ..... $ 9.73 $ 10.30
------- -------
Income from Investment Operations:
Net Investment Income(4,5) ............. 0.55 0.44
Net realized and unrealized gain (loss)
on investments ..................... 0.33 (0.51)
------- -------
Total from Investment
Operations: ................. 0.88 (0.07)
------- -------
Less Dividends:
Dividends from net investment income ... (0.55) (0.44)
Dividends from net realized capital
gains ................................ -- --
Dividends in excess of net realized
capital gains ........................ -- (0.06)
------- -------
Total Dividends .................. (0.55) (0.50)
------- -------
Net increase(decrease) in
net asset value ...................... 0.33 (0.57)
------- -------
Net Asset Value, End of Period ........... $10.06 $ 9.73
======= =======
Total Return(6) .......................... 9.28% (0.68)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $31,542 $34,061
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 5.54% 4.43%
Operating expenses including
reimbursement/waiver ................. 0.99% 0.93%
Operating expenses excluding
reimbursement/waiver ................. 1.32% 1.14%
Portfolio Turnover Rate .................. 289% 233%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1993(2) 1992(1,2)
---------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period ..... $ 10.09 $ 10.00
------- -------
from Investment Operations:
Net Investment Income(4,5) .......... 0.47 0.42
Net realized and unrealized gain (loss)
on investments ..................... 0.22 0.09
------- -------
Total from Investment
Operations: .......................... 0.69 0.51
------- -------
Less Dividends:
Dividends from net investment income ... (0.47) (0.42)
Dividends from net realized capital
gains ................................ (0.01) --
Dividends in excess of net realized
capital gains ........................ -- --
------- -------
Total Dividends .................. (0.48) (0.42)
------- -------
Net increase(decrease) in net asset value 0.21 0.09
------- -------
Net Asset Value, End of Period ........... $ 10.30 $ 10.09
======= =======
Total Return(6) .......................... 6.98% 5.21%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 4.51% 5.77%(8)
Operating expenses including
reimbursement/waiver ................. 0.86% 0.90%(8)
Operating expenses excluding
reimbursement/waiver ................. 1.06% 1.20%(8)
Portfolio Turnover Rate .................. 100% 114%(7)
</TABLE>
- -----------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail Shares before reimbursement and
waiver of fees by the Investment Adviser for the years ended October 31,
1996, 1995 and 1994 were $______, $0.52 and $0.42, respectively.
(5) Net investment income per share before fee waivers and/or reimbursements by
the Investment Adviser and/or Administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 were $0.45 and $0.40,
respectively.
(6) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(7) Not Annualized.
(8) Annualized.
-11-
<PAGE> 429
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,(2)
------------------------------------- --------------------------
1996 1995 1994 1993 1992
------------------------------------- --------------------------
RETAIL A
SHARES RETAIL SHARES
-------- --------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 9.68 $ 10.72 $ 10.83 $ 10.46
------- ------- -------- --------
Income from Investment Operations
Net Investment Income(3,4) .... 0.61 0.57 0.65 0.71
Net realized and unrealized gain
(loss) on investments ....... 0.60 (1.03) 0.10 0.40
------- ------- -------- --------
Total from Investment
Operations: .............. 1.21 (0.46) 0.75 1.11
------- ------- -------- --------
Less Dividends:
Dividends from net
investment income ............ (0.61) (0.56) (0.64) (0.74)
Dividends in excess of
net investment income ........ -- (0.01) (0.03) --
Dividends from net realized
capital gains ................ -- -- (0.19) --
Dividends in excess of net
realized capital gains ....... -- (0.01) -- --
------- ------- -------- --------
Total Dividends ........... (0.61) (0.58) (0.86) (0.74)
------- ------- -------- --------
Net increase (decrease) in
net asset value ............... 0.60 (1.04) (0.11) 0.37
------- ------- -------- --------
Net Asset Value, End of Period .. $ 10.28 $ 9.68 $ 10.72 $ 10.83
======= ======= ======= =======
Total Return(5) ................. 12.85% (4.42%) 7.06% 10.95%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).. $79,558 $94,669 $447,359 $199,135
Ratios to average net assets:
Net investment income including
reimbursement/waiver ........ 6.10% 5.58% 6.03% 6.52%
Operating expenses including
reimbursement/waiver ........ 1.02% 0.78% 0.80% 0.80%
Operating expenses excluding
reimbursement/waiver ........ 1.26% 0.99% 1.00% 0.94%
Portfolio Turnover Rate ......... 145% 124% 153% 103%
</TABLE>
<TABLE>
<CAPTION>
Period
Ended
YEAR ENDED OCTOBER 31,(2) October 31,
1991 1990 1989 1988(1,2)
----------------------------------------- -----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 9.73 $ 10.27 $ 10.40 $ 10.00
------- ------- ------- -------
Income from Investment Operations
Net Investment Income(3,4) .... 0.73 0.76 0.82 0.11
Net realized and unrealized gain
(loss) on investments ....... 0.71 (0.56) 0.16 0.29
------- ------- ------- -------
Total from Investment
Operations .............. 1.44 0.20 0.98 0.40
------- ------- ------- -------
Less Dividends:
Dividends from net
investment income ............ (0.71) (0.74) (0.96) --
Dividends in excess of
net investment income ........ -- -- -- --
Dividends from net realized
capital gains ................ -- -- (0.15) --
Dividends in excess of net
realized capital gains ....... -- -- -- --
------- ------- ------- -------
Total Dividends ........... (0.71) (0.74) (1.11) --
------- ------- ------- -------
Net increase (decrease) in
net asset value ............... 0.73 (0.54) (0.13) 0.40
------- ------- ------- -------
Net Asset Value, End of Period .. $ 10.46 $ 9.73 $ 10.27 $ 10.40
======= ======= ======= =======
Total Return(5) ................. 15.35% 2.06% 10.22% 3.90%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $99,942 $80,645 $71,400 $58,318
Ratios to average net assets:
Net investment income including
reimbursement/waiver ........ 7.25% 7.69% 8.19% 6.41%(7)
Operating expenses including
reimbursement/waiver ........ 0.96% 0.98% 0.99% 0.98%(7)
Operating expenses excluding
reimbursement/waiver ........ 0.96% 0.99% 1.00% 0.98%(7)
Portfolio Turnover Rate ......... 150% 162% 112% 41%(6)
</TABLE>
- ------------------------
(1) The Fund (formerly called the Intermediate Bond Fund) commenced operations
on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail Shares before waiver of fees by
the Investment Adviser for the years ended October 31, 1996, 1995 and 1994
were $______, $0.58 and $0.54, respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the years ended October 31, 1993, 1992,
1990 and 1989 were $0.63, $0.70, $0.73, and $0.82, respectively.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-12-
<PAGE> 430
HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 1995 1994
------------------------ ---------------------------
RETAIL A RETAIL B
SHARES SHARES(3) RETAIL SHARES
-------- -------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period .... $ 9.54 $ 11.37
------- -------
Income from Investment Operations:
Net Investment Income(4,5) ............ 0.62 0.64
Net realized and unrealized gain
(loss) on investments ................ 1.09 (1.56)
------- -------
Total from Investment
Operations: .................. 1.71 (0.92)
------- -------
Less Dividends:
Dividends from net investment income .. (0.62) (0.64)
Dividends from net realized capital
gains ............................... -- --
Dividends in excess of net realized
capital gains ....................... -- (0.27)
------- -------
Total Dividends ................. (0.62) (0.91)
------- -------
Net increase (decrease) in net asset
value ................................. 1.09 (1.83)
------- -------
Net Asset Value, End of Period .......... $ 10.63 $ 9.54
======= =======
Total Return6 ........................... 18.46% (8.41%)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $30,093 $26,654
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................ 6.16% 6.25%
Operating expenses including
reimbursement/waiver ................ 1.02% 0.81%
Operating expenses excluding
reimbursement/waiver ................ 1.26% 1.02%
Portfolio Turnover Rate ................. 110% 108%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31,(2) OCTOBER 31,
1993 1992 1991(1,2)
--------------------------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 10.60 $ 10.35 $ 10.00
-------- -------- -------
Income from Investment Operations:
Net Investment Income(4,5) ...................... 0.66 0.68 0.64
Net realized and unrealized gain
(loss) on investments .......................... 0.93 0.36 0.33
-------- -------- -------
Total from Investment
Operations: ............................ 1.59 1.04 0.97
-------- -------- -------
Less Dividends:
Dividends from net investment income ............ (0.66) (0.71) (0.62)
Dividends from net realized capital
gains ......................................... (0.16) (0.08) --
Dividends in excess of net realized
capital gains ................................. -- -- --
-------- -------- -------
Total Dividends ........................... (0.82) (0.79) (0.62)
-------- -------- -------
Net increase (decrease) in net asset
value ........................................... 0.77 0.25 0.35
-------- -------- -------
Net Asset Value, End of Period .................... $ 11.37 $ 10.60 $ 10.35
======== ======== =======
Total Return(6) ................................... 15.63% 10.32% 10.04%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................. $162,594 $108,774 $57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver .......................... 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/waiver .......................... 0.76% 0.87% 0.95%(8)
Operating expenses excluding
reimbursement/waiver .......................... 0.96% 0.94% 0.95%(8)
Portfolio Turnover Rate ........................... 128% 121% 145%(7)
</TABLE>
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(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Retail
and Trust Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
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(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail Shares before waiver of fees
by the Investment Adviser for the years ended October 31, 1996, 1995 and
1994 were $______, $0.59 and $0.62, respectively.
(5) Net investment income per share before waiver of fees by the Investment
Adviser for the years ended October 31, 1993 and 1992 and for the period
ended October 31, 1991 were $0.63, $0.67 and $0.64, respectively.
(6) Calculation does not include sales charge for Retail B Shares.
(7) Not Annualized.
(8) Annualized.
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INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve each Fund's
investment objective, although such achievement cannot be assured. The
investment objective of a Fund may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's investment objective is to seek a high level
of current income consistent with preservation of capital. The Fund will invest
substantially all of its assets in debt obligations of domestic and foreign
corporations such as bonds and debentures, obligations convertible into common
stock, "money market" instruments such as bank obligations and commercial paper,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and asset-backed and mortgage-backed securities. The Fund may
also invest, from time to time, in municipal securities. The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such securities,
on a pre-tax basis, is comparable to that of corporate or U.S. debt obligations.
The Short-Term Bond Fund may also enter into interest rate futures contracts to
hedge against changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to the
quality standards described below. The Fund will not invest in common stock, and
any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories of S&P (AAA, AA, A and BBB)
or Moody's (Aaa, Aa, A and Baa) (or which, if unrated, are determined by the
Investment Adviser to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment
Policies." Debt obligations rated within the four highest rating categories
assigned by S&P or Moody's are considered to be investment grade. Debt
obligations rated in the lowest of the four highest rating categories assigned
by S&P or Moody's are considered to have speculative characteristics, even
though they are of investment grade quality, and changes in economic conditions
or other
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circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Under normal market and economic conditions, at least 65% of the Fund's total
assets will be invested in debt obligations rated in the three highest rating
categories assigned by S&P or Moody's. Unrated securities will be determined to
be of comparable quality to rated debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated
BBB/Baa or better. When, in the opinion of the Investment Adviser, a defensive
investment posture is warranted, the Fund may invest temporarily and without
limitation in high-quality, short-term money market instruments. See Appendix A
to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
In addition, the Fund may invest in obligations of foreign banks and
its obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to
U.S. Municipal Securities except that the income derived therefrom is fully
subject to U.S. Federal taxation. These instruments are denominated in either
Canadian or U.S. dollars and have an established over-the-counter market in the
United States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the
InterAmerican Development Bank. Obligations of supranational entities may be
supported by appropriated but unpaid commitments of their member countries, and
there is no assurance that these commitments will be undertaken or met in the
future. The Fund may not invest more than 35% of its total assets in the
securities of foreign issuers. The Fund may also invest in dollar-denominated
debt obligations of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will have an
average weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Short-Term Bond Fund.
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INTERMEDIATE GOVERNMENT INCOME FUND
The Intermediate Government Income Fund's investment objective is to
seek the highest level of current income consistent with prudent risk of
capital. Subject to this objective, the Investment Adviser will consider the
total rate of return on securities in managing the Fund. The Fund will invest
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in corporate debt obligations such as bonds and debentures,
obligations convertible into common stock and "money market" instruments such
as bank obligations and commercial paper, and asset-backed and mortgage-backed
securities. The Fund may also invest, from time to time, in municipal
securities. See "Investment Objectives and Policies--Short-Term Bond Fund." The
Fund may also enter into interest rate futures contracts to hedge against
changes in market values. See "Other Investment Policies and Risk
Considerations." The Fund will not invest in common stock, and any common stock
received through the conversion of convertible debt obligations will be sold in
an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, in debt obligations rated, at
the time of purchase, within the three highest rating categories of S&P (AAA,
AA and A) or Moody's (Aaa, Aa and A) (or which, if unrated, are determined by
the Investment Adviser to be of comparable quality) and "money market"
instruments such as those listed below under "Other Investment Policies and
Risk Considerations." Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated A or better.
Notwithstanding the foregoing, under normal market and economic conditions, at
least 65% of the Fund's assets will be invested in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. When, in
the opinion of the Investment Adviser, a defensive investment posture is
warranted, the Fund may invest temporarily and without limitation in high
quality, short-term "money market" instruments. See Appendix A to the Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies -- Short-Term Bond Fund."
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<PAGE> 435
The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States.
The Investment Adviser expects that under normal market conditions the
Fund's portfolio securities will have an average weighted maturity of three to
ten years.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the
Intermediate Government Income Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund's investment objective is to seek a high
level of current income consistent with prudent risk of capital. The Fund will
invest substantially all of its assets in debt obligations such as bonds and
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
asset-backed and mortgage-backed securities. See "Investment Objectives and
Policies -- Short-Term Bond Fund." The Fund may also invest, from time to time,
in municipal securities. See "Investment Objectives and Policies--Short-Term
Bond Fund." The High Quality Bond Fund may also enter into interest rate
futures contracts to hedge against changes in the market values of fixed-income
instruments that the Fund holds or intends to purchase. See "Other Investment
Policies and Risk Considerations." At least 65% of the Fund's total assets will
be invested in non-convertible bonds. Any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are
rated, at the time of purchase, within the three highest rating categories of
S&P (AAA, AA and A) or Moody's (Aaa, Aa and A) (or which, if unrated, are
determined by the Investment Adviser to be of comparable quality) and in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and "money market" instruments such as those listed below
under "Other Investment Policies." Unrated securities will be determined to be
of comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated A or
better. When, in the opinion of the Investment Adviser, a defensive investment
posture is warranted, the Fund may invest temporarily and without
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<PAGE> 436
limitation in high quality, short-term "money market" instruments. See Appendix
A to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The High
Quality Bond Fund's average weighted maturity will vary from time to time
depending on, among other things, current market and economic conditions and the
comparative yields on instruments with different maturities. The Fund adjusts
its average weighted maturity and its holdings of corporate and U.S. Government
debt securities in a manner consistent with the Investment Adviser's assessment
of prospective changes in interest rates. The success of this strategy depends
upon the Investment Adviser's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. The high quality credit
criteria applied to the selection of portfolio securities are intended to reduce
adverse price changes due to credit considerations. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the High Quality Bond Fund.
SPECIAL RISK CONSIDERATIONS
Investments by the Short-Term Bond Fund in foreign securities may
involve higher costs than investments in U.S. securities, including higher
transaction costs, as well as the imposition of additional taxes by foreign
governments. In addition, foreign investments may include additional risks
associated with currency exchange rates, less complete financial information
about the issuers, less market liquidity, and political instability. Future
political and economic developments, the possible imposition of withholding
taxes on interest income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the adoption of
other governmental
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<PAGE> 437
restrictions, might adversely affect the payment of principal and interest on
foreign obligations.
Although the Short-Term Bond Fund may invest in securities denominated
in foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
foreign securities in the various local markets and currencies. Thus, an
increase in the value of the U.S. dollar compared to the currencies in which
the Fund makes its foreign investments could reduce the effect of increases and
magnify the effect of decreases in the price of the Fund's foreign securities
in their local markets. Conversely, a decrease in the value of the U.S. dollar
will have the opposite effect of magnifying the effect of increases and
reducing the effect of decreases in the prices of the Fund's foreign securities
in their local markets. In addition to favorable and unfavorable currency
exchange-rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which
one or more of the Funds have the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal Home Loan Banks, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
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<PAGE> 438
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when the Investment Adviser
believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a
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<PAGE> 439
Fund might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. The Funds may also purchase Rule 144A securities. See
"Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities which may be
held by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Each Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of municipal securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal securities purchased by the Funds may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
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Repurchase and Reverse Repurchase Agreements
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Funds
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currently intend to limit the lending of their portfolio securities so that, at
any given time, securities loaned by a Fund represent not more than one-third of
the value of its total assets.
Investment Company Securities
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by a Fund within the limits prescribed by
the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Funds, other investment portfolios of Galaxy, or any other investment companies
advised by the Investment Adviser.
Interest Rate Futures Contracts
The Funds may enter into contracts (both purchases and sales) which
provide for the future delivery of fixed-income securities (commonly known as
interest rate futures contracts). The Funds will not engage in futures
transactions for speculation, but only to hedge against changes in the market
values of securities which the Funds hold or intend to purchase. The Funds will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the Securities and Exchange Commission
("SEC"). The purchase of futures instruments in connection with securities which
a Fund intends to purchase will require an amount of cash and/or U.S. Government
obligations, equal to the market value of the outstanding futures contracts, to
be deposited in a segregated account to collateralize the position and thereby
insure that the use of such futures is unleveraged. Each Fund will limit its
hedging transactions in futures contracts so that, immediately
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after any such transaction, the aggregate initial margin that is required to be
posted by the Fund under the rules of the exchange on which the futures contract
is traded does not exceed 5% of the Fund's total assets after taking into
account any unrealized profits and unrealized losses on the Fund's open
contracts. In addition, no more than one-third of each Fund's total assets may
be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by a Fund is subject to the ability
of the Investment Adviser to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, a Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which it holds or
intends to purchase or a Fund may be unable to close a futures position in the
event of adverse price movements. Additional information concerning futures
transactions is contained in Appendix B to the Statement of Additional
Information.
When-Issued, Forward Commitment and Delayed Settlement Transactions
Each Fund may purchase eligible securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. Each Fund may
also purchase or sell securities on a "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
security delivery takes place. It is expected that forward commitments, when
issued purchases and delayed settlements will not exceed 25% of the value of a
Fund's total assets absent unusual market conditions. In the event a Fund's
forward commitment, when-issued purchases and delayed settlements ever exceeded
25% of the value of its total assets, the Fund's liquidity and the ability of
the Investment Adviser to manage the Fund might be adversely affected. The Funds
do not intend to engage in when-issued purchases, forward commitments and
delayed
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settlements for speculative purposes, but only in furtherance of their
respective investment objectives.
Stand-by Commitments
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
Asset-Backed Securities
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of
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unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-backed securities may tend to
increase due to refinancing of mortgages as interest rates decline. To the
extent that the Fund purchases mortgage-backed securities at a premium, mortgage
foreclosures and prepayments of principal by mortgagors (which may be made at
any time without penalty) may result in some loss of the Fund's principal
investment to the extent of the premium paid. The yield of a Fund that invests
in mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purpose entities. These private mortgage-backed securities may be supported by
U.S. Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
To the extent that collateralized mortgage obligations are considered to
be investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Mortgage Dollar Rolls
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital
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appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of a Fund compared with
what such performance would have been without the use of mortgage dollar rolls.
All cash proceeds will be invested in instruments that are permissible
investments for each Fund. The Funds will hold and maintain in a segregated
account until the settlement date cash, U.S. Government securities or other
liquid, high grade debt securities in an amount equal to the forward purchase
price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom a Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, each Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than
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anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is extremely volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped. SMBS which are not issued by the U.S.
Government (or a U.S. Government agency or instrumentality) are considered
illiquid by the Funds. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by Galaxy's Board of Trustees if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of net asset value per share.
Guaranteed Investment Contracts
Each Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, a Fund
makes cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Funds will only purchase GICs that
are issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
Bank Investment Contracts
Each Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Funds' 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
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Derivative Securities
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, interest rate futures, certain asset-backed
and mortgage-backed securities, and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Funds will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others,
and for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with its day-to-day management of the Funds, how they will be used in
furtherance of each Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies --
Derivative Securities" in the Statement of Additional Information relating to
the Funds for additional information.
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not
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be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to any Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) each Fund may lend portfolio securities
against collateral consisting of cash or securities which are consistent
with the Fund's permitted investments, where the value of the collateral
is equal at all times to at least 100% of the value of the securities
loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10% of
the value of its total assets at the time of such borrowing (provided
that each Fund may borrow pursuant to reverse repurchase agreements in
accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of a Fund's total assets at
the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
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4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in such issuer, except
that up to 25% of the value of its total assets may be invested without
regard to this limitation.
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends
to limit any borrowings (including reverse repurchase agreements) to not more
than 10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by a Fund that are not accounted for as
financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. A Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if the Investment Adviser has determined, in accordance with guidelines
established by the Board of Trustees, that an adequate trading market exists for
such securities.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of a
Fund's portfolio securities will not constitute a violation of the limitation.
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PRICING OF SHARES
Net asset value per Share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share of a Fund for purposes of pricing
sales and redemptions is calculated separately for each series of Shares by
dividing the value of all securities and other assets attributable to a
particular series of Shares of the Fund, less the liabilities attributable to
Shares of that series of the Fund, by the number of outstanding Shares of that
series of the Fund.
The Funds' assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
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GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Short-Term Bond and High
Quality Bond Funds are subject to a back-end sales charge. This back-end sales
charge declines over time and is known as a "contingent deferred sales charge."
Investors shall read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" before deciding between the two.
The Distributor has established several procedures to enable different
types of investors to purchase Retail Shares of the Funds. The Retail Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the Distributor, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by the
Distributor on a Business Day in accordance with the Distributor's procedures.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of
Institutions through their Institutions. The Institution is responsible for
transmitting Customer purchase orders to the Distributor and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Retail Shares purchased by Institutions on behalf of their Customers
will normally be held of record by the Institution and beneficial ownership of
Retail Shares will be recorded by the Institution and reflected in the account
statements provided to their Customers. Galaxy's transfer agent may establish an
account of record for each Customer of an Institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular Institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a Customer with a copy to the
Institution, or will be furnished
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directly to the Customer by the Institution. Other procedures for the purchase
of Retail Shares established by Institutions in connection with the requirements
of their Customer accounts may apply. Customers wishing to purchase Retail
Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to each Fund
in which a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01518-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at
any time by sending a check for a minimum of $100 payable to the Fund in which
the additional investment is being made to Galaxy at the address above along
with either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from the
Distributor, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
Purchases by Wire. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("FDISG"), Galaxy's
transfer agent. Prior to making any purchase by wire, an investor must telephone
1-800-628-0413 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA # 0110-0013-8
DDA # 79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
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Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to The Galaxy Fund, P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108. Applications may
be obtained by calling the Distributor at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been received by FDISG.
Direct Investors making subsequent investments by wire should follow the
instructions above.
Effective Time of Purchases. A purchase order for Retail Shares received
and accepted by the Distributor from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the fifth Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the above procedures.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement. The issuance of Retail
Shares to Direct Investors and Institutions is recorded on the books of Galaxy
and Retail Share certificates will not be issued.
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APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
------------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
-------------- --------------- --------------
<S> <C> <C> <C>
Less than
$50,000............... 3.75 3.90 3.75
$50,000 but less than
$100,000.............. 3.50 3.63 3.50
$100,000 but less than
$250,000.............. 3.00 3.09 3.00
$250,000 but less than
$500,000.............. 2.50 2.56 2.50
$500,000 but less than
$1,000,000............ 2.00 2.04 2.00
$1,000,000 but less than
$3,000,000............ 1.00 1.01 1.00
$3,000,000 and
over.................. 0.50 0.50 0.50
</TABLE>
Further reductions in the sales charges shown above are also
possible. See "Quantity Discounts" below.
The Distributor will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by the Distributor, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of
Fleet, may at its expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail A Shares of a Fund. Such compensation will not represent an
additional expense to the Funds or their
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shareholders, since it will be paid from the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Fund may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. No sales
charge is assessed on the following types of transactions and/or investors:
- reinvestment of dividends and distributions;
- purchases by IRA, SEP and Keogh Plan accounts that were
beneficial owners of shares of the Funds or any of the other
portfolios offered by Galaxy or any other funds advised by Fleet
or its affiliates before January 1, 1997;
- purchases by persons who were beneficial owners of shares of the
Funds or any of the other portfolios offered by Galaxy or any
other funds advised by Fleet or its affiliates before December 1,
1995;
- purchases by directors, officers and employees of the Funds'
Distributor and of broker-dealers having agreements with the
Funds' Distributor pertaining to the sale of Retail A Shares to
the extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program
offered by any broker-dealer or other financial
institution or financial planning organization;
- purchases by members of Galaxy's Board of Trustees;
- purchases by officers, directors, employees and
retirees of Fleet Financial Group, Inc. and any of its
affiliates; and
- any purchase of Retail A Shares pursuant to the
Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
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In order to obtain quantity discount benefits, a Direct Investor or
Customer must notify Galaxy's administrator, First Data Investor Services Group,
Inc. ("FDISG") at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of a
Direct Investor's or Customer's holdings through a check of appropriate records.
For more information about quantity discounts, please contact the Distributor or
your Institution.
Rights of Accumulation. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
Letter of Intent. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent,
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
FDISG will hold in escrow Retail A Shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if a
Direct Investor or Customer does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when a Direct Investor or Customer
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the
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sales charge will be adjusted to reflect a Direct Investor's or Customer's total
purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, FDISG, as attorney-in-fact pursuant to the terms of the Letter of Intent
and at the Distributor's direction, will redeem an appropriate number of Retail
A Shares held in escrow to realize the difference. Signing a Letter of Intent
does not bind a Direct Investor or Customer to purchase the full amount
indicated at the sales charge in effect at the time of signing, but a Direct
Investor or Customer must complete the intended purchase in accordance with the
terms of the Letter of Intent to obtain the reduced sales charge. To apply, a
Direct Investor or Customer must indicate his or her intention to do so under a
Letter of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
Reinstatement Privilege. Direct Investors and Customers may reinvest all
or any portion of their redemption proceeds in Retail A Shares of the Funds or
in Retail A Shares of another portfolio of Galaxy within 90 days of the
redemption trade date without paying a sales load. Retail A Shares so reinvested
will be purchased at a price equal to the net asset value next determined after
Galaxy's transfer agent receives a reinstatement request and payment in proper
form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to the transfer agent stating that the
investor is eligible to use the Privilege. The reinstatement request and payment
must be received within 90 days of the trade date of the redemption. Currently,
there are no restrictions on the number of times an investor may use this
Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
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APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares is the net asset value of
the Retail B Shares purchased. Although Direct Investors and Customers pay no
front-end sales charge on purchases of Retail B Shares, such Shares are subject
to a contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from the
Distributor in connection with sales of Retail B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in
connection with sales of Retail A Shares. Certain affiliates of Fleet may, at
their own expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of a Fund. See "Applicable Sales Charge Retail A Shares." The
contingent deferred sales charge on Retail B Shares is based on the lesser of
the net asset value of the Shares on the redemption date or the original cost of
the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of a Direct Investor's or Customer's Retail B
Shares. In addition, a contingent deferred sales charge will not be assessed on
Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
---------------------- ---------------------
<S> <C>
Less than one 5.00%
More than one but less than two 4.00%
More than two but less than three 3.00%
More than three but less than four 3.00%
More than four but less than five 2.00%
More than five but less than six 1.00%
After six None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares,
the redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(i.e., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred
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sales charge exemptions) and after that from the Retail B Shares that have been
held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to the Distributor, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
Exemptions from the Contingent Deferred Sales Charge. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (iv) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Program - Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of the Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of the Short-Term Bond or High Quality Bond Funds (or
any of the other portfolios offered by Galaxy or otherwise advised by Fleet or
its affiliates) before December 1, 1995.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies
in their sales charge structures and shareholder servicing/distribution
expenses. A Direct Investor or Customer should understand that the purpose and
function of the sales charge structures and shareholder servicing/distribution
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arrangements for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges -- Retail A
Shares" and "Quantity Discounts.") Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .15%
of a Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Short-Term Bond Fund and High Quality Bond Fund
are sold at net asset value without an initial sales charge. Normally, however,
a deferred sales charge is paid if the Shares are redeemed within six years of
investment. (See "Applicable Sales Charges - Retail B Shares.") Retail B Shares
of a Fund are currently subject to ongoing shareholder servicing and
distribution fees at an annual rate of up to .80% of the Fund's respective
average daily net assets attributable to its Retail B Shares. These ongoing
fees, which are higher than those charged on Retail A Shares, will cause Retail
B Shares to have a higher expense ratio and pay lower dividends than Retail A
Shares.
Six years after purchase, Retail B Shares of the Short-Term Bond Fund
and High Quality Bond will convert automatically to Retail A Shares of the
Funds. The purpose of the conversion is to relieve a holder of Retail B Shares
of the higher ongoing expenses charged to those Shares, after enough time has
passed to allow the Distributor to recover approximately the amount it would
have received if a front-end sales charge had been charged. The conversion from
Retail B Shares to Retail A Shares takes place at net asset value, as a result
of which a Direct Investor or Customer receives dollar-for-dollar the same
value of Retail A Shares as he or she had of Retail B Shares. The conversion
occurs six years after the beginning of the calendar month in which the Shares
are purchased. Upon conversion, the converted Shares will be relieved of the
distribution and shareholder servicing fees borne by Retail B Shares, although
they will be subject to the shareholder servicing fees borne by Retail A
Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charges Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if a Direct
Investor or Customer makes a one-time purchase of Retail B Shares of a Fund, and
subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of
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dividends and/or distributions, all of such Direct Investor's or Customer's
Retail B Shares in the Fund, including those acquired through reinvestment, will
convert to Retail A Shares of such Fund on the same date.
Factors to Consider When Selecting Retail A Shares or Retail B Shares
Before purchasing Retail A Shares or Retail B Shares of the Short-Term
Bond Fund or High Quality Bond Fund, Direct Investors and Customers should
consider whether, during the anticipated periods of their investments in the
particular Fund, the accumulated distribution and shareholder servicing fees and
potential contingent deferred sales charge on Retail B Shares prior to
conversion would be less than the initial sales charge and accumulated
shareholder servicing fees on Retail A Shares purchased at the same time, and to
what extent such differential would be offset by the higher yield of Retail A
Shares. In this regard, to the extent that the sales charge for Retail A Shares
is waived or reduced by one of the methods described above, investments in
Retail A Shares become more desirable. An investment of $250,000 or more in
Retail B Shares would not be in most shareholders' best interest. Shareholders
should consult their financial advisers and/or brokers with respect to the
advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee,
they are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own Shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Direct Investors or Customers expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate annual Retail B Shares' distribution and shareholder
servicing fees to the cost of the initial sales charge and shareholder servicing
fees on the Retail A Shares.
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Over time, the expense of the annual distribution and shareholder servicing fees
on the Retail B Shares may equal or exceed the initial sales charge and annual
shareholder servicing fee applicable to Retail A Shares. For example, if net
asset value remains constant, the aggregate distribution and shareholder
servicing fees with respect to Retail B Shares of a Fund would equal or exceed
the initial sales charge and aggregate shareholder servicing fees of Retail A
Shares approximately six years after the purchase. In order to reduce such fees
for investors that hold Retail B Shares for more than six years, Retail B Shares
will be automatically converted to Retail A Shares as described above at the end
of such six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by the Distributor. Proceeds from the
redemptions of Retail B Shares of the Short-Term Bond and High Quality Bond
Funds will be reduced by the amount of any applicable contingent deferred sales
charge. Galaxy reserves the right to transmit redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares
in accordance with procedures governing their accounts at Institutions. It is
the responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a Business
Day will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in
accordance with any of the procedures described below.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct
Investor by submitting a written request for redemption to:
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The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number and series of shares (i.e. Retail A or Retail B) to be redeemed, (ii)
identify the shareholder account number and tax identification number, and (iii)
be signed by each registered owner exactly as the Retail Shares are registered.
A redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 90 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. The guarantor of a
signature must be a bank which is a member of the FDIC, a trust company, a
member firm of a national securities exchange or any other eligible guarantor
institution. The Distributor will not accept guarantees from notaries public.
The Distributor may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the Distributor
receives all required documents in proper form. The Funds ordinarily will make
payment for Retail Shares redeemed by mail within three Business Days after
proper receipt by the Distributor of the redemption request. Questions with
respect to the proper form for redemption requests should be directed to the
Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail" above for
details regarding signature guarantees.)
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing the Distributor by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption
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proceeds. The redemption proceeds must be paid to the same bank and account as
designated on the application or in written instructions subsequently received
by the Distributor. To request redemption of Retail Shares by wire, Direct
Investors should call the Distributor at 1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of the telephone transactions, it may be
liable for losses due to unauthorized or fraudulent telephone transactions.
No redemption by a Direct Investor in any Fund will be processed until
Galaxy has received a completed application with respect to the Direct
Investor's account.
If any portion of the Retail Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and federal
funds.
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OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares of a Fund having a value of at
least $100 for Retail A Shares of any of the other Funds or portfolios offered
by Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Short-Term Bond and High
Quality Bond Funds for Retail B Shares of the Money Market, Tax-Exempt Bond,
Equity Value, Equity Growth, Small Company Equity, Asset Allocation and Growth
and Income Funds offered by Galaxy, provided that such other Retail B Shares may
legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A
Shares of a Fund for Retail A Shares of another Galaxy portfolio that imposes a
sales charge. Retail B Shares may be exchanged without the payment of any
contingent deferred sales charge at the time the exchange is made. In
determining the holding period for calculating the contingent deferred sales
charge payable on redemptions of Retail B Shares, the holding period of the
Retail B Shares originally held will be added to the holding period of the
Retail B Shares acquired through exchange.
The minimum initial investment to establish an account in another
eligible Fund by exchange, except for the Institutional Treasury Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund into which the exchange is being made,
to participate in the Automatic Investment Program described below, in which
event there is no minimum initial investment requirement, or in the
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College Investment Program described below, in which event the minimum initial
investment is generally $100. The minimum initial investment to establish an
account by exchange in the Institutional Treasury Money Market Fund is $2
million.
An exchange involves a redemption of all or a portion of the Retail
Shares of a Fund and the investment of the redemption proceeds in Retail Shares
of another Fund or portfolio offered by Galaxy or, with respect to Retail A
Shares, otherwise advised by Fleet or its affiliates. The redemption will be
made at the per share net asset value next determined after the exchange request
is received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call FDISG at 1-800-628-0413. Customers of Institutions should
call their Institution for such information. Customers exercising the exchange
privilege into other eligible funds should request and review these funds'
prospectuses prior to making an exchange (call 1-800-628-0414 for a prospectus).
Telephone all exchanges to 1-800-628-0413. See "How to Redeem Shares--Redemption
Procedure--Direct Investors - Redemptions by Wire" above for a description of
Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their respective
Institutions for applicable information.
For federal income tax purposes, an exchange of Shares is a taxable
event and, accordingly, a capital gain or loss may be
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realized by an investor. Before making an exchange request, a Customer or Direct
Investor should consult a tax or other financial adviser to determine the tax
consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500
(including a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan
for sole proprietors, partnerships and corporations. The minimum initial
investment for a SEP account is $500.
Multi-Employee Retirement Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Sections
401(k) and 403(b) of the Internal Revenue Code. The minimum initial investment
for a MERP is $500.
Keogh Plans, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares - Other Purchase Information." Detailed information concerning
eligibility, service fees and other matters related to these plans and the form
of application is available from Galaxy's distributor (call 1-800-628-0413) with
respect to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on
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a weekend or holiday, the purchase will be made on the Business Day closest to
the designated day. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to
automatically redeem Retail Shares on a monthly, quarterly, semi-annual, or
annual basis on any Business Day designated by a Direct Investor, if the account
has a starting value of at least $10,000. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
Purchases of additional Retail A Shares concurrently with withdrawals are
ordinarily not advantageous because of the sales charge involved in the
additional purchases. The maintenance of a Systematic Withdrawal Plan may be
disadvantageous for holders of Retail B Shares due to the effect of the
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100
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for initial or subsequent investments, except that if the Direct Investor
purchases Retail Shares through the Automatic Investment Program, the minimum
per transaction is $50. The College Program is designed to assist Direct
Investors who want to finance a college savings plan. See "Investor
Programs--Automatic Investment Program and Systematic Withdrawal Plan" for
information on the Automatic Investment Program. Galaxy reserves the right to
redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated
monthly statements of their accounts. Detailed information concerning College
Program accounts and applications may be obtained from Galaxy's Distributor
(call 1-800-628-0413).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-FOR-GLXY (367-4599) from any touch-tone telephone and follow the
recorded instructions.
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GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct
Investors can call Galaxy Shareholder Services Monday through Friday, between
the hours of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions
so that an investor's Retail Shares, when redeemed, may be worth more or less
than their original cost. Past performance is no guarantee of future results.
Unless otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each Share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such Shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
In General
Each Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Code. Such
qualification generally relieves a Fund of
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liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that a Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, a Fund's investment company taxable income
will be its taxable income, including dividends, interest and short-term capital
gains (the excess of net short-term capital gain over net long-term capital
loss), subject to certain adjustments and excluding the excess of any net
long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. The policy of each Fund is to distribute as
dividends substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to each Fund's shareholders who are not currently exempt from Federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the distributing
Fund from domestic corporations for the taxable year.
Distribution by the Funds of the excess of their respective net
long-term capital gain over their respective net short-term capital loss is
taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such distributions are not eligible for
the dividends received deduction.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Prior to purchasing shares of a Fund, the impact of capital gain
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any capital gain distribution paid shortly
after the purchase of shares of a Fund will have the effect of reducing the per
share net asset value by the per share amount of the distribution. Furthermore,
all or a portion of such distributions, although in effect a return of capital
to the shareholder, are subject to tax.
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A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of Shares of a Fund depending upon the tax basis of such
Shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $_____
billion at December 31, 1996. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients and manages other investment portfolios of Galaxy: the
Money Market, Government, U.S. Treasury, Tax-Exempt, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and Income, Corporate
Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and
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places orders for all purchases and sales of its portfolio securities and
maintains related records.
For the services provided and expenses assumed with respect to the
Funds, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of each Fund. The fee for the Funds is higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that it is
not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Funds in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc., in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fees payable to it by the Short-Term Bond, Intermediate Government Income and
High Quality Bond Funds so that it is entitled to receive advisory fees at the
annual rate of .55% of each Fund's average daily net assets, but Fleet may in
its discretion revise or discontinue this waiver at any time. For the fiscal
year ended October 31, 1996, Fleet received advisory fees (after fee waivers) at
the effective annual rates of .___%, .___% and .___%, respectively, of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds'
average daily net assets.
The Short-Term Bond Fund's portfolio manager, Perry J. Vieth, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Vieth, a Vice President, has over eleven years of experience as
an investment manager and previously managed the Shawmut Limited Term Income
Fund for Shawmut Investment Advisors and was a manager of Fuji Securities,
Inc.'s derivative products group. He also was responsible for fixed income risk
management at NationsBank CRT. Mr. Vieth has managed the Short-Term Bond Fund
since March 1, 1996.
The Intermediate Government Income Fund's portfolio manager, Marie H.
Schofield, is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield, a Vice President, has been with Fleet since
1991 and has been engaged in providing investment management services for over
twenty years. She has managed the Intermediate Government Income Fund since
December 1, 1996.
Ms. Schofield also serves as portfolio manager of the High Quality Bond
Fund and is
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primarily responsible for the day-to-day management of the Fund's investment
portfolio. Ms. Schofield began serving as co-portfolio manager of the Fund on
March 1, 1996 and has been sole portfolio manager of the Fund since April 1,
1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect their net asset value per Retail Share or result in
financial losses to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Funds and the other portfolios offered
by Galaxy (collectively, the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided
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to the Funds, FDISG was entitled to receive administration fees, computed daily
and paid monthly, at the annual rate of .09% of the first $2.5 billion of the
combined average daily net assets of the Portfolios, .085% of the next $2.5
billion of combined average daily net assets and .08% of combined average daily
net assets over $5 billion. In addition FDISG also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
FDISG may waive all or a portion of the administration fee payable to it by the
Funds, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, FDISG received
administration fees at the effective annual rate of ._____% of each Fund's
average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of Shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each series of the Funds as follows: Class D
shares (Trust Shares) and Class D - Special Series 1 shares (Retail A Shares),
each series representing interests in the Intermediate Government Income Fund;
Class J Series 1 shares (Trust Shares), Class J - Series 2 shares (Retail A
Shares) and Class J - Series 3 shares (Retail B Shares), each series
representing interests in the High Quality Bond Fund; and Class L - Series 1
shares (Trust Shares), Class L - Series 2 shares (Retail A Shares) and Class L -
Series 3 shares (Retail B Shares), each series representing interests in the
Short-Term Bond Fund.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by that Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid under Galaxy's Shareholder Services
Plan described below and holders of Retail B Shares of the Short-Term Bond and
High Quality Bond Funds bear the fees that are paid under Galaxy's Distribution
and Services Plan described below. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The difference in
the expenses paid by the respective series will affect their performance.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per Share, represents an equal proportionate interest in the
related Fund with other Shares of the same class, and is entitled to such
dividends and
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distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Retail Share held,
and a proportionate fractional vote for each fractional Retail Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services up to an annual rate of up to .30% of the
average daily net asset value of Retail A Shares of the funds owned beneficially
by Customers. Institutions may also receive up to one-half of this fee for
providing one or more of the following services to such Customers: aggregating
and processing purchase and redemption requests and placing net purchase and
redemption orders with the Distributor; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in Galaxy's
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit
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the payment under these servicing agreements for each Fund to an aggregate fee
of not more than .15% (on an annualized basis) of the average daily net asset
value of the Retail A Shares of the Fund beneficially owned by Customers of
Institutions. Galaxy understands that Institutions may charge fees to their
Customers who are the beneficial owners of Retail A Shares in connection with
their accounts with such Institutions. Any such fees would be in addition to any
amounts which may be received by an Institution under the Shareholder Services
Plan. Under the terms of each servicing agreement entered into with Galaxy,
Institutions are required to provide to their Customers a schedule of any fees
that they may charge in connection with Customer investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Retail B Shares of the Short-Term Bond
and High Quality Bond Funds. Under the Distribution and Services Plan, Galaxy
may pay (a) the Distributor or another person for expenses and activities
intended to result in the sale of Retail B Shares, including the payment of
commissions to broker-dealers and other industry professionals who sell Retail B
Shares and the direct or indirect cost of financing such payments, (b)
Institutions for shareholder liaison services, which means personal services for
holders of Retail B Shares and/or the maintenance of shareholder accounts, such
as responding to customer inquiries and providing information on accounts, and
(c) Institutions for administrative support services, which include but are not
limited to (i) transfer agent and subtransfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing subaccounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments
by Galaxy (i) for distribution expenses may not exceed the annual rate of .65%
of the average daily net assets attributable to the Short-Term Bond and High
Quality Bond Funds' outstanding Retail B Shares, and (ii) to an Institution for
shareholder liaison services and/or administrative support services may not
exceed the annual rates of .15% and .15%, respectively, of the average daily net
assets attributable to each such Funds' outstanding Retail B Shares which are
owned of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record
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or with whom it has a servicing relationship. As of the date of this Prospectus,
Galaxy intends to limit the Funds' payments for shareholder liaison and
administrative support services under the Plan to an aggregate fee of not more
than .15% (on an annualized basis) of the average daily net asset value of
Retail B Shares owned of record or beneficially by Customers of Institutions.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of the
Investment Adviser, pursuant to which Fleet Bank performs certain sub-accounting
and administrative functions ("Sub-Account Services") on a per account basis
with respect to Trust Shares of each Fund held by defined contribution plans,
including maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and the
dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to that
sub-account; and transmitting to each participant a periodic statement regarding
the sub-account as well as any proxy materials, reports and other material Fund
communications. Fleet Bank is compensated by FDISG for the Sub-Account Services
and in connection therewith the transfer agency fees payable by Trust Shares of
the Funds to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of these Funds indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as the Funds' transfer and dividend disbursing agent. Services performed
by both entities for the Funds are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Funds. Galaxy bears the expenses
incurred in the Funds' operations including taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with FDISG); SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for
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distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholders' reports and shareholder meetings; and any extraordinary
expenses. The Funds also pay for brokerage fees and commissions in connection
with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yields of the
Funds. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and/or Retail B Shares of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the last day of the period, and analyzing the result on a semi-annual basis.
A Fund may also advertise its "effective yield," which is calculated similarly
but, when annualized, the income earned by an investment in a Fund is assumed to
be reinvested.
The Funds may also advertise their performance using "average annual
total return" over various periods of time. Such total return figure reflects
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods,
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representing the cumulative change in the value of an investment in a Fund for
the specified period. Both methods of calculating total return reflect the
maximum front-end sales load charged by the Funds for Retail A Shares and the
applicable contingent deferred sales charge for Retail B Shares and assume that
dividends and capital gains distributions made by a Fund during the period are
reinvested in Fund Shares.
The Funds may also advertise total return data without reflecting the
sales charge imposed on the purchase of Retail A Shares in accordance with the
rules of the SEC. Quotations that do not reflect the sales charge will be higher
than quotations that do reflect the sales charge.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged directly by Institutions to
accounts of Customers that have invested in Shares of a Fund will not be
included in calculations of yield and performance.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy, a particular Fund or a particular series of
shares means, with respect to the approval of an investment advisory agreement,
distribution plan or a change in an investment objective or fundamental
investment
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policy, the affirmative vote of the holders of the lesser of (a) more than 50%
of the outstanding shares of Galaxy, such Fund or such series of shares, or (b)
67% or more of the shares of Galaxy, such Fund or such series of shares present
at a meeting if more than 50% of the outstanding shares of Galaxy, such Fund or
such series of shares are represented at the meeting in person or by proxy.
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TRUST
THE GALAXY FUND
INTERMEDIATE GOVERNMENT INCOME FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 483
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXPENSE SUMMARY..................................................................................
FINANCIAL HIGHLIGHTS.............................................................................
INVESTMENT OBJECTIVE AND POLICIES................................................................
In General...............................................................................
Other Investment Policies and Risk Considerations........................................
INVESTMENT LIMITATIONS...........................................................................
PRICING OF SHARES................................................................................
HOW TO PURCHASE AND REDEEM SHARES................................................................
Distributor..............................................................................
Purchase of Shares.......................................................................
Redemption of Shares.....................................................................
DIVIDENDS AND DISTRIBUTIONS......................................................................
TAXES............................................................................................
Federal..................................................................................
State and Local..........................................................................
MANAGEMENT OF THE FUND...........................................................................
Investment Adviser.......................................................................
Authority to Act as Investment Adviser...................................................
Administrator............................................................................
DESCRIPTION OF GALAXY AND ITS SHARES.............................................................
Shareholder Services Plan................................................................
Affiliate Agreement for Sub-Account Services.............................................
CUSTODIAN AND TRANSFER AGENT.....................................................................
EXPENSES.........................................................................................
PERFORMANCE AND YIELD INFORMATION................................................................
MISCELLANEOUS....................................................................................
</TABLE>
<PAGE> 484
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding initial
Westboro, Massachusetts purchases and current
01581-5108 performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the Intermediate Government Income
Fund (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek the highest level
of current income consistent with prudent risk of capital. Subject to this
objective, the Fund's investment adviser will consider the total rate of return
on portfolio securities in managing the Fund. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in debt obligations rated at the time of purchase within the
three highest rating categories of Standard & Poor's Ratings Group ("S&P's") or
Moody's Investor's Service, Inc. ("Moody's") (or which, if unrated, are of
comparable quality) and "money market" instruments. The Fund was previously
known as the Intermediate Bond Fund.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See
<PAGE> 485
"Financial Highlights," "Management of the Fund" and "Description of Galaxy and
Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc. and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, FLEET FINANCIAL GROUP, INC., OR ANY OF ITS
AFFILIATES, FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE
FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information bearing the same
date, has been filed with the Securities and Exchange Commission. The current
Statement of Additional Information is available upon request without charge by
contacting Galaxy at its telephone numbers or address shown above. The Statement
of Additional Information, as it may be amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
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<PAGE> 486
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares, and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
table are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
INCOME FUND
SHAREHOLDER TRANSACTION EXPENSES (TRUST SHARES)
- -------------------------------- --------------
<S> <C>
Sales Load.................................... None
Sales Load on Reinvested Dividends............ None
Deferred Sales Load........................... None
Redemption Fees............................... None
Exchange Fees................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees
(After Fee Waivers)......................... .__%
12b-1 Fees.................................... None
Other Expenses (After Fee Waivers
and Expense Reimbursements)................. . %
----
Total Fund Operating Expenses
(After Fee Waivers and
Expense Reimbursements).................. . %
====
</TABLE>
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING (1) A 5% ANNUAL RETURN, AND (2) REDEMPTION
OF YOUR INVESTMENT AT THE END OF THE FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate Government
Income Fund $___ $___ $___ $___
</TABLE>
The Expense Summary and Example are intended to assist the
investor in understanding the costs and expenses that an investor in Trust
Shares of the Fund will bear directly or indirectly. They are based on expenses
incurred by the Fund during the last fiscal year, restated to reflect the
expenses which the Fund expects to incur during the current fiscal year on its
Trust Shares. Without voluntary fee waivers and/or expense reimbursements by the
Investment Adviser and/or Administrator, Advisory Fees would be .75%, Other
Expenses would be ___%, and Total Fund Operating Expenses for the Fund would be
.___% for Trust Shares of the Fund. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the
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<PAGE> 487
Statement of Additional Information. Any fees that are charged by affiliates of
Fleet Investment Advisors Inc. or other institutions directly to their customer
accounts for services related to an investment in Trust Shares of the Funds and
are in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue an additional series of shares in the Fund. As
described below under "Description of Galaxy and Its Shares," Trust Shares and
Retail Shares represent equal pro rata interests in the Fund except that (i)
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .15% of the average daily
net asset value of the Fund's outstanding Retail Shares and (ii) Trust Shares
and Retail A Shares bear differing transfer agency expenses. Retail A Shares are
offered under a separate prospectus.
The financial highlights presented below have been audited by
[_____________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
(_______________________) into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Trust Shares and
Retail A Shares of the Fund (Retail A Shares of the Fund were first offered
during the fiscal year ended October 31, 1992). More information about the
performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone numbers or address
provided above.
-4-
<PAGE> 488
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD.)
<TABLE>
<CAPTION>
Year Ended PERIOD
OCTOBER 31, YEAR ENDED OCTOBER 31,(2) ENDED
1996 1995 1994 OCTOBER 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1),(2)
------------ --------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 9.68 $10.72 $10.83 $10.46 $ 9.73 $10.27 $10.40 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations:
Net Investment
Income(3),(4)............. 0.64 0.57 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and
unrealized gain
(loss) on
investments............... 0.60 (1.03) 0.10 0.40 0.71 (0.56) 0.16 0.29
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations:............... 1.24 (0.46) 0.75 1.11 1.44 0.20 0.98 0.40
------ ------ ------ ------ ------ ------ ------ ------
Less Dividends:
Dividends from net
investment income......... (0.64) (0.56) (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in excess
of net investment
income.................... -- (0.01) (0.03) -- -- -- -- --
Dividends from net
realized capital
gains..................... -- -- (0.19) -- -- -- (0.15) --
Dividends in excess
of net realized
capital gains............. -- (0.01) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total Dividends:.......... (0.64) (0.58) (0.86) (0.74) (0.71) (0.74) (1.11) --
------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in net asset value.......... 0.60 (1.04) (0.11) 0.37 0.73 (0.54) (0.13) 0.40
------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period................... $10.28 $9.68 $10.72 $10.83 $10.46 $ 9.73 $10.27 $10.40
====== ===== ====== ====== ====== ====== ====== ======
Total Return.................. 13.18% (4.39%) 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)................ $186,037 $212,144 $447,359 $199,135 $99,942 $80,645 $71,400 $58,318
Ratios to average net
assets:
Net investment income
including
reimbursement/
waiver...................... 6.39% 5.61% 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(6)
Operating expenses
including
reimbursement/waiver...... 0.73% 0.75% 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(6)
Operating expenses
excluding
reimbursement/waiver...... 0.94% 0.95% 1.00% 0.94% 0.96% 0.96% 0.99% 1.00%(6)
Portfolio Turnover Rate....... 145% 124% 153% 103% 150% 162% 112% 41%(5)
</TABLE>
1 The Fund (formerly known as the Intermediate Bond Fund) commenced
operations on September 1, 1988.
2 For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
3 Net investment income per share for Trust Shares before waiver of fees by
the Investment Adviser and/or Administrator for the years ended October 31,
1996, 1995 and 1994 were $____, $0.62 and $0.54, respectively.
4 Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the years ended October 31, 1993, 1992,
1990 and 1989 were $0.63, $0.70, $0.73, and $0.82, respectively.
5 Not Annualized.
-5-
<PAGE> 489
6 Annualized.
-6-
<PAGE> 490
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek the highest level
of current income consistent with prudent risk of capital. Subject to this
objective, the Investment Adviser will consider the total rate of return on
securities in managing the Fund. The Fund will invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
corporate debt obligations such as bonds and debentures, obligations
convertible into common stock and "money market" instruments, such as bank
obligations and commercial paper, and asset backed and mortgage-backed
securities. The Fund may also invest, from time to time, in obligations issued
by state or local governmental issuers ("municipal securities"). The purchase
of municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such
securities, on a pretax basis, is comparable to that of corporate or U.S. debt
obligations. The Fund may also enter into interest rate futures contracts to
hedge against changes in market values. See "Other Investment Policies." The
Fund will not invest in common stock, and any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund will
invest substantially all of its assets in debt obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, debt obligations
rated, at the time of purchase, within the three highest rating categories of
S&P (AAA, AA and A) or Moody's (Aaa, Aa and A)(or which, if unrated, are
determined by the Investment Adviser to be of comparable quality) and "money
market" instruments such as those listed below under "Other Investment
Policies." Unrated securities will be determined to be of comparable quality to
rated debt obligations if, among other things, other outstanding obligations of
the issuers of such securities are rated A or better. Notwithstanding the
foregoing, under normal market and economic conditions, at least 65% of the
Fund's assets will be invested in debt obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. When, in the opinion of the
Investment Adviser, a defensive investment posture is warranted, the Fund may
invest temporarily and without limitation in high quality, short-term "money
market" instruments. See Appendix A to the Statement of Additional Information
for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued
-7-
<PAGE> 491
by Canadian Provincial Governments, which are similar to U.S. Municipal
Securities except that the income derived therefrom is fully subject to U.S.
federal taxation. These instruments are denominated in either Canadian or U.S.
dollars and have an established over-the-counter market in the United States.
The Fund may also invest in debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
deleveopment and international banking organizations and related governmental
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the
InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States.
The Investment Adviser expects that under normal market
conditions the Fund's portfolio securities will have an average weighted
maturity of three to ten years.
The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates. See "Other Investment
Policies" below for information regarding additional investment policies of the
Fund.
The Investment Adviser will use its best efforts to achieve
the Fund's investment objective, although such achievement cannot be assured.
The investment objective of the Fund may not be changed without the approval of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
-8-
<PAGE> 492
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury;
-9-
<PAGE> 493
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit, and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but
different government regulation which may limit the amount and types of their
loans and the interest rates that may be charged. In addition, the profitability
of the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks
and of U.S. branches of foreign banks may subject the Fund to additional risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when the Investment Adviser believes that
the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating
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<PAGE> 494
rate instruments provide for automatic adjustment of the interest rate whenever
some other specified interest rate changes. Some variable and floating rate
obligations are direct lending arrangements between the purchaser and the issuer
and there may be no active secondary market. However, in the case of variable
and floating rate obligations with a demand feature, the Fund may demand payment
of principal and accrued interest at a time specified in the instrument or may
resell the instrument to the third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, the
Fund might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. The Fund may also purchase Rule 144A securities. See
"Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities
which may be held by the Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation"
securities, which are normally issued by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Opinions relating to the validity of municipal securities and
to the exemption of interest thereon from regular federal income tax are
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Funds nor the Investment Adviser will review the proceedings
relating to the issuance of municipal securities or the bases for such opinions.
-11-
<PAGE> 495
Variable and Floating Rate Municipal Securities
Municipal securities purchased by the Fund may include rated
and unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund may decline
below the repurchase price. The Fund would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
-12-
<PAGE> 496
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, will be
made only to borrowers deemed by the Investment Adviser to be of good standing
and only when, in the Investment Adviser's judgment, the income to be earned
from the loan justifies the attendant risks. The Fund currently intends to limit
the lending of its portfolio securities so that, at any given time, securities
loaned by the Fund represent not more than one-third of the value of its total
assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, and any
other investment companies advised by the Investment Adviser.
Interest Rate Futures Contracts
The Fund may enter into contracts (both purchases and sales)
which provide for the future delivery of fixed-income
-13-
<PAGE> 497
securities (commonly known as interest rate futures contracts). The Fund will
not engage in futures transactions for speculation, but only to hedge against
changes in the market values of securities which the Fund holds or intends to
purchase. The Fund will engage in futures transactions only to the extent
permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission. The purchase of futures instruments in
connection with securities which the Funds intend to purchase will require an
amount of cash and/or U.S. Government obligations, equal to the market value of
the outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. The Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of the Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the
Fund to a number of risks. Successful use of futures by the Fund is subject to
the ability of the Investment Adviser to predict correctly movements in the
direction of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, the Fund may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which the Fund holds or intends to purchase or may be unable to close
a futures position in the event of adverse price movements. Additional
information concerning futures transactions is contained in Appendix B to the
Statement of Additional Information.
When-Issued, Forward Commitment and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" basis. The
Fund may also purchase or sell eligible securities on a "delayed settlement"
basis. When-issued and forward commitment transactions, which involve a
commitment by the Fund to purchase or sell particular securities with payment
and delivery taking place at a future date (perhaps one or two months later),
permit the Fund to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. Delayed settlement
describes
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<PAGE> 498
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of the Fund's total assets absent unusual market conditions. In the
event the Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of the Investment Adviser to manage the Fund may be
adversely affected. The Fund does not intend to engage in when-issued purchases,
forward commitments and delayed settlements for speculative purposes, but only
in furtherance of their investment objectives.
Stand by Commitments
The Fund may acquire "stand-by commitments" with respect to
municipal securities held by it. Under a stand-by commitment, a dealer agrees
to purchase, at the Fund's option, specified municipal securities at a
specified price. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Fund expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if neccessary or advisable, the Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus
reducing the yield otherwise available for the same securities). Stand-by
commitments acquired by the Fund would be valued at zero in determining the
Fund's net asset value.
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent
a participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities that
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies and government-related organizations such as the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Mortgage-backed
securities provide a monthly payment consisting of interest and principal
payments. Additional payment may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the
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<PAGE> 499
extent that the Fund purchases mortgage-backed securities at a premium, mortgage
foreclosures and prepayments of principal by mortgagors (which may be made at
any time without penalty) may result in some loss of the Fund's principal
investment to the extent of the premium paid. The yield of the Fund from
investing in mortgaged-backed securities may be affected by reinvestment of
prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers,
and special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the
Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that
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are permissible investments for the Fund. The Fund will hold and maintain in a
segregated account until the settlement date cash, U.S. Government securities or
other liquid, high grade debt securities in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Fund proposes to
treat mortgage dollar rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
Mortgage dollar rolls involve certain risks. If the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities may be
restricted and the instrument which the Fund is required to repurchase may be
worth less than an instrument which the Fund originally held. Successful use of
mortgage dollar rolls may depend upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, the
Fund may purchase Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations. These
participations, which may be issued by the U.S. Government or by private issuers
such as banks and other institutions are issued at their "face value," and may
include stripped mortgage-backed securities ("SMBS"), which are derivative
multi-class mortgage securities. Stripped securities, particularly SMBS, may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that
receive different proportions of the interest and principal distributions from a
pool of mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments generally is extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all
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or most of the interest are generally higher than prevailing market yields on
other mortgage-backed obligations because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped. SMBS which are not issued by the U.S. Government (or a U.S.
Government agency or instrumentality) are considered illiquid by the Fund.
Obligations issued by the U.S. Government may be considered liquid under
guidelines established by Galaxy's Board of Trustees if they can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of net asset value per share.
Guaranteed Investment Contracts
The Fund may invest in guaranteed investment contracts
("GICs") issued by United States and Canadian insurance companies. Pursuant to
GICs, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Fund will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs")
issued by banks that meet the quality and asset size requirements for banks
described above under "U.S. Government Obligations and Money Market
Instruments." Pursuant to BICs, cash contributions are made to a deposit account
at the bank in exchange for payments at negotiated, floating or fixed interest
rates. A BIC is a general obligation of the issuing bank. BICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
Derivative Securities
The Fund may from time to time, in accordance with its
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value
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from the performance of underlying assets, interest rates or indices, and
include, but are not limited to, interest rate futures and certain asset-backed
and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by
the derivative securities purchased by the Fund, and will determine in
connection with its day-to-day management of the Fund, how they will be used in
furtherance of the Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Fund will, because
of the risks discussed above, incur loss as a result of its investments in
derivative securities. See " Investment Objectives and Policies -- Derivative
Securities" in the Statement of Additional Information relating to the Fund for
additional information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover may result in the
realization of substantial capital gains and involves correspondingly greater
transaction costs. To the extent that net capital gains are realized,
distributions derived from such gains are treated as ordinary income for federal
income tax purposes. See "Financial Highlights" and "Taxes -- Federal."
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INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in such issuer,
except that up to 25% of the
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value of its total assets may be invested without regard to
this limitation.
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of the Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above,(a) the Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such borrowing,
and (b) mortgage dollar rolls entered into by the Fund that are not accounted
for as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered illiquid if the Investment Adviser has determined, in accordance
with guidelines established by the Board of Trustees, that an adequate trading
market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time),
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each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to
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herein collectively as "Institutions"). Trust Shares sold to such investors
("Customers") will be held of record by Institutions. The Institution is
responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that Galaxy's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part. The issuance of Trust Shares is recorded on the books of the
Fund and share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirement with respect to Trust Shares, Institutions or
employers may impose such requirements on the accounts maintained by its
Customers, and may also require that
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Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by the Institutions to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired the following Business Day to the Institution. Payment for redemption
orders which are received on a non-Business Day will normally be wired to the
Institution on the next Business Day. However, in both cases Galaxy reserves the
right to wire redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon 60
days' written notice, if the value of the account is less than $250 as a result
of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
daily and paid monthly. Dividends on each share of the Funds are determined in
the same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
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Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of such shares on the payment date. Such election,
or any revocation thereof, must be communicated in writing by an Institution on
behalf of Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
no part of any distribution will qualify for the dividends received deduction
for corporations.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional shares.
Such distributions are not eligible for the dividends received deduction.
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<PAGE> 509
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying shares of the Fund on or just
before the record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important Federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
than those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Funds are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, Tax-Exempt, U.S. Treasury, Connecticut
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Municipal Money Market, Massachusetts Municipal Money Market, Institutional
Treasury Money Market, Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity, Asset Allocation, Small Cap Value, Growth and
Income, Short-Term Bond, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an annual rate of .75% of the average daily net
assets of the Fund. The fee for the Fund is higher than fees paid by most other
mutual funds, although the Board of Trustees of Galaxy believes that it is not
higher than the average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory
fees payable by the Fund in order to help maintain a competitive expense ratio
and may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and other services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Fund so that it is entitled to receive an advisory fee at the
annual rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective rate of .___% of the Fund's average daily net assets.
The Fund's portfolio manager, Marie H. Schofield, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Ms.Schofield, a Vice President, has been with Fleet since 1991 and has been
engaged in providing investment management services for over twenty years. She
has managed the Intermediate Government Income Fund since December 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of
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1956, as amended, or any bank or non-bank affiliate thereof from sponsoring,
organizing, controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or distributing
securities such as Trust Shares of the Fund, but do not prohibit such a bank
holding company or its affiliates or banks generally from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of
customers. The Investment Adviser, custodian and Institutions which have agreed
to provide shareholder support services that are banks or bank affiliates are
subject to such banking laws and regulations. Should legislative, judicial, or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Fund, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Fund's method of operation would not affect the Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly- owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
the combined average daily net assets of the Portfolios, .085% of the next $2.5
billion of combined average daily net assets and .08% of combined average daily
net assets over $5 billion. In addition, FDISG also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
FDISG may waive all or a portion of the administration fee payable to it by the
Fund, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, FDISG received
administration fees at the effective rate of .___% of the Fund's average daily
net assets.
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DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorized the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of shares in each of two series in the Fund as
follows: Class D shares (Trust Shares) and Class D - Series 1 shares (Retail A
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in the other portfolios of Galaxy. For information regarding the
Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion
of all operating expenses paid by the Fund except as follows. Holders of the
Fund's Retail A Shares bear the fees that are paid to Institutions under
Galaxy's Shareholder Services Plan described below. Currently, these payments
are not made with respect to the Fund's Trust Shares. In addition, shares of
each series in the Fund bear differing transfer agency expenses. Standardized
yield and total return quotations are computed separately for each series of
shares. The differences in the expenses paid by the respective series will
affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end
sales charge of 3.75% and have certain exchange and other privileges which are
not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has
a par value of $.001 per share, represents an equal proportionate interest in
the related Fund with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such Fund as are declared in the
discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share
held, and a proportionate fractional vote for each fractional share held, and
will vote in the aggregate and not by class or series, 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 or series.
-29-
<PAGE> 513
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A Shares and
are intended to supplement the services provided by FDISG as administrator and
transfer agent to the shareholders of record of Retail A Shares. Institutions
may also receive up to one-half of this fee for providing one or more of the
following services to such Customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for each Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
owners of Retail A Shares in connection with their accounts with such
institutions. After such fees would be in addition to any amounts which may be
received by an Institution under the Shareholder Services Plan. Under the terms
of each servicing agreement entered into with Galaxy, Institutions are required
to provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
-30-
<PAGE> 514
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza,
New York, New York 10081, a wholly-owned subsidiary of The Chase Manhattan
Corporation, serves as the custodian of the Fund's assets, and First Data
Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to FDISG should be directed to FDISG
at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholders' reports and shareholder meetings; and
any extraordinary expenses. The Fund
-31-
<PAGE> 515
also pays for brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yields of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant bond indexes or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of the Fund may be compared to data
prepared by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five-and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in the Fund for the specified period. Both methods of calculating
total return assume that dividend and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as
-32-
<PAGE> 516
representative of future performance. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund's Shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance and yield are generally functions
of kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. Any additional fees charged directly
by Institutions with respect to accounts of Customers that have invested in
Trust Shares of the Fund will not be included in calculations of yield and
performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of Galaxy, the Fund or a particular
investment portfolio means, with respect to the approval of an investment
advisory agreement, distribution plan or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of Galaxy or the Fund, or (b) 67%
or more of the shares of Galaxy or the Fund present at a meeting if more than
50% of the outstanding shares of Galaxy or the Fund are represented at the
meeting in person or by proxy.
-33-
<PAGE> 517
TRUST
THE GALAXY FUND
HIGH QUALITY BOND FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 518
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 4
INVESTMENT OBJECTIVE AND POLICIES......................................... 6
In General........................................................ 6
Other Investment Policies and Risk Consideration.................. 8
INVESTMENT LIMITATIONS.................................................... 19
PRICING OF SHARES......................................................... 21
HOW TO PURCHASE AND REDEEM SHARES......................................... 21
Distributor....................................................... 21
Purchase of Shares................................................ 22
Redemption of Shares.............................................. 23
DIVIDENDS AND DISTRIBUTIONS............................................... 23
TAXES..................................................................... 24
Federal........................................................... 24
State and Local................................................... 25
MANAGEMENT OF THE FUND.................................................... 25
Investment Adviser................................................ 25
Authority to Act as Investment Adviser............................ 27
Administrator..................................................... 27
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 28
Shareholder Services Plan......................................... 29
Affiliate Agreement for Sub-Account Services...................... 30
CUSTODIAN AND TRANSFER AGENT.............................................. 30
EXPENSES.................................................................. 30
PERFORMANCE AND YIELD INFORMATION......................................... 31
MISCELLANEOUS............................................................. 32
<PAGE> 519
THE GALAXY FUND
For applications and
4400 Computer Drive information regarding initial
Westboro, Massachusetts purchases and current
01581-5108 performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the High Quality Bond Fund (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek a high level of current
income consistent with prudent risk of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in high quality
debt obligations that are rated at the time of purchase within the three
highest rating categories of Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service Inc. ("Moody's") (or which, if unrated, are
of comparable quality) and in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue two additional series of shares in the Fund, Retail A
Shares and Retail B Shares (referred to herein collectively as "Retail Shares").
Retail Shares are offered under a separate prospectus primarily to individuals,
corporations or other entities purchasing either for their own accounts or for
the accounts of others and to FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks and other qualified banks,
savings and loans associations and broker/dealers on behalf of their customers.
Trust Shares, Retail A Shares and Retail B Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of service provided to them. See "Financial Highlights,"
"Management of the Fund" and Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc.,
<PAGE> 520
which is unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet
Financial Group, Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 521
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Fund with respect to its Trust Shares, and (ii) the
operating expenses for Trust Shares of the Fund. Examples based on the table are
also shown.
<TABLE>
<CAPTION>
HIGH
QUALITY
SHAREHOLDER TRANSACTION EXPENSES BOND FUND
(TRUST SHARES)
<S> <C>
Sales Load.......................................... None
Sales Load on Reinvested
Dividends...................................... None
Deferred Sales Load................................. None
Redemption Fees..................................... None
Exchange Fees....................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Advisory Fees
(After Fee Waivers)............................ .__%
12b-1 Fees.......................................... None
Other Expenses (After Fee
Waivers and Expense
Reimbursements)................................ . %
----
Total Fund Operating Expenses
(After Fee Waivers and Expense
Reimbursements)................................ . %
====
</TABLE>
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING (1) A 5% ANNUAL RETURN, AND (2) REDEMPTION
OF YOUR INVESTMENT AT THE END OF THE FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
High Quality Bond Fund................................. $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist the investor in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. They are based on expenses incurred by
the Fund during the last fiscal year, restated to reflect the expenses which the
Fund expects to incur during the current fiscal year on its Trust Shares.
Without voluntary fee waivers and/or expense reimbursements by the Investment
Adviser and/or Administrator, Advisory Fees would be .75%, Other Expenses would
be ____% and Total Fund Operating Expenses would be ____% for Trust Shares of
the Fund. For more complete descriptions of these costs and expenses, see
"Management of the Fund" and "Description of Galaxy and its Shares" in this
Prospectus and the financial statements
-3-
<PAGE> 522
and notes incorporated by reference into the Statement of Additional
Information. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust statements and notes incorporated by
reference into the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994, Retail A
Shares of the Fund bear the expense incurred under Galaxy's Shareholder Services
Plan for Retail A Shares and Trust Shares at an annual rate of up to .15% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B shares of the Fund bear the expenses incurred under Galaxy's
Distribution and Services Plan for Retail B shares at an annual rate of up to
.80% of the average daily net asset value of the Fund's outstanding Retail B
Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses. Retail Shares are offered under a separate
prospectus.
The financial highlights presented below have been audited by
[________________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
(______________________) into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Trust Shares and
Retail A Shares of the Fund. More information about the performance of the Fund
is also contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-4-
<PAGE> 523
HIGH QUALITY BOND FUND
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD.)
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, October 31,(2)
1996 1995 1994 1993 1992
--------- ------------------- -----------------
TRUST SHARES
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 9.54 $11.37 $10.60 $10.35
------- ------ ------ ------
Income from Investment Operations
Net Investment Income(3),(4).................... 0.64 0.65 0.66 0.68
Net realized and unrealized gain (loss)
on investments................................ 1.09 (1.56) 0.93 0.36
------- ------- ------ ------
Total from Investment Operations:........... 1.73 (0.91) 1.59 1.04
------- ------- ------ ------
Less Dividends:
Dividends from net investment income............ (0.64) (0.65) (0.66) (0.71)
Dividends from net realized capital gains....... -- -- (0.16) (0.08)
Dividends in excess of net realized
capital gains................................. -- (0.27) -- --
------ ------- ------- -------
Total Dividends:.............................. (0.64) (0.92) (0.82) (0.79)
------ ------- ------- -------
Net increase (decrease) in net asset value............ 1.09 (1.83) 0.77 0.25
------ ------- ------- -------
Net Asset Value, End of Period........................ $10.63 $9.54 $11.37 $10.60
====== ====== ====== ======
Total Return.......................................... 18.66% (8.39%) 15.63% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $134,631 $118,776 $162,594 $108,774
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 6.33% 6.28% 5.98% 6.55%
Operating expenses including
reimbursement/waiver.......................... 0.85% 0.78% 0.76% 0.87%
Operating expenses excluding
reimbursement/waiver.......................... 1.07% 0.98% 0.96% 0.94%
Portfolio Turnover Rate............................... 110% 108% 128% 121%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
October 31,
1991(1),(2)
----------
<S> <C>
Net Asset Value, Beginning of Period.................. $10.00
------
Income from Investment Operations
Net Investment Income3,4........................ 0.64
Net realized and unrealized gain (loss)
on investments................................ 0.33
------
Total from Investment Operations:........... 0.97
------
Less Dividends:
Dividends from net investment income............ (0.62)
Dividends from net realized capital gains....... --
Dividends in excess of net realized
capital gains................................. --
------
Total Dividends:.............................. (0.62)
------
Net increase (decrease) in net asset value............ 0.35
------
Net Asset Value, End of Period........................ $10.35
======
Total Return.......................................... 10.04%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 7.25%(6)
Operating expenses including
reimbursement/waiver.......................... 0.95%(6)
Operating expenses excluding
reimbursement/waiver.......................... 0.95%(6)
Portfolio Turnover Rate............................... 145%(5)
</TABLE>
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
(3) Net investment income per share for Trust Shares before waiver of fees
by the Investment Adviser and/or Administrator for the years ended
October 31, 1996, 1995 and 1994 were $______, $0.62 and $0.63,
respectively.
(4) Net investment income per share before waiver of fees by the Investment
Adviser and/or Administrator for the years ended October 31, 1993, 1992
and 1991 were $0.63, $0.67 and $0.64, respectively.
(5) Not Annualized.
(6) Annualized.
-5-
<PAGE> 524
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current
income consistent with prudent risk of capital. The Fund will invest
substantially all of its assets in corporate debt obligations such as bonds
and debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and in
asset-backed and mortgage-backed securities. The Fund may also invest, from
time to time, in obligations issued by state or local governmental issuers
("municipal securities"). The purchase of municipal securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the performance of such securities, on a pretax basis, is
comparable to that of corporate or U.S. debt obligations. The Fund may enter
into interest rate futures contracts to hedge against changes in market values
of fixed-income instruments that the Fund holds or intends to purchase. See
"Other Investment Policies and Risk Considerations." At least 65% of the Fund's
total assets will be invested in non-convertible bonds. Any common stock
received through the conversion of convertible debt obligations will be sold in
an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are rated,
at the time of purchase, within the three highest rating categories of S&P (AAA,
AA and A) or Moody's (Aaa, Aa and A) (or, if unrated, are determined by the
Investment Adviser to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Unrated securities will be determined to be of
comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated A or
better. When, in the opinion of the Investment Adviser, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term "money market" instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition,the Fund may invest in debt obligations
-6-
<PAGE> 525
issued by Canadian Provincial Governments, which are similar to U.S. municipal
securities except that the income derived therefrom is fully subject to U.S.
Federal taxation. These instruments are denominated in U.S. dollars and have an
established over-the-counter market in the United States. The Fund may also
invest in debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction and development and international
banking institutions and related governmental agencies. Examples of those
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. The Fund may also invest
in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with the Investment Adviser's assessment of prospective
changes in interest rates. The success of this strategy depends upon the
Investment Adviser's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. The high quality credit
criteria applied to the selection of portfolio securities are intended to reduce
adverse price changes due to credit considerations. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the Fund's
investment objective, although such achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
-7-
<PAGE> 526
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
-8-
<PAGE> 527
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal Home Loan Banks, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject the Fund to additional risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and
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U.S. branches of foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks. The Fund
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when the Investment Adviser believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities which may be
held by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
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Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of municipal securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal Securities purchased by the Fund may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as
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banks and broker/dealers and agreeing to repurchase them at a mutually specified
date and price ("reverse repurchase agreements"). Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by the Investment Adviser.
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Interest Rate Futures Contracts
The Fund may enter into contracts (both purchases and sales) which
provide for the future delivery of fixed-income securities (commonly known as
interest rate futures contracts). The Fund will not engage in futures
transactions for speculation, but only to hedge against changes in the market
values of securities which the Fund hold or intend to purchase. The Fund will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the Securities and Exchange Commission
("SEC"). The purchase of futures instruments in connection with securities which
the Funds intend to purchase will require an amount of cash and/or U.S.
Government obligations, equal to the market value of the outstanding futures
contracts, to be deposited in a segregated account to collateralize the position
and thereby insure that the use of such futures is unleveraged. The Fund will
limit its hedging transactions in futures contracts so that, immediately after
any such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract is
traded does not exceed 5% of the Fund's total assets after taking into account
any unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of the Fund's total assets may be covered by
such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the ability
of the Investment Adviser to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, the Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which the Fund holds
or intends to purchase or may be unable to close a futures position in the event
of adverse price movements. Additional information concerning futures
transactions is contained in Appendix B to the Statement of Additional
Information.
When-Issued, Forward Commitment and Delayed Settlement
Transactions
The Fund may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. The Fund
may also purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and
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forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of the value
of the Fund's total assets absent unusual market conditions. In the event the
Fund's forward commitments, when-issued purchases and delayed settlements ever
exceeded 25% of the value of its total assets, the Fund's liquidity and the
ability of the Investment Adviser to manage the Fund may be adversely affected.
The Fund does not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of
their investment objectives.
Stand-by Commitments
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a stand-by commitment, a dealer agrees to
purchase, at the Fund's option, specified municipal securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by the Fund
would be valued at zero in determining the Fund's net asset value.
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent
pools of mortgage loans assembled for sale to investors by
various governmental agencies and government-related
organizations such as the Government National Mortgage
Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Mortgage-backed
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securities provide a monthly payment consisting of interest and principal
payments. Additional payment may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgaged-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercials banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rats
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values or
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date not exceeding
120 days. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward
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purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government securities or other liquid, high grade
debt securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom the Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, the Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value", and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the
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principal. If the underlying obligations experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by the Trust's Board of Trustees if they can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of net asset value per share.
Guaranteed Investment Contracts
The Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, the Fund
makes cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Fund will only purchase GICs that
are issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Fund's 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
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Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain "derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest rates, or indices, and include, but are not limited to, interest rate
futures and certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine in connection
with its day-to-day management of the Fund, how they will be used in furtherance
of the Fund's investment objective. It is possible, however, that the Investment
Adviser's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Fund will, because of the risks
discussed above, incur loss as a result of its investments in derivative
securities. See " Investment Objectives and Policies -- Derivative Securities"
in the Statement of Additional Information relating to the Fund for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate
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of portfolio turnover may result in the realization of substantial capital gains
and involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for Federal income tax purposes. See "Financial Highlights" and
"Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing (provided that the Fund may borrow pursuant to reverse
repurchase agreements in accordance with its investment policies and
in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the
value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
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4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be invested
without regard to this limitation.
In addition, the Fund may not purchase any securities which would
cause 25% or more of the value of the Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however that
(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Fund
intends to limit any borrowings (including Reverse Repurchase Agreements) to not
more than 10% of the value of its total assets at the time of such borrowing,
and (b) mortgage dollar rolls entered into by the Fund that are not accounted
for as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. The Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered illiquid if
the Investment Adviser has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
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PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share for purposes of pricing sales and
redemptions is calculated separately for each series of Shares by dividing the
value of all securities and other assets attributable to a particular series of
the Fund, less the liabilities attributable to Shares of that series of the
Fund, by the number of outstanding Shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
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PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans (such institutions ad plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that Galaxy's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part. The issuance of Trust Shares is recorded on the books of the Fund and
Trust Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts, (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information
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concerning the types of eligible Customer accounts and the related purchase and
redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirement with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by its Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by the Distributor. Payment
for redemption orders received by the Distributor on a Business Day will
normally be wired the following Business Day to the Institution. Payment for
redemption orders which are received on a non-Business Day will normally be
wired to the Institution on the next Business Day. However, in both cases Galaxy
reserves the right to wire redemption proceeds within seven days after receiving
the redemption order if, in its judgment, an earlier payment could adversely
affect the Fund.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily
and paid monthly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series,
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but may differ in amount because of the difference in the expenses paid by the
respective series. Net realized capital gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect
to have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
no part of any distribution will qualify for the dividends received deduction
for corporations.
Distribution by the Fund of the excess of its net long-term capital
gain over net short-term capital loss is taxable to shareholders as long-term
capital gain, regardless of how long
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the shareholder has held shares and whether such gains are received in cash or
reinvested in additional shares. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying Shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction
of Galaxy's Board of Trustees. The Statement of Additional Information contains
the names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $_____
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billion at December 31, 1996. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients; and manages other investment portfolios of Galaxy: the
Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term
Bond, Intermediate Government Income, Corporate Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and
in accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fee for the Fund is higher than fees paid by most other
mutual funds, although the Board of Trustees of Galaxy believes that it is not
higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Fund in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and other services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Fund so that it is entitled to receive an advisory fee at the
annual rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .__% of the Fund's average daily net assets.
Marie M. Schofield serves as portfolio manager of the Fund and is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Ms. Schofield, a
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<PAGE> 545
Vice President, has been with Fleet since 1991 and has been engaged in providing
investment management services for over twenty years. Ms. Schofield began
serving as co-portfolio manager of the Fund on March 1, 1996 and has been the
Fund's sole portfolio manager since April 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. For the services provided to the Fund, FDISG was entitled to
receive administration fees, computed daily and paid monthly, at the annual rate
of .09% of the first $2.5 billion of the combined average daily net assets of
the Portfolios, .085% of the next $2.5 billion of combined average daily net
assets and
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<PAGE> 546
.08% of combined average daily net assets over $5 billion. In addition, FDISG
also receives a separate annual fee from each Portfolio for certain fund
accounting services. From time to time, FDISG may waive all or a portion of the
administration fee payable to it by the Fund, either voluntarily or pursuant to
applicable statutory expense limitations. For the fiscal year ended October 31,
1996, FDISG received administration fees at the effective rate of .___% of the
Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class J-Series 1 shares (Trust Shares), Class J-Series 2 shares (Retail A
Shares) and Class J-Series 3 shares (Retail B Shares), each series representing
interests in the Fund. The Fund is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interest in the other portfolios of
Galaxy. For information regarding the Fund's Retail Shares and these other
portfolios, which are offered through separate prospectuses, contact the
Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Service Plan described below. Holders of the Fund's Retail B Shares
bear the fees described in the prospectus for such shares that are paid under
Galaxy's Distribution and Services Plan at an annual rate not to exceed .80% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, shares of each series in the Fund bear differing transfer agency
expenses. Standardized yield and total return quotations are computed separately
for each series of Shares. The difference in the expenses paid by the respective
series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
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<PAGE> 547
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and a
proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, to which
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A Shares and
are intended to supplement the services provided by FDISG as administrator and
transfer agent to the shareholders of record of Retail A Shares. Institutions
may also receive up to one-half of this fee providing one or more of the
following services to such Customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit
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<PAGE> 548
the payment under these servicing agreements for the Fund to no more than .15%
(on an annualized basis) of the average daily net asset value of the Retail A
Shares of the Fund beneficially owned by Customers of Institutions. Galaxy
understands that Institutions may charge fees to their Customers who are owners
of Retail A Shares in connection with their accounts with such Institutions. Any
such fees would be in addition to any amounts which may be received by an
Institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, Institutions are required to
provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each Participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New
York, New York 10081, a wholly-owned subsidiary of The Chase Manhattan
Corporation, serves as the custodian of the Fund's assets, and First Data
Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to FDISG should be directed to FDISG
at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
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<PAGE> 549
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Fund. Galaxy bears the expenses
incurred in the Fund's operations. Such expenses include taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, Rule 12b-1
distribution, fund accounting and custody fees; charges of the transfer agent
and dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholders'
reports and shareholder meetings; and any extraordinary expenses. The Fund also
pays for brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders,
the performance and yields of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant bond indexes or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Funds may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds. Performance and yield data as reported
in national financial publications including, but not limited to, Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times, or
publications of a local or regional nature, may also be used in comparing the
performance and yields of the Fund. The performance and yield data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily
net investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the
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<PAGE> 550
measuring period to the end of the measuring period. Average total return
figures will be given for the most recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well, such as from the
commencement of the Fund's operations, or on a year-by-year basis. The Fund may
also use "aggregate total return" figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specified
period. Both methods of calculating total return assume that dividend and
capital gain distributions made by the Fund during the period are reinvested in
Fund Shares.
Performance and yields of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged directly by Institutions with
respect to accounts of Customers that have invested in Trust Shares of the Fund
will not be included in calculations of yield and performance.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of either Galaxy or a particular Fund means, with
respect to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of the
Fund or Galaxy, or (b) 67% or more of the shares of the Fund or Galaxy present
at a meeting if more than 50% of the outstanding shares of the Fund or Galaxy
are represented at the meeting in person or by proxy.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance
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may compare to various market indices; shareholder profiles and hypothetical
investor scenarios; the economy; the financial and capital markets; investment
strategies and techniques; investment products; and tax, retirement and
investment planning.
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<PAGE> 552
TRUST
THE GALAXY FUND
Corporate Bond Fund
Prospectus
February 28, 1997
<PAGE> 553
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
EXPENSE SUMMARY.................................................. 1
FINANCIAL HIGHLIGHTS............................................. 3
INVESTMENT OBJECTIVE AND POLICIES................................ 5
In General................................................. 5
Special Risk Considerations................................ 6
Other Investment Policies and
Risk Considerations..................................... 8
INVESTMENT LIMITATIONS........................................... 19
PRICING OF SHARES................................................ 20
HOW TO PURCHASE AND REDEEM SHARES................................ 21
Distributor................................................ 21
Purchase of Shares......................................... 21
Purchase Procedures -- Customers of
Institutions............................................. 22
Purchase Procedures -- Direct Investors.................... 22
Other Purchase Information................................. 23
Redemption Procedures -- Customers of
Institutions............................................. 24
Redemption Procedures -- Direct Investors.................. 24
Other Redemption Information............................... 26
INFORMATION SERVICES............................................. 27
Galaxy Information Center.................................. 27
Voice Response System...................................... 27
Galaxy Shareholder Services................................ 27
DIVIDENDS AND DISTRIBUTIONS...................................... 28
TAXES............................................................ 28
Federal.................................................... 28
State and Local............................................ 29
MANAGEMENT OF THE FUND........................................... 29
Investment Adviser......................................... 30
Authority to Act as Investment Adviser..................... 31
Administrator.............................................. 31
DESCRIPTION OF GALAXY AND ITS SHARES............................. 32
Shareholder Services Plan.................................. 33
Affiliate Agreement for Sub-Account Services............... 34
CUSTODIAN AND TRANSFER AGENT..................................... 34
EXPENSES......................................................... 34
PERFORMANCE AND YIELD INFORMATION................................ 35
MISCELLANEOUS.................................................... 36
</TABLE>
<PAGE> 554
THE GALAXY FUND
4400 Computer Drive For applications and
Westboro, Massachusetts information regarding
01581-5108 initial purchases and current
performance, call
1-800-628-0414. For
additional purchases,
redemptions, exchanges and
other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares") which
represent interests in the CORPORATE BOND FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek a high level of current income
by investing primarily in investment-grade, fixed-income obligations. Subject to
this objective, the Fund's investment adviser will consider the total rate of
return on portfolio securities in managing the Fund. At least 65% of the Fund's
total assets will be invested in obligations of private and public corporations.
Under normal market and economic conditions, the Fund will invest substantially
all of its assets in investment grade debt obligations rated at the time of
purchase within the four highest rating categories of Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"). Retail A Shares will be offered under a separate Prospectus
primarily to individuals, corporations or other entities purchasing either for
their own accounts or for the accounts of others and to FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loans associations and broker/dealers on
behalf of their customers. As of the date of this Prospectus, however, Retail A
Shares of the Fund are not being offered by Galaxy and, accordingly, those
investors eligible to purchase Retail A Shares may currently purchase Trust
Shares of the Fund. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
<PAGE> 555
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc., and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 556
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses Trust Shares of the Fund expect to incur during the current fiscal
year. Examples based on the table are also shown.
<TABLE>
<CAPTION>
CORPORATE
BOND
SHAREHOLDER TRANSACTION EXPENSES FUND
- -------------------------------- ----
<S> <C>
Sales Load None
Sales Load on
Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(1) None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------
Advisory Fees
(After Fee Waivers) .__%
12b-1 Fees None
Other Expenses (After Fee
Waivers and Expense
Reimbursements) .__%
Total Fund Operating
Expenses (After Fee Waivers
and Expense Reimbursements) .__%
</TABLE>
- ---------------
(1) Direct Investors (as defined below under "How to Purchase and Redeem
Shares") are charged a $5.00 fee if redemption proceeds are paid by wire.
- ---------------
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Corporate Bond Fund $___ $___ $___ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust
<PAGE> 557
Shares. Without voluntary fee waivers and/or expense reimbursements by the
Investment Adviser and/or Administrator, Advisory Fees would be .75% , Other
Expenses would be ___% and Total Fund Operating Expenses would be ___% for Trust
Shares of the Fund. For more complete descriptions of these costs and expenses,
see "Management of the Fund" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees charged by affiliates of Fleet
Investment Advisors Inc. or any other institution directly to their customer
accounts for services related to an investment in Trust Shares of the Fund are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN.
-2-
<PAGE> 558
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of Shares in the Fund, Retail A Shares.
As described below under "Description of Galaxy and Its Shares," Trust Shares
and Retail A Shares represent equal pro rata interests in the Fund, except that
(i) Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of .15% of the average daily net
asset value of the Fund's outstanding Retail A Shares, and (ii) Trust Shares and
Retail A Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
[____________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
(______________________) into the Statement of Additional Information. More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-3-
<PAGE> 559
CORPORATE BOND FUND
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995(1)
---------------- -------------------
<S> <C>
Net Asset Value, Beginning
of period............................... $ 10.00
------
Income from Investment Operations:
Net investment income (2)............... 0.61
Net realized and unrealized gain
(loss) on investments................. 0.74
-----
Total from Investment Operations:... 1.35
-----
Less Dividends:
Dividends from net investment income.... (0.61)
Dividends from net realized capital gains --
-----
Total Dividends:.................... (0.61)
------
Net increase (decrease) in net asset
value................................... 0.74
------
Net Asset Value, End of period............ $ 10.74
======
Total Return.............................. 13.85%(3)
Ratios/Supplemental Data:
Net Assets, End of period (000's)......... $ 37,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 6.61%(4)
Operating expenses including
reimbursement/waiver.................. 1.06%(4)
Operating expenses excluding
reimbursement/waiver.................. 1.26%(4)
Portfolio Turnover Rate................... 41%(3)
</TABLE>
- ---------------------------
(1) The Fund commenced operations on December 12, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the fiscal year ended
October 31, 1996 and for the period ended October 31, 1995 were $_____ and
$0.57, respectively.
(3) Not Annualized.
(4) Annualized.
-4-
<PAGE> 560
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current income.
Subject to this objective, Fleet Investment Advisors Inc., the Fund's investment
adviser ("Fleet" or the "Investment Adviser"), will consider the total rate of
return on securities in managing the Fund. The Fund will invest at least 65% of
its total assets in corporate debt obligations, which shall mean obligations of
(i) domestic or foreign business corporations, which may be convertible into
common stock or other securities, or (ii) agencies, instrumentalities or
authorities which are organized in corporation form by one or more states or
political subdivisions in the United States or by one or more foreign
governments or political subdivisions. The value of convertible securities
fluctuates in relation to changes in interest rates like bonds and, in addition,
fluctuates in relation to the underlying common stock. The Fund may also invest
in obligations issued or guaranteed by the U.S. or foreign governments, their
agencies or instrumentalities, or by supranational banks or other organizations.
Examples of supranational banks include the International Bank for
Reconstruction and Development ("World Bank"), the Asian Development Bank and
the InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may invest, from time to time, in municipal securities. The
purchase of municipal securities may be advantageous when, as a result of their
tax status or prevailing economic, regulatory or other circumstances, the
performance of such securities is expected to be comparable to that of corporate
or U.S. debt obligations. The Fund may enter into interest rate futures
contracts to hedge against changes in market values. See "Other Investment
Policies and Risk Considerations." The Fund may also invest in money market
instruments. The Fund will not invest in common stock, and any common stock
received through the conversion of convertible debt obligations will be sold in
an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all (and not less than 95%) of its assets in debt obligations
rated, at the time of purchase, within the four highest rating categories of
S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) (or which, if unrated,
are determined by the Investment Adviser to be of comparable quality),
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and money market instruments. Debt obligations rated in the
fourth highest rating categories (BBB or Baa) possess speculative
characteristics and are more susceptible than those in the top three rating
-5-
<PAGE> 561
categories to changes in economic or other conditions that could lead to a
weakened capacity to make payments of interest and principal. In the event that
the rating of any debt obligation held by the Fund falls below the four highest
rating categories of S&P or Moody's, the Fund will not be obligated to dispose
of such investment obligation and may continue to hold the obligation as long as
(i) the value of all the debt obligations of the Fund which are rated below such
four highest rating categories does not exceed 5% of the Fund's net assets, and
(ii) in the opinion of the Investment Adviser, such investment is considered
appropriate under the circumstances. Unrated securities will be determined to be
of comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated BBB or
better. When, in the opinion of the Investment Adviser, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term "money market" instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in debt obligations of foreign issuers
such as foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risks and Considerations." The Fund may also
invest in dollar-denominated debt obligations of U.S. corporations issued
outside the United States.
The Investment Adviser expects that under normal market conditions, the
Fund's portfolio securities will have an average weighted maturity of three to
ten years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies" below
for information regarding additional investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the Fund's
investment objective, although its achievement cannot be assured. The investment
objective of the Fund may not be changed without the approval of the holders of
a majority of its outstanding shares (as defined under "Miscellaneous"). Except
as noted below under "Investment Limitations," the Fund's investment policies
may be changed without shareholder approval. An investor should not consider an
investment in the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities in the Fund can be
expected to vary inversely to changes in
-6-
<PAGE> 562
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Fund, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in the
Fund's net asset value.
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign issuers in general may be subject to
different accounting, auditing, reporting and recordkeeping standards than
those applicable to domestic companies, and securities of foreign issuers may
be less liquid and their prices more volatile than those of comparable domestic
issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's foreign securities in their local markets. Conversely, a
decrease in the value of the U.S. dollar will have the opposite effect of
magnifying the effect of increases and reducing the effect of decreases in the
prices of the Fund's foreign securities in their local markets. In addition to
favorable and
-7-
<PAGE> 563
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
The Fund's investments in obligations rated below the four highest ratings
of S&P and Moody's have different risks than investments in securities that are
rated "investment grade." Risk of loss upon default by the issuer is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment grade issuers. As a result, the
market price of such securities may be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
Foreign Investments
The Fund may invest in debt obligations of foreign issuers such as foreign
corporations and banks, as well as foreign governments and their political
subdivisions. Such investments may subject the Fund to special investment risks.
See "Special Risk Considerations" above. The Fund will not invest more than 20%
of its net assets in the securities of foreign issuers.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse exchange rate changes,
they involve a risk of loss if the Investment Adviser fails to predict foreign
currency values correctly.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit
-8-
<PAGE> 564
of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government- sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation, or by
a savings and loan association or savings bank which is insured by the Federal
Deposit Insurance Corporation. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations.
Investment in bank obligations is limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when the Investment Adviser believes that
the credit risk with respect to the instrument is minimal.
-9-
<PAGE> 565
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities which may be
held by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by
-10-
<PAGE> 566
the Investment Adviser under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
-11-
<PAGE> 567
Investment Company Securities
The Fund may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by the Investment Adviser.
Interest Rate Futures Contracts
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed-income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the Fund
intends to purchase will require an amount of cash and/or U.S. Government
obligations, equal to the market value of the outstanding futures contracts, to
be deposited in a segregated account to collateralize the position and thereby
insure that the use of such futures is unleveraged. The Fund will limit its
hedging transactions in futures contracts so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by the
Fund under the rules of the exchange on which the futures contract is traded
does not exceed 5% of the Fund's total assets after taking into account any
unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no
-12-
<PAGE> 568
more than one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the ability
of the Investment Adviser to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, the Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which the Fund holds
or intends to purchase or the Fund may be unable to close a futures position in
the event of adverse price movements. Additional information concerning futures
transactions is contained in Appendix B to the Statement of Additional
Information.
When-Issued, Forward Commitment and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of the value
of the Fund's total assets absent unusual market conditions. In the event the
Fund's forward commitments, when-issued purchases and delayed settlements ever
exceeded 25% of the value of its total assets, the Fund's liquidity and the
ability of the Investment Adviser to manage the Fund might be adversely
affected. The Fund does not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of its investment objectives.
-13-
<PAGE> 569
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund from investing in mortgage-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The
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rate of return on mortgage-backed securities may be affected by prepayments of
principal on the underlying loans, which generally increase as interest rates
decline; as a result, when interest rates decline, holders of these securities
normally do not benefit from appreciation in market value to the same extent as
holders of other non-callable debt securities. In addition, like other debt
securities, the values of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
To the extent that collateralized mortgage obligations are considered to
be investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date not exceeding
120 days. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash,
U.S. Government securities or other liquid, high grade debt securities in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom the Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument
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which the Fund is required to repurchase may be worth less than an instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon the Investment Adviser's ability to predict correctly interest rates
and mortgage prepayments. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, the Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by the Trust's Board of Trustees if they can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of net asset value per share.
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Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 15% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
Zero Coupon Bonds
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can be
very volatile when interest rates change. In calculating its daily dividend, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a U.S. Government agency or a corporation in zero coupon form.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, interest rate futures, certain asset-backed and mortgage-backed
securities, certain zero coupon bonds and currency forward contracts.
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<PAGE> 573
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leverging risk that, if interest or
exchange rate change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others,
and for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the derivative
securities purchased by the Fund, and will determine in connection with its
day-to-day management of the Fund, how they will be used in furtherance of the
Fund's investment objective. It is possible, however, that the Investment
Adviser's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Fund will, because of the risks
discussed above, incur loss as a result of its investments in derivative
securities. See " Investment Objectives and Policies -- Derivative Securities"
in the Statement of Additional Information relating to the Fund for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if the
Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover may result in the realization of substantial capital
gains and involves correspondingly greater transaction costs. To the extent that
net capital gains are realized, distributions derived from such gains are
treated as ordinary income for Federal income tax purposes. See "Taxes --
Federal."
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INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10% of
the value of its total assets at the time of such borrowing (provided that
the Fund may borrow pursuant to reverse repurchase agreements in
accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of
such borrowing.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven
days, restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in such issuer, except that up
to 25% of the value of its total assets may be invested without regard to
this limitation.
In addition, the Fund may not purchase any securities which would cause
25% or more of the value of its total assets at the
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time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be classified according to
their services. (For example, gas, gas transmission, electric and gas, electric
and telephone each will be considered a separate industry.)
With respect to Investment Limitation No. 2 above, (i) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (ii)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
The SEC has adopted Rule 144A which allows for a broader institutional
trading market for securities otherwise subject to restrictions on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act of 1933 for resales of certain securities to
qualified institutional buyers. The Fund's investment in Rule 144A securities
could have the effect of increasing the level of illiquidity of the Fund during
any period that qualified institutional buyers were no longer interested in
purchasing these securities. For purposes of the 15% limitation on purchases of
illiquid instruments described under Investment Limitation No. 3 above, Rule
144A securities will not be considered to be illiquid if the Investment Adviser
has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share of the Fund for purposes of pricing
sales and redemptions is
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<PAGE> 576
calculated separately for each series of Shares by dividing the value of all
securities and other assets attributable to a particular series of Shares of the
Fund, less the liabilities attributable to Shares of that series of the Fund, by
the number of outstanding Shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
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 (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
440 Financial Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of First Data Investor Services Group, Inc. The Distributor is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Distributor has established several procedures to enable different
types of investors to purchase Trust Shares of the Fund. Trust Shares may be
purchased by investors ("Customers") (i) who maintain qualified accounts at bank
and trust institutions, including subsidiaries of Fleet Financial Group, Inc.,
(ii) who are participants in employer-sponsored defined contribution plans, or
(iii) who are customers of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers (such
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institutions and plans are referred to herein collectively as "Institutions").
Trust Shares of the Fund may also be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
for their own accounts or for the accounts of others ("Direct Investors").
Purchases of Trust Shares will be effected only on days on which the
Distributor, Galaxy's custodian and Galaxy's transfer agent are open for
business ("Business Days"). If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the Distributor's procedures.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Trust Shares are placed by Customers of Institutions
through their Institution. The Institution is responsible for transmitting
Customer purchase orders to the Distributor and for wiring required funds in
payment to Galaxy's custodian on a timely basis. The Distributor is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Trust
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements provided
to their Customers. Galaxy's transfer agent may establish an account of record
for each Customer of an Institution reflecting beneficial ownership of Trust
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Trust Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Trust Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Trust Shares through their Institution should contact such entity (in the case
of employer-sponsored defined contribution plans, their employer) directly for
appropriate purchase instructions.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Trust Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to the Fund to:
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The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
Subsequent investments in an existing account may be made at any time by
sending a check payable to the Fund to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from the
Distributor, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
Purchases by Wire. Direct Investors may also purchase Trust Shares of the
Fund by arranging to transmit federal funds by wire to Fleet Bank of
Massachusetts, N.A. as agent for First Data Investor Services Group, Inc.
("FDISG"), Galaxy's transfer agent. Such purchases may only be made on days on
which the Distributor, Galaxy's custodian and Galaxy's transfer agent are open
for business. Prior to making any purchase by wire, an investor must telephone
1-800-628-0413 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA # 0110-0013-8
DDA # 79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
Direct Investors making initial investments by wire must promptly complete
a purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling the Distributor at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received. Direct Investors making
subsequent investments by wire should follow the instructions above.
OTHER PURCHASE INFORMATION
Although Galaxy does not impose any minimum initial or subsequent
investment requirement with respect to Trust Shares of
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the Fund, Institutions may impose such requirements on the accounts maintained
by their Customers, and may also require that Customers maintain minimum account
balances with respect to Trust Shares.
Galaxy reserves the right to reject any purchase order, in whole or in
part. The issuance of Trust Shares to Direct Investors and Institutions is
recorded on the books of Galaxy and Share certificates will not be issued.
Effective Time of Purchases. A purchase order for Trust Shares received
and accepted by the Distributor from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their Institution. It is the
responsibility of the Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge their Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the third Business Day to the Institution. However, Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Trust Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
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The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number of Shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the Trust Shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 90 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. The Distributor will not
accept guarantees from notaries public. the Distributor may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until the Distributor receives all required documents in
proper form. The Fund ordinarily will make payment for Trust Shares redeemed by
mail within three Business Days after proper receipt by the Distributor of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to the Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Trust Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail" above for
details regarding signature guarantees.)
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem Trust
Shares by instructing the Distributor by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the
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<PAGE> 581
same bank and account as designated on the application or in written
instructions subsequently received by the Distributor. To request redemption of
Trust Shares by wire, Direct Investors should call the Distributor at
1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy, at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Trust Shares by wire
or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone transactions, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
No redemption by a Direct Investor will be processed until Galaxy has
received a completed application with respect to the Direct Investor's account.
If any portion of the Trust Shares to be redeemed represents an investment
made by personal check, Galaxy reserves the right to delay payment of proceeds
until the Distributor is reasonably satisfied that the check has been collected
which could take up to 15 days from the purchase date. A Direct Investor who
anticipates the need for more immediate access to his or her investment should
purchase Trust Shares by federal funds or bank wire or by certified or cashier's
check. Banks normally impose a charge in connection with the use of bank wires,
as well as certified checks, cashier's checks and federal funds.
OTHER REDEMPTION INFORMATION
If an investor has agreed with a particular Institution to maintain a
minimum balance in his or her account at the
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Institution with respect to Trust Shares of the Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her Shares.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Galaxy reserves the
right to wire redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
the Fund.
INFORMATION SERVICES
GALAXY INFORMATION CENTER - 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described above under "How To Purchase and Redeem Shares." To access the Voice
Response System, just call 1-800-FOR-GLXY (367-4599) from any touch-tone
telephone and follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information, Direct Investors can call Galaxy Shareholder
Services Monday through Friday, between the hours of 9:00 a.m. to 5:00 p.m.
(Eastern Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions
so that an investor's Trust Shares, when redeemed, may be worth more or less
than their original cost. Past performance is no guarantee of future results.
Unless otherwise indicated, total return figures include changes in share price,
and reinvestment of dividends and capital gains distributions, if any.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and
paid monthly. Dividends on each Share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Trust
Shares of the Fund at the net asset value of such Shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent and will become effective with respect to dividends
paid after its receipt. The crediting and payment of dividends to Customers of
Institutions will be in accordance with the procedures governing such Customers'
accounts at their Institution.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code"). Such qualification generally relieves the Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
no part of any
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distribution will qualify for the dividends received deduction for corporations.
Distribution by the Fund of the excess of net long-term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholder has held shares and whether such
gains are received in cash or reinvested in additional Trust Shares. Such
distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying Shares of the Fund on or just before the
record date of a capital gain distribution, you should be aware that the amount
of the forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of Shares of the Fund depending upon the tax basis of such
Shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
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<PAGE> 585
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Fund. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets of approximately $____ billion at
December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Tax-Exempt Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
the Investment Adviser is entitled to receive advisory fees, computed daily and
paid monthly, at an annual rate of .75% of the average daily net assets of the
Fund. The fee for the Fund is higher than fees paid by most other mutual funds,
although the Board of Trustees of Galaxy believes that it is not higher than
average advisory fees paid by funds with similar investment objectives and
policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Fund in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc., in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. For the fiscal year ended October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rate of ____%
of the Fund's average daily net assets.
The Fund's portfolio manager, David Lindsay, is primarily responsible for
the day-to-day management of the Fund's investment portfolio. Mr. Lindsay, a
Senior Vice President
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<PAGE> 586
has been with Fleet and its predecessors since 1986 and has been the Fund's
portfolio manager since its inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5180, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at an annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996 for the services provided to the
Fund, FDISG was entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Portfolios, .085% of the next $2.5 billion of
combined average daily net assets and .08% of combined average daily net
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<PAGE> 587
assets over $5 billion. In addition, FDISG also receives a separate annual fee
from each Portfolio for certain fund accounting services. From time to time,
FDISG may waive all or a portion of the administration fee payable to it by the
Fund, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, the Fund paid FDISG
administration fees at the effective annual rate of .____% of its average daily
net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes of shares. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of Shares in each of two series in the Fund as follows: Class
T-Series 1 shares (Trust Shares) and Class T-Series 2 shares (Retail A Shares),
both series representing interests in the Fund. The Fund is classified as a
diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Retail A Shares and these other portfolios, which are offered through separate
prospectuses, contact the Distributor at 1-800-628-0414. As of the date of this
Prospectus, Retail A Shares of the Fund are not being offered to investors.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, Shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of Shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
Fund with other Shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to
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<PAGE> 588
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and a
proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to the servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the average
daily net asset value of Retail A Shares owned beneficially by Customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such Customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in Galaxy's Statement of Additional
Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to not more
than .15% (on an annualized basis) of the average daily net
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<PAGE> 589
asset value of the Retail A Shares of the Fund beneficially owned by Customers
of Institutions. Galaxy understands that Institutions may charge fees to their
Customers who are the beneficial owners of Retail A Shares in connection with
their accounts with such Institutions. Any such fees would be in addition to any
amounts which may be received by an Institution under the Shareholder Services
Plan. Under the terms of each servicing agreement entered into with Galaxy,
Institutions are required to provide to their Customers a schedule of any fees
that they may charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of the
Investment Adviser, pursuant to which Fleet Bank performs certain sub-account
and administrative functions ("Sub- Account Services") on a per account basis
with respect to Trust Shares of the Fund held by defined contribution plans,
including maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and the
dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to that
sub-account; and transmitting to each participant a periodic statement regarding
the sub-account as well as any proxy materials, reports and other material Fund
communications. Fleet Bank is compensated by FDISG for the Sub-Account Services
and in connection therewith the transfer agency fees payable by Trust Shares of
the Fund to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of the Fund indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by both entities for the Fund are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
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<PAGE> 590
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Fund. Galaxy bears the expenses
incurred in the Fund's operations. Such expenses include taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial publications
including, but not limited to, Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times, or publications of a local or regional nature,
may also be used in comparing the performance and yields of the Fund. The
performance and yield data will be calculated separately for the Trust Shares
and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
returns," over various periods of time. Such total return figures reflect the
average percentage change in the value
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<PAGE> 591
of an investment in the Fund from the beginning date of the measuring period to
the end of the measuring period. Average total return figures will be given for
the most recent one-, five- and ten-year periods (if applicable), and may be
given for other periods as well, such as from the commencement of the Fund's
operations, or on a year-by-year basis. The Fund may also use "aggregate total
return" figures for various periods, representing the cumulative change in the
value of an investment in the Fund for the specified period. Both methods of
calculating total return assume that dividend and capital gains distributions
made by the Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
Any additional fees charged by Institutions to accounts of Customers that
have invested in Trust Shares of the Fund will not be included in calculations
of yield and performance.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or
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<PAGE> 592
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of Galaxy or such Fund, or (b)
67% or more of the shares of Galaxy or such Fund present at a meeting if more
than 50% of the outstanding shares of Galaxy or such Fund are represented at the
meeting in person or by proxy.
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<PAGE> 593
RETAIL A SHARES
THE GALAXY FUND
Corporate Bond Fund
Prospectus
February 28, 1997
<PAGE> 594
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
----------------
TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS.......................................................... 3
EXPENSE SUMMARY..................................................... 6
FINANCIAL HIGHLIGHTS................................................ 8
INVESTMENT OBJECTIVE AND POLICIES................................... 10
In General................................................. 10
Special Risk Considerations................................ 12
Other Investment Policies and
Risk Considerations..................................... 13
INVESTMENT LIMITATIONS.............................................. 24
PRICING OF SHARES................................................... 25
HOW TO PURCHASE AND REDEEM SHARES................................... 26
Distributor................................................ 26
Purchase of Shares......................................... 26
Public Offering Price...................................... 27
Quantity Discounts......................................... 29
Purchase Procedures -- Customers of
Institutions............................................. 31
Purchase Procedures -- Direct Investors.................... 31
Other Purchase Information................................. 32
Redemption Procedures -- Customers of
Institutions............................................. 33
Redemption Procedures -- Direct Investors.................. 34
Other Redemption Information............................... 36
INVESTOR PROGRAMS................................................... 36
Exchange Privilege......................................... 36
Retirement Plans........................................... 38
Automatic Investment Program and Systematic
Withdrawal Plan.......................................... 38
Payroll Deduction Program.................................. 39
College Investment Program................................. 39
Direct Deposit Program..................................... 40
INFORMATION SERVICES................................................ 40
Galaxy Information Center - 24 Hour
Information Service...................................... 40
Voice Response System...................................... 40
Galaxy Shareholder Services................................ 40
DIVIDENDS AND DISTRIBUTIONS......................................... 41
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<PAGE> 595
PAGE
----
TAXES............................................................... 41
Federal.................................................... 41
State and Local............................................ 43
MANAGEMENT OF THE FUND.............................................. 43
Investment Adviser......................................... 43
Authority to Act as Investment Adviser..................... 44
Administrator.............................................. 44
DESCRIPTION OF GALAXY AND ITS SHARES................................ 45
Shareholder Services Plan.................................. 46
Affiliate Agreement for Sub-Account Services............... 47
CUSTODIAN AND TRANSFER AGENT........................................ 47
EXPENSES............................................................ 48
PERFORMANCE AND YIELD INFORMATION................................... 48
MISCELLANEOUS....................................................... 50
-ii-
<PAGE> 596
THE GALAXY FUND
4400 Computer Drive For applications and
Westboro, Massachusetts information regarding
01581-5108 initial purchases and current
performance, call
1-800-628-0414. For
additional purchases,
redemptions, exchanges and
other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Retail A
Shares"), which represent interests in the CORPORATE BOND FUND (the "Fund")
offered by Galaxy.
The Fund's investment objective is to seek a high level of current
income by investing primarily in investment-grade, fixed-income obligations.
Subject to this objective, the Fund's investment adviser will consider the
total rate of return on portfolio securities in managing the Fund. At least 65%
of the Fund's total assets will be invested in obligations of private and
public corporations. Under normal market and economic conditions, the Fund will
invest substantially all of its assets in investment grade debt obligations
rated at the time of purchase within the four highest rating categories of
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") or which, if unrated, are of comparable quality) and in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and "money market" instruments.
The Retail A Shares described in this Prospectus are offered to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). Retail A
Shares may also be purchased directly by individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing either for
their own accounts or for the accounts of others ("Direct Investors"). Galaxy is
also authorized to issue an additional series of shares in the Fund ("Trust
Shares"), which are offered under a separate Prospectus primarily to investors
maintaining qualified accounts at bank and trust institutions affiliated with
Fleet Financial Group, Inc. and to participants in employer-sponsored defined
contribution plans. Retail A Shares and Trust Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights", "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
<PAGE> 597
The Fund is advised by Fleet Investment Advisors Inc. (the
"Investment Adviser" or "Fleet") and sponsored and distributed by
440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
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<PAGE> 598
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's CORPORATE BOND FUND. Prospectuses for
Galaxy's MONEY MARKET, GOVERNMENT, TAX-EXEMPT, U.S. TREASURY, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
TREASURY MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL
EQUITY, SMALL COMPANY EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND
INCOME, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND,
TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND,
MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS may be
obtained by calling 1-800-628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc. ("Fleet"
or the "Investment Adviser"), an indirect wholly-owned subsidiary of Fleet
Financial Group, Inc. Fleet Financial Group, Inc. is a financial services
company with total assets as of December 31, 1996 of approximately $____
billion. See "Management of the Fund -- Investment Adviser."
Q: What advantages does the Fund offer?
A: The Fund offers investors the opportunity to invest in a
professionally managed investment portfolio without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Fund also offers the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How does one buy and redeem shares?
A: The Fund is distributed by 440 Financial Distributors, Inc. Retail A
Shares of the Fund are sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Retail Shares may
also be purchased on behalf of customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares may also be purchased by
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<PAGE> 599
employees of Fleet Financial Group, Inc. and its affiliates through payroll
deductions. Retail A Shares of the Fund may be purchased at their net asset
value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .15% of the average
daily net asset value of such shares. Share purchase and redemption information
for both Direct Investors and Customers is provided below under "How to Purchase
and Redeem Shares." Except as provided below under "Investor Programs," the
minimum initial investment for Direct Investors and the minimum initial
aggregate investment for Institutions purchasing on behalf of their Customers is
$2,500. The minimum investment for subsequent purchases is $100. There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. The minimum initial investment in the
College Investment program described below is $100 ($50 minimum per transaction
if the investment is made through the Automatic Investment Program).
Institutions may require Customers to maintain certain minimum investments in
Retail A Shares. See "How to Purchase and Redeem Shares" below.
Q: When are dividends paid?
A: Dividends from net investment income of the Fund are declared daily
and paid monthly. Net realized capital gains of the Fund are distributed at
least annually. See "Dividends and Distributions."
Q: What potential risks are presented by the Fund's
investment practices?
A: The Fund invests at least 65% of its assets in corporate debt
obligations, which may be convertible into common stock or other securities,
rated within the four highest rating categories of S&P or Moody's. Debt
obligations rated in the fourth highest rating category are more susceptible
than those in the top three rating categories to changes in economic or other
conditions that could lead to a weakened capacity to make payments of principal
and interest. The Fund may invest in the debt obligations of foreign companies,
which may be convertible into common stock or other securities, and in
obligations issued or guaranteed by foreign governments or any of their
political sub-divisions or instrumentalities. The Fund may lend its securities
and enter into repurchase agreements and reverse repurchase agreements with
qualifying banks and broker/dealers. In addition, the Fund may enter into
interest rates futures contracts. The Fund may purchase securities on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed settlement" basis. The value of the Fund's portfolio
securities will generally vary inversely with changes in prevailing interest
rates. See "Investment Objective and Policies."
-4-
<PAGE> 600
Q: What shareholder privileges are offered by the Fund?
A: Investors may exchange Retail A Shares of the Fund having a value of
at least $100 for Retail A Shares of any other portfolio offered by Galaxy in
which the investor has an existing account. Galaxy offers Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plan ("SEP") and Keogh Plan
accounts, which can be established by contacting Galaxy's distributor. Retail
Shares are also available for purchase through Multi-Employee Retirement Plan
("MERP") accounts which can be established by customers directly with Fleet
Brokerage Securities, Inc. or its affiliates. Galaxy also offers an Automatic
Investment Program which allows investors to automatically invest in Retail A
Shares on a monthly basis, as well as other shareholder privileges. See
"Investor Programs."
-5-
<PAGE> 601
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Fund with respect to its Retail A Shares and (ii) the
operating expenses the Fund expects to incur during the current fiscal year with
respect to its Retail A Shares. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
CORPORATE
BOND
FUND
(RETAIL
SHAREHOLDER TRANSACTION EXPENSES SHARES)
- ------------------------------- -------
<S> <C>
Maximum Front-End Sales Charge Imposed
on Purchases (on a percentage of
offering price) 3.75%(1)
Maximum Front-End Sales Charge Imposed
on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(2) None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
---------------------------------------
Advisory Fees
(After Fee Waivers) .__%
12b-1 Fees None
Other Expenses (After Fee Waivers and
Expense Reimbursements) . %
Total Fund Operating
Expenses (After Fee Waivers and
Expense Reimbursements) . %
====
</TABLE>
- ---------------
(1) Reduced front-end sales charges may be available. See "How
to Purchase and Redeem Shares -- Public Offering Price" and
"How to Purchase and Redeem Shares -- Quantity Discounts."
(2) Direct Investors are charged a $5.00 fee if redemption
proceeds are paid by wire.
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING
(1) A 5% ANNUAL RETURN, AND (2) REDEMPTION OF YOUR INVESTMENT AT THE END OF THE
FOLLOWING PERIODS:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Corporate Bond Fund $___ $___ $___ $___
</TABLE>
The Expense Summary and Example are intended to assist the investor in
understanding the costs and expenses that an investor in Retail A Shares of the
Fund will bear directly or indirectly.
-6-
<PAGE> 602
The information contained in the Expense Summary and Example is based on
expenses the Fund expects to incur during the current fiscal year on its Retail
A Shares. Without voluntary fee waivers and/or expense reimbursements by the
Investment Adviser and/or Administrator, Advisory Fees would be .75%, Other
Expenses would be ___% and Total Fund Operating Expenses would be ____% for
Retail A Shares of the Fund. See "How to Purchase and Redeem Shares -- Public
Offering Price" and "How to Purchase and Redeem Shares -- Quantity Discounts."
For more complete descriptions of these costs and expenses, see "Management of
the Fund" and "Description of Galaxy and Its Shares" in this Prospectus. Any
fees that are charged by affiliates of Fleet or other Institutions directly to
their Customer accounts for services related to an investment in Retail Shares
of the Fund are in addition to and not reflected in the fees and expenses
described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN.
-7-
<PAGE> 603
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in the Fund. Galaxy is
also authorized to issue an additional series of Shares in the Fund, Trust
Shares, which are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Retail A Shares and Trust Shares
represent equal pro rata interests in the Fund, except that (i) Retail A Shares
of the Fund bear the expenses incurred under Galaxy's Shareholder Services Plan
at an annual rate of up to .15% of the average daily net asset value of the
Fund's outstanding Retail A Shares, and (ii) Retail A Shares and Trust Shares
bear differing transfer agency expenses.
During the periods shown in the financial highlights presented below,
the Fund offered only Trust Shares. The financial highlights set forth certain
historic investment results of the Trust Shares of the Fund and is intended to
give you a longer term perspective of the Fund's financial history. The
financial highlights presented below have been audited by [___________],
Galaxy's independent accountants, whose report is contained in Galaxy's Annual
Report to Shareholders relating to the Fund dated October 31, 1996 (the "Annual
Report"). Such financial highlights should be read in conjunction with the
financial statements contained in the Annual Report and (___________________)
into the Statement of Additional Information. More information about the
performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
-8-
<PAGE> 604
CORPORATE BOND FUND
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995(1)
---------------- -------------------
<S> <C>
Net Asset Value, Beginning of Period................................... $ 10.00
---------
Income from Investment Operations:
Net investment income(2)......................................... 0.61
Net realized and unrealized gain
(loss) on investments............................................. 0.74
---------
Total from Investment Operations:.............................. 1.35
---------
Less Dividends:
Dividends from next investment income............................ (0.61)
Dividends from net realized capital gains........................ --
---------
Total Dividends................................................ (0.61)
---------
Net increase (decrease) in net asset value............................. 0.74
---------
Net Asset Value, End of Period......................................... $ 10.74
=========
Total Return........................................................... 13.85%(3)
Ratios/Supplemental Data:
Net assets, End of Period (000s)................................. $ 37,391
Ratio to average net assets:
Net investment income including
reimbursement/waiver............................................ 6.61%(4)
Operating expenses including
reimbursement/waiver......................................... 1.06%(4)
Operating expenses excluding
reimbursement/waiver......................................... 1.26%(4)
Portfolio Turnover Rate.......................................... 41%(3)
</TABLE>
(1) The Fund commenced operations on December 12,1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the fiscal year ended
October 31, 1996 and for the period ended October 31, 1995 were $______
and $0.57, respectively.
(3) Not Annualized.
(4) Annualized.
-9-
<PAGE> 605
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current
income. Subject to this objective, the Investment Adviser will consider the
total rate of return on securities in managing the Fund. The Fund will invest
at least 65% of its total assets in corporate debt obligations, which shall
mean obligations of (i) domestic or foreign business corporations, which may be
convertible into common stock or other securities, or (ii) agencies,
instrumentalities or authorities which are organized in corporation form by one
or more states or political subdivisions in the United States or by one or more
foreign governments or political subdivisions. The value of convertible
securities fluctuates in relation to changes in interest rates like bonds and,
in addition, fluctuates in relation to the underlying common stock. The Fund
may also invest in obligations issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities, or by supranational banks or
other organizations. Examples of supranational banks include the International
Bank for Reconstruction and Development ("World Bank"), the Asian Development
Bank and the InterAmerican Development Bank. Obligations of supranational banks
may be supported by appropriated but unpaid commitments of their member
countries and there is no assurance that those commitments will be undertaken
or met in the future. The Fund may invest, from time to time, in municipal
securities. The purchase of municipal securities may be advantageous when, as a
result of their tax status or prevailing economic, regulatory or other
circumstances, the performance of such securities is expected to be comparable
to that of corporate or U.S. debt obligations. The Fund may enter into interest
rate futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations." The Fund may also invest in money
market instruments. The Fund will not invest in common stock, and any common
stock received through the conversion of convertible debt obligations will be
sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will
invest substantially all (and not less than 95%) of its assets in debt
obligations rated, at the time of purchase, within the four highest rating
categories of S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) (or
which, if unrated, are determined by the Investment Adviser to be of comparable
quality), obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and money market instruments. Debt obligations rated in
the fourth highest rating categories (BBB or Baa) possess speculative
characteristics and are more susceptible than those in the top three rating
categories to changes in economic or other conditions that could lead to a
weakened capacity to make payments of interest and
-10-
<PAGE> 606
principal. In the event that the rating of any debt obligation held by the Fund
falls below the four highest rating categories of S&P or Moody's, the Fund will
not be obligated to dispose of such investment obligation and may continue to
hold the obligation as long as (i) the value of all the debt obligations of the
Fund which are rated below such four highest rating categories does not exceed
5% of the Fund's net assets, and (ii) in the opinion of the Investment Adviser,
such investment is considered appropriate under the circumstances. Unrated
securities will be determined to be of comparable quality to rated debt
obligations if, among other things, other outstanding obligations of the issuers
of such securities are rated BBB or better. When, in the opinion of the
Investment Adviser, a defensive investment posture is warranted, the Fund may
invest temporarily and without limitation in high quality, short-term "money
market" instruments. See Appendix A to the Statement of Additional Information
for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in debt obligations of
foreign issuers such as foreign corporations and banks, as well as foreign
governments and their political subdivisions. Such investments may subject the
Fund to special investment risks. See "Special Risks and Considerations." The
Fund may also invest in dollar-denominated debt obligations of U.S. corporations
issued outside the United States.
The Fund may enter into currency forward contracts (agreements
to exchange one currency for another at a future date) to manage currency risks
and to facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse rate changes, they
involve a risk of loss if the Investment Adviser fails to predict foreign
currency values correctly.
The Investment Adviser expects that under normal market
conditions, the Fund's portfolio securities will have an average weighted
maturity of three to ten years.
The value of the Fund's portfolio securities will generally
vary inversely with changes in prevailing interest rates. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the Fund's
investment objective, although its achievement cannot be assured. The investment
objective of the Fund may not be changed without the approval of the holders of
a majority of its outstanding shares (as defined under "Miscellaneous"). Except
as noted below under "Investment Limitations," the Fund's investment policies
may be changed without shareholder approval. An investor should not consider an
investment in the Fund to be a complete investment program.
-11-
<PAGE> 607
SPECIAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, in the Fund can
be expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised primarily of fixed income securities, such as the Fund, will tend to
increase, and during periods of rising interest rates, the market value will
tend to decrease. In addition, during periods of declining interest rates, the
yields of investment portfolios comprised primarily of fixed income securities
will tend to be higher than prevailing market rates and, in periods of rising
interest rates, yields will tend to be somewhat lower. Fixed income securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in the Fund's net asset value.
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign issuers in general may be subject to
different accounting, auditing, reporting and recordkeeping standards than
those applicable to domestic companies, and securities of foreign issuers may
be less liquid and their prices more volatile than those of comparable domestic
issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's foreign securities in their local markets. Conversely, a
-12-
<PAGE> 608
decrease in the value of the U.S. dollar will have the opposite effect of
magnifying the effect of increases and reducing the effect of decreases in the
prices of the Fund's foreign securities in their local markets. In addition to
favorable and unfavorable currency exchange-rate developments, the Fund is
subject to the possible imposition of exchange control regulations or freezes on
convertibility of currency.
The Fund's investments in obligations rated below the four highest
ratings of S&P and Moody's have different risks than investments in securities
that are rated "investment grade." Risk of loss upon default by the issuer is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment grade issuers. As a result, the
market price of such securities may be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
Foreign Investments
The Fund may invest in debt obligations of foreign issuers such as
foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations" above. The Fund will not
invest more than 20% of its net assets in the securities of foreign issuers.
The Fund may enter into currency forward contracts (agreements to
exchange one currency for another at a future date) to manage currency risks
and to facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse exchange rate changes,
they involve a risk of loss if the Investment Adviser fails to predict foreign
currency values correctly.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years;
-13-
<PAGE> 609
and Treasury Bonds generally have initial maturities of more than 10 years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government- sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject the Fund to additional risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches
-14-
<PAGE> 610
of U.S. banks only when the Investment Adviser believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to the third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Types of Municipal Securities
The two principal classifications of municipal securities which may be
held by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified
-15-
<PAGE> 611
date and price ("repurchase agreements"). Repurchase agreements will be entered
into only with financial institutions such as banks and broker/dealers which are
deemed to be creditworthy by the Investment Adviser under guidelines approved by
Galaxy's Board of Trustees. The Fund will not enter into repurchase agreements
with Fleet or any of its affiliates. Unless a repurchase agreement has a
remaining maturity of seven days or less or may be terminated on demand by
notice of seven days or less, the repurchase agreement will be considered an
illiquid security and will be subject to the 15% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
-16-
<PAGE> 612
Investment Company Securities
The Fund may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by the Investment Adviser.
Interest Rate Futures Contracts
The Fund may enter into contracts (both purchases and sales) which
provide for the future delivery of fixed-income securities (commonly known as
interest rate futures contracts). The Fund will not engage in futures
transactions for speculation, but only to hedge against changes in the market
values of securities which the Fund holds or intends to purchase. The Fund will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the Securities and Exchange Commission
("SEC"). The purchase of futures instruments in connection with securities which
the Fund intends to purchase will require an amount of cash and/or U.S.
Government obligations, equal to the market value of the outstanding futures
contracts, to be deposited in a segregated account to collateralize the position
and thereby insure that the use of such futures is unleveraged. The Fund will
limit its hedging transactions in futures contracts so that, immediately after
any such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract is
traded does not exceed 5% of the Fund's total assets after taking into account
any unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no
-17-
<PAGE> 613
more than one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the
ability of the Investment Adviser to predict correctly movements in the
direction of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, the Fund may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which the Fund holds or intends to purchase or the Fund may be
unable to close a futures position in the event of adverse price movements.
Additional information concerning futures transactions is contained in Appendix
B to the Statement of Additional Information.
When-Issued, Forward Commitment and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. The Fund may
also purchase or sell securities on a "delayed settlement" basis. When-issued
and forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. It is expected that forward commitments, when
issued purchases and delayed settlements will not exceed 25% of the value of the
Fund's total assets absent unusual market conditions. In the event the Fund's
forward commitments, when-issued purchases and delayed settlements ever exceeded
25% of the value of its total assets, the Fund's liquidity and the ability of
the Investment Adviser to manage the Fund might be adversely affected. The Fund
does not intend to engage in when- issued purchases, forward commitments and
delayed settlements for speculative purposes, but only in furtherance of its
investment objectives.
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<PAGE> 614
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund from investing in mortgage-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purpose entities. These private mortgage-backed securities may be supported by
U.S. Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The
-19-
<PAGE> 615
rate of return on mortgage-backed securities may be affected by prepayments of
principal on the underlying loans, which generally increase as interest rates
decline; as a result, when interest rates decline, holders of these securities
normally do not benefit from appreciation in market value to the same extent as
holders of other non-callable debt securities. In addition, like other debt
securities, the values of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
To the extent that collateralized mortgage obligations are considered
to be investment companies, investments in such obligations will be subject to
the percentage limitations described under "Investment Company Securities"
above.
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the
Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government securities or other liquid, high grade
debt securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to
treat mortgage dollar rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
Mortgage dollar rolls involve certain risks. If the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities may be
restricted and the instrument
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<PAGE> 616
which the Fund is required to repurchase may be worth less than an instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon the Investment Adviser's ability to predict correctly interest rates
and mortgage prepayments. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
Stripped Obligations
To the extent consistent with its investment objective, the Fund may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers such as banks and
other institutions are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool
of mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting entirely of principal payments generally is extremely
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS which are not issued by the
U.S. Government (or a U.S. Government agency or instrumentality) are considered
illiquid by the Fund. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by the Trust's Board of Trustees
if they can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of net asset value per
share.
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<PAGE> 617
Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Fund's 15% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
Zero Coupon Bonds
Zero coupon bonds do not make interest payments; instead, they are sold
at a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their prices
can be very volatile when interest rates change. In calculating its daily
dividend, the Fund takes into account as income a portion of the difference
between a zero coupon bond's purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a U.S. Government agency or a corporation in zero coupon form.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain derivative securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, interest rate futures, certain asset-backed and mortgage-backed
securities, certain zero coupon bonds and currency forward contracts.
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<PAGE> 618
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine in connection
with its day-to-day management of the Fund, how they will be used in furtherance
of the Fund's investment objective. It is possible, however, that the Investment
Adviser's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Fund will, because of the risks
discussed above, incur loss as a result of its investments in derivative
securities. See " Investment Objectives and Policies -- Derivative Securities"
in the Statement of Additional Information relating to the Fund for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover may result in the realization of substantial capital
gains and involves correspondingly greater transaction costs. To the extent that
net capital gains are realized, distributions derived from such gains are
treated as ordinary income for Federal income tax purposes. See "Taxes --
Federal."
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<PAGE> 619
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of its
total assets at the time of such borrowing.
3. Invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be invested
without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause
25% or more of the value of its total assets at the
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<PAGE> 620
time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be classified according to
their services. (For example, gas, gas transmission, electric and gas, electric
and telephone each will be considered a separate industry.)
With respect to Investment Limitation No. 2 above, (i) the Fund intends
to limit any borrowings (including reverse repurchase agreements) to not more
than 10% of the value of its total assets at the time of such borrowing, and
(ii) mortgage dollar rolls entered into by the Fund that are not accounted for
as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A
which allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. The Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if the Investment Adviser has determined, in accordance with guidelines
established by the Board of Trustees, that an adequate trading market exists for
such securities.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share of the Fund for purposes of pricing
sales and redemptions is
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<PAGE> 621
calculated separately for each series of Shares by dividing the value of all
securities and other assets attributable to a particular series of Shares of the
Fund, less the liabilities attributable to Shares of that series of the Fund, by
the number of outstanding Shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Distributor has established several procedures to enable different
types of investors to purchase Retail A Shares of the Fund. The Retail A Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail A Shares may also be purchased by FIS Securities, Inc.,
Fleet Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations and broker/dealers
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<PAGE> 622
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the Distributor, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by the
Distributor on a Business Day in accordance with the Distributor's procedures.
Retail A Shares of the Fund will be issued only in exchange for monetary
consideration as described below.
PUBLIC OFFERING PRICE
The public offering price for Retail A Shares of the Fund is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
------------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- --------- --------------- ---------
<S> <C> <C> <C>
Less than
$50,000.................... 3.75 3.90 3.75
$50,000 but less than
$100,000................... 3.50 3.63 3.50
$100,000 but less than
$250,000................... 3.00 3.09 3.00
$250,000 but less than
$500,000................... 2.50 2.56 2.50
$500,000 but less than
$1,000,000................. 2.00 2.04 2.00
$1,000,000 but less than
$3,000,000................. 1.00 1.01 1.00
$3,000,000 and
over....................... 0.50 0.50 0.50
</TABLE>
Further reductions in the sales charges shown above are also possible.
See "Quantity Discounts" below.
The Distributor will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by the Distributor, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions.
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<PAGE> 623
Payments made under such programs will be made by the Distributor out of its own
assets and not out of the assets of the Fund. These programs will not change the
price of Retail A Shares or the amount that the Fund will receive from such
sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of
Fleet, may at its expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail A Shares of a Fund. Such compensation will not represent an
additional expense to the Funds or their shareholders, since it will be paid
from the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Fund may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. No sales
charge is assessed on the following types of transactions and/or investors:
- reinvestment of dividends and distributions;
- purchases by IRA, SEP and Keogh Plan accounts that were
beneficial owners of shares of the Funds or any of the other
portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before January 1, 1997;
- purchases by persons who were beneficial owners of shares of
the Fund or any of the other portfolios offered by Galaxy or
any other funds advised by Fleet or its affiliates before
December 1, 1995;
- purchases by directors, officers and employees of the Fund's
Distributor and of broker-dealers having agreements with the
Fund's Distributor pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- purchases by members of Galaxy's Board of Trustees;
- investors who purchase pursuant to a "wrap fee" program
offered by any broker-dealer or other financial
institution or financial planning organization;
- purchases by officers, directors, employees and
retirees of Fleet Financial Group, Inc. and any of its
affiliates; and
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<PAGE> 624
- any purchase of Retail A Shares pursuant to the
Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or
Customer must notify Galaxy's administrator, First Data Investor Services Group,
Inc. ("FDISG") at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of a
Direct Investor's or Customer's holdings through a check of appropriate records.
For more information about quantity discounts, please contact the Distributor or
your Institution.
Rights of Accumulation. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
Letter of Intent. By completing the Letter of Intent included as part
of the Account Application, a Direct Investor or Customer becomes eligible for
the reduced sales charge applicable to the total number of Eligible Fund Retail
A Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the
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<PAGE> 625
date of submission of the Letter of Intent, may be used as a credit toward
completion of the Letter of Intent. However, the reduced sales charge will be
applied only to new purchases.
FDISG will hold in escrow Retail A Shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if a
Direct Investor or Customer does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when a Director Investor or
Customer fulfills the terms of the Letter of Intent by purchasing the specified
amount. If purchases qualify for a further sales charge reduction, the sales
charge will be adjusted to reflect a Direct Investor's or Customer's total
purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, FDISG, as attorney-in-fact pursuant to the terms of the Letter of Intent
and at the Distributor's direction, will redeem an appropriate number of Retail
A Shares held in escrow to realize the difference. Signing a Letter of Intent
does not bind a Direct Investor or Customer to purchase the full amount
indicated at the sales charge in effect at the time of signing, but a Direct
Investor or Customer must complete the intended purchase in accordance with the
terms of the Letter of Intent to obtain the reduced sales charge. To apply, a
Direct Investor or Customer must indicate his or her intention to do so under a
Letter of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
Reinstatement Privilege. Direct Investors and Customers may reinvest
all or any portion of their redemption proceeds in Retail A Shares of the Fund
or in Retail A Shares of another portfolio of Galaxy within 90 days of the
redemption trade date without paying a sales charge. Retail A Shares so
reinvested will be purchased at a price equal to the net asset value next
determined after Galaxy's transfer agent receives a reinstatement request and
payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to the transfer agent stating that the
investor is eligible to use the Privilege. The reinstatement request and payment
must be
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<PAGE> 626
received within 90 days of the trade date of the redemption. Currently, there
are no restrictions on the number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of
Institutions through their Institution. The Institution is responsible for
transmitting Customer purchase orders to the Distributor and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Retail A Shares purchased by Institutions on behalf of their
Customers will normally be held of record by the Institution and beneficial
ownership of Retail A Shares will be recorded by the Institution and reflected
in the account statements provided to their Customers. Galaxy's transfer agent
may establish an account of record for each Customer of an Institution
reflecting beneficial ownership of Retail A Shares. Depending on the terms of
the arrangement between a particular Institution and Galaxy's transfer agent,
confirmations of Retail A Share purchases and redemptions and pertinent account
statements will either be sent by Galaxy's transfer agent directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of Retail A Shares
established by Institutions in connection with the requirements of their
Customer accounts may apply. Customers wishing to purchase Retail A Shares
through their Institution should contact such entity directly for appropriate
purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail A Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to the Fund
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
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<PAGE> 627
Subsequent investments in an existing account may be made at any time
by sending a check for a minimum of $100 payable to the Fund to Galaxy at the
address above along with either (a) the detachable form that regularly
accompanies confirmation of a prior transaction, (b) a subsequent order form
that may be obtained from the Distributor, or (c) a letter stating the amount of
the investment, the name of the Fund and the account number in which the
investment is to be made. If a Direct Investor's check does not clear, the
purchase will be cancelled.
OTHER PURCHASE INFORMATION
Purchases by Wire. Direct Investors may also purchase Retail A Shares
by arranging to transmit Federal funds by wire to Fleet Bank of Massachusetts,
N.A. as agent for First Data Investor Services Group, Inc. ("FDISG"), Galaxy's
transfer agent. Such purchases may only be made on days on which the
Distributor, Galaxy's custodian and Galaxy's transfer agent are open for
business. Prior to making any purchase by wire, an investor must telephone
1-800-628-0413 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA # 0110-0013-8
DDA # 79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to The Galaxy Fund, P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108. Applications may
be obtained by calling the Distributor at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been received by FDISG.
Direct Investors making subsequent investments by wire should follow the
instructions above.
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
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varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part. The issuance of Retail A Shares to Direct Investors and Institutions is
recorded on the books of Galaxy and share certificates will not be issued.
Effective Time of Purchases. A purchase order for Retail A Shares
received and accepted by the Distributor from an Institution or a Direct
Investor on a Business Day prior to the close of regular trading hours on the
Exchange (currently, 4:00 p.m. Eastern Time) will be executed at the net asset
value per share determined on that date, provided that Galaxy's custodian
receives the purchase price in federal funds or other immediately available
funds prior to 4:00 p.m. on the third Business Day following the receipt of such
order. Such order will be executed on the day on which the purchase price is
received in proper form. If funds are not received by such date and time, the
order will not be accepted and notice thereof will be given promptly to the
Institution or Direct Investor submitting the order. Payment for orders which
are not received or accepted will be returned. If an Institution accepts a
purchase order from a Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the above procedures.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers may redeem all or part of their Retail A Shares in accordance
with procedures governing their accounts at their Institutions. It is the
responsibility of the Institutions to transmit redemption orders to the
Distributor and to credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Payment for redemption orders received by the Distributor on a Business
Day will normally be wired on the third Business Day to the Institution.
Direct Investors may redeem all or part of their Retail A Shares in
accordance with any of the procedures described below.
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REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Retail A Shares may be redeemed by a
Direct Investor by submitting a written request for redemption
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and
the number of shares to be redeemed, (ii) identify the shareholder account
number and tax identification number, and (iii) be signed by each registered
owner exactly as the shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 90 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. The Distributor will not
accept guarantees from notaries public. The Distributor may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until the Distributor receives all required documents in
proper form. The Fund ordinarily will make payment for Retail A Shares redeemed
by mail within three Business Days after proper receipt by the Distributor of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to the Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Retail A Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail" above for
details regarding signature guarantees.)
Redemption by Wire. Direct Investors who have so indicated
on the application, or have subsequently arranged in writing to
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do so, may redeem Retail A Shares by instructing the Distributor by wire or
telephone to wire the redemption proceeds of $1,000 or more directly to a Direct
Investor's account at any commercial bank in the United States. The Distributor
charges a $5.00 fee for each wire redemption and the fee is deducted from the
redemption proceeds. The redemption proceeds must be paid to the same bank and
account as designated on the application or in written instructions subsequently
received by the Distributor. To request redemption of Retail A Shares by wire,
Direct Investors should call the Distributor at 1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if
it believes it is advisable to do so. Procedures for redeeming Retail A Shares
by wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone transactions, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
No redemption by a Direct Investor will be processed until Galaxy has
received a completed application with respect to the Direct Investor's account.
If any portion of the Retail A Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail A Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank
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wires, as well as certified checks, cashier's checks and federal funds.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail A Shares of the Fund, and the balance in
such account falls below that minimum, the Customer may be obliged by the
Institution to redeem all of his or her shares.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by the Distributor. Galaxy reserves the
right to wire redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
the Fund.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares of the Fund having a value of at
least $100 for Retail A Shares of any of the other portfolios offered by Galaxy
or otherwise advised by Fleet or its affiliates in which the Direct Investor or
Customer maintains an existing account, provided that such other shares may
legally be sold in the state of the investor's residence. No additional sales
charge will be incurred when exchanging Retail A Shares of the Fund for Retail A
Shares of another Galaxy fund that imposes a sales charge.
The minimum initial investment to establish an account in another
portfolio offered by Galaxy or otherwise advised by Fleet or its affiliates,
except for the Institutional Treasury Money Market Fund, by exchange is $2,500,
unless at the time of exchange the Direct Investor or Customer elects, with
respect to the portfolio into which the exchange is being made, to participate
in the Automatic Investment Program described below, in which event there is no
minimum initial investment requirement or in the College Investment Program
described below, in which event the minimum initial investment is generally
$100. The minimum initial investment to establish an account by exchange in the
Institutional Treasury Money Market Fund is $2 million.
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An exchange involves a redemption of all or a portion of the shares of
the Fund and the investment of the redemption proceeds in shares of another Fund
or portfolio offered by Galaxy or otherwise advised by Fleet or its affiliates.
The redemption will be made at the per share net asset value next determined
after the exchange request is received. The Retail Shares of the Fund or
portfolio to be acquired will be purchased at the per share net asset value next
determined after acceptance of the exchange request, plus any applicable sales
charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Direct Investors
should call FDISG at 1-800-628-0413. Customers of Institutions should call their
Institution for such information. Customers exercising the exchange privilege
into other eligible funds should request and review these funds' prospectuses
prior to making an exchange (call 1-800-628-0414 for a prospectus). Telephone
all exchanges to 1-800-628-0413. See "How to Purchase and Redeem Shares
Redemption Procedures - Direct Investors - Redemption by Wire" above for a
description of Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, the Customer should consult a tax or other
financial adviser to determine the tax consequences.
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RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the
following tax-deferred prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500 ($250 for
a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan
for sole proprietors, partnerships and corporations. The minimum initial
investment for a SEP account is $500.
Multi-Employee Pension Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Internal Revenue Code. The minimum initial investment
for a MERP is $500.
Keogh Plans, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail A Shares pursuant to a retirement plan are
not subject to the minimum investment provisions described above under "How to
Purchase and Redeem Shares - Other Purchase Information." Detailed information
concerning eligibility and other matters related to these plans and the form of
application is available from Galaxy's distributor (called 1-800-628-0413) with
respect to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail A Shares of the Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail A Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
investor. The account designated will be debited in the specified amount, and
Retail A Shares will be purchased, on any Business Day designated by a Direct
Investor. If the designated day falls on a weekend or holiday, the purchase will
be made on the Business Day closest to the designated day. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated.
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The Systematic Withdrawal Plan permits a Direct Investor to redeem
Retail A Shares of the Fund on a monthly, quarterly, semi-annual, or annual
basis on any Business Day designated by a Direct Investor, if the account has a
starting value of at least $10,000. If the designated day falls on a weekend or
holiday, the redemption will be made on the Business Day closest to the
designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within five business days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased up to three days after the
debit occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail A Shares of the Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail A Shares through the Automatic
Investment Program, the minimum per transaction is $50. The College Program is
designed to assist Direct Investors who want to finance a college savings plan.
See "Investor Programs -- Automatic Investment Program and Systematic Withdrawal
Plan" for information on the Automatic Investment Program. Galaxy reserves the
right to redeem accounts participating in the College Program involuntarily,
upon 60 days' written notice, if the account's net asset value falls below the
applicable minimum
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initial investment as a result of redemptions. See "How to Purchase and Redeem
Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated
monthly statements of their accounts. Detailed information concerning College
Program accounts and applications may be obtained from Galaxy's distributor
(call 1-800-628-0413).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables Direct Investors to purchase
Retail A Shares of the Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413.
Death or legal incapacity will terminate a Direct Investor's
participation in the Program. Direct Investors may elect at any time to
terminate his or her participation by notifying in writing the Social Security
Administration. Further, Galaxy may terminate a Direct investor's participation
upon 30 days' notice to the Direct Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER - 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described above under "Investor Programs - Exchanges" and "How To Purchase and
Redeem Shares". To access the Voice Response System, just call 1-800-FOR-GLXY
(367-4599) from any touch-tone telephone and follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information, Direct Investors can call Galaxy Shareholder
Services Monday through Friday, between the hours of 9:00 a.m. to 5:00 p.m.
(Eastern Time) at 1-800-628-0413.
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<PAGE> 636
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
Investment returns and principal values will vary with market
conditions so that an investor's Retail A Shares, when redeemed, may be worth
more or less than their original cost. Past performance is no guarantee of
future results. Unless otherwise indicated, total return figures include changes
in share price, and reinvestment of dividends and capital gains distributions,
if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and
paid monthly. Dividends on each Share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail A
Shares of the Fund at the net asset value of such Shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent and will become effective with respect to dividends
paid after its receipt.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any) net of certain
deductions for such year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and short-term
capital gains (the excess of net short-term
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capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. The policy of the
Fund is to distribute as dividends substantially all of its investment company
taxable income and any net tax-exempt interest income each year. Such dividends
will be taxable as ordinary income to the Fund's shareholders who are not
currently exempt from federal income taxes, whether such dividends are received
in cash or reinvested in additional Retail A Shares. (Federal income taxes for
distributions to an IRA or a qualified retirement plan are deferred under the
Code.) It is anticipated that no part of any distribution will qualify for the
dividends received deduction for corporations.
Distribution by the Fund of the excess of net long-term capital gain
over its net short-term capital loss is taxable to shareholders as long-term
capital gain, regardless of how long the shareholder has held shares and whether
such gains are received in cash or reinvested in additional Retail A Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a capital gain distribution, you should be aware that the amount
of the forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
Federal income tax consequences of distributions made each year.
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STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, U.S. Treasury, Tax-Exempt, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Tax-Exempt Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an annual rate of .75% of the average daily net
assets of the Fund. The fee for the Fund is higher than fees paid by most other
mutual funds, although the Board of Trustees of Galaxy believes that it is not
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higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Fund in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc., in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. For the fiscal year ended October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rate of .__%
of the Fund's average daily net assets.
The Fund's portfolio manager, David Lindsay, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr. Lindsay,
a Senior Vice President, has been with Fleet and its predecessors since 1986
and has been the Fund's portfolio manager since its inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located
at 4400 Computer Drive, Westboro, Massachusetts 01581-5180,
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serves as the Fund's administrator. FDISG is a wholly-owned subsidiary of First
Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at an annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Fund, FDISG was entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Portfolios, .085% of the next $2.5 billion of
combined average daily net assets and .08% of combined average daily net assets
over $5 billion. In addition, FDISG also receives a separate annual fee from
each Portfolio for certain fund accounting services. From time to time, FDISG
may waive all or a portion of the administration fee payable to it by the Fund,
either voluntarily or pursuant to applicable statutory expense limitations. For
the fiscal year ended October 31, 1996, the Fund paid FDISG administration fees
at the effective annual rate of .___% of its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of two series in the Fund as follows: Class
T-Series 1 shares (Retail A Shares) and Class T-Series 2 shares (Retail A
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Trust Shares and these other portfolios, which are offered through separate
prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares and, as a result, the net yield on
the Fund's Retail A Shares will generally be lower than the net
-45-
<PAGE> 641
yield on the Fund's Retail A Shares. In addition, shares of each series in the
Fund bear differing transfer agency expenses. Standardized yield and total
return quotations are computed separately for each series of shares.
Retail A Shares of the Fund have certain exchange and other privileges
which are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related Fund with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such Fund as are declared in the
discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the average
daily net asset value of Retail A Shares owned beneficially by their Customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such Customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of
-46-
<PAGE> 642
these additional services to such Customers: providing Customers with
information as to their positions in Retail A Shares; responding to Customer
inquiries; and providing a service to invest the assets of Customers in Retail A
Shares. These services are described more fully in the Statement of Additional
Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Retail A Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to not more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned
-47-
<PAGE> 643
subsidiary of The Chase Manhattan Corporation, serves as the custodian of the
Fund's assets. Chase Manhattan may employ sub-custodians for the Fund upon
approval of the Trustees in accordance with the regulations of the Securities
and Exchange Commission, for the purpose of providing custodial services for the
Fund's foreign assets held outside the United States. First Data Investor
Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to FDISG should be directed to FDISG
at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5180.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Fund. Galaxy bears the expenses
incurred in the Fund's operations. Such expenses include taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); Securities and Exchange Commission fees; state securities qualification
fees; costs of preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders; advisory, administration,
distribution, shareholder servicing, fund accounting and custody fees; charges
of the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholders' reports and shareholder meetings; and any extraordinary
expenses. The Fund also pays for brokerage fees and commissions in connection
with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used
-48-
<PAGE> 644
in comparing the performance and yields of the Fund. The performance and yield
data for Retail A Shares of the Fund will be calculated separately from the
performance and yield data for the Fund's Trust Shares. Because of the
shareholder servicing fees currently borne only by Retail A Shares, the
performance and yields on the Fund's Retail A Shares can generally be expected,
at any given time, to be lower than the performance and yields on the Fund's
Trust Shares.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
returns" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return reflect
the sales load charged by the Fund with respect to its Retail A Shares and
assume that dividend and capital gains distributions made by the Fund during the
period are reinvested in Fund Shares.
The Fund may also advertise total return without reflecting the sales
charge imposed on the purchases of Retail A Shares in accordance with the rules
of the Securities and Exchange Commission. Quotations that do not reflect a
sales charge will be higher than quotations that do reflect sales charges.
Performance and yields of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged directly by Institutions
-49-
<PAGE> 645
to accounts of Customers that have invested in Retail A Shares of the Fund will
not be included in calculations of yield and performance.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy or the Fund means, with respect to the
approval by an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or the
Fund, or (b) 67% or more of the shares of Galaxy or the Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or the Fund are
represented at the meeting in person or by proxy.
-50-
<PAGE> 646
TRUST
THE GALAXY FUND
Tax-Exempt Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
Prospectus
February 28, 1997
<PAGE> 647
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
EXPENSE SUMMARY...................................................... 3
FINANCIAL HIGHLIGHTS................................................. 4
INVESTMENT OBJECTIVES AND POLICIES................................... 10
Tax-Exempt Bond Fund........................................... 10
New York Municipal Bond Fund................................... 11
Connecticut Municipal Bond Fund................................ 13
Massachusetts Municipal Bond Fund.............................. 14
Rhode Island Municipal Bond Fund............................... 16
Special Considerations and Risks............................... 17
Other Investment Policies and Risk
Considerations................................................. 22
INVESTMENT LIMITATIONS............................................... 31
PRICING OF SHARES.................................................... 33
HOW TO PURCHASE AND REDEEM SHARES.................................... 34
Distributor.................................................... 34
Purchase of Shares..............................................34
Redemption of Shares........................................... 35
DIVIDENDS AND DISTRIBUTIONS.......................................... 36
TAXES................................................................ 36
Federal........................................................ 36
State and Local................................................ 37
Miscellaneous.................................................. 39
MANAGEMENT OF THE FUNDS.............................................. 40
Investment Adviser............................................. 40
Authority to Act as Investment Adviser......................... 41
Administrator.................................................. 42
DESCRIPTION OF GALAXY AND ITS SHARES................................. 42
Shareholder Services Plan...................................... 44
CUSTODIAN AND TRANSFER AGENT......................................... 45
EXPENSES............................................................. 45
PERFORMANCE AND YIELD INFORMATION.................................... 45
MISCELLANEOUS........................................................ 47
</TABLE>
<PAGE> 648
THE GALAXY FUND
4400 Computer Drive For applications and information regarding
Westboro, Massachusetts 01581-5108 initial purchases and current performance,
call 1-800-628-0414. For additional
purchases, redemptions, exchanges and
other shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes five series of Galaxy's shares (collectively, the
"Trust Shares") which represent interests in five separate investment portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy, each having its own investment objective and policies:
The TAX-EXEMPT BOND FUND'S investment objective is to provide shareholders
with as high a level of current interest income free of Federal income tax as is
consistent with preservation of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in bonds and
notes issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective authorities,
agencies, instrumentalities and political subdivisions the interest on which, in
the opinion of bond counsel to the issuer, is exempt from regular Federal income
tax ("Municipal Securities").
The NEW YORK MUNICIPAL BOND FUND'S investment objective is to seek as high
a level of current interest income exempt from Federal income tax and, to the
extent possible, from New York State and New York City personal income tax, as
is consistent with relative stability of principal. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
New York Municipal Securities. The Fund is a non-diversified investment
portfolio under the Investment Company Act of 1940, as amended (the "1940 Act").
The CONNECTICUT MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from Federal income tax and, to
the extent possible, from Connecticut personal income tax, as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in Connecticut Municipal
Securities. The Fund's average portfolio maturity will vary in response to
variations in the comparative yields of differing maturities of instruments. The
Fund is a non-diversified investment portfolio under the 1940 Act.
The MASSACHUSETTS MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from Federal income tax and, to
the extent possible, from Massachusetts personal income taxes as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in
Massachusetts Municipal Securities. The Fund is a non-diversified investment
portfolio under the 1940 Act.
The RHODE ISLAND MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from Federal income tax and, to
the extent possible, from Rhode Island personal income tax, as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in Rhode
Island Municipal Securities. The Fund is a non-diversified investment portfolio
under the 1940 Act.
This prospectus describes Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in the New York Municipal Bond, Connecticut Municipal Bond,
<PAGE> 649
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds, and two
additional series of shares, Retail A Shares and Retail B Shares, in the
Tax-Exempt Bond Fund (Retail A Shares and Retail B Shares are referred to herein
collectively as "Retail Shares"). Retail Shares are offered under a separate
prospectus primarily to individuals, corporations or other entities purchasing
either for their own accounts or for the accounts of others and to FIS
Securities, Inc., Fleet Brokerage Securities, Inc. Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares in a Fund represent equal pro rata interests in the Fund,
except they bear different expenses which reflect the difference in the range of
services provided to them. As of the date of this Prospectus, Trust Shares of
the Rhode Island Municipal Bond Fund were not being offered to investors. See
"Financial Highlights," "Management of the Funds" and "Description of Galaxy and
Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet"
or the "Investment Adviser") and sponsored and distributed by 440 Financial
Distributors, Inc., which is unaffiliated with Fleet Investment Advisors Inc.
and its parent, Fleet Financial Group, Inc., and affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about
the Funds, contained in the Statement of Additional Information relating to
the Funds and bearing the same date, has been filed with the Securities and
Exchange Commission. The current Statement of Additional Information is
available upon request without charge by contacting Galaxy at its telephone
numbers or address shown above. The Statement of Additional Information, as
it may be amended from time to time, is incorporated by reference in its
entirety into this Prospectus.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 650
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of each Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
NEW YORK CONNECTICUT MASSACHUSETTS RHODE ISLAND
TAX-EXEMPT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
SHAREHOLDER TRANSACTION EXPENSES BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
- -------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales Load .......................... None None None None None
Sales Load on Reinvested Dividends .. None None None None None
Deferred Sales Load ................. None None None None None
Redemption Fees ..................... None None None None None
Exchange Fees ....................... None None None None None
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
---------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees
(After Fee Waivers) ........... .__% .__% .__% .__% .__%
12b-1 Fees ...................... None None None None None
Other Expenses (After Fee Waivers
and Expense Reimbursements) ... . % . % . % . % . %
Total Fund Operating Expenses
(After Fee Waivers and
Expense Reimbursements) ....... . % . % . % . % . %
==== ==== ==== ==== ====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund................ $__ $__ $__ $__
New York Municipal Bond Fund........ $__ $__ $__ $__
Connecticut Municipal Bond Fund..... $__ $__ $__ $__
Massachusetts Municipal Bond Fund... $__ $__ $__ $__
Rhode Island Municipal Bond Fund.... $__ $__ $__ $__
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Funds will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by each Fund during the last
fiscal year, restated to reflect the expenses that each Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and expense reimbursements by the Investment Adviser and/or
Administrator, "Advisory Fees" would be .75%, .75%, .75%, .75% and .75%, Other
Expenses would be .__%, .__%, .__%, .__% and .__% and Total Fund Operating
Expenses would be .__%, ____%, ____%, ____% and ____% for Trust Shares of the
Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond
Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund,
respectively. For more complete descriptions of these costs and expenses, see
"Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees that are charged by affiliates
of Fleet or other institutions directly to their customer accounts for services
related to an investment in Trust Shares of the Fund are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN.
-3-
<PAGE> 651
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund. Galaxy is also
authorized to issue an additional series of shares. Retail A Shares, in the New
York Municipal Bond Fund. Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Fund, and two additional
series of shares. Retail A Shares and Retail B Shares, in the Tax-Exempt Bond
Fund. As described below under "Description of Galaxy and Its Shares," Trust
Shares, Retail A Shares and Retail B Shares represent equal pro rata interests
in a Fund except that (i) effective October 1, 1994 Retail A Shares of the Funds
bear the expenses incurred under Galaxy's Shareholder Services Plan at an annual
rate of up to .15% of the average daily net asset value of each Fund's
outstanding Retail A Shares, (ii) Retail B Shares of the Tax-Exempt Bond Fund
bear the expenses incurred under Galaxy's Distribution and Services Plan for
Retail B Shares at an annual rate of up to .80% of the average daily net asset
value of the Fund's outstanding Retail B Shares, and (iii) Trust Shares, Retail
A Shares and Retail B Shares bear differing transfer agency expenses. Retail
Shares are offered under a separate Prospectus.
The financial highlights presented below for the fiscal year ended October
31, 1996 have been audited by [______________________], Galaxy's independent
accountants, whose report is contained in Galaxy's Annual Report to Shareholders
relating to the Funds dated October 31, 1996 (the "Annual Report"). Such
financial highlights should be read in conjunction with the financial statements
contained in the Annual Report and (________________________) into the Statement
of Additional Information. Information in the financial highlights for periods
prior to the fiscal year ended October 31, 1994 reflects the investment results
of both Trust Shares and Retail A Shares of the Funds. As of the date of this
Prospectus, Trust Shares of the Rhode Island Municipal Bond Fund had not yet
been offered to investors. Information in the financial highlights for the Rhode
Island Municipal Bond Fund sets forth certain historic investment results of
Retail A Shares of the Fund and is intended to provide investors with a
perspective as to that Fund's financial history. More information about the
performance of the Funds is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone numbers or address
provided above.
-4-
<PAGE> 652
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
---------------------------------- YEAR ENDED PERIOD ENDED
TRUST SHARES OCTOBER 31, 1993(2) OCTOBER 31, 1992(1,2)
------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 9.99 $ 11.12 $ 10.11 $ 10.00
----------- ----------- ----------- -----------
Income From Investment Operations:
Net Investment Income(3),(4) ....... 0.54 0.53 0.54 0.34
Net realized and unrealized
gain (loss) on investments ......... 0.79 (1.04) 1.01 0.11
----------- ----------- ----------- -----------
Total From Investment Operations . 1.33 (0.51) 1.55 0.45
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment
income ........................... (0.54) (0.53) (0.54) (O.34)
Dividends from net realized
capital gains .................... -- -- -- --
Dividends in excess of net
realized capital gains ........... -- (0.09) -- --
----------- ----------- ----------- -----------
Total Dividends ................ (0.54) (0.62) (0.54) (0.34)
----------- ----------- ----------- -----------
Net increase (decrease) in net
asset value ............................ 0.79 (1.13) 1.01 0.11
----------- ----------- ----------- -----------
Net Asset Value, End of Period ........... $ 10.78 $ 9.99 $ 11.12 $ 10.11
=========== =========== =========== ===========
Total Return ............................. 13.62% (4.75%) 15.63% 4.55%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $ 91,740 $ 91,647 $ 144,048 $ 15,891
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............. 5.18% 5.01% 5.00% 5.03%(6)
Operating expenses including
reimbursement/waiver ............. 0.72% 0.78% 0.64% 0.42%(6)
Operating expenses excluding
reimbursement/waiver ............. 0.97% 1.00% 1.08% 2.15%(6)
Portfolio Turnover Rate .................. 11% 17% 38% 11%(6)
</TABLE>
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Retail
and Trust Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share for Trust Shares before reimbursement
and waiver of fees by the Investment Adviser and/or Administrator for
the years ended October 31, 1996, 1995 and 1994 were $______, $0.51 and
$0.50, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the Investment Adviser and/or Administrator for the
year ended October 31, 1993 and for the period ended October 31, 1992
were $0.49 and $0.23, respectively.
(5) Not Annualized.
(6) Annualized.
-5-
<PAGE> 653
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
--------------------------------------- YEAR ENDED PERIOD ENDED
TRUST SHARES OCTOBER 31, 1993(2) OCTOBER 31, 1992(1,2)
------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 9.89 $ 11.04 $ 10.00 $ 10.00
---------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income(3),(4) ............. 0.51 0.49 0.50 0.38
Net realized and unrealized
gain (loss) on investments ............... 0.89 (1.15) 1.04 --
---------- ---------- ---------- ----------
Total From Investment Operations ........ 1.40 (0.66) 1.54 0.38
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..... (0.51) (0.49) (0.50) (O.38)
Dividends from net realized
capital gains -- -- -- --
---------- ---------- ---------- ----------
Total Dividends ......................... (0.51) (0.49) (0.50) (0.38)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value.. 0.89 (1.15) 1.04 --
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............. $ 10.78 $ 9.89 $ 11.04 $ 10.00
========== ========== ========== ==========
Total Return ............................... 14.23% (6.14%) 15.66% 3.83%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......... $ 23,077 $ 24,209 $ 70,242 $ 20,144
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................... 4.91% 4.64% 4.54% 5.22%(6)
Operating expenses including
reimbursement/waiver .................... 0.74% 0.87% 0.87% 0.65%(6)
Operating expenses excluding
reimbursement/waiver .................... 1.07% 1.08% 1.19% 1.70%(6)
Portfolio Turnover Rate .................... 5% 18% 3% 19%(5)
</TABLE>
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $______, $0.48 and $0.47,
respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the Investment Adviser and/or Administrator for the year
ended October 31, 1993 and for the period ended October 31, 1992 were $0.47
and $0.30, respectively.
(5) Not Annualized.
(6) Annualized.
-6-
<PAGE> 654
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
------------------------------------- PERIOD ENDED
TRUST SHARES OCTOBER 31, 1993(1,2)
------------ ---------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 9.22 $ 10.32 $ 10.00
---------- ---------- ----------
Income From Investment Operations:
Net Investment Income(3,4) .............. 0.46 0.46 0.25
Net realized and unrealized
gain (loss) on investments .............. 0.91 (1.10) 0.32
---------- ---------- ----------
Total From Investment Operations ....... 1.37 (0.64) 0.57
---------- ---------- ----------
Less Dividends:
Dividends from net investment income .... (0.46) (0.46) (O.25)
Dividends from net realized
capital gains -- -- --
---------- ---------- ----------
Total Dividends ........................ (0.46) (0.46) (0.25)
---------- ---------- ----------
Net increase (decrease) in
net asset value .......................... 0.91 (1.10) 0.32
---------- ---------- ----------
Net Asset Value, End of Period ............ $ 10.13 $ 9.22 $ 10.32
========== ========== ==========
Total Return .............................. 15.21% (6.37%) 5.80%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......... $ 4,083 $ 4,419 $ 18,771
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 4.76% 4.66% 4.30%(6)
Operating expenses including
reimbursement/waiver ................... 0.45% 0.23% 0.00%(6)
Operating expenses excluding
reimbursement/waiver ................... 1.24% 1.41% 1.73%(6)
Portfolio Turnover Rate ................... 7% 4% 7%(6)
</TABLE>
(1) The Fund commenced operations on March 16, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $______, $0.38 and $0.35,
respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the Investment Adviser and/or Administrator for the period
ended October 31, 1993 was $0.15.
(5) Not Annualized.
(6) Annualized.
-7-
<PAGE> 655
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
-------------------------------------- PERIOD ENDED
TRUST SHARES OCTOBER 31, 1992(1,2)
------------ ---------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.. $ 9.12 $ 10.24 $ 10.00
---------- ---------- ----------
Income From Investment Operations:
Net Investment Income(3),(4) ....... 0.45 0.48 0.29
Net realized and unrealized
gain (loss) on investments ......... 0.86 (1.12) 0.24
---------- ---------- ----------
Total From Investment Operations .. 1.31 (0.64) 0.53
---------- ---------- ----------
Less Dividends:
Dividends from net investment
income ........................... (0.45) (0.48) (O.29)
Dividends from net realized capital
gains ............................ -- -- --
---------- ---------- ----------
Total Dividends ................... (0.45) (0.48) (0.29)
---------- ---------- ----------
Net increase (decrease) in net asset
value .............................. 0.86 (1.12) 0.24
---------- ---------- ----------
Net Asset Value, End of Period ....... $ 9.98 $ 9.12 $ 10.24
========== ========== ==========
Total Return ......................... 14.72% (6.46%) 5.42%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .... $ 7,607 $ 5,617 $ 20,121
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............. 4.73% 4.89% 4.87%(6)
Operating expenses including
reimbursement/waiver .............. 0.52% 0.33% 0.05%(6)
Operating expenses excluding
reimbursement/waiver .............. 1.31% 1.41% 1.82%(6)
Portfolio Turnover Rate .............. 19% 11% 0%(5)
</TABLE>
(1) The Fund commenced operations on March 12, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $______, $0.38 and $0.38,
respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the Investment Adviser and/or Administrator for the period
ended October 31, 1993 was $0.18.
(5) Not Annualized.
(6) Annualized.
-8-
<PAGE> 656
RHODE ISLAND MUNICIPAL BOND FUND
(FOR A RETAIL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 19951
RETAIL A SHARES RETAIL SHARES
--------------- -------------
<S> <C>
Net Asset Value, Beginning of Period . $ 10.00
----------
Income From Investment Operations:
Net Investment Income(2) ........... 0.44
Net realized and unrealized
gain (loss) on investments ......... 0.67
----------
Total From Investment Operations .. 1.11
----------
Less Dividends:
Dividends from net investment
income ............................ (0.44)
Dividends from net realized capital
gains ............................ --
----------
Total Dividends ................. (0.44)
----------
Net increase (decrease) in net asset
value .............................. 0.67
----------
Net Asset Value, End of Period ....... $ 10.67
==========
Total Return ......................... 11.29%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .... $ 10,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............. 5.13%(4)
Operating expenses including
reimbursement/waiver .............. 0.40%(4)
Operating expenses excluding
reimbursement/waiver .............. 2.25%(4)
Portfolio Turnover Rate .............. 34%(3)
</TABLE>
(1) The Fund commenced operations on December 30, 1994. On September 7, 1995,
Retail Shares of the Fund were redesignated "Retail A Shares."
(2) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal year ended October
31, 1996 and for the period ended October 31, 1995 were $_____ and $0.28.
(3) Not annualized.
(4) Annualized.
-9-
<PAGE> 657
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc., the Funds' investment adviser ("Fleet" or
the "Investment Adviser"), will use its best efforts to achieve each Fund's
investment objective, although such achievement cannot be assured. The
investment objective of a Fund may not be chanced without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program.
TAX-EXEMPT BOND FUND
The Tax-Exempt Bond Fund's investment objective is to provide shareholders
with as high a level of current interest income free of Federal income tax as is
consistent with preservation of capital. To achieve this objective, the Fund
will invest substantially all of its assets in debt obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions, the interest of which, in the opinion of bond counsel to
the issuer, is exempt from regular Federal income tax ("Municipal Securities").
The Fund's average weighted maturity will vary in response to variations in
comparative yields of differing maturities of instruments, in accordance with
the Fund's investment objective.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in
Municipal Securities, primarily bonds (at least 65% under normal market
conditions). Municipal Securities will consist primarily of issues which are
rated at the time of purchase within the four highest rating categories
assigned by Standard & Poor's Ratings Group ("S&P") ("AAA", "AA", "A" and
"BBB") or Moody's Investors Service, Inc. ("Moody's") ("Aaa", "Aa", "A" and
"Baa") or unrated instruments determined by the Fund's Investment Adviser to be
of comparable quality. Municipal Securities rated within the four highest
rating categories of S&P or Moody's are considered to be investment, grade.
Municipal Securities rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade Municipal Securities. Such Municipal Securities will be purchased (and
retained) only when the Investment Adviser believes the issues have an adequate
capacity to pay interest and
-10-
<PAGE> 658
repay principal. If the ratings of a particular Municipal Security purchased by
the Fund are subsequently downgraded below the four highest rating categories
assigned by S&P or Moody's, such factor will be considered by the Investment
Adviser in its evaluation of the overall merits of that Municipal Security but
such ratings change will not necessarily result in an automatic sale of the
Municipal Security. Under normal market and economic conditions, at least 65%
of the Fund's total assets will be invested in Municipal Securities rated in
the three highest rating categories assigned by S&P or Moody's. See Appendix A
to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
The Fund may from time to time, during temporary defensive periods, hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
instruments such as certificates of deposit and bankers' acceptances of
selected banks and commercial paper rated within the two highest rating
categories assigned by any major rating service; and (iv) repurchase agreements
collateralized by U.S. Government obligations or other "money market"
instruments. Under normal market conditions, the Fund anticipates that not more
than 5% of its net assets will be invested in any one category of taxable
securities. For more information, see "Other Investment Policies and Risk
Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from New York State and New York City personal income tax, as is
consistent with relative stability of principal. To achieve this objective, the
Fund will invest primarily in New York Municipal Securities as defined below.
The Fund's average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at
-11-
<PAGE> 659
least 80% of its total assets in debt obligations issued by or on behalf of the
State of New York and other states, territories and possessions of the United
States, the District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions, the interest on which, in the
opinion of bond counsel to the issuer, is exempt from regular Federal income tax
("Municipal Securities"). The Fund expects that except during temporary
defensive periods or when, in the opinion of the Fund's Investment Adviser,
suitable obligations are unavailable for investment, at least 65% of the Fund's
total assets will be invested in debt securities of the State of New York, its
political sub-divisions, authorities, agencies, instrumentalities and
corporations, and certain other governmental issuers such as Puerto Rico, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
Federal, New York State and New York City personal income taxes ("New York
Municipal Securities"). See "Special Considerations and Risks -- New York
Municipal Bond Fund" below for a discussion of certain risks in investing in New
York Municipal Securities. Dividends derived from interest on Municipal
Securities other than New York Municipal Securities will generally be exempt
from regular Federal income tax but may be subject to New York State and New
York City personal income tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the three highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa", "Aa",
"A" and "Baa") or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest rating categories of S&P or Moody's are considered to be investment
grade. See "Investment Objectives and Policies -- Tax-Exempt Bond Fund" above
for a discussion of certain risks in investing in Municipal Securities rated in
the lowest of the four highest rating categories assigned by S&P or Moody's. If
the ratings of a particular Municipal Security purchased by the Fund are
subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by the Investment Adviser in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The Fund may from time to time, during temporary defensive periods, hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such
-12-
<PAGE> 660
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit and bankers'
acceptances of selected banks and commercial paper rated within the two highest
rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) future contracts; or (vi) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Connecticut personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Connecticut Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Connecticut and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular Federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of the Fund's Investment Adviser, suitable obligations are unavailable
for investment, at least 65% of the Fund's total assets will be invested in
Municipal Securities issued by or on behalf of the State of Connecticut, its
political sub-divisions, or any public instrumentality, state or local
authority, district or similar public entity created under the laws of
Connecticut, and certain other governmental issuers such as Puerto Rico, the
interest on the obligations of which is exempt from Connecticut personal
-13-
<PAGE> 661
income taxes by virtue of Federal law ("Connecticut Municipal Securities"). See
"Special Considerations and Risks -- Connecticut Municipal Bond Fund" below, for
a discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular Federal income tax
but subject to Connecticut personal income tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa") or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest rating categories of S&P or Moody's are considered to be investment
grade. See "Investment Objectives and Policies -- Tax-Exempt Bond Fund" above
for a discussion of certain risks in investing in Municipal Securities rated in
the lowest of the four highest rating categories assigned by S&P or Moody's. If
the ratings of a particular Municipal Security purchased by the Fund are
subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by the Investment Adviser in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The Fund may from time to time, during temporary defensive periods, hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
instruments such as certificates of deposit and bankers' acceptances of selected
banks and commercial paper rated within the two highest rating categories
assigned by any major rating service; (iv) repurchase agreements collateralized
by U.S. Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the
Fund anticipates that not more than 5% of its net assets will be invested in
any one category of taxable securities. For more information, see "Other
Investment Policies and Risk Considerations" below.
-14-
<PAGE> 662
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Massachusetts personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Massachusetts Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular Federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of the Fund's Investment Adviser, suitable obligations are
unavailable for investment, at least 65% of the Fund's total assets will be
invested in debt securities of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from Federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities"). See
"Special Considerations and Risks -- Massachusetts Municipal Bond Fund" below,
for a discussion of certain risks in investing in Massachusetts Municipal
Securities. Dividends derived from interest on Municipal Securities other than
Massachusetts Municipal Securities will generally be exempt from regular Federal
income tax but may be subject to Massachusetts personal income tax. See "Taxes"
below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa")or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest rating categories of S&P or Moody's are considered to be
-15-
<PAGE> 663
investment grade. See "Investment Objectives and Policies -- Tax-Exempt Bond
Fund" above for a discussion of certain risks in investing in Municipal
Securities rated in the lowest of the four highest rating categories assigned
by S&P or Moody's. If the ratings of a particular Municipal Security purchased
by the Fund are subsequently downgraded below the four highest rating
categories assigned by S&P or Moody's, such factor will be considered by the
Investment Adviser in its evaluation of the overall merits of that Municipal
Security but such ratings change will not necessarily result in an automatic
sale of the Municipal Security. Under normal market and economic conditions, at
least 65% of the Fund's total assets will be invested in Municipal Securities
rated in the three highest rating categories assigned by S&P or Moody's. See
Appendix A to the Statement of Additional Information for a description of
S&P's and Moody's rating categories.
The Fund may from time to time, during temporary defensive periods, hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
instruments such as certificates of deposit and bankers' acceptances of selected
banks and commercial paper rated within the two highest rating categories
assigned by any major rating service; (iv) repurchase agreements collateralized
by U.S. Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the
Fund anticipates that not more than 5% of its net assets will be invested in
any one category of taxable securities. For more information, see "Other
Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Rhode Island Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to
-16-
<PAGE> 664
variations in the comparative yields of differing maturities of
instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular Federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of the Fund's Investment Adviser, suitable obligations are
unavailable for investment, at least 65% of the Fund's total assets will be
invested in debt securities of the State of Rhode Island, its political
subdivisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from Federal and Rhode
Island personal income taxes ("Rhode Island Municipal Securities"). See "Special
Considerations and Risks -- Rhode Island Municipal Bond Fund" below for a
discussion of certain risks in investing in Rhode Island Municipal Securities.
Dividends derived from interest on Municipal Securities other than Rhode Island
Municipal Securities will generally be exempt from regular Federal income tax
but may be subject to Rhode Island personal income tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa") or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest rating categories of S&P or Moody's are considered to be investment
grade. See "Investment Objectives and Policies -- Tax-Exempt Bond Fund" above
for a discussion of certain risks in investing in Municipal Securities rated in
the lowest of the four highest rating categories assigned by S&P or Moody's. If
the ratings of a particular Municipal Security purchased by the Fund are
subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by the Investment Adviser in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
-17-
<PAGE> 665
The Fund may from time to time, during temporary defensive periods, hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
conditions such as certificates of deposit and bankers' acceptances of selected
banks and commercial paper rated within the two highest rating categories
assigned by any major rating service; (iv) repurchase agreements collateralized
by U.S. Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the
Fund anticipates that not more than 5% of its net assets will be invested in
any one category of taxable securities. For more information, see "Other
Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
SPECIAL CONSIDERATIONS AND RISKS
In General
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
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Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Investment Adviser. To the extent that a
Fund's assets are concentrated in Municipal Securities payable from revenues of
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if its assets were not so
concentrated.
The New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds are classified as
non-diversified investment companies under the 1940 Act. Investment return on a
non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
New York Municipal Bond Fund
The New York Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. New York State and New York City face long-term economic problems that
could seriously affect their ability and that of other issuers of New York
Municipal Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of Municipal Securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has at times had the effect of permitting New York Municipal
Securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated Municipal
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Securities issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York Municipal
Securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other
issuers of New York Municipal Securities. Although as of the date of this
Prospectus no issuers of New York Municipal Securities are in default with
respect to the payment of their Municipal Securities, the occurrence of any
such default could adversely affect the market values and marketability of all
New York Municipal Securities and, consequently, the net asset value of the
Fund's portfolio.
Other considerations affecting the Fund's investments in new York
Municipal Securities are summarized in the Statement of Additional Information.
Connecticut Municipal Bond Fund
The Connecticut Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Connecticut Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Connecticut Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Connecticut and other factors specifically affecting the ability of issuers of
Connecticut Municipal Securities to meet their obligations.
Fiscal stress is reflected in the State's economic and revenue forecasts,
a rising debt burden that reflects a significant increase in bond activity since
fiscal 1987-88, a cumulative general fund deficit for fiscal 1990-91 of over
$965 million, and uncertainty concerning the solutions for these imbalances.
Accumulated surpluses in a budget stabilization fund created in 1983 to protect
against future deficit problems were exhausted in 1990. The lack of a
contingency fund balance, combined with reduced revenue-raising flexibility in
the near term, places additional constraints on managing these financial
problems and any others that may arise. As a result of recurring budgetary
problems, Connecticut's general obligation bonds were downgraded by S&P from AA+
to AA in April 1990 and, in September 1991, to AA-; by Moody's from Aa1 to Aa in
April 1990; and by Fitch Investors Service, L.P. from AA+ to AA in March 1995.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be
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dismissed on the grounds that Bridgeport was not insolvent when the petition was
filed. Regional economic difficulties, reductions in revenues, and increased
expenses could lead to further fiscal problems for the State and its political
subdivisions, authorities, and agencies. This could result in declines in the
value of their outstanding obligations, increases in their future borrowings
costs, and impairment of their ability to pay debt service on their obligations.
Other considerations affecting the Fund's investments in Connecticut
Municipal Securities are summarized in the Statement of Additional Information.
Massachusetts Municipal Bond Fund
The Massachusetts Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Massachusetts Municipal
Securities to meet their continuing obligations to pay principal and interest.
Since the Fund invests primarily in Massachusetts Municipal Securities, the
value of the Fund's share may be especially affected by factors pertaining to
the economy of Massachusetts and other factors specifically affecting the
ability of issuers of Massachusetts Municipal Securities to meet their
obligations. As a result, the value of the Fund's shares may fluctuate more
widely than the value of shares of a portfolio investing in securities of
issuers in a number of different states. The ability of Massachusetts and its
political subdivisions to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of Massachusetts Municipal Securities may be affected from
time to time by economic, political and demographic conditions within
Massachusetts. In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Massachusetts Municipal Securities
may also affect that issuer's ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political
and demographic conditions in Massachusetts or a particular locality. Any
reduction in the actual or perceived ability of an issuer of Massachusetts
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect adversely the values
of other Massachusetts Municipal Securities as well.
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Rhode Island Municipal Bond Fund
The Rhode Island Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Rhode Island Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Rhode Island Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Rhode Island and other factors specifically affecting the ability of issuers of
Rhode Island Municipal Securities to meet their obligations. As a result, the
value of the Fund's shares may fluctuate more widely than the value of shares of
a portfolio investing in securities of issuers in a number of different states.
The ability of Rhode Island and its political subdivisions to meet their
obligations will depend primarily on the availability of tax and other revenue
to those governments and on their fiscal conditions generally. The amount of tax
and other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which one or more of the Funds have the power to utilize. Some may be employed
on a regular basis; others may not be used at all. Accordingly, reference to
any particular method or technique carries no implication that it will be
utilized or, if it is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years;
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and Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations, still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation, or by
a savings and loan association or savings bank which is insured by the Federal
Deposit Insurance Corporation. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations.
Investment in bank obligations is limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
deposits, the possible establishment of exchange controls, or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and U.S. branches of foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S.
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<PAGE> 671
banks only when the Investment Adviser believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
Types of Municipal Securities
The two principal classifications of Municipal Securities which may be
held by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities, or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
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Variable and Floating Rate Municipal Securities
Municipal Securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
Private Activity Bonds
Each Fund may invest in "private activity bonds" the interest on which,
although exempt from regular Federal income tax, may constitute an item of tax
preference for purposes of the Federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
market conditions, will not exceed 20% of a Fund's total assets when added
together with any taxable investments held by the Fund.
Private activity bonds held by the Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
Repurchase and Reverse Repurchase Agreements
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon
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repurchase price. If the seller defaulted on its repurchase obligation, the Fund
holding such obligation would suffer a loss to the extent that the proceeds from
a sale of the underlying securities (including accrued interest) were less than
the repurchase price (including accrued interest) under the agreement. In the
event that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending court
action.
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Funds currently intend to limit the lending
of their portfolio securities so that, at any given time, securities loaned by a
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed
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by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Funds, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
Custodial Receipts and Certificates of Participation
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal Zero
Coupon Receipts." The Funds may also purchase from time to time certificates of
participation that, in the opinion of counsel to the issuer, are exempt from
Federal income tax. A certificate of participation gives a Fund an undivided
interest in a pool of Municipal Securities held by a bank. Certificates of
participation may have fixed, floating or variable rates of interest. If a
certificate of participation is unrated, the Investment Adviser will have
determined that the instrument is of comparable quality to those instruments in
which the Fund may invest pursuant to guidelines approved by Galaxy's Board of
Trustees. For certain certificates of participation, a Fund will have the right
to demand payment, on not more than 30 day's notice, for all or any part of the
Fund's participation interest, plus accrued interest. As to these instruments,
each Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
Futures Contracts
Each Fund, except the Tax-Exempt Bond Fund, may purchase and sell
municipal bond index futures contracts as a hedge against changes in market
conditions. A municipal bond index assigns values daily to the municipal bonds
included in the index based on the independent assessment of dealer-to-dealer
municipal bond brokers. A
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municipal bond index futures contract represents a firm commitment by which two
parties agree to take or make delivery of an amount equal to a specified dollar
amount multiplied by the difference between the municipal bond index value on
the last trading date of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying securities
in the index is made.
Each Fund, except the Tax-Exempt Bond Fund, may also enter into contracts
for the future delivery of fixed-income securities commonly known as interest
rate futures contracts. Interest rate futures contracts are similar to
municipal bond index futures contracts except that, instead of a municipal bond
index, the "underlying commodity" is represented by various types of
fixed-income securities.
The Funds will not engage in futures transactions for speculation, but
only to hedge against changes in the market values of securities which the Funds
hold or intend to purchase. The Funds will engage in futures transactions only
to the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). The purchase of futures
instruments in connection with securities which the Funds intend to purchase
will require an amount of cash and/or U.S. Government obligations, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. Each Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of each Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of the Investment Adviser to predict correctly movements in the
direction of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, the Funds may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which they hold or intend to purchase or may be unable to close a
futures position in the event of adverse price movements. Any income from
investments in futures contracts will be taxable. Additional information
concerning futures transactions, including special rules regarding the
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taxation of such transactions, is contained in the Statement of Additional
Information and in Appendix B thereto.
When-Issued, Forward Commitment and Delayed Settlement
Transactions
Each of the Funds may purchase eligible securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" basis. Each
of the Funds may also purchase or sell eligible securities on a "delayed
settlement" basis. When-issued and forward commitment transactions, which
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), permit a Fund to lock in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur some time in the future. When-issued, forward commitment
and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases and
delayed settlements ever exceeded 25% of the value of its assets, the Fund's
liquidity and the ability of the Investment Adviser to manage the Fund may be
adversely affected. The Funds do not intend to chase engage in when-issued
purchases, forward commitments and delayed settlements for speculative purposes,
but only in furtherance of their investment objectives.
Stand-By Commitments
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified Municipal Securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities.) Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
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Asset-Backed Securities
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to a
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities. See "Asset-Backed Securities" in the Statement of
Additional Information.
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgaged-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some
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form of non-government credit enhancement. Mortgage-backed securities have
either fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline. As a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" above.
Guaranteed Investment Contracts
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
Bank Investment Contracts
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
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Derivative Securities
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not
limited to, municipal bond index and interest rate futures and certain asset-
backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline,
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the
Funds will be unable to sell a derivative security when it wants because of
lack of market depth or market disruption; pricing risk that the value of a
derivative security will not correlate exactly to the value of the underlying
assets, rates or indices on which it is based; and operations risk that loss
will occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with its day-to-day management of the Funds, how they will be used in
furtherance of each Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies
- -- Derivative Securities" in the Statement of Additional Information relating
to the Funds for additional information.
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover may result in the realization of substantial capital
gains and involves correspondingly greater transaction costs. To the extent that
net capital gains are realized, distributions derived from such gains are
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10% of
the value of its total assets at the time of such borrowing (provided that
each Fund may borrow pursuant to reverse repurchase agreements in
accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of a its total assets at the
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time of such borrowing. No Fund will purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven
days, restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
4. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U.S. Government, the
District of Columbia, or any of their authorities, agencies,
instrumentalities or political subdivisions.
In addition, the Tax-Exempt Bond Fund may not:
5. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, except that up to 25% of the value of its total assets may be
invested without regard to this limitation.
In addition, the New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
6. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, except that up to 50% of the value of a Fund's total assets may be
invested without regard to this 5% limitation, provided that no more than
25% of the value of a Fund's total assets are invested in the securities
of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends
to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such
borrowing.
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If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per Share of a Fund for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of a Fund, less the
liabilities attributable to Shares of that series of the Fund, by the number of
outstanding Shares of that series of the Fund.
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
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 (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor
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Services Group, Inc. The Distributor is a registered broker/dealer with
principal offices located at 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. ("Institutions"). Trust Shares sold
to such investors ("Customers") will be held of record by Institutions. The
Institution is responsible for transmitting to the Distributor orders for
purchases of Trust Shares and for wiring required funds in payment to Galaxy's
custodian on a timely basis. The Distributor is responsible for transmitting
such orders to Galaxy's transfer agent for execution. Beneficial ownership of
Trust Shares will be recorded by the Institution and reflected in the account
statements it provides to its Customers. Confirmations of purchases and
redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which the
Distributor, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days"). As of the date of this Prospectus, Trust Shares of
the Rhode Island Municipal Bond Fund were not being offered to investors.
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that Galaxy's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Funds and
share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include
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<PAGE> 683
discretionary investment management accounts, custodial accounts, agency
accounts and different types of tax-advantaged accounts. Investors should
contact their Institution for further information concerning the types of
eligible Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirement with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by its Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
REDEMPTION OF SHARES
Customer may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their Institution. It is the
responsibility of the Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired the
following Business Day to the Institution. Payment for redemption orders which
are received on a non-Business Day will normally be wired to the Institution on
the next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the
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expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends to continue
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification relieves a Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of each Fund is to pay dividends with respect to each taxable
year equal to at least the sum of 90% of its net exempt interest income and 90%
of its net investment company taxable income, if any. Dividends derived from
interest on Municipal Securities (known as exempt interest dividends) may be
treated by the Funds' shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If a Fund should hold certain "private activity bonds" issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26% to 28% alternative minimum tax for individuals
and the 20% alternative minimum tax and the environmental tax applicable to
corporations. Corporate shareholders must also take all exempt interest
dividends into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. Shareholders receiving
Social Security benefits should note that all exempt interest dividends will be
taken into account in determining the taxability of such benefits. Interest on
indebtedness incurred
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<PAGE> 685
by a shareholder to purchase or carry Trust Shares generally is not deductible
for federal income tax purposes.
Dividends from a Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Trust Shares
of the Funds.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Investors considering buying Shares of a Fund on or just before the record
date of a capital gain distribution should be aware that the amount of the
forthcoming distribution payment, although in effect a return of capital,
generally will be taxable.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of Shares of a Fund depending upon the tax basis of such
Shares and their price at the time of redemption, transfer or exchange.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
With respect to the New York Municipal Bond Fund, exemptinterest dividends
(as defined for federal income tax purposes) derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the extent
that investors are subject to state and local taxes outside of New York State
and New York City, dividends by the Fund may be taxable income for purposes
thereof. Dividends and distributions derived from income (including capital
gains on all New York Municipal Securities) other than interest on New York
Municipal Securities described above are not exempt from New York State and New
York City taxes. Interest or indebtedness incurred or continued by a shareholder
to purchase or carry Shares of the Fund is not deductible for New York State or
New York City personal income tax purposes.
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<PAGE> 686
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for Federal income tax purposes are not subject to the
Connecticut personal income tax to the extent that they are derived from
Connecticut Municipal Securities. Other Fund dividends and distributions,
whether received in cash or additional Trust Shares, are subject to this tax,
except that capital gain dividends derived from obligations issued by or on
behalf of the State of Connecticut, its political subdivisions or public
instrumentalities, state or local authorities, districts or similar public
entities created under Connecticut law are not subject to the tax. Dividends and
distributions paid by the Fund that constitute items of tax preference for
purposes of the federal alternative minimum tax, other than any derived from
Connecticut Municipal Securities, could cause liability for the net Connecticut
minimum tax applicable to investors subject to the Connecticut personal income
tax who are required to pay federal alternative minimum tax. Dividends by the
Fund, including those that qualify as exempt-interest dividends for federal
income tax purposes, are taxable for purposes of the Connecticut Corporation
Business Tax; however, 70% (100% if the investor owns at least 20% of the total
voting power and value of the Fund's shares) of amounts that are treated as
dividends and not as exempt-interest dividends or capital gain dividends for
federal income tax purposes are deductible for purposes of this tax, but no
deduction is allowed for expenses related thereto. Shares of the Fund are not
subject to property tax within the State of Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities, or (ii) capital gains realized by the Fund
from the sale of certain Massachusetts Municipal Securities. Distributions from
the Fund's other net investment income and short-term capital gains will be
taxable as ordinary income. Distributions from the Fund's net long-term capital
gains will be taxable as long-term capital gains regardless of how long the
shareholder has owned Fund shares. The tax treatment of distributions is the
same whether distributions are paid in cash or in additional Trust Shares of the
Fund. Distributions by the Fund to corporate shareholder, including
exempt-interest dividends, may be subject to Massachusetts corporate excise tax.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities or obligations of the United States. Distributions from the
Fund's other net investment
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income and short-term capital gains will be taxable as ordinary income.
Distributions from the Fund's net long-term capital gains will be taxable as
long-term capital gains regardless of how long the shareholder has owned Fund
shares. The tax treatment of distributions is the same whether distributions are
paid in cash or in additional Trust Shares of the Fund. Any loss realized from
the redemption of Fund shares within six months after the purchase of such
shares will be disallowed for Rhode Island personal income tax purposes to the
extent of exempt interest dividends received on such shares.
The Fund will be subject to the Rhode Island business corporation tax on
its "gross income" apportioned to the State of Rhode Island, and the Rhode
Island business corporation sur-tax. For this purpose, gross income does not
include interest income earned by the Fund on Rhode Island Municipal Securities
and obligations of the United States, capital gains realized by the Fund on the
sale of certain Rhode Island Municipal Securities, and 50 percent of the Fund's
other net capital gains.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences, and with respect to shareholders of the New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, the New York State and New York City personal income tax,
Connecticut personal income tax, Massachusetts personal income tax, and Rhode
Island personal income tax consequences, respectively, of distributions made
each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Funds. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets of approximately $____
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<PAGE> 688
billion at December 31, 1996. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients, and manages the other investment portfolios of Galaxy:
the Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal
Money Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Growth and Income, Small Cap Value, Short-Term
Bond, Intermediate Government Income, High Quality Bond and Corporate Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
the Investment Adviser is entitled to receive advisory fees, computed daily and
paid monthly, at an annual rate of .75% of the average daily net assets of each
Fund. The fee for the Funds is higher than fees paid by most other mutual funds,
although the Board of Trustees of Galaxy believes that it is not higher than
average advisory fees paid by funds with similar investment objectives and
policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Funds in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fees payable to it by the Funds so that it is entitled to receive an advisory
fee at the annual rate of .55% of each Fund's average daily net assets, but
Fleet may in its discretion revise or discontinue this waiver at any time. For
the fiscal year ended October 31, 1996, Fleet received advisory fees (after fee
waivers) at the effective rates of .__%, .__%, .__%, .__% and .__%,
respectively, of the Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds' average daily net assets.
The Funds' portfolio manager, Mary McGoldrick, is primarily responsible
for the day-to-day management of each Fund's investment portfolio. Ms.
McGoldrick, a Vice President, has been with Fleet and its predecessors since
June 1988 and has managed the Tax-
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Exempt Fund since its inception and the New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds since March 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located
at 4400 Computer Drive, Westboro, Massachusetts 01581-5108,
serves as the Funds' administrator. FDISG is a wholly-owned
subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Funds and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Funds, FDISG was entitled to receive administration fees, computed daily and
paid monthly, at the annual rate of .09% of the first $2.5 billion of the
combined average daily net assets of the Portfolios, .085% of the next $2.5
billion of combined average daily net assets and .08% of combined average daily
net
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assets over $5 billion. In addition, FDISG also receives a separate annual fee
from each Portfolio for certain fund accounting services. From time to time,
FDISG may waive all or a portion of the administration fee payable to it by the
Funds, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, FDISG received
administration fees (after fee waivers) at the effective rates of .___%, .___%,
.___%,.___% and .___% of the average daily net assets of the Tax-Exempt Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, respectively.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each series in the Funds as follows: Class
M-Series 1 shares (Trust Shares), Class M-Series 2 shares (Retail A Shares) and
Class M-Series 3 shares (Retail B Shares), each series representing interests in
the Tax-Exempt Bond Fund; Class O-Series 1 shares (Trust Shares) and Class
O-Series 2 shares (Retail A Shares), each series representing interests in the
New York Municipal Bond Fund; Class P-Series 1 shares (Trust Shares) and Class
P-Series 2 shares (Retail A Shares), each series representing interests in the
Connecticut Municipal Bond Fund; Class Q-Series 1 shares (Trust Shares) and
Class Q-Series 2 shares (Retail A Shares), each series representing interests in
the Massachusetts Municipal Bond Fund, and Class R-Series 1 shares (Trust
Shares) and Class R-Series 2 shares (Retail A Shares), each series representing
interests in the Rhode Island Municipal Bond Fund. The Tax-Exempt Bond Fund is
classified as a diversified company and the New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified companies under the 1940 Act. The Board
of Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Funds' Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by that Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below and holders of Retail B Shares of the
Tax-Exempt Bond Fund bear the fees described in the prospectus for such shares
that are paid under Galaxy's Distribution and Services
-43-
<PAGE> 691
Plan at an annual rate not to exceed .80% of the average daily net asset value
of the Fund's outstanding Retail B Shares. Currently, these payments are not
made with respect to a Fund's Trust Shares. In addition, shares of each series
in a Fund bear differing transfer agency expenses. Standardized yield and total
return quotations are computed separately for each series of shares. The
difference in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Funds are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares of the Tax-Exempt Bond Fund are sold with a
maximum contingent deferred sales charge of 5.0%. Retail A and Retail B Shares
have certain exchange and other privileges which are not available to Trust
Shares.
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
Fund with other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the average
daily net asset value of Retail A Shares owned beneficially by their Customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following
-44-
<PAGE> 692
services to such Customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with the Distributor;
processing dividend payments from a Fund; providing sub-accounting with respect
to Retail A Shares or the information necessary for sub-accounting; and
providing periodic mailings to Customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such Customers; providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as the Funds' transfer and dividend disbursing agent. Services performed
by both entities for the Funds are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Funds.
-45-
<PAGE> 693
Galaxy bears the expenses incurred in the Funds' operations, including taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, distribution, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholders'
reports and shareholder meetings; and any extraordinary expenses. The Funds also
pay for brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may by quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial publications
including, but not limited to, Money Magazine, Forbes, Barron's, The Wall Street
Journal, and The New York Times, or publications of a local or regional nature,
may also be used in comparing the performance and yields of the Funds. The
performance and yield data will be calculated separately for Trust Shares,
Retail A Shares and/or Retail B Shares of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. A Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Each Fund may also quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an alter-tax
equivalent yield to a Fund's tax-free yield. It is calculated by increasing a
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of income taxes at stated tax rates. The tax-equivalent yield will
always be higher than a Fund's yield.
-46-
<PAGE> 694
The Funds may also advertise their performance using "average annual total
returns" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by a Fund during the period
are reinvested in Fund Shares.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
Any additional fees charged directly by Institutions to accounts of
Customers that have invested in Trust Shares of a Fund will not be included in
calculations of yield and performance.
The portfolio managers of the Funds and other investment professional may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
-47-
<PAGE> 695
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or such
Fund, or (b) 67% or more of the shares of Galaxy or such Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or such Fund are
represented at the meeting in person or by proxy.
-48-
<PAGE> 696
RETAIL
THE GALAXY FUND
Tax-Exempt Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
Prospectus
February 28, 1997
<PAGE> 697
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
HIGHLIGHTS.....................................................................................
EXPENSE SUMMARY................................................................................
FINANCIAL HIGHLIGHTS...........................................................................
INVESTMENT OBJECTIVES AND POLICIES.............................................................
Tax-Exempt Bond Fund..................................................................
New York Municipal Bond Fund..........................................................
Connecticut Municipal Bond Fund.......................................................
Massachusetts Municipal Bond Fund.....................................................
Rhode Island Municipal Bond Fund......................................................
Special Considerations and Risks......................................................
Other Investment Policies and Risk
Considerations.........................................................................
INVESTMENT LIMITATIONS.........................................................................
PRICING OF SHARES..............................................................................
HOW TO PURCHASE SHARES.........................................................................
Distributor...........................................................................
General...............................................................................
Purchase Procedures -- Customers of
Institutions........................................................................
Purchase Procedures -- Direct Investors...............................................
Other Purchase Information............................................................
Applicable Sales Charges - Retail A Shares............................................
Quantity Discounts....................................................................
Applicable Sales Charges - Retail B Shares............................................
Characteristics of Retail A Shares and
Retail B Shares.....................................................................
Factors to Consider When Selecting Retail
A Shares or Retail B Shares.........................................................
HOW TO REDEEM SHARES...........................................................................
Redemption Procedures -- Customers of
Institutions........................................................................
Redemption Procedures -- Direct Investors.............................................
Other Redemption Information..........................................................
</TABLE>
-i-
<PAGE> 698
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
INVESTOR PROGRAMS..............................................................................
Exchange Privilege....................................................................
Automatic Investment Program
and Systematic Withdrawal Plan......................................................
College Investment Program............................................................
Payroll Deduction Program.............................................................
Direct Deposit Program................................................................
INFORMATION SERVICES...........................................................................
Galaxy Information Center.............................................................
Voice Response System.................................................................
Galaxy Shareholder Services...........................................................
DIVIDENDS AND DISTRIBUTIONS....................................................................
TAXES .........................................................................................
Federal...............................................................................
State and Local.......................................................................
Miscellaneous.........................................................................
MANAGEMENT OF THE FUNDS........................................................................
Investment Adviser....................................................................
Authority to Act as Investment Adviser................................................
Administrator.........................................................................
DESCRIPTION OF GALAXY AND ITS SHARES...........................................................
Shareholder Services Plan.............................................................
Distribution and Services Plan........................................................
CUSTODIAN AND TRANSFER AGENT...................................................................
EXPENSES.
PERFORMANCE AND YIELD INFORMATION..............................................................
MISCELLANEOUS..................................................................................
</TABLE>
-ii-
<PAGE> 699
THE GALAXY FUND
4400 Computer Drive For applications and
Westboro, Massachusetts information regarding
01581-5108 initial purchases and current
performance, call 1-800-
628-0414. For additional
purchases, redemptions,
exchanges and other
shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus relates to five separate investment portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy. Each Fund has its own investment objective and policies:
The TAX-EXEMPT BOND FUND'S investment objective is to provide
shareholders with as high a level of current interest income free of Federal
income tax as is consistent with preservation of capital. Under normal market
and economic conditions, the Fund will invest substantially all of its assets in
bonds and notes issued by or on behalf of states, territories and possessions of
the United States, the District of Columbia and their respective authorities,
agencies, instrumentalities and political subdivisions the interest on which, in
the opinion of bond counsel to the issuer, is exempt from regular Federal income
tax ("Municipal Securities").
The NEW YORK MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from Federal income tax and, to
the extent possible, from New York State and New York City personal income tax,
as is consistent with relative stability of principal. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
New York Municipal Securities. The Fund is a non-diversified investment
portfolio under the Investment Company Act of 1940, as amended (the "1940 Act").
The CONNECTICUT MUNICIPAL BOND FUND'S investment objective is to seek
as high a level of current interest income exempt from Federal income tax and,
to the extent possible, from Connecticut personal income tax, as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in Connecticut
Municipal Securities. The Fund is a non-diversified investment portfolio under
the 1940 Act.
The MASSACHUSETTS MUNICIPAL BOND FUND'S investment objective is to seek
as high a level of current interest income exempt from Federal income tax and,
to the extent possible, from
<PAGE> 700
Massachusetts personal income taxes as is consistent with relative stability of
principal. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in Massachusetts Municipal Securities. The Fund is
a non-diversified investment portfolio under the 1940 Act.
The RHODE ISLAND MUNICIPAL BOND FUND'S investment objective is to seek
as high a level of current interest income exempt from Federal income tax and,
to the extent possible, from Rhode Island personal income tax, as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in Rhode
Island Municipal Securities. The Fund is a non-diversified investment portfolio
under the 1940 Act.
This prospectus describes the Retail A Shares representing interests in
each Fund and the Retail B Shares representing interests in the Tax-Exempt Bond
Fund (Retail A Shares and Retail B Shares are referred to collectively as
"Retail Shares"). Retail A Shares are sold with a front-end sales charge. Retail
B Shares are sold with a contingent deferred sales charge. Retail Shares are
offered to customers ("Customers") of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own accounts or for the accounts of others ("Direct
Investors"). Galaxy is also authorized to issue an additional series of shares
in each Fund ("Trust Shares"), which are offered under a separate prospectus
primarily to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
Retail A Shares, Retail B Shares and Trust Shares in a Fund represent equal pro
rata interests in the Fund, except they bear different expenses which reflect
the difference in the range of services provided to them. As of the date of this
Prospectus, Trust Shares of the Rhode Island Municipal Bond Fund were not being
offered to investors. See "Financial Highlights," "Management of the Funds" and
"Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the
-2-
<PAGE> 701
Statement of Additional Information relating to the Funds and bearing the same
date, has been filed with the Securities and Exchange Commission. The current
Statement of Additional Information is available upon request without charge by
contacting Galaxy at its telephone numbers or address shown above. The Statement
of Additional Information, as it may be amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-3-
<PAGE> 702
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND,
CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND and RHODE ISLAND
MUNICIPAL BOND FUNDS. Prospectuses for Galaxy's MONEY MARKET, GOVERNMENT,
TAX-EXEMPT, U.S. TREASURY, CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS
MUNICIPAL MONEY MARKET, INSTITUTIONAL TREASURY MONEY MARKET, EQUITY VALUE,
EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET
ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, SHORT-TERM BOND, INTERMEDIATE
GOVERNMENT INCOME, HIGH QUALITY BOND and CORPORATE BOND FUNDS may be obtained by
calling 1-800-628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. (the
"Investment Adviser" or "Fleet"), an indirect wholly-owned subsidiary of Fleet
Financial Group, Inc. Fleet Financial Group, Inc. is a financial services
company with total assets as of December 31, 1996 of approximately $__ billion.
See "Management of the Funds -- Investment Adviser."
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors, Inc. Retail
Shares of the Funds are sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Shares may also be
purchased on behalf of Customers of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
-4-
<PAGE> 703
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Funds may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .15% of the average
daily net asset value of such shares. Retail B Shares of the Tax-Exempt Bond
Fund may be purchased at their net asset value subject to a contingent deferred
sales charge ("CDSC"). The CDSC is paid on certain share redemptions made within
six years of the purchase date at the maximum rate of 5.00% of the lower of (i)
the net asset value of the redeemed shares or (ii) the original purchase price
of the redeemed shares. Retail B Shares are currently subject to shareholder
servicing and distribution fees of up to .80% of the average daily net asset
value of such shares. Share purchase and redemption information for both Direct
Investors and Customers of Institutions is provided below under "How to Purchase
Shares" and "How to Redeem Shares." Except as provided below in "Investor
Programs," the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum investment requirements for investors participating in the
Automatic Investment Program described below. Institutions may require Customers
to maintain certain minimum investments in Retail Shares. See "How to Purchase
Shares" below.
Q: When are dividends paid?
A: Dividends from net investment income of the Funds are declared daily
and paid monthly. Net realized capital gains of the Funds are distributed at
least annually. Dividends and distributions are paid in cash, although
shareholders may choose to have dividends and distributions automatically
reinvested in additional shares of the same series of shares with respect to
which the dividend or distribution was declared without sales or CDSC charges.
See "Dividends and Distributions."
Q: What potential risks are presented by the Funds' investment
practices?
A: The Tax-Exempt Bond Fund invests primarily in Municipal Securities
rated within the four highest rating categories of Standard & Poor's Rating
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") and the New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal
Bond Fund and Rhode Island Municipal Bond Fund invest primarily in New York
Municipal Securities, Connecticut Municipal Securities, Massachusetts Municipal
Securities and Rhode Island Municipal Securities, respectively, rated within
the four highest rating categories of S&P categories or Moody's. Municipal
Securities rated in the lowest of the four highest ratings of Moody's or S&P
are considered to have speculative characteristics, even though they are of
investment
-5-
<PAGE> 704
grade quality. Because the New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds invest
primarily in New York Municipal Securities, Connecticut Municipal Securities,
Massachusetts Municipal Securities and Rhode Island Municipal Securities,
respectively, the achievement of their investment objectives is dependent upon
the ability of the issuers of such Municipal Securities to meet their continuing
obligations for the payment of principal and interest. In addition, because the
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds are non-diversified, their investment
return may be dependent upon the performance of a smaller number of securities
relative to the number of securities held in a diversified portfolio. The Funds
may lend their securities and enter into repurchase agreements and reverse
repurchase agreements with qualifying banks and broker/dealers. In addition,
each Fund except the Tax-Exempt Bond Fund may enter into interest rate futures
contracts and municipal bond index futures contracts. The Funds may purchase
eligible securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" or "delayed settlement" basis. In
addition, the Funds may acquire "stand-by commitments" with respect to
Municipal Securities held in their respective portfolios. The value of the
Funds' portfolio securities will generally vary inversely with changes in
prevailing interest rates. See "Investment Objectives and Policies."
Q: What shareholder privileges are offered by the Funds?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of
any other Galaxy portfolio which offers Retail A Shares and for shares of any
other investment portfolio otherwise advised by Fleet or its affiliates. Retail
B Shares of the Tax- Exempt Bond Fund may be exchanged for Retail B Shares of
any other Galaxy portfolio which offers Retail B Shares. In either case,
exchanges are not subject to sales or additional CDSC charges. Galaxy offers an
Automatic Investment Program which allows investors to automatically invest in
Retail Shares on a monthly or quarterly basis, as well as other shareholder
privileges. See "Investor Programs."
-6-
<PAGE> 705
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by each Fund with respect to Retail A Shares and/or Retail B
Shares, and (ii) the operating expenses for Retail A Shares and/or Retail B
Shares of each Fund. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when
buying or selling shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out
of each Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
TAX-EXEMPT NEW YORK CONNECTICUT MASSACHUSETTS RHODE ISLAND
BOND FUND MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND
(RETAIL A (RETAIL B (RETAIL A (RETAIL A (RETAIL A (RETAIL A
SHARES) SHARES) SHARES) SHARES) SHARES) SHARES)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Front End Sales Charge Imposed on
Purchases (as a percentage of offering 3.75%(1) None 3.75%(1) 3.75%(1) 3.75%(1) 3.75%(1)
price)..........................................
Maximum Deferred Sales Charge (as a
percentage of offering price)................... None 5.00%(2) None None None None
Sales Charge Imposed on Reinvested
Dividends....................................... None None None None None None
Redemption Fees(3).............................. None None None None None None
Exchange Fees................................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees .__% .__% .__% .__% .__% .__%
(After Fee Waivers)............................
12b-1 Fees(4)................................... None .80% None None None None
Other Expenses (After Fee Waivers and
Expense Reimbursements)....................... . % . % . % . % . % . %
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(After Fee Waivers and Expense
Reimbursements)............................... . % . % . % . % . % . %
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------------------
(1) Reduced front-end sales charge may be available. See "How to Purchase and
Redeem Shares - Applicable Sales Charges - Retail A Shares".
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares - Applicable Sales Charges - Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares (as well as investors in Retail A Shares if 12b-1 fees are
charged in the future) may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
-7-
<PAGE> 706
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund (Retail A Shares)(1)...................................... $__ $__ $__ $__
Tax-Exempt Bond Fund (Retail B Shares)
Assuming complete redemption at
end of period (2)............................................................ $__ $__ $__ $__(3)
Assuming no redemption....................................................... $__ $__ $__ $__(3)
New York Municipal Bond Fund (Retail A Shares)(1).............................. $__ $__ $__ $__
Connecticut Municipal Bond Fund (Retail A Shares)(1)........................... $__ $__ $__ $__
Massachusetts Municipal Bond Fund (Retail A Shares)(1)......................... $__ $__ $__ $__
Rhode Island Municipal Bond Fund (Retail A Shares)(1).......................... $__ $__ $__ $__
</TABLE>
- ------------------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A Shares and/or
Retail B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example is based on expenses incurred by
each Fund during the last fiscal year, restated to reflect the expenses that
each Fund expects to incur during the current fiscal year on its Retail A and/or
Retail B Shares. Without voluntary fee waivers and expense reimbursements by the
Investment Adviser and/or Administrator, Advisory Fees would be .75%, .75%,
.75%, .75% and .75%, Other Expenses would be .__%, .__%. .__%, .__% and .__% and
Total Fund Operating Expenses would be ____%, ____%, ____%, ____% and ____% for
Retail A Shares of the Tax-Exempt Bond Fund, New York Municipal Bond Fund,
Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode
Island Municipal Bond Fund, respectively, and Advisory Fees would be .75%, Other
Expenses would be .__% and Total Fund Operating Expenses would be ____% for
Retail B Shares of the Tax-Exempt Bond Fund. For more complete descriptions of
these costs and expenses, see "How to Purchase Shares," "How to Redeem Shares,"
"Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees that are charged by affiliates
of Fleet or other Institutions directly to their Customer accounts for services
related to an investment in Retail Shares of the Funds are in addition to and
not reflected in the fees and expenses described above.
-8-
<PAGE> 707
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in each Fund and the
Retail B Shares in the Tax-Exempt Bond Fund. Galaxy is also authorized to issue
an additional series of shares in each Fund ("Trust Shares"), which are offered
under a separate prospectus. As described below under "Description of Galaxy and
Its Shares," Retail A Shares, Retail B Shares and Trust Shares represent equal
pro rata interests in a Fund, except that (i) Retail A Shares of the Funds bear
the expenses incurred under Galaxy's Shareholder Services Plan at an annual rate
of up to .15% of the average daily net asset value of each Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Tax-Exempt Bond Fund bear the
expenses incurred under Galaxy's Distribution and Services Plan at an annual
rate of up to .80% of the average daily net asset value of the Fund's
outstanding Retail B Shares, and (iii) Retail A Shares, Retail B Shares and
Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
[______________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds for
the fiscal year ended October 31, 1996 (the "Annual Report"). Such financial
highlights should be read in conjunction with the financial statements contained
in Galaxy's Annual Report and (_______________________) into the Statement of
Additional Information. Information in the financial highlights for periods
prior to the fiscal year ended October 31, 1994 reflect the investment results
of both Retail A Shares and Trust Shares of the Funds. More information about
the performance of the Funds is also contained in the Annual Report, which may
be obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
-9-
<PAGE> 708
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
YEAR ENDED OCTOBER 31, YEAR ENDED ENDED
OCTOBER 31, 1996 1995 1994 OCTOBER 31, OCTOBER 31,
RETAIL A SHARES RETAIL B SHARES(3) RETAIL SHARES 1993(2) 1992(1,2)
--------------- ------------------ ------------- ------ --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......................... $ 9.99 $11.12 $10.11 $10.00
------ ------ ------ ------
Income From Investment
Operations:
Net Investment Income(4,5)................. 0.52 0.53 0.54 0.34
Net realized and unrealized
gain (loss) on investments................. 0.79 (1.04) 1.01 0.11
------ ------ ------ ------
Total From Investment
Operations:................................ 1.31 (0.51) 1.55 0.45
------ ------ ------ ------
Less Dividend:
Dividends from net
investment income.......................... (0.52) (0.53) (0.54) (0.34)
Dividend from net realized
capital gains.............................. -- -- -- --
Dividend in excess of net
realized capital gains..................... -- (0.09) -- --
------ ------ ------ ----
Total Dividends:......................... (0.52) (0.62) (0.54) (0.34)
------ ------ ------ ------
Net increase (decrease) in net
asset value................................ 0.79 (1.13) 1.01 0.11
----- ------ ------ ------
Net Asset Value, End of Period.............. $10.78 $ 9.99 $11.12 $10.11
====== ====== ====== ======
Total Return(6)............................. 13.40% (4.75%) 15.63% 4.55%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $31,609 $ 35,911 $144,048 $ 15,891
Ratio to average net assets:
Net investment income including
reimbursement/waiver..................... 4.99% 5.01% 5.00% 5.03%(8)
Operating expenses including
reimbursement/waiver..................... 0.91% 0.80% 0.64% 0.42%(8)
Operating expenses excluding
reimbursement/waiver..................... 1.24% 1.03% 1.08% 2.15%(8)
</TABLE>
-10-
<PAGE> 709
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Portfolio Turnover Rate..................... 11% 17% 38% 11%(7)
</TABLE>
- -------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail A and
Trust Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1995 and 1994 were $0.48 and $0.50, respectively.
(5) Net investment income per share before fee waivers and expense
reimbursements by the Investment Adviser and/or Administrator for the year
ended October 31, 1993 and for the period ended October 31, 1992 were $0.49
and $0.23, respectively.
(6) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(7) Not Annualized.
(8) Annualized.
-11-
<PAGE> 710
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
OCTOBER 31, YEAR ENDED ENDED
1996 1995 1994 OCTOBER 31, OCTOBER 31,
--------------------------------------
RETAIL A SHARES RETAIL SHARES 1993(1,2) 1992(1,2)
--------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............................. $ 9.89 $11.04 $10.00 $ 10.00
------ ------ ------ -------
Income From Investment
Operations:
Net Investment Income(3,4)...................... 0.49 0.49 0.50 0.38
Net realized and unrealized
gain (loss) on investments...................... 0.89 (1.15) 1.04 --
------ ------ ------ ----
Total From Investment
Operations:..................................... 1.38 (0.66) 1.54 0.38
------ ------ ------ ------
Less Dividends:
Dividends from net
investment income............................... (0.49) (0.49) (0.50) (0.38)
Dividends from net realized
capital gains................................... -- -- -- --
------ ------ ------ ------
Total Dividends:.............................. (0.49) (0.49) (0.50) (0.38)
------ ------ ------ ------
Net increase (decrease) in net
asset value..................................... 0.89 (1.15) 1.04 --
------ ------ ------ ------
Net Asset Value, End of Period................... $10.78 $ 9.89 $11.04 $ 10.00
====== ====== ====== ==-====
Total Return(5).................................. 14.03% (6.14%) 15.66% 3.83%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $42,870 $42,451 $70,242 $20,144
Ratio to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.73% 4.64% 4.54% 5.22%(7)
Operating expenses including
reimbursement/waiver.......................... 0.92% 0.87% 0.87% 0.65%(7)
Operating expenses excluding
reimbursement/waiver.......................... 1.31% 1.10% 1.19% 1.70%(7)
Portfolio Turnover Rate.......................... 5% 18% 3% 19%(6)
</TABLE>
- --------------------------------
(1) The Fund commenced operations on December 31, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $_____, $0.44 and $0.46,
respectively.
(4) Net investment income per share and expense reimbursements by the
investment adviser and/or administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 were $0.47 and $0.30,
respectively.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-12-
<PAGE> 711
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994 PERIOD ENDED
-------------------------------------- OCTOBER 31,
RETAIL A SHARES RETAIL SHARES 1993(1,2)
--------------- ------------- ---------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period...................................... $ 9.22 $10.32 $ 10.00
------ ------ -------
Income From Investment
Operations:
Net Investment Income(3,4).............................. 0.44 0.46 0.25
Net realized and unrealized
gain (loss) on investments.............................. 0.91 (1.10) 0.32
------ ------ ------
Total From Investment
Operations:............................................. 1.35 (0.64) 0.57
------ ------ ------
Less Dividends:
Dividends from net
investment income....................................... (0.44) (0.46) (0.25)
Dividends from net realized
capital gains........................................... -- -- --
------ ------ ------
Total Dividends:...................................... (0.44) (0.46) (0.25)
------ ------ ------
Net increase (decrease) in net
asset value............................................. 0.91 (1.10) 0.32
------ ------ ------
Net Asset Value, End of Period........................... $10.13 $ 9.22 $ 10.32
====== ====== =======
Total Return(5).......................................... 14.94% (6.39%) 5.80%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....................... $18,066 $18,229 $18,771
Ratio to average net assets:
Net investment income including
reimbursement/waivers.................................. 4.53% 4.66% 4.30%(7)
Operating expenses including
reimbursement/waivers.................................. 0.68% 0.25% 0.00%(7)
Operating expenses excluding
reimbursement/waiver................................... 1.48% 1.42% 1.73%(7)
Portfolio Turnover Rate.................................. 7% 4% 7%(6)
</TABLE>
- -------------
(1) The Fund commenced operations on March 16, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $____, $0.37 and $0.34,
respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the investment adviser and/or administrator for the
period ended October 31, 1993 was $0.15.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-13-
<PAGE> 712
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE2 OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994 PERIOD ENDED
-------------------------------------- OCTOBER 31,
RETAIL A SHARES RETAIL SHARES 1993(1,2)
--------------- ------------- -----------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period...................................... $ 9.12 $ 10.24 $ 10.00
------ ------ ------
Income From Investment
Operations:
Net Investment Income(3,4).............................. 0.44 0.47 0.29
Net realized and unrealized
gain (loss) on investments.............................. 0.86 (1.12) 0.24
------ ------ ------
Total From Investment
Operations:............................................. 1.30 (0.65) 0.53
------ ------ ------
Less Dividends:
Dividends from net
investment income....................................... (0.44) (0.47) (0.29)
Dividends from net realized
capital gains........................................... -- -- --
------ ------ ------
Total Dividends:...................................... (0.44) (0.47) (0.29)
------ ------ ------
Net increase (decrease) in net
asset value............................................. 0.86 (1.12) 0.24
------ ------ ------
Net Asset Value, End of Period........................... $ 9.98 $ 9.12 $ 10.24
====== ====== ======
Total Return(5).......................................... 14.52% (6.46%) 5.42%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....................... $16,113 $15,966 $20,121
Ratio to average net assets:
Net investment income including
reimbursement/waiver.................................. 4.56% 4.89% 4.87%(7)
Operating expenses including
reimbursement/waiver.................................. 0.70% 0.33% 0.05%(7)
Operating expenses excluding
reimbursement/waiver.................................. 1.58% 1.43% 1.82%(7)
Portfolio Turnover Rate.................................. 19% 11% 0%(6)
</TABLE>
- --------------------
(1) The Fund commenced operations on March 12, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail Shares before reimbursement and
waiver of fees by the Investment Adviser and/or Administrator for the years
ended October 31, 1996, 1995 and 1994 were $_____, $0.36 and $0.37,
respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by the investment adviser and/or administrator and for the
period ended October 31, 1993 were $0.18.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-14-
<PAGE> 713
RHODE ISLAND MUNICIPAL BOND FUND
(FOR A RETAIL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995(1)
RETAIL A SHARES RETAIL SHARES
--------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................................. $10.00
------
Income From Investment Operations:
Net Investment Income(2)............................................. 0.44
Net realized and unrealized
gain (loss) on investments.......................................... 0.67
------
Total From Investment
Operations:.......................................................... 1.11
------
Less Dividends:
Dividends from net
investment income.................................................... (0.44)
Dividends from net realized
capital gains........................................................ --
------
Total Dividends:..................................................... (0.44)
------
Net increase (decrease) in net
asset value.......................................................... 0.67
------
Net Asset Value, End of Period........................................ $10.67
======
Total Return(3)....................................................... 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................................... $10,850
Ratio to average net assets:
Net investment income including
reimbursement/waiver............................................... 5.13%(5)
Operating expenses including
reimbursement/waiver............................................... 0.40%(5)
Operating expenses excluding
reimbursement/waiver............................................... 2.25%(5)
Portfolio Turnover Rate............................................... 34%(4)
</TABLE>
- -------------
(1) The Fund commenced operations on December 20, 1994. On September 7, 1995,
Retail Shares of the Fund were redesignated "Retail A Shares."
(2) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal year ended October
31, 1996 and the period ended October 31, 1995 were $___ and $0.28,
respectively.
(3) Calculation does not include sales charge for Retail A Shares.
(4) Not Annualized.
(5) Annualized.
-15-
<PAGE> 714
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve each Fund's
investment objective, although such achievement cannot be assured. The
investment objective of a Fund may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program.
TAX-EXEMPT BOND FUND
The Tax-Exempt Bond Fund's investment objective is to provide
shareholders with as high a level of current interest income free of Federal
income tax as is consistent with preservation of capital. To achieve this
objective, the Fund will invest substantially all of its assets in debt
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective authorities,
agencies, instrumentalities and political subdivisions the interest on which, in
the opinion of bond counsel to the issuer, is exempt from regular Federal income
tax ("Municipal Securities"). The Fund's average weighted maturity will vary in
response to variations in comparative yields of differing maturities of
instruments, in accordance with the Fund's investment objective.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in
Municipal Securities, primarily bonds (at least 65% under normal market
conditions). Municipal Securities will consist primarily of issues which are
rated at the time of purchase within the four highest rating categories
assigned by S&P or Moody's or unrated instruments determined by the Fund's
Investment Adviser to be of comparable quality. Municipal Securities rated
within the four highest ratings categories of S&P ("AAA", "AA", "A" and "BBB")
or Moody's ("Aaa", "Aa", "A" and "Baa") are considered to be investment grade.
Municipal Securities rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade Municipal Securities. Such Municipal Securities will be purchased (and
retained) only when the Investment Adviser believes the issuers have an
adequate capacity to pay interest and repay principal. If the ratings of a
particular Municipal Security purchased by the Fund are subsequently downgraded
below the four highest rating categories assigned by S&P or Moody's, such
factor
-16-
<PAGE> 715
will be considered by the Investment Adviser in its evaluation of the overall
merits of that Municipal Security, but such ratings coverage will not
necessarily result in an automatic sale of the Municipal Security. Under normal
market and economic conditions, at least 65% of the Fund's total assets will be
invested in Municipal Securities rated in the three highest ratings assigned by
S&P or Moody's. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit and bankers'
acceptances of selected banks and commercial paper rated within the two highest
rating categories assigned by any major rating service; and (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments. Under normal market conditions, the Fund anticipates that
not more than 5% of its net assets will be invested in any one category of
taxable securities. For more information, see "Other Investment Policies"
below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from New York State and New York City personal income tax, as is
consistent with relative stability of principal. To achieve this objective, the
Fund will invest primarily in New York Municipal Securities as defined below.
The Fund's average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of New York and other states,
territories and possessions of the United States, the District of Columbia and
-17-
<PAGE> 716
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular Federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of the Fund's Investment Adviser, suitable obligations are unavailable
for investment, 65% of the Fund's total assets will be invested in debt
securities of the State of New York, its political subdivisions, authorities,
agencies, instrumentalities and corporations, and certain other governmental
issuers such as Puerto Rico, the interest on which, in the opinion of bond
counsel to the issuer, is exempt from Federal, New York State and New York City
personal income taxes ("New York Municipal Securities"). See "Special
Considerations and Risks -- New York Municipal Bond Fund" below for a discussion
of certain risks in investing in New York Municipal Securities. Dividends
derived from interest on Municipal Securities other than New York Municipal
Securities will generally be exempt from regular Federal income tax but may be
subject to New York State and New York City personal income tax. See "Taxes"
below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P (AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa") or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest ratings of S&P or Moody's are considered to be investment grade. See
"Investment Objectives and Policies -- Tax-Exempt Bond Fund" above for a
discussion of certain risks in investing in Municipal Securities rated in the
lowest of the four highest rating categories assigned by S&P or Moody's. If the
ratings of a particular Municipal Security purchased by the Fund are
subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by the Investment Adviser in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories. See Appendix A to the Statement of Additional Information
for a description of S&P's and Moody's rating categories.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S.
-18-
<PAGE> 717
Treasury; (ii) obligations of agencies or instrumentalities of the U.S.
Government; (iii) "money market" instruments such as certificates of deposit and
bankers' acceptances of selected banks and commercial paper rated within the two
highest rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) futures contracts; or (vi) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Connecticut personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Connecticut Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Connecticut and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular Federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of the Fund's Investment Adviser, suitable obligations are unavailable
for investment, 65% of the Fund's total assets will be invested in Municipal
Securities issued by or on behalf of the State of Connecticut, its political
sub-divisions, or any public instrumentality, state or local authority, district
or similar public entity created under the laws of Connecticut and certain other
governmental issuers such as Puerto Rico, the interest on the obligations of
which is exempt from Connecticut personal income taxes by virtue of federal law
("Connecticut Municipal
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<PAGE> 718
Securities"). See "Special Considerations and Risks -- Connecticut Municipal
Bond Fund" below, for a discussion of certain risks in investing in Connecticut
Municipal Securities. Dividends derived from interest on Municipal Securities
other than Connecticut Municipal Securities will generally be exempt from
regular Federal income tax but may be subject to Connecticut personal income
tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest ratings
assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa", "Aa", "A" and
"Baa") or unrated instruments determined by the Fund's Investment Adviser to be
of comparable quality. Municipal Securities rated within the four highest
rating categories of S&P or Moody's are considered to be investment grade. See
"Investment Objectives and Policies -- Tax-Exempt Bond Fund" above for a
discussion of certain risks in investing in Municipal Securities rated in the
lowest of the four highest rating categories assigned by S&P or Moody's. If the
ratings of a particular Municipal Security purchased by the Fund are
subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by the Investment Adviser in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit and bankers'
acceptances of selected banks and commercial paper rated within the two highest
rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) futures contracts; or (vi) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies" below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for
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<PAGE> 719
information regarding additional investment policies of the Connecticut
Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Massachusetts personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Massachusetts Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular Federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of the Fund's Investment Adviser, suitable obligations are
unavailable for investment, 65% of the Fund's total assets will be invested in
debt securities of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from Federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities"). See
"Special Considerations and Risks -- Massachusetts Municipal Bond Fund" below
for a discussion of certain risks in investing in Massachusetts Municipal
Securities. Dividends derived from interest on Municipal Securities other than
Massachusetts Municipal Securities will generally be exempt from regular Federal
income tax but may be subject to Massachusetts personal income tax. See "Taxes"
below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa") or unrated instruments determined by the Fund's Investment
Adviser to be of comparable quality. Municipal Securities rated within the four
highest rating categories of S&P or Moody's are considered to be investment
grade. See "Investment Objectives and Policies -- Tax-Exempt Bond Fund" above
for a discussion of certain risks in
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<PAGE> 720
investing in Municipal Securities rated in the lowest of the four highest
rating categories assigned by S&P or Moody's. If the ratings of a particular
Municipal Security purchased by the Fund are subsequently downgraded below the
four highest rating categories assigned by S&P or Moody's, such factor will be
considered by the Investment Adviser in its evaluation of the overall merits of
that Municipal Security but such ratings change will not necessarily result in
an automatic sale of the Municipal Security. Under normal market and economic
conditions, at least 65% of the Fund's total assets will be invested in
Municipal Securities rated in the three highest rating categories assigned by
S&P or Moody's. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit and bankers'
acceptances of selected banks and commercial paper rated within the two highest
rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) futures contracts; or (vi) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies" below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from Federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Rhode Island Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
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<PAGE> 721
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular Federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of the Fund's Investment Adviser, suitable obligations are
unavailable for investment, at least 65% of the Fund's total assets will be
invested in debt securities of the State of Rhode Island, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from Federal and Rhode
Island personal income taxes ("Rhode Island Municipal Securities"). See "Special
Considerations and Risks -- Rhode Island Municipal Bond Fund" below for a
discussion of certain risks in investing in Rhode Island Municipal Securities.
Dividends derived from interest on Municipal Securities other than Rhode Island
Municipal Securities will generally be exempt from regular Federal income tax
but may be subject to Rhode Island personal income tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A", and "Baa") or unrated instruments determined by the Fund's
Investment Adviser to be of comparable quality. Municipal Securities rated
within the four highest rating categories of S&P or Moody's are considered to
be investment grade. See "Investment Objectives and Policies -- Tax-Exempt Bond
Fund" above for a discussion of certain risks in investing in Municipal
Securities rated in the lowest of the four highest rating categories assigned
by S&P or Moody's. If the ratings of a particular Municipal Security purchased
by the Fund are subsequently downgraded below the four highest rating
categories assigned by S&P or Moody's, such factor will be considered by the
Investment Adviser in its evaluation of the overall merits of that Municipal
Security but such ratings change will not necessarily result in an automatic
sale of the Municipal Security. Under normal market and economic conditions, at
least 65% of the Fund's total assets will be invested in Municipal Securities
rated in the three highest rating categories assigned by S&P or Moody's. See
Appendix A to the Statement of Additional Information for a description of
S&P's and Moody's rating categories.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable
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<PAGE> 722
obligations in such proportions as, in the opinion of the Investment Adviser,
prevailing market or economic conditions warrant. Uninvested cash reserves will
not earn income. Such taxable instruments may include (i) obligations of the
U.S. Treasury; (ii) obligations of agencies or instrumentalities of the U.S.
Government; (iii) "money market" instruments such as certificates of deposit and
bankers' acceptances of selected banks and commercial paper rated within the two
highest rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) futures contracts; or (iv) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
SPECIAL CONSIDERATIONS AND RISKS
In General
Generally, the market value of fixed income securities, such as
Municipal Securities, in the Funds can be expected to vary inversely to changes
in prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each
Fund may invest more than 25% of its assets in Municipal Securities the interest
on which is paid solely from
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<PAGE> 723
revenues on similar projects if such investment is deemed necessary or
appropriate by the Investment Adviser. To the extent that a Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the particular risks presented by such projects to a
greater extent than it would be if its assets were not so concentrated.
The New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds are classified as
non-diversified investment companies under the 1940 Act. Investment return on a
non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
New York Municipal Bond Fund
The New York Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. New York State and New York City face long-term economic problems that
could seriously affect their ability and that of other issuers of New York
Municipal Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of Municipal Securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has at times had the effect of permitting New York Municipal
Securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated Municipal
Securities issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York Municipal
Securities could result in defaults or declines in
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<PAGE> 724
the market values of those issuers' existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Securities. Although as of
the date of this Prospectus no issuers of New York Municipal Securities are in
default with respect to the payment of their Municipal Securities, the
occurrence of any such default could adversely affect the market values and
marketability of all New York Municipal Securities and, consequently, the net
asset value of the Fund's portfolio.
Other considerations affecting the Fund's investments in New York
Municipal Securities are summarized in the Statement of Additional Information.
Connecticut Municipal Bond Fund
The Connecticut Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Connecticut Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Connecticut Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Connecticut and other factors specifically affecting the ability of issuers of
Connecticut Municipal Securities to meet their obligations.
Fiscal stress is reflected in the State's economic and revenue
forecasts, a rising debt burden that reflects a significant increase in bond
activity since fiscal 1987-88, a cumulative general fund deficit for fiscal
1990-91 of over $965 million, and uncertainty concerning the solutions for these
imbalances. Accumulated surpluses in a budget stabilization fund created in 1983
to protect against future deficit problems were exhausted in 1990. The lack of a
contingency fund balance, combined with reduced revenue-raising flexibility in
the near term, places additional constraints on managing these financial
problems and any others that may arise. As a result of the recent recurring
budgetary problems, Connecticut's general obligation bonds were downgraded by
S&P from AA+ to AA in April 1990 and, in September 1991, to AA-; by Moody's from
Aa1 to Aa in April 1990; and by Fitch Investors Service, L.P. from AA+ to AA in
March 1995.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut has held that Bridgeport
had authority to file such a petition but that its petition should be dismissed
on the grounds that Bridgeport was not insolvent when the petition was filed.
Regional economic difficulties, reductions in revenues, and increased expenses
-26-
<PAGE> 725
could lead to further fiscal problems for the State and its political
subdivisions, authorities, and agencies. This could result in declines in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their obligations.
Other considerations affecting the Fund's investments in Connecticut
Municipal Securities are summarized in the Statement of Additional Information.
Massachusetts Municipal Bond Fund
The Massachusetts Municipal Bond Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the value of the Fund's shares may fluctuate
more widely than the value of shares of a portfolio investing in securities of
issuers in a number of different states. The ability of Massachusetts and its
political subdivisions to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of Massachusetts Municipal Securities may be affected from
time to time by economic, political and demographic conditions within
Massachusetts. In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Massachusetts Municipal Securities
may also affect that issuer's ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political
and demographic conditions in Massachusetts or a particular locality. Any
reduction in the actual or perceived ability of an issuer of Massachusetts
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect adversely the values
of other Massachusetts Municipal Securities as well.
Rhode Island Municipal Bond Fund
The Rhode Island Municipal Bond Fund's ability to achieve its
investment objective depends on the ability of issuers of Rhode Island Municipal
Securities to meet their continuing
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<PAGE> 726
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which one or more of the Funds have the power to utilize. Some may be
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Funds may, in accordance with their investment policies, invest
from time to time in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and in "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its agencies
and instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
more than ten years. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
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<PAGE> 727
others, such as those of the Federal Home Loan Banks, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when the Investment Adviser
believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the
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<PAGE> 728
indebtedness thereunder to vary. Variable rate instruments provide for periodic
adjustments in the interest rate. Floating rate instruments provide for
automatic adjustment of the interest rate whenever some other specified interest
rate changes. Some variable and floating rate obligations are direct lending
arrangements between the purchaser and the issuer and there may be no active
secondary market. However, in the case of variable and floating rate obligations
with a demand feature, a Fund may demand payment of principal and accrued
interest at a time specified in the instrument or may resell the instrument to a
third party. In the event that an issuer of a variable or floating rate
obligation defaulted on its payment obligation, a Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default.
Types of Municipal Securities
The two principal classifications of Municipal Securities which may be
held by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
Variable and Floating Rate Municipal Securities
Municipal Securities purchased by the Funds may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their
-30-
<PAGE> 729
par value. Illiquid variable and floating rate instruments (instruments which
are not payable upon seven days' notice and do not have an active trading
market) that are acquired by the Funds are subject to the 10% limit described in
Investment Limitation No. 3 under "Investment Limitations" in this Prospectus.
Private Activity Bonds
Each Fund may invest in "private activity bonds," the interest on
which, although exempt from regular Federal income tax, may constitute an item
of tax preference for purposes of the Federal alternative minimum tax.
Investments in such securities, however, will not be treated as investments in
Municipal Securities for purposes of the 80% requirement mentioned above and,
under normal conditions, will not exceed 20% of a Fund's total assets when added
together with any taxable investments held by the Fund.
Private activity bonds held by the Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
Repurchase and Reverse Repurchase Agreements
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by a
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action.
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<PAGE> 730
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Funds currently intend to limit the lending
of their portfolio securities so that, at any given time, securities loaned by a
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding
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<PAGE> 731
voting stock of any one closed-end investment company will be owned in the
aggregate by the Funds, other investment portfolios of Galaxy, or any other
investment companies advised by the Investment Adviser.
Custodial Receipts and Certificates of Participation
Securities acquired by the Funds may be in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain Municipal Securities. Such obligations are
held in custody by a bank on behalf of holders of the receipts. These custodial
receipts are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Funds may also purchase from time to time
certificates of participation that, in the opinion of counsel to the issuer, are
exempt from Federal income tax. A certificate of participation gives a Fund an
undivided interest in a pool of Municipal Securities held by a bank.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, the Investment Adviser
will have determined that the instrument is of comparable quality to those
instruments in which the Fund may invest pursuant to guidelines approved by
Galaxy's Board of Trustees. For certain certificates of participation, a Fund
will have the right to demand payment, on not more than 30 days' notice, for all
or any part of the Fund's participation interest, plus accrued interest. As to
these instruments, each Fund intends to exercise its right to demand payment as
needed to provide liquidity, to maintain or improve the quality of its
investment portfolio or upon a default (if permitted under the terms of the
instrument).
Futures Contracts
Each Fund except the Tax-Exempt Bond Fund may purchase and sell
municipal bond index futures contracts as a hedge against changes in market
conditions. A municipal bond index assigns values daily to the municipal bonds
included in the index based on the independent assessment of dealer-to-dealer
municipal bond brokers. A municipal bond index futures contract represents a
firm commitment by which two parties agree to take or make delivery of an
amount equal to a specified dollar amount multiplied by the difference between
the municipal bond index value on the last trading date of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the underlying securities in the index is made.
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<PAGE> 732
Each Fund except the Tax-Exempt Bond Fund may also enter into
contracts for the future delivery of fixed-income securities commonly known as
interest rate futures contracts. Interest rate futures contracts are similar to
municipal bond index futures contracts except that, instead of a municipal bond
index, the "underlying commodity" is represented by various types of
fixed-income securities.
The Funds will not engage in futures transactions for speculation, but
only to hedge against changes in the market values of securities which the Funds
hold or intend to purchase. The Funds will engage in futures transactions only
to the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). The purchase of futures
instruments in connection with securities which the Funds intend to purchase
will require an amount of cash and/or U.S. Government obligations, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. Each Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of each Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of the Investment Adviser to predict correctly movements in the
direction of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of futures contracts and
movements in the price of the instruments being hedged. There is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, the Funds may realize a loss on a futures
transaction that is not offset by a favorable movement in the price of
securities which they hold or intend to purchase or may be unable to close a
futures position in the event of adverse price movements. Any income from
investments in futures contracts will be taxable. Additional information
concerning futures transactions, including special rules regarding the taxation
of such transactions, is contained in the Statement of Additional Information
and in Appendix B thereto.
When-Issued, Forward Commitment and Delayed Settlement Transactions
Each of the Funds may purchase eligible securities on a "when-issued"
basis and may purchase or sell securities on a
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<PAGE> 733
"forward commitment" basis. Each of the Funds may also purchase or sell eligible
securities on a "delayed settlement" basis. When-issued and forward commitment
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit a Fund to lock in a price or yield on
a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes settlement of a securities
transaction in the secondary market which will occur sometime in the future.
When-issued, forward commitment and delayed settlement transactions involve the
risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the security
delivery takes place. It is expected that forward commitments, when issued
purchases and delayed settlements will not exceed 25% of the value of a Fund's
total assets absent unusual market conditions. In the event a Fund's forward
commitments, when-issued purchases and delayed settlements ever exceeded 25% of
the value of its assets, the Fund's liquidity and the ability of the Investment
Adviser to manage the Fund might be adversely affected. The Funds do not intend
to engage in when-issued purchases, forward commitments and delayed settlements
for speculative purposes, but only in furtherance of their investment
objectives.
Stand-by Commitments
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified Municipal Securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
Asset-Backed Securities
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be
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<PAGE> 734
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with entities issuing the
securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. A Fund will not invest more than 10% of
its total assets in asset-backed securities. See "Asset-Backed Securities" in
the Statement of Additional Information.
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities,
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<PAGE> 735
including government and government related mortgage pools, generally will
fluctuate in response to market interest rates. To the extent that
collateralized mortgage obligations are considered to be investment companies,
investments in such obligations will be subject to the percentage limitations
described under "Investment Company Securities" above.
Guaranteed Investment Contracts
Each Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, the Funds
make cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Funds will only purchase GICs that
are issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
Bank Investment Contracts
Each Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Funds' 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
Derivative Securities
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not
limited to, municipal bond index and interest rate futures and certain asset-
backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the
Funds will be unable to sell a derivative security when it wants because of
lack of market depth or market disruption; pricing risk that the value of a
derivative security will not correlate exactly to the value of the underlying
assets, rates or indices on which it is based; and operations risk that loss
will occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with its day-to-day management of the Funds, how they will be used in
furtherance of each Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies
- -- Derivative Securities" in the Statement of Additional Information relating
to the Funds for additional information.
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not
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<PAGE> 736
be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to any Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) each Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of a
Fund's total assets at the time of such borrowing. No Fund will
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
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<PAGE> 737
4. Purchase any securities which would cause 25% or more of
the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided, however,
that there is no limitation with respect to securities issued or
guaranteed by the U.S. Government, any state, territory or possession
of the U. S. Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political subdivisions.
In addition, the Tax-Exempt Bond Fund may not:
5. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets may
be invested without regard to this limitation.
In addition, the New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds may not:
6. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer, except that up to 50% of the value of a Fund's total
assets may be invested without regard to this 5% limitation, provided
that no more than 25% of the value of a Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of a
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the
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<PAGE> 738
Exchange is open for trading. Currently, the holidays which Galaxy observes are
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per Share of a
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of Shares by dividing the value of all securities and other assets
attributable to a particular series of Shares of the Fund, less the liabilities
attributable to Shares of that series of the Fund, by the number of outstanding
Shares of that series of the Fund.
The Funds' assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments 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. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
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<PAGE> 739
GENERAL
Investments in Retail A Shares of the Funds and subject to a front-end
sales charge. Investments in Retail B Shares of the Tax-Exempt Bond Fund are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" before deciding between the two.
The Distributor has established several procedures to enable different
types of investors to purchase Retail Shares of the Funds. The Retail Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the Distributor, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by the
Distributor on a Business Day in accordance with the Distributor's procedures.
Retail Shares of the Funds will be issued only in exchange for monetary
consideration as described below.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of
Institutions through their Institutions. The Institution is responsible for
transmitting Customer purchase orders to the Distributor and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Retail Shares purchased by Institutions on behalf of their Customers
will normally be held of record by the Institution and beneficial ownership of
Retail Shares will be recorded by the Institution and reflected in the account
statements provided to their Customers. Galaxy's transfer agent may establish an
account of record for each Customer of an Institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular
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<PAGE> 740
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to each Fund
in which a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund in
which the additional investment is being made to Galaxy at the address above
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained from the Distributor, or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. If a Direct Investor's check does not clear, the purchase will be
cancelled.
Purchases by Wire. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("FDISG"), Galaxy's
transfer agent. Prior to making any purchase by wire, an investor must telephone
1-800-628-0413 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
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<PAGE> 741
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA # 0110-0013-8
DDA # 79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to The Galaxy Fund, P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108. Applications may
be obtained by calling the Distributor at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been received by FDISG.
Direct Investors making subsequent investments by wire should follow the
instructions above.
Effective Time of Purchases. A purchase order for Retail Shares
received and accepted by the Distributor from an Institution or a Direct
Investor on a Business Day prior to the close of regular trading hours on the
Exchange (currently, 4:00 p.m. Eastern Time) will be executed at the net asset
value per share determined on that date, provided that Galaxy's custodian
receives the purchase price in federal funds or other immediately available
funds prior to 4:00 p.m. on the third Business Day following the receipt of such
order. Such order will be executed on the day on which the purchase price is
received in proper form. If funds are not received by such date and time, the
order will not be accepted and notice thereof will be given promptly to the
Institution or Direct Investor submitting the order. Payment for orders which
are not received or accepted will be returned. If an Institution accepts a
purchase order from a Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the above procedures.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to varying
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement.
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<PAGE> 742
The issuance of Retail Shares to Direct Investors and Institutions is recorded
on the books of Galaxy and Retail Share certificates will not be issued.
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum
of the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- --------- --------------- ---------
<S> <C> <C> <C>
Less than
$50,000.................... 3.75 3.90 3.75
$50,000 but less than
$100,000................... 3.50 3.63 3.50
$100,000 but less than
$250,000................... 3.00 3.09 3.00
$250,000 but less than
$500,000................... 2.50 2.56 2.50
$500,000 but less than
$1,000,000................. 2.00 2.04 2.00
$1,000,000 but less than
$3,000,000................. 1.00 1.01 1.00
$3,000,000 and
over....................... 0.50 0.50 0.50
</TABLE>
Further reductions in the sales charges shown above are also
possible. See "Quantity Discounts" below.
The Distributor will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by the Distributor, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of
Fleet, may at its expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer
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<PAGE> 743
affiliate of Fleet, whose customers purchase significant amounts of Retail A
Shares of a Fund. Such compensation will not represent an additional expense to
the Funds or their shareholders, since it will be paid from the assets of
Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. No sales
charge is assessed on the following types of transactions and/or investors:
- reinvestment of dividends and distributions;
- purchases by IRA, SEP and Keogh Plan accounts that were
beneficial owners of shares of the Funds or any of the other
portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before January 1, 1997;
- purchases by persons who were beneficial owners of shares of
the Funds or any of the other portfolios offered by Galaxy or
any other funds advised by Fleet or its affiliates before
December 1, 1995;
- purchases by directors, officers and employees of the Funds'
Distributor and of broker-dealers having agreements with the
Funds' Distributor pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program
offered by any broker-dealer or other financial
institution or financial planning organization;
- purchases by members of Galaxy's Board of Trustees;
- purchases by officers, directors, employees and
retirees of Fleet Financial Group, Inc. and any of its
affiliates; and
- any purchase of Retail A Shares pursuant to the
Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the
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Direct Investor or Customer does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or
Customer must notify Galaxy's administrator, First Data Investor Services Group,
Inc. ("FDISG") at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of a
Direct Investor's or Customer's holdings through a check of appropriate records.
For more information about quantity discounts, please contact the Distributor or
your Institution.
Rights of Accumulation. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
Letter of Intent. By completing the Letter of Intent included as part
of the Account Application, a Direct Investor or Customer becomes eligible for
the reduced sales charge applicable to the total number of Eligible Fund Retail
A shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent,
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
FDISG will hold in escrow Retail A Shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if a
Direct Investor or Customer does not purchase the full amount indicated in the
Letter of Intent. The escrow
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<PAGE> 745
will be released when a Direct Investor or Customer fulfills the terms of the
Letter of Intent by purchasing the specified amount. If purchases qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect a
Direct Investor's or Customer's total purchases. If total purchases are less
than the amount specified, a Direct Investor or Customer will be requested to
remit an amount equal to the difference between the sales charge actually paid
and the sales charge applicable to the total purchases. If such remittance is
not received within 20 days, FDISG, as attorney-in-fact pursuant to the terms of
the Letter of Intent and at the Distributor's direction, will redeem an
appropriate number of Retail A shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind a Direct Investor or Customer to
purchase the full amount indicated at the sales charge in effect at the time of
signing, but a Direct Investor or Customer must complete the intended purchase
in accordance with the terms of the Letter of Intent to obtain the reduced sales
charge. To apply, a Direct Investor or Customer must indicate his or her
intention to do so under a Letter of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
Reinstatement Privilege. Direct Investors and Customers may reinvest
all or any portion of their redemption proceeds in Retail A Shares of the Funds
or in Retail A Shares of another portfolio of Galaxy within 90 days of the
redemption trade date without paying a sales load. Retail A Shares so reinvested
will be purchased at a price equal to the net asset value next determined after
the Transfer Agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to the Transfer Agent stating that the
investor is eligible to use the Privilege. The reinstatement request and payment
must be received within 90 days of the trade date of the redemption. Currently,
there are no restrictions on the number of times an investor may use this
Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption
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<PAGE> 746
results in a loss, the reinstatement may result in the loss being disallowed
under the Internal Revenue Code's "wash sale" rules.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Tax-Exempt Bond
Fund is the net asset value of the Retail B Shares purchased. Although Direct
Investors and Customers pay no front-end sales charge on purchases of Retail B
Shares, such Shares are subject to a contingent deferred sales charge at the
rates set forth below if they are redeemed within six years of purchase.
Securities dealers, brokers, financial institutions and other industry
professionals will receive commissions from the Distributor in connection with
sales of Retail B Shares. These commissions may be different than the
reallowances or placement fees paid to dealers in connection with sales of
Retail A Shares. Certain affiliates of Fleet may, at their own expense, provide
additional compensation to Fleet Enterprises, Inc., a broker-dealer affiliate of
Fleet, whose customers purchase significant amounts of Retail B Shares of a
Fund. See "Applicable Sales Charge - Retail A Shares." The contingent deferred
sales charge on Retail B Shares is based on the lesser of the net asset value of
the Shares on the redemption date or the original cost of the Shares being
redeemed. As a result, no sales charge is imposed on any increase in the
principal value of a Direct Investor's or Customer's Retail B Shares. In
addition, a contingent deferred sales charge will not be assessed on Retail B
Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
---------------------- --------------
<S> <C> <C>
Less than one 5.00%
More than one but less than two 4.00%
More than two but less than three 3.00%
More than three but less than four 3.00%
More than four but less than five 2.00%
More than five but less than six 1.00%
After six None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares,
the redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares
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<PAGE> 747
that are not subject to a contingent deferred sales charge (i.e., Retail B
Shares that were acquired through reinvestment of dividends or distributions or
that qualify for other deferred sales charge exemptions) and after that from the
Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to the Distributor, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
Exemptions from the Contingent Deferred Sales Charge. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (iv) or (v) listed below, a Direct Investor
or Customer must explain the status of his or her redemption at the time Retail
B Shares are redeemed. The contingent deferred sales charge with respect to
Retail B Shares is not assessed on: (i) exchanges described under "Investor
Programs -- Exchange Privilege" below; (ii) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iii) redemptions in connection with the combination of the Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (iv) redemptions in connection with the
death or disability of a shareholder; or (v) any redemption of Retail B Shares
held by Direct Investors or Customers, provided the Direct Investor or Customer
was the beneficial owner of shares of the Fund (or any of the other portfolios
offered by Galaxy or otherwise advised by Fleet or its affiliates) before
December 1, 1995.
Characteristics of Retail A Shares and Retail B Shares
The primary difference between Retail A Shares and Retail B Shares lies
in their sales charge structures and shareholder servicing/distribution
expenses. A Direct Investor or Customer should understand that the purpose and
function of the sales charge structures and shareholder servicing/distribution
arrangements for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges -- Retail A
Shares" and "Quantity Discounts.") Retail A Shares are currently subject to
ongoing shareholder servicing fees at an annual rate of up to .30% of the
Fund's average daily net assets attributable to its Retail A Shares.
-49-
<PAGE> 748
Retail B Shares of the Tax-Exempt Bond Fund are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. (See "Applicable
Sales Charges -- Retail B Shares.") Retail B Shares of the Fund are currently
subject to ongoing shareholder servicing and distribution fees at an annual
rate of up to .80% of the Fund's average daily net assets attributable to its
Retail B Shares. These ongoing fees, which are higher than those charged on
Retail A Shares, will cause Retail B Shares to have a higher expense ratio and
pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Tax-Exempt Bond Fund
will convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares, after enough time has passed to allow the
Distributor to recover approximately the amount it would have received if a
front-end sales charge had been charged. The conversion from Retail B Shares to
Retail A Shares takes place at net asset value, as a result of which a Direct
Investor or Customer receives dollar-for-dollar the same value of Retail A
Shares as he or she had of Retail B Shares. The conversion occurs six years
after the beginning of the calendar month in which the Shares are purchased.
Upon conversion, the converted Shares will be relieved of the distribution and
shareholder servicing fees borne by Retail B Shares, although they will
be subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charges -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Retail B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if a Direct
Investor or Customer makes a one-time purchase of Retail B Shares of the Fund,
and subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of the Fund on the same date.
Factors to Consider When Selecting Retail A Shares or Retail B Shares
Before purchasing Retail A Shares or Retail B Shares of the Tax-Exempt
Bond Fund, Direct Investors and Customers should consider whether, during the
anticipated periods of their investments in the Fund, the accumulated
distribution and
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<PAGE> 749
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee,
they are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own Shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Direct Investors or Customers expecting to redeem during
this six-year period should compare the cost of the contingent deferred sales
charge plus the aggregate annual Retail B Shares' distribution and shareholder
servicing fees to the cost of the initial sales charge and shareholder servicing
fees on the Retail A Shares. Over time, the expense of the annual distribution
and shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of
the Fund would equal or exceed the initial sales charge and aggregate
shareholder servicing fees of Retail A Shares approximately six years after the
purchase. In order to reduce such fees for investors that hold Retail B Shares
for more than six years, Retial B Shares will be automatically converted to
Retail A Shares as described above at the end of such six-year period.
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<PAGE> 750
HOW TO REDEEM SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by the Distributor.
Proceeds from the redemptions of Retail B Shares of the Tax-Exempt Bond Fund
will be reduced by the amount of any applicable contingent deferred sales
charge. Galaxy reserves the right to transmit redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares
in accordance with procedures governing their accounts at Institutions. It is
the responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a
Business Day will normally be wired on the third Business Day to the
Institutions.
Direct Investors may redeem all or part of their Retail Shares in
accordance with any of the procedures described below.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and
the number of shares to be redeemed, (ii) identify the shareholder account
number and tax identification number, and (iii) be signed by each registered
owner exactly as the Retail Shares are registered. A redemption request for an
amount in excess of $50,000, or for any amount where (i) the proceeds are to be
sent elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 90 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied
-52-
<PAGE> 751
by signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. The Distributor will not
accept guarantees from notaries public. The Distributor may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until the Distributor receives all required documents in
proper form. The Funds ordinarily will make payment for Retail Shares redeemed
by mail within three Business Days after proper receipt by the Distributor of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to the Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail.")
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing the Distributor by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by the
Distributor. To request redemption of Retail Shares by wire, Direct Investors
should call the Distributor at 1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy, at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
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<PAGE> 752
Galaxy reserves the right to refuse a wire or telephone redemption if
it believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions it may be liable for
losses due to unauthorized or fraudulent telephone transactions.
No redemption by a Direct Investor in any Fund will be processed until
Galaxy has received a completed application with respect to the Direct
Investor's account.
If any portion of the Retail Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and federal
funds.
OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement
plan accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail Shares of a
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares of a Fund having a value of at
least $100 for Retail A Shares of any of the other portfolios offered by Galaxy
or for shares of any
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<PAGE> 753
other investment portfolios otherwise advised by Fleet or its affiliates in
which the Direct Investor or Customer maintains an existing account, provided
that such other Shares may legally be sold in the state of the investor's
residence. Direct Investors and Customers of Institutions may exchange Retail B
Shares of the Tax-Exempt Bond Fund for Retail B Shares of the Money Market,
Short-Term Bond, High Quality Bond, Equity Value, Equity Growth, Small Company
Equity, Asset Allocation and Growth and Income Funds offered by Galaxy in which
the Direct Investor or Customer maintains an existing account, provided that
such other Retail B Shares may legally be sold in the state of the investor's
residence.
No additional sales charge will be incurred when exchanging Retail A
Shares of a Fund for Retail A Shares of another Galaxy portfolio that imposes a
sales charge. Retail B Shares may be exchanged without the payment of any
contingent deferred sales charge at the time the exchange is made. In
determining the holding period for calculating the contingent deferred sales
charge payable on redemptions of Retail B Shares, the holding period of the
Retail B Shares originally held will be added to the holding period of the
Retail B Shares acquired through exchange.
The minimum initial investment to establish an account in another
eligible Fund by exchange, except for the Institutional Treasury Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund into which the exchange is being made,
to participate in the Automatic Investment Program described below, in which
event there is no minimum initial investment requirement, or in the College
Investment Program described below, in which event the minimum initial
investment is generally $100. The minimum initial investment to establish an
account by exchange in the Institutional Treasury Money Market Fund is $2
million.
An exchange involves a redemption of all or a portion of the Retail
Shares of a Fund and the investment of the redemption proceeds in Retail Shares
of another portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per Share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per Share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call FDISG at 1-800-628-0413. Customers of Institutions should
call their
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<PAGE> 754
Institution for such information. Customers exercising the exchange privilege
into other eligible Funds should request and review these Funds' prospectuses
prior to making an exchange (call 1-800-628-0414 for a prospectus). Telephone
all exchanges to 1-800-628-0413. See "How to Redeem Shares -- Redemption
Procedures -- Direct Investors -- Redemptions by Wire" above for a description
of Galaxy's policy on telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
For federal income tax purposes, an exchange of Shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, a Customer or Direct Investor should consult
a tax or other financial adviser to determine the tax consequences.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
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<PAGE> 755
The Systematic Withdrawal Plan permits a Direct Investor to
automatically redeem Retail Shares on a monthly, quarterly, semi-annual, or
annual basis on any Business Day designated by a Direct Investor, if the account
has a starting value of at least $10,000. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
Purchases of additional Retail A Shares concurrently with withdrawals are
ordinarily not advantageous because of the sales charge involved in the
additional purchases. The maintenance of a Systematic Withdrawal Plan may be
disadvantageous for holders of Retail B Shares due to the effect of the
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs -- Automatic
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Investment Program and Systematic Withdrawal Plan" for information on the
Automatic Investment Program. Galaxy reserves the right to redeem accounts
participating in the College Program involuntarily, upon 60 days' written
notice, if the account's net asset value falls below the applicable minimum
initial investment as a result of redemptions. See "How to Purchase and Redeem
Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated
monthly statements of their accounts. Detailed information concerning College
Program accounts and applications may be obtained from Galaxy's distributor
(call 1-800-628-0413).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-FOR-GLXY (367-4599) from any touch-tone telephone and follow the
recorded instructions.
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GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct
Investors can call Galaxy Shareholder Services Monday through Friday, between
the hours of 9:00 a.m. to 5:00 p.m.
(Eastern Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
Investment returns and principal values will vary with market
conditions so that an investor's Retail Shares, when redeemed, may be worth more
or less than their original cost. Past performance is no guarantee of future
results. Unless otherwise indicated, total return figures include changes in
share price, deduction of any applicable sales charge, and reinvestment of
dividends and capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily
and paid monthly. Dividends on each Share of the Funds are determined in the
same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such Shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
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The policy of each Fund is to pay dividends with respect to each
taxable year equal to at least the sum of 90% of its net exempt interest income
and 90% of its net investment company taxable income, if any. Dividends derived
from interest on Municipal Securities (known as exempt-interest dividends) may
be treated by the Funds' shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If a Fund should hold certain "private activity bonds" issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 26% to 28% alternative minimum tax for
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. Shareholders
receiving Social Security benefits should note that all exempt-interest
dividends will be taken into account in determining the taxability of such
benefits. Interest on indebtedness incurred by a shareholder to purchase or
carry Fund Shares generally is not deductible for Federal income tax purposes.
Dividends from a Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Retail Shares
of the Funds.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Investors considering buying Shares of a Fund on or just before the
record date of a capital gain distribution should be aware that the amount of
the forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of a Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
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STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may
be taxable to shareholders under state or local law as dividend income, even
though all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
With respect to the New York Municipal Bond Fund, exempt-interest
dividends (as defined for federal income tax purposes), derived from interest on
New York Municipal Securities (as defined above) will be exempt from New York
State and New York City personal income taxes (but not corporate franchise
taxes), provided the interest on such obligations is and continues to be exempt
from applicable federal, New York State and New York City income taxes. To the
extent that investors are subject to state and local taxes outside of New York
State and New York City, dividends by the Fund may be taxable income for
purposes thereof. Dividends and distributions derived from income (including
capital gains on all New York Municipal Securities) other than interest on New
York Municipal Securities described above are not exempt from New York State and
New York City taxes. Interest or indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Fund is not deductible for
federal, New York State or New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to the
Connecticut personal income tax to the extent that they are derived from
Connecticut Municipal Securities. Other Fund dividends and distributions,
whether received in cash or additional Retail Shares, are subject to this tax,
except that capital gain dividends derived from obligations issued by or on
behalf of the State of Connecticut or its political subdivisions or other public
entities created under Connecticut law are not be subject to the tax. Dividends
and distributions paid by the Fund that constitute items of tax preference for
purposes of the federal alternative minimum tax, other than any derived from
Connecticut Municipal Securities, could cause liability for the net Connecticut
minimum tax, applicable to investors subject to the Connecticut personal income
tax who are required to pay the federal alternative minimum tax. Dividends paid
by the Fund, including those that qualify as exempt-interest dividends for
federal income tax purposes, are taxable for purposes of the Connecticut
Corporation Business Tax; however, 70% (100% if the investor owns at least 20%
of the total voting power and value of the Fund's shares) of amounts that are
treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
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Fund are not subject to property tax within the State of Connecticut or its
political subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional Retail Shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
The Rhode Island Municipal Bond Fund has received a ruling from the
Rhode Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities or obligations of the United States. Distributions from the
Fund's other net investment income and short-term capital gains will be taxable
as ordinary income. Distributions from the Fund's net long-term capital gains
will be taxable as long-term capital gains regardless of how long the
shareholder has owned Fund shares. The tax treatment of distributions is the
same whether distributions are paid in cash or in additional Retail Shares of
the Fund. Any loss realized from the redemption of Fund shares within six months
after the purchase of such shares will be disallowed for Rhode Island personal
income tax purposes to the extent of exempt interest dividends received on such
shares.
The Fund will be subject to the Rhode Island business corporation tax
on its "gross income" apportioned to the State of Rhode Island, and the Rhode
Island business corporation surtax. For this purpose, gross income does not
include interest income earned by the Fund on Rhode Island Municipal Securities
and obligations of the United States, capital gains realized by the Fund on the
sale of certain Rhode Island Municipal Securities, and 50 percent of the Fund's
other net capital gains.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax
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planning. Accordingly, potential investors in the Funds should consult their tax
advisers with specific reference to their own tax situation. Shareholders will
be advised annually as to the federal income tax consequences, and with respect
to shareholders of the New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds, the New York
State and New York City personal income tax, Connecticut personal income tax,
Massachusetts personal income tax and Rhode Island personal income tax,
consequences, respectively, of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction
of Galaxy's Board of Trustees. The Statement of Additional Information contains
the names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond and Corporate Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Funds, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of each Fund. The fee for the Funds is higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that it
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is not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Funds in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc., in consideration
for administrative and other shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fees payable to it by the Funds so that it is entitled to receive advisory fees
at the annual rate of .55% of each such Fund's average daily net assets, but
Fleet may in its discretion revise or discontinue this waiver at any time. For
the fiscal year ended October 31, 1996, Fleet received advisory fees (after fee
waivers) at the effective rates of .__%, .__%, .__%, .__% and .__% of the
Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds' average
daily net assets, respectively.
The Funds' portfolio manager, Mary McGoldrick, is primarily responsible
for the day-to-day management of each Fund's investment portfolio. Ms.
McGoldrick, a Vice President, has been with Fleet and its predecessors since
June 1988, and has managed the Tax-Exempt Bond Fund since its inception and the
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds since March 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however,
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that any resulting change in the Funds' method of operation would not affect
their net asset value per share or result in financial losses to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Funds and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Funds, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Funds, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, FDISG
received administration fees (after fee waivers) at the effective annual rate of
.___%,.___%, .___%, .___% and .___% of the average daily net assets of the
Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds,
respectively.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of Shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each series in the Funds as follows: Class M -
Series 1 shares (Trust Shares), Class M Series 2 shares (Retail A Shares) and
Class M - Series 3 shares (Retail B Shares), each series representing interests
in the Tax- Exempt Bond Fund; Class O - Series 1 shares (Trust Shares) and
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Class O - Series 2 shares (Retail A Shares), each series representing interests
in the New York Municipal Bond Fund; Class P - Series 1 shares (Trust Shares)
and Class P - Series 2 shares (Retail A Shares), each series representing
interests in the Connecticut Municipal Bond Fund; Class Q - Series 1 shares
(Trust Shares) and Class Q - Series 2 shares (Retail A Shares), each series
representing interests in the Massachusetts Municipal Bond Fund; and Class R -
Series 1 shares (Trust Shares) and Class R - Series 2 shares (Retail A Shares),
each series representing interests in the Rhode Island Municipal Bond Fund. The
Tax-Exempt Bond Fund is classified as a diversified investment company and the
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds are classified as non-diversified
companies under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interests in
other portfolios of Galaxy. For information regarding the Funds' Trust Shares
and these other portfolios, which are offered through separate prospectuses,
contact the Distributor at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by that Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below and holders of Retail B Shares of the
Tax-Exempt Bond Fund bear the fees that are paid under Galaxy's Distribution and
Services Plan described below. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The difference in
the expenses paid by the respective series will affect their performance.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per Share, represents an equal proportionate interest in the
related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and a
proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
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Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services of up to an annual rate of up to .30% of the
average daily net asset value of Retail A Shares of the Funds owned beneficially
by Customers. Institutions may receive up to one-half of this fee for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the Distributor; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
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schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Retail B Shares of the Tax-Exempt Bond
Fund. Under the Distribution and Services Plan, Galaxy may pay (a) the
Distributor or another person for expenses and activities intended to result in
the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) Institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
Institutions for administrative support services, which include but are not
limited to (i) transfer agent and subtransfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing subaccounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments
by Galaxy (i) for distribution expenses may not exceed the annual rate of .65%
of the average daily net assets attributable to the Fund's outstanding Retail B
Shares and (ii) to an Institution for shareholder liaison services and/or
administrative support services may not exceed the annual rates of .15% and
.15%, respectively, of the average daily net assets attributable to the Fund's
outstanding Retail B Shares which are owned of record or beneficially by that
Institution's Customers for whom the Institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Prospectus, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
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CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets, and FDISG Investor Services Group,
Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation serves as
the Funds' transfer and dividend disbursing agent. Services performed by both
entities for the Funds are described in the Statement of Additional Information.
Communications to FDISG should be directed to FDISG at P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Funds. Galaxy bears the expenses
incurred in the Funds' operations including taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with FDISG); SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Funds also pay for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal, and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yields of the
Funds. The performance and yield data will be calculated separately for
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Trust Shares, Retail A Shares and/or Retail B Shares of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per Share
on the last day of the period, and annualizing the result on a semi-annual
basis. The Funds may also advertise their "effective yield" which is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. Each Fund may also quote their "tax equivalent yield"
which demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to a Fund's tax-free yield. It is calculated by increasing a
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of income taxes at stated tax rates. The tax-equivalent yield will
always be higher than a Fund's yield.
The Funds may also advertise their performance using "average annual
total return" over various periods of time. Such total return figure reflects
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load charged by the Funds for Retail A Shares and
the applicable contingent deferred sales charge for Retail B Shares and assume
that dividends and capital gains distributions made by a Fund during the period
are reinvested in Fund Shares.
The Funds may also advertise total return data without reflecting the
sales charges imposed on the purchase of Retail A Shares or the redemption of
Retail B Shares in accordance with the rules of the SEC. Quotations that do not
reflect the sales charges will be higher than quotations that do reflect the
sales charges.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally
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functions of kind and quality of the instruments held in a portfolio, portfolio
maturity, operating expenses, and market conditions.
Any additional fees charged by Institutions with respect to accounts of
Customers that have invested in shares of a Fund will not be included in
calculations of yield and performance.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of Galaxy, a particular Fund or a particular series of
shares means, with respect to the approval of an investment advisory agreement,
distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of Galaxy, such Fund or such series of
shares, or (b) 67% or more of the shares of Galaxy, such Fund or such series of
shares present at a meeting if more than 50% of the outstanding shares of
Galaxy, such Fund or such series of shares are represented at the meeting in
person or by proxy.
-71-
<PAGE> 770
RETAIL A SHARES
THE GALAXY FUND
Rhode Island Municipal Bond Fund
Prospectus
February 28, 1997
<PAGE> 771
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HIGHLIGHTS............................................................................................. 3
EXPENSE SUMMARY........................................................................................ 6
FINANCIAL HIGHLIGHTS................................................................................... 8
INVESTMENT OBJECTIVE AND POLICIES...................................................................... 10
Special Considerations and Risks.............................................................. 12
Other Investment Policies and Risk Considerations............................................. 13
INVESTMENT LIMITATIONS................................................................................. 23
PRICING OF SHARES...................................................................................... 24
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 25
Distributor................................................................................... 25
Purchase of Shares............................................................................ 25
Public Offering Price......................................................................... 26
Quantity Discounts............................................................................ 28
Purchase Procedures -- Customers of Institutions.............................................. 30
Purchase Procedures -- Direct Investors....................................................... 30
Other Purchase Information.................................................................... 32
Redemption Procedures -- Customers of Institutions............................................ 32
Redemption Procedures -- Direct Investors..................................................... 32
Other Redemption Information.................................................................. 35
INVESTOR PROGRAMS...................................................................................... 35
Exchange Privilege............................................................................ 35
Automatic Investment Program and Systematic Withdrawal Plan... ............................... 36
Payroll Deduction Program..................................................................... 37
College Investment Program.................................................................... 37
Direct Deposit Program........................................................................ 38
INFORMATION SERVICES................................................................................... 38
Galaxy Information Center - 24 Hour Information Service....................................... 38
Voice Response System......................................................................... 39
Galaxy Shareholder Services................................................................... 39
DIVIDENDS AND DISTRIBUTIONS............................................................................ 39
</TABLE>
-i-
<PAGE> 772
<TABLE>
<CAPTION>
PAGE
<S> <C>
TAXES.................................................................................................. 40
Federal....................................................................................... 40
State and Local............................................................................... 41
Miscellaneous................................................................................. 42
MANAGEMENT OF THE FUND................................................................................. 42
Investment Adviser............................................................................ 42
Authority to Act as Investment Adviser........................................................ 43
Administrator................................................................................. 44
DESCRIPTION OF GALAXY AND ITS SHARES................................................................... 44
Shareholder Services Plan..................................................................... 45
CUSTODIAN AND TRANSFER AGENT........................................................................... 46
EXPENSES............................................................................................... 47
PERFORMANCE AND YIELD INFORMATION...................................................................... 47
MISCELLANEOUS.......................................................................................... 49
</TABLE>
-ii-
<PAGE> 773
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts 01581 information regarding
initial purchases and current
performance, call 1-800-628-0414. For
additional purchases,
redemptions, exchanges and
other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a separate series of Galaxy's shares ("Retail
A Shares") which represent interests in the Rhode Island Municipal Bond Fund, a
separate investment portfolio (the "Fund") offered to investors by Galaxy. The
Fund is a municipal bond fund, and its objective is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in debt securities of the State of
Rhode Island, its political subdivisions, authorities, agencies,
instrumentalities and corporations, and certain other governmental issuers, such
as Puerto Rico, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal and Rhode Island personal income taxes ("Rhode
Island Municipal Securities"). The Fund is a non-diversified investment
portfolio under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc., and
affiliates.
The Retail A Shares described in this Prospectus are offered to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). Retail A
Shares may also be purchased directly by individuals or corporations, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Galaxy is also authorized to
issue an additional series of shares in the Fund ("Trust Shares"), which are
offered under a separate prospectus primarily to investors maintaining qualified
accounts at bank and trust institutions affiliated with Fleet Financial Group,
Inc. As of the date of this Prospectus, however, Trust Shares of the Fund
<PAGE> 774
are not being offered to investors. Retail A Shares and Trust Shares represent
equal pro rata interests in the Fund, except they bear different expenses which
reflect the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
February 28, 1997
-2-
<PAGE> 775
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's RHODE ISLAND MUNICIPAL BOND FUND.
PROSPECTUSES FOR GALAXY'S MONEY MARKET, GOVERNMENT, TAX-EXEMPT, U.S. TREASURY,
CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET,
INSTITUTIONAL TREASURY MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET ALLOCATION, GROWTH AND INCOME,
SMALL CAP VALUE, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY
BOND, CORPORATE BOND, TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT
MUNICIPAL BOND AND MASSACHUSETTS MUNICIPAL BOND FUNDS MAY BE OBTAINED BY CALLING
1-800-628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc.
("Fleet" or the "Investment Adviser"), an indirect wholly-owned
subsidiary of Fleet Financial Group, Inc. Fleet Financial Group,
Inc. is a financial services company with total assets as of
December 31, 1996 of approximately $____ billion. See
"Management of the Fund -- Investment Adviser."
Q: What advantages does the Fund offer?
A: The Fund offers investors the opportunity to invest in a
professionally managed investment portfolio without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Fund also offers the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How does one buy and redeem shares?
A: The Fund is distributed by 440 Financial Distributors, Inc. Retail A
Shares of the Fund are sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Retail A Shares may
also be purchased on behalf of customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Fund may be purchased
-3-
<PAGE> 776
at their net asset value plus a maximum initial sales charge of 3.75%. Retail A
Shares are currently subject to a shareholder servicing fee of up to .15% of the
average daily net asset value by such shares. Share purchase and redemption
information for both Direct Investors and Customers is provided below under "How
to Purchase and Redeem Shares." Except as provided below under "Investor
Programs," the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum investment requirements for investors participating in the
Automatic Investment Program described below. The minimum initial investment in
the College Investment Program described below is $100 ($50 minimum per
transaction if investment is made through the Automatic Investment Program).
Institutions may require Customers to maintain certain minimum investments in
Retail A Shares. See "How to Purchase and Redeem Shares -- Other Purchase
Information" below.
Q: When are dividends paid?
A: Dividends from net investment income of the Fund are declared daily
and paid monthly. Net realized capital gains of the Fund are distributed at
least annually. Dividends and distributions are paid in cash, although
shareholders may choose to have dividends and distributions automatically
reinvested in additional shares of the same series of shares with respect to
which the dividend or distribution was declared without sales charge. See
"Dividends and Distributions."
Q: What potential risks are presented by the Fund's investment
practices?
A: The Fund invests primarily in Rhode Island Municipal Securities
rated at the time of purchase within the four highest rating categories of Sta
ndard & Poor's Rating Group ("S&P") or Moody's Investors Service, Inc.,
("Moody's"). Municipal Securities rated in the lowest of the four highest
rating categories of Moody's or S&P and considered to have speculative
characteristics, even though they are of investment grade quality. Because the
Fund invests primarily in Rhode Island Municipal Securities, the achievement of
its investment objective is dependent upon the ability of the issuers of such
Rhode Island Municipal Securities to meet their continuing obligations for the
payment of principal and interest. In addition, because the Fund is
non-diversified, its investment return may be dependent upon the performance of
a smaller number of securities relative to the number of securities held in a
diversified portfolio. The Fund may lend its securities and enter into
repurchase agreements and reverse repurchase agreements with qualifying banks
and broker/dealers. The Fund may enter into interest rate futures contracts and
municipal bond index futures contracts. The Fund may purchase securities on a
-4-
<PAGE> 777
"when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed settlement" basis. The Fund may also acquire "stand-by
commitments" with respect to Municipal Securities held in its portfolio. The
value of the Fund's portfolio securities will generally vary inversely with
changes in prevailing interest rates. See "Investment Objective and Policies."
Q: What shareholder privileges are offered by the Fund?
A: Retail A Shares of the Fund may be exchanged for Retail A Shares of
any other Galaxy portfolio which offers Retail A Shares and for shares of any
other investment portfolio otherwise advised by Fleet or its affiliates.
Exchanges are not subject to sales charges. Galaxy offers an Automatic
Investment Program which allows investors to automatically invest in Retail A
Shares on a monthly or quarterly basis, as well as other shareholder privileges.
See "Investor Programs."
-5-
<PAGE> 778
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Fund with respect to its Retail A Shares and (ii) the
operating expenses for Retail A Shares of the Fund. SHAREHOLDER TRANSACTION
EXPENSES are charges you pay when buying and selling shares of the Fund. ANNUAL
FUND OPERATING EXPENSES are paid out of the Fund's assets and include fees for
portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services. Examples based on the summary are
also shown.
<TABLE>
<CAPTION>
RHODE ISLAND
MUNICIPAL
BOND FUND
(RETAIL A SHARES)
-----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Front End Sales Charge Imposed on Purchases
(as a percentage of offering price)........................................... 3.75%(1)
Sales Load on Reinvested Dividends.............................................. None
Deferred Sales Load............................................................. None
Redemption Fees(2).............................................................. None
Exchange Fees................................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)............................................... .__%
12b-1 Fees...................................................................... None
Other Expenses (After Fee Waivers and Expense
Reimbursements)............................................................... . %
-----
Total Fund Operating Expenses
(After Fee Waivers and
Expense Reimbursements)....................................................... . %
=====
</TABLE>
- ---------------
(1) Reduced front-end sales charges may be available. See "How to Purchase and
Redeem Shares -- Public Offering Price" and "How to Purchase and Redeem
Shares -- Quantity Discounts."
(2) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) deduction at the time of purchase of the maximum applicable front-end sales
load, (2) a 5% annual return, and (3) redemption of your investment at the end
of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Rhode Island Municipal
Bond Fund......................................$___ $___ $___ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an
-6-
<PAGE> 779
investor in the Fund will bear directly or indirectly. The information contained
in the Expense Summary and Example is based on expenses incurred by the Fund
during the last fiscal year, restated to reflect the expenses which the Fund
expects to incur during the current fiscal year on its Retail A Shares. Without
voluntary fee waivers and/or expense reimbursements by the Investment Adviser
and/or Administrator, "Advisory Fees" would be .75%, Other Expenses would be
.__%, and "Total Fund Operating Expenses" would be ____% for Retail A Shares of
the Fund. For more complete descriptions of these costs and expenses, see
"Management of the Fund" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees that are charged by affiliates
of Fleet or other Institutions directly to their customer accounts for services
related to an investment in Retail Shares of the Fund are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
-7-
<PAGE> 780
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in the Fund. Galaxy is
also authorized to issue an additional series of shares in the Fund, Trust
Shares. As described below under "Description of Galaxy and Its Shares," Retail
A Shares and Trust Shares represent equal pro rata interests in the Fund, except
that (i) Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .15% of the average daily
net asset value of the Fund's outstanding Retail A Shares, and (ii) Retail A
Shares and Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by
[_______________________], Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
(_______________________) into the Statement of Additional Information. More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-8-
<PAGE> 781
RHODE ISLAND MUNICIPAL BOND FUND
(FOR A RETAIL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 19951
RETAIL A SHARES RETAIL SHARES
--------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................................. $10.00
------
Income From Investment Operations:
Net Investment Income(2)............................................. 0.44
Net realized and unrealized
gain (loss) on investments.......................................... 0.67
------
Total From Investment
Operations:.......................................................... 1.11
------
Less Dividends:
Dividends from net
investment income.................................................... (0.44)
Dividends from net realized
capital gains........................................................ --
----
Total Dividends:..................................................... (0.44)
------
Net increase (decrease) in net
asset value.......................................................... 0.67
------
Net Asset Value, End of Period........................................ $10.67
======
Total Return(3)....................................................... 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................................... $10,850
Ratio to average net assets:
Net investment income including
reimbursement/waiver............................................... 5.13%(5)
Operating expenses including
reimbursement/waiver............................................... 0.40%(5)
Operating expenses excluding
reimbursement/waiver............................................... 2.25%(5)
Portfolio Turnover Rate............................................... 34%(4)
</TABLE>
- -------------
(1) The Fund commenced operations on December 20, 1994. On September 7, 1995,
Retail Shares of the Fund were redesignated "Retail A Shares."
(2) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal year ended October
31, 1996 and the period ended October 31, 1995 were $____ and $0.28,
respectively.
(3) Calculation does not include sales charge for Retail A Shares.
(4) Not Annualized.
(5) Annualized.
-9-
<PAGE> 782
INVESTMENT OBJECTIVE AND POLICIES
The Investment Adviser will use its best efforts to achieve the Fund's
investment objective, although its achievement cannot be assured. The investment
objective of the Fund may not be changed without the approval of a majority of
its outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
The Fund is a non-diversified investment portfolio, the investment
objective of which is to seek as high a level of current interest income exempt
from federal income tax and, to the extent possible, from Rhode Island personal
income tax, as is consistent with relative stability of principal. To achieve
this objective, the Fund will invest primarily in Rhode Island Municipal
Securities as defined below. The Fund's average portfolio maturity will vary in
response to variations in the comparative yields of differing maturities of
instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of the Fund's Investment Adviser, suitable obligations are
unavailable for investment, 65% of the Fund's total assets will be invested in
debt securities of the State of Rhode Island, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and Rhode Island personal
income taxes ("Rhode Island Municipal Securities"). See "Special Considerations
and Risks" below for a discussion of certain risks in investing in Rhode Island
Municipal Securities. Dividends derived from interest on Municipal Securities
other than Rhode Island Municipal Securities will generally be exempt from
regular federal income tax but may be subject to Rhode Island personal income
tax. See "Taxes" below.
Municipal Securities purchased by the Fund will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa",
"Aa", "A" and "Baa") or unrated instruments determined by the Fund's
Investment Adviser
-10-
<PAGE> 783
to be of comparable quality. Municipal Securities rated within the four highest
rating categories of S&P or Moody's are considered to be investment grade.
Municipal Securities rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are considered to have speculative characteristics, even
though they are of investment grade quality, even though they are of investment
grade quality, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade Municipal Securities. Such
Municipal Securities will be purchased (and retained) only when the Investment
Adviser believes the issuers have an adequate capacity to pay interest and
repay principal. If the ratings of a particular Municipal Security purchased by
the Fund are subsequently downgraded below the four highest rating categories
assigned by S&P or Moody's, such factor will be considered by the Investment
Adviser in its evaluation of the overall merits of that Municipal Security but
such ratings change will not necessarily result in an automatic sale of the
Municipal Security. Under normal market and economic conditions, at least 65%
of the Fund's total assets will be invested in Municipal Securities rated in
the three highest rating categories assigned by S&P or Moody's.
The Fund may from time to time, during temporary defensive periods,
hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of the Investment Adviser, prevailing market or
economic conditions warrant. Uninvested cash reserves will not earn income. Such
taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit and bankers'
acceptances of selected banks and commercial paper rated within the two highest
rating categories assigned by any major rating service; (iv) repurchase
agreements collateralized by U.S. Government obligations or other "money
market" instruments; (v) futures contracts; or (vi) securities issued by other
investment companies that invest in high quality, short-term securities. Under
normal market conditions, the Fund anticipates that not more than 5% of its net
assets will be invested in any one category of taxable securities. For more
information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Fund.
-11-
<PAGE> 784
SPECIAL CONSIDERATIONS AND RISKS
In General
Generally, the market value of fixed income securities, such as
Municipal Securities, in the Fund can be expected to vary inversely to changes
in prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Fund, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in the
Fund's net asset value.
The Fund is classified as a non-diversified investment company under
the 1940 Act. Investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to the
number held in a diversified portfolio. Consequently, the change in value of any
one security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio, and thereby subject the market-based net
asset value per share of the non-diversified portfolio to greater fluctuations.
In addition, a non-diversified portfolio may be more susceptible to economic,
political and regulatory developments than a diversified investment portfolio
with similar objectives may be.
Although the Fund does not presently intend to do so on a regular
basis, the Fund may invest more than 25% of its assets in Municipal Securities
the interest on which is paid solely from revenues on similar projects if such
investment is deemed necessary or appropriate by the Investment Adviser. To the
extent that the Fund's assets are concentrated in Municipal Securities payable
from revenues on similar projects, the Fund will be subject to the particular
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
-12-
<PAGE> 785
Rhode Island Municipal Securities
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Rhode Island Municipal Securities to meet their continuing
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the values of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in other "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies
and its instrumentalities include U.S. Treasury securities, which differ only in
their interest rates, maturities and time of issuance: Treasury Bills have
initial maturities of one year or less; Treasury notes have initial maturities
of one
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to ten years; and Treasury Bonds generally have initial maturities of more than
ten years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investments in bank obligations are limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches
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<PAGE> 787
of U.S. banks only when the Investment Adviser believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
Types of Municipal Securities
The two principal classifications of Municipal Securities which may be
held by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor the Investment Adviser will review the proceedings relating to the issuance
of Municipal Securities or the bases for such opinions.
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<PAGE> 788
Variable and Floating Rate Instruments
Municipal Securities purchased by the Fund may include rated and
unrated variable and floating rate tax-exempt instruments. There may be no
active secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limitation described in
Investment Limitation No. 3 under "Investment Limitations" in this Prospectus.
Private Activity Bonds
The Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
market conditions, will not exceed 20% of the Fund's total assets when added
together with any taxable investments held by the Fund. Private activity bonds
held by the Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
such private activity bonds is usually directly related to the credit standing
of the corporate user of the facility involved.
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand by notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase
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<PAGE> 789
obligation, the Fund holding such obligation would suffer a loss to the extent
that the proceeds from a sale of the underlying securities (including accrued
interest) were less than the repurchase price (including accrued interest) under
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by the Investment Adviser to be of good standing and only when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by a Fund within the limits prescribed by
the 1940 Act. The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested
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<PAGE> 790
in the aggregate in securities of other investment companies as a group; (c) not
more than 3% of the outstanding voting stock of any one investment company will
be owned by the Fund; and (d) not more than 10% of the outstanding voting stock
of any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by the Investment Adviser.
Custodial Receipts and Participation Interests
Securities acquired by the Fund may be in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain Municipal Securities. Such obligations are
held in custody by a bank on behalf of holders of the receipts. These custodial
receipts are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal Zero
Coupon Receipts." The Fund may also purchase from time to time participation
interests in debt securities held by trusts or financial institutions. A
participation interest gives the Fund an undivided interest in the security or
securities involved. Participation interests may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less as determined in accordance with the regulations of the
Securities and Exchange Commission (although the securities held by the issuer
may have longer maturities). If a participation interest is unrated, the
Investment Adviser will have determined that the instrument is of comparable
quality to those instruments in which the Fund may invest pursuant to guidelines
approved by Galaxy's Board of Trustees. For certain participation interests, the
Fund will have the right to demand payment, on not more than 30 days' notice,
for all or any part of the Fund's participation interest, plus accrued interest.
As to these instruments, the Fund intends to exercise its right to demand
payment as needed to provide liquidity, to maintain or improve the quality of
its investment portfolio or upon a default (if permitted under the terms of the
instrument).
Futures Contracts
The Fund may purchase and sell municipal bond index futures contracts
as a hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a
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<PAGE> 791
specified dollar amount multiplied by the difference between the municipal bond
index value on the last trading date of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
securities in the index is made.
The Fund may also enter into contracts for the future delivery of
fixed-income securities commonly known as interest rate futures contracts.
Interest rate futures contracts are similar to municipal bond index futures
contracts except that, instead of a municipal bond index, the "underlying
commodity" is represented by various types of fixed-income securities.
The Fund will not engage in futures transactions for speculation, but
only to hedge against changes in the market values of securities which the Fund
holds or intends to purchase. The Fund will engage in futures transactions only
to the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). The purchase of futures
instruments in connection with securities which the Fund intends to purchase
will require an amount of cash and/or U.S. Government obligations, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the ability
of the Investment Adviser to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of futures contracts and movements in the
price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, the Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which they hold or
intend to purchase or may be unable to close a futures position in the event of
adverse price movements. Any income from investments in futures contracts will
be taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in the
Statement of Additional Information and in Appendix B thereto.
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<PAGE> 792
When-Issued, Forward Commitment and Delayed Settlement Transactions
The Fund may purchase Municipal Securities on a "when- issued" basis
and may purchase or sell securities on a "forward commitment" basis. The Fund
may also purchase or sell securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by
the Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. The Fund's forward commitments,
when-issued purchases and delayed settlements are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. In the event its
forward commitments, when-issued purchases and delayed settlements ever exceeded
25% of the value of its assets, the Fund's liquidity and the ability of the
investment adviser to manage the Fund might be adversely affected. The Fund does
not intend to engage in when- issued purchases, forward commitments and delayed
settlements for speculative purposes but only in furtherance of its investment
objective.
Stand-by Commitments
The Fund may acquire "stand-by commitments" with respect to Municipal
Securities held in its portfolio. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified Municipal Securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Standby commitments acquired by
the Fund would be valued at zero in determining the Fund's net asset value.
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from,
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<PAGE> 793
a stream of payments generated by particular assets, most often a pool of assets
similar to one another. Assets generating such payments will consist of such
instruments as motor vehicle installment purchase obligations, credit card
receivables and home equity loans. Payment of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with entities issuing the
securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. The Fund will not invest more than 10% of
its total assets in asset- backed securities. See "Asset-Backed Securities" in
the Statement of Additional Information.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund from investing in mortgage-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans, including
saving associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline. As a result, when interest
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<PAGE> 794
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described under "Investment Company Securities" below.
Guaranteed Investment Contracts
The Fund may invest in guaranteed investment contracts ("GICs") issued
by United States and Canadian insurance companies. Pursuant to GICs, the Fund
would make cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated at least AA by S&P or receive a similar high quality
rating from a nationally recognized service which provides ratings of insurance
companies. GICs are considered illiquid securities and will be subject to the
Fund's 10% limitation on such investments, unless there is an active and
substantial secondary market for the particular instrument and market quotations
are readily available.
Bank Investment Contracts
The Fund may invest in bank investment contracts ("BICs") issued by
banks that meet the quality and asset size requirements for banks described
above under "U.S. Government Obligations and Money Market Instruments." Pursuant
to BICs, cash contributions are made to a deposit account at the bank in
exchange for payments at negotiated, floating or fixed interest rates. A BIC is
a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to the Fund's 10% limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
Derivative Securities
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not
limited to, municipal bond index and interest rate futures and certain asset-
backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the
Funds will be unable to sell a derivative security when it wants because of
lack of market depth or market disruption; pricing risk that the value of a
derivative security will not correlate exactly to the value of the underlying
assets, rates or indices on which it is based; and operations risk that loss
will occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with its day-to-day management of the Funds, how they will be used in
furtherance of each Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and Policies
- -- Derivative Securities" in the Statement of Additional Information relating
to the Funds for additional information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
Fund's investment objective.
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<PAGE> 795
Portfolio investments may be sold for a variety of reasons, such as a more
favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to the Fund without the affirmative vote of
the holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objective and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with the Fund's permitted investments, where the value of
the collateral is equal at all times to at least 100% of the value of
the securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
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<PAGE> 796
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities which would cause 25% or more of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U.S. Government,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions.
5. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of its total assets would be invested in the securities of
such issuer, except that up to 50% of the value of the Fund's total
assets may be invested without regard to this 5% limitation, provided
that no more than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of a
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per Share of the Fund for purposes of pricing sales and redemptions is
calculated separately for each series of Shares by dividing the value of all
securities and other assets attributable to a particular
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<PAGE> 797
series of Shares of the Fund, less the liabilities attributable to Shares of
that series of the Fund, by the number of outstanding Shares of that series of
the Fund.
The Fund's assets are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio 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 (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments are carried at fair value as determined by
the Service, based on methods which include consideration of yields or prices of
municipal bonds of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The Service may also
employ electronic data processing techniques and matrix systems to determine
value. Short-term securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors Inc. (the "Distributor"), an indirect
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Distributor has established several procedures to enable different
types of investors to purchase Retail A Shares of the Fund. The Retail A Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
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<PAGE> 798
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the Distributor, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by the
Distributor on a Business Day in accordance with the Distributor's procedures.
Retail A Shares of the Fund will be issued only in exchange for monetary
consideration as described below.
PUBLIC OFFERING PRICE
The public offering price for Retail A Shares of the Fund is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
AS A % OF AS A % OF NET AS A % OF
OFFERING PRICE ASSET VALUE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE PER SHARE PER SHARE
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Less than $50,000.......................................... 3.75 3.90 3.75
$50,000 but less than $100,000............................. 3.50 3.63 3.50
$100,000 but less than $250,000............................ 3.00 3.09 3.00
$250,000 but less than $500,000............................ 2.50 2.56 2.50
$500,000 but less than $1,000,000.......................... 2.00 2.04 2.00
$1,000,000 but less than $3,000,000........................ 1.00 1.01 1.00
$3,000,000 and over........................................ 0.50 0.50 0.50
</TABLE>
Further reductions in the sales charges shown above are also possible.
See "Quantity Discounts" below.
The Distributor will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times, the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by the Distributor, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
-26-
<PAGE> 799
These programs will not change the price of Retail A Shares or the amount that
the Fund will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of
Fleet, may at its expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail A Shares of the Fund. Such compensation will not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Fund may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. No sales
charge is assessed on the following types of transactions and/or investors:
- reinvestment of dividends and distributions;
- purchases by IRA, SEP and Keogh Plan accounts that
were beneficial owners of shares of the Fund or any
of the other portfolios offered by Galaxy or any
other fund adviser by Fleet or its affiliates before
January 1, 1997;
- purchases by persons who were beneficial owners of
shares of the Fund or any of the other portfolios
offered by Galaxy or any other funds advised by Fleet
or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of the
Fund's Distributor and of broker-dealers having
agreements with the Fund's Distributor pertaining to
the sale of Retail A Shares to the extent permitted
by such organizations;
- investors who purchase pursuant to a "wrap fee"
program offered by any broker-dealer or other
financial institution or financial planning
organization;
- purchases by members of Galaxy's Board of
Trustees;
- purchases by officers, directors, employees and
retirees of Fleet Financial Group, Inc. and any of
its affiliates; and
-27-
<PAGE> 800
- any purchase of Retail A Shares pursuant to the
Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor of Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or
Customer must notify Galaxy's administrator, First Data Investor Services Group,
Inc. ("FDISG") at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of a
Direct Investor's or Customer's holdings through a check of appropriate records.
For more information about quantity discounts, please contact the Distributor or
your Institution.
Rights of Accumulation. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
Letter of Intent. By completing the Letter of Intent included as part
of the Account Application, a Direct Investor or Customer becomes eligible for
the reduced sales charge applicable to the total number of Eligible Fund Retail
A Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid that are beneficially owned by a
Direct Investor or Customer on the date
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<PAGE> 801
of submission of the Letter of Intent, may be used as a credit toward completion
of the Letter of Intent. However, the reduced sales charge will be applied only
to new purchases.
FDISG will hold in escrow Retail A Shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if a
Direct Investor or Customer does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when a Direct Investor or Customer
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect a Direct Investor's or Customer's total purchases. If
total purchases are less than the amount specified, a Direct Investor or
Customer will be requested to remit an amount equal to the difference between
the sales charge actually paid and the sales charge applicable to the total
purchases. If such remittance is not received within 20 days, FDISG as
attorney-in-fact pursuant to the terms of the Letter of Intent and at the
Distributor's direction, will redeem an appropriate number of Retail A Shares
held in escrow to realize the difference. Signing a Letter of Intent does not
bind a Direct Investor or Customer to purchase the full amount indicated at the
sales charge in effect at the time of signing, but a Direct Investor or Customer
must complete the intended purchase in accordance with the terms of the Letter
of Intent to obtain the reduced sales charge. To apply, a Direct Investor or
Customer must indicate his or her intention to do so under a Letter of Intent at
the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension plan (or the aggregate investments of a trustee or other
fiduciary) established for the benefit of the persons listed above.
Reinstatement Privilege. Direct Investors and Customers may reinvest
all or any portion of their redemption proceeds in Retail A Shares of the Fund
or in Retail A Shares of another portfolio of Galaxy within 90 days of the
redemption trade date without paying a sales load. Retail A Shares so reinvested
will be purchased at a price equal to the net asset value next determined after
the Transfer Agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to the Transfer Agent stating that the
investor is eligible to use the Privilege. The reinstatement request and payment
must be
-29-
<PAGE> 802
received within 90 days of the trade of the redemption. Currently, there are no
restrictions on the number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of
Institutions through their Institution. The Institution is responsible for
transmitting Customer purchase orders to the Distributor and for wiring required
funds in payment to Galaxy's custodian on a timely basis. The Distributor is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Retail A Shares purchased by Institutions on behalf of their
Customers will normally be held of record by the Institution and beneficial
ownership of Retail A Shares will be recorded by the Institution and reflected
in the account statements provided to their Customers. Galaxy's transfer agent
may establish an account of record for each Customer of an Institution
reflecting beneficial ownership of Retail A Shares. Depending on the terms of
the arrangement between a particular Institution and Galaxy's transfer agent,
confirmations of Retail A Share purchases and redemptions and pertinent account
statements will either be sent by Galaxy's transfer agent directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of Retail A Shares
established by Institutions in connection with the requirements of their
Customer accounts may apply. Customers wishing to purchase Retail A Shares
through their Institution should contact such entity directly for appropriate
purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail A Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to the Fund,
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
-30-
<PAGE> 803
Subsequent investments in an existing account in the Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund to
Galaxy at the address above along with either (a) the detachable form that
regularly accompanies confirmation of a prior transaction, (b) a subsequent
order form that may be obtained from the Distributor, or (c) a letter stating
the amount of the investment, the name of the Fund and the account number in
which the investment is to be made. If a Direct Investor's check does not clear,
the purchase will be cancelled.
Purchases by Wire. Investors may also purchase Retail A Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("FDISG"), Galaxy's
transfer agent. Prior to making any purchase by wire, an investor must telephone
1-800- 628-0413 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to The Galaxy Fund, P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108. Applications may
be obtained by calling the Distributor at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been received by FDISG.
Direct Investors making subsequent investments by wire should follow the
instructions above.
Effective Time of Purchases. A purchase order for Retail A Shares
received and accepted by the Distributor from an Institution or a Direct
Investor on a Business Day prior to the close of regular trading hours on the
Exchange (currently, 4:00 p.m. Eastern Time) will be executed at the net asset
value per share determined on that date, provided that Galaxy's custodian
receives the purchase price in federal funds or other immediately available
funds prior to 4:00 p.m. on the third Business Day following the receipt of such
order. Such order will be executed on the day on which the purchase price is
received in proper form. If funds are not received by such date and time, the
order will not be accepted and notice thereof will be given promptly to the
Institution or Direct Investor submitting the order. Payment
-31-
<PAGE> 804
for orders which are not received or accepted will be returned. If an
Institution accepts a purchase order from a Customer on a non-Business Day, the
order will not be executed until it is received and accepted by the Distributor
on a Business Day in accordance with the above procedures.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to varying
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement. The issuance of Retail A
Shares to Direct Investors and Institutions is recorded on the books of Galaxy
and Retail A Share certificates will not be issued.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail A
Shares in accordance with procedures governing their accounts at Institutions.
It is the responsibility of the Institutions to transmit redemption orders to
the Distributor and credit their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments to
Institutions is imposed by Galaxy, although Institutions may charge a Customer's
account for redemption services. Information relating to such redemption
services and charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a
Business Day will normally be wired on the third Business Day to the
Institutions.
Direct Investors may redeem all or part of their Retail A Shares in
accordance with any of the procedures described below.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
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<PAGE> 805
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
A written redemption request must (i) state the number of shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the shares are
registered. A redemption request for an amount in excess of $50,000, or for any
amount where (i) the proceeds are to be sent elsewhere than the address of
record (excluding the transfer of assets to a successor custodian), (ii) the
proceeds are to be sent to an address of record which has changed in the
preceding 90 days, or (iii) the check is to be made payable to someone other
than the registered owner(s), must be accompanied by signature guarantees. The
guarantor of a signature must be a bank which is a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
guarantor institution. The Distributor will not accept guarantees from notaries
public. The Distributor may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians. A redemption request will not be deemed to be properly received until
the Distributor receives all required documents in proper form. The Fund
ordinarily will make payment for Retail A Shares redeemed by mail within three
Business Days after proper receipt by the Distributor of the redemption request.
Questions with respect to the proper form for redemption requests should be
directed to the Distributor at 1-800-628-0413.
Redemption by Telephone. Direct investors may redeem Retail Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000 or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail.")
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail A Shares by instructing the Distributor by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in
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<PAGE> 806
written instructions subsequently received by the Distributor. To request
redemption of Retail A Shares by wire, Direct Investors should call the
Distributor at 1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy, at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if
it believes it is advisable to do so. Procedures for redeeming Retail A Shares
by wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone transactions, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
No redemption by a Direct Investor in the Fund will be processed until
Galaxy has received a completed application with respect to the Direct
Investor's account.
If any portion of the Retail A Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected, which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail A Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and federal
funds.
-34-
<PAGE> 807
OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement
plan accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail A Shares of the
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her shares.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by the Distributor. Galaxy
reserves the right to wire redemption proceeds within seven days after receiving
the redemption order if, in its judgment, an earlier payment could adversely
affect the Fund.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares of the Fund having a value of at
least $100 for Retail A Shares of any of the other Funds or portfolios offered
by Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. No additional sales charge will be incurred
when exchanging Retail A Shares of the Fund for Retail A Shares of another
Galaxy Portfolio that imposes a sales charge.
The minimum initial investment to establish an account by exchange in
another Fund offered by Galaxy or otherwise advised by Fleet, except for the
Institutional Treasury Money Market Fund, is $2,500, unless at the time of
exchange the Direct Investor or Customer elects, with respect to the Fund into
which the exchange is being made, to participate in the Automatic Investment
Program described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Treasury
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the shares of
the Fund and the investment of the redemption proceeds in shares of another Fund
or portfolio offered by Galaxy or
-35-
<PAGE> 808
otherwise advised by Fleet. The redemption will be made at the per share net
asset value next determined after the exchange request is received. The shares
of the Fund or portfolio to be acquired will be purchased at the per share net
asset value next determined after acceptance of the exchange request, plus any
applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Direct Investors
should call FDISG at 1-800-628-0413. Customers of Institutions should call their
Institution for such information. Customers exercising the exchange privilege
into other eligible Funds should request and review these Funds' prospectuses
prior to making an exchange (call 1-800-628-0414 for a prospectus). Telephone
all exchanges to 1-800-628-0413. See "How to Purchase and Redeem Shares
Redemption Procedures - Direct Investors - Redemption by Wire" above for a
description of Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, a Customer or Direct Investor should consult
a tax or other financial adviser to determine the tax consequences.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail A Shares of the Fund (minimum of $50 per
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<PAGE> 809
transaction) each month or each quarter. Provided the Direct Investor's
financial institution allows automatic withdrawals, Fund shares are purchased by
transferring funds from a Direct Investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail A Shares will be purchased, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day Closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to redeem
Retail A Shares of the Fund on a monthly, quarterly, semi-annual, or annual
basis on any Business Day designated by a Direct Investor, if the account has a
starting value of at least $10,000. If the designated day falls on a weekend or
holiday, the redemption will be made on the Business Day closest to the
designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within five business days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
Purchases of additional Retail A Shares concurrently with withdrawals are
ordinarily not advantageous because of the sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two or four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
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<PAGE> 810
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail A Shares of the Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail A Shares through the Automatic
Investment Program, the minimum per transaction is $50. The College Program is
designed to assist Direct Investors who want to finance a college savings plan.
See "Investor Programs Automatic Investment Program and Systematic Withdrawal
Plan" for information on the Automatic Investment Program. Galaxy reserves the
right to redeem accounts participating in the College Program involuntarily,
upon 60 days written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Purchase and Redeem Shares - Other Redemption Information" above for further
information.
Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from Galaxy's distributor (call
1-800-628-0413).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables Direct Investors to purchase
Retail A Shares of the Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413.
Death or legal incapacity will terminate a Direct Investor's
participation in the Program. Direct Investors may elect at any time to
terminate his or her participation by notifying in writing the Social Security
Administration. Further, Galaxy may terminate a Direct investor's participation
upon 30 days' notice to the Direct Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER - 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
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<PAGE> 811
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-FOR-GLXY (367-4599) from any touchtone telephone and follow the
recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct
Investors can call Galaxy Shareholder Services Monday through Friday, between
the hours of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
Investment returns and principal values will vary with market
conditions so that an investor's Retail A Shares, when redeemed, may be worth
more or less than their original cost. Past performance is no guarantee of
future results. Unless otherwise indicated, total return figures include changes
in share price, deduction of any applicable sales charge, and reinvestment of
dividends and capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
monthly. Dividends on each Share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail A
Shares of the Fund at the net asset value of such Shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent (see "Custodian and Transfer Agent" below) and will
become effective with respect to dividends paid after its receipt.
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<PAGE> 812
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue
to qualify, as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification relieves the Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to pay dividends with respect to each taxable
year equal to at least the sum of 90% of its net exempt interest income and 90%
of its net investment company taxable income, if any. Dividends derived from
interest on Municipal Securities (known as exempt-interest dividends) may be
treated by the Fund's shareholders as items of interest excludable from their
gross income under section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusions would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If the Fund should hold certain "private activity bonds" issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 26% to 28% alternative minimum tax for
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. Shareholders
receiving Social Security benefits should note that all exempt-interest
dividends will be taken into account in determining the taxability of such
benefits. Interest on indebtedness incurred by a shareholder to purchase or
carry Fund Shares generally is not deductible for federal income tax purposes.
Dividends from the Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Retail A
Shares of the Fund.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
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<PAGE> 813
Investors considering buying Shares of the Fund on or just before the
record date of a capital gain distribution should be aware that the amount of
the forth coming distribution payment, although in effect a return of capital,
generally will be taxable.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Fund may
be taxable to shareholders under state or local law as dividend income, even
though all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
The Fund believes that distributions by it to its shareholders are
exempt from Rhode Island personal income taxation and the Rhode Island business
corporation tax to the extent they are derived from (and designated by the Fund
as being derived from) interest earned on Rhode Island Municipal Securities or
obligations of the United States. Distributions from the Fund's other net
investment income and short-term capital gains will be taxable as ordinary
income. Distributions from the Fund's net long-term capital gains will be
taxable as long-term capital gains regardless of how long the shareholder has
owned Fund shares. The tax treatment of distributions is the same whether
distributions are paid in cash or in additional shares of the Fund. Any loss
realized form the redemption of the Fund shares within six months after the
purchase of such shares will be disallowed for Rhode Island personal income tax
purposes to the extent of exempt-interest dividends received on such shares.
The Fund will be subject to the Rhode Island business corporation tax
on its "gross income" apportioned to the State of Rhode Island, and the Rhode
Island business corporation surtax. For this purpose, gross income does not
include interest income earned by the Fund on Rhode Island Municipal Securities
and obligations of the United States, capital gains realized by the Fund on the
sale of certain Rhode Island Municipal Securities, and 50 percent of the Fund's
other net capital gains.
The Fund has obtained a ruling from the Rhode Island Division of
Taxation confirming the Rhode Island tax treatment of its distribution income,
as described above.
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<PAGE> 814
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences and Rhode Island personal income tax consequences of distributions
made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903 serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to Fleet Trust Company and other
individual and institutional clients, and manages other investment portfolios of
Galaxy: the Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market, Institutional
Treasury Money Market, Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity, Asset Allocation, Small Cap Value, Growth and
Income, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Corporate Bond, New York Municipal Bond, Connecticut Municipal Bond and
Massachusetts Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual
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<PAGE> 815
rate of .75% of the average daily net assets of the Fund. The fees for the Fund
are higher than fees paid by most other mutual funds, although the Board of
Trustees of Galaxy believes that they are not higher than average advisory fees
paid by funds with similar investment objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Fund in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc., in consideration
for administrative and support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fee payable
to it by the Fund so that it is entitled to receive advisory fees at the annual
rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective rate of .___% of the Fund's average daily net assets.
The Fund's portfolio manager, May McGoldrick, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Ms.
McGoldrick, a Vice President, has been with Fleet and its predecessors since
June 1988, and has managed the Fund since March 1, 1996.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which have agreed to provide shareholder support
services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would
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<PAGE> 816
not affect its net asset value per share or result in financial losses to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive
administration fees, computed daily and paid monthly, at the annual rate of .09%
of the first $2.5 billion of combined average daily net assets of the Funds and
the other portfolios offered by Galaxy (collectively, the "Portfolios"), .085%
of the next $2.5 billion of combined average daily net assets over $5 billion.
Prior to September 5, 1996, for the services provided to the Fund, FDISG was
entitled to receive administration fees, computed daily and paid monthly, at the
annual rate of .09% of the first $2.5 billion of the combined average daily net
assets of the Portfolios, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion.
In addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive all or a
portion of the administration fee payable to it by the Fund, either voluntarily
or pursuant to applicable statutory expense limitations. For the fiscal year
ended October 31, 1996, the Fund paid administration fees at the effective
annual rate of .___% of its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of Shares.
Pursuant to such authority, the board of Trustees has authorized the issuance of
an unlimited number of Shares in each of the series in the Fund as follows:
Class R - Series 1 shares (Trust Shares) and Class R - Series 2 shares (Retail A
Shares), both series representing interests in the Fund. The Fund is classified
as a non-diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Trust Shares and these other
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<PAGE> 817
portfolios, which are offered through separate prospectuses, contact the
Distributor at 1-800-628-0414. As of the date of this Prospectus, Trust Shares
of the Fund are not being offered to investors.
Shares of each series in the Fund bear their pro rata portfolio of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Fund have certain exchange and other privileges
which are not available to Trust Shares. Trust Shares of the Fund are sold
without a sales load.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per Share, currently represents an equal proportionate interest
in the related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as and declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of
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<PAGE> 818
record of the Retail A Shares. The Plan provides that Galaxy will pay fees for
such services at an annual rate of up to .30% of the average daily net asset
value of Retail A Shares beneficially owned by Customers. Institutions may
receive up to one-half of this fee for providing one or more of the following
services to such Customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with the Distributor;
processing dividend payments from the Fund; providing sub-accounting with
respect to Retail A Shares or the information necessary for sub-accounting; and
providing periodic mailings to Customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund. Galaxy understands that Institutions may charge
fees to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at 1 Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as the Fund's transfer and dividend disbursing agent. Services performed
by both entities for the Fund are described in the Statement of Additional
Information. Communications to FDISG should be directed to FDISG at P.O. Box
5108, 4400 Computer Drive, Westboro, Massachusetts 01581.
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<PAGE> 819
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Fund. Galaxy bears the expenses
incurred in the Fund's operations. Such expenses include taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, fund accounting
and custody fees; charges of the transfer agent, and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indices or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature, may also be used in comparing the performance and yield of the
Fund. The performance and yield data for will be calculated separately for
Retail A Shares and Trust Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The Fund may also quote its "tax-equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated by increasing
the Fund's yield (calculated above) by the amount necessary to reflect the
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<PAGE> 820
payment of federal income taxes at a stated tax rate. The tax-equivalent yield
will always be higher than the Fund's yield.
The Fund may also advertise its performance using "average annual total
return" over various periods of time. Such total return figure reflects the
average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five-and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return reflect
the sales load charged by the Fund with respect to its Retail A Shares and
assume that dividends and capital gains distributions made by the Fund during
the period are reinvested in Fund Shares.
The Fund may also advertise total-return without reflecting the sales
charge imposed on the purchase of Retail A Shares in accordance with the rules
of the SEC. Quotations that do not reflect the sales charge will be higher than
quotations that do reflect the sales charge.
Performance and yield of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yield fluctuates, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
Any additional fees charged directly by Institutions to accounts of
Customers that have invested in Retail A Shares of the Fund will not be included
in calculations of yield and performance.
The Fund's portfolio manager and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and
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<PAGE> 821
capital markets; investment strategies and techniques; investment products and
tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy or the Fund means, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or the
Fund, or (b) 67% or more of the shares of Galaxy or the Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or the Fund are
represented at the meeting in person or by proxy.
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<PAGE> 822
THE GALAXY FUND
Statement of Additional Information
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Corporate Bond Fund
Tax-Exempt Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
February 28, 1997
<PAGE> 823
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectuses (the "Prospectuses") for the
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds, each dated
February 28, 1997, of The Galaxy Fund ("Galaxy"), as they may from time to time
be supplemented or revised. This Statement of Additional Information is
incorporated by reference in its entirety into each such Prospectus. No
investment in shares of the Funds should be made without reading the
Prospectuses. Copies of the Prospectuses may be obtained by writing Galaxy c/o
First Data Investor Services Group, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581 or by calling Galaxy at 1-800-628-0414.
<PAGE> 824
TABLE OF CONTENTS
Page
----
THE GALAXY FUND...................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................... 1
Variable and Floating Rate Obligations......................... 1
Bank Obligations............................................... 1
Asset-Backed Securities........................................ 2
Municipal Securities........................................... 2
When-Issued Securities and Forward Commitment and
Delayed Settlement Transactions................................ 5
Stand-By Commitments........................................... 5
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities.................................. 6
U.S. Government Securities..................................... 7
Derivative Securities
Foreign Currency Exchange Transactions....................... 7
Special Considerations Relating to New York Municipal
Securities..................................................... 8
Special Considerations Relating to Connecticut
Municipal Securities........................................... 22
Additional Investment Limitations.............................. 24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 26
DESCRIPTION OF SHARES................................................ 29
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 32
In General..................................................... 32
Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds.............................. 35
Short-Term Bonds, Intermediate Government Income, High
Quality Bond and Corporate Bond Funds.......................... 36
Taxation of Certain Financial Instruments...................... 37
State Taxation................................................. 39
TRUSTEES AND OFFICERS................................................ 39
Shareholder and Trustee Liability.............................. 44
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY
AGREEMENTS........................................................... 45
Custodian and Transfer Agent................................... 49
PORTFOLIO TRANSACTIONS............................................... 50
SHAREHOLDER SERVICES PLAN............................................ 51
DISTRIBUTION AND SERVICES PLAN....................................... 52
DISTRIBUTOR.......................................................... 54
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<PAGE> 825
Page
----
AUDITORS .......................................................... 56
COUNSEL ........................................................... 57
PERFORMANCE AND YIELD INFORMATION ................................. 57
Yield and Performance of the Funds .......................... 57
MISCELLANEOUS ..................................................... 63
APPENDIX A .............................................................. A-1
APPENDIX B .............................................................. B-1
FINANCIAL STATEMENTS .................................................... FS-1
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<PAGE> 826
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-four investment
portfolios.
This Statement of Additional Information relates to nine of those
investment portfolios: the Short-Term Bond Fund, Intermediate Government Income
Fund (formerly, the Intermediate Bond Fund), High Quality Bond Fund and
Corporate Bond Fund (the "Taxable Bond Funds"), and the Tax-Exempt Bond Fund,
New York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Fund (the "Tax-Exempt Bond
Funds", and collectively with the Taxable Bond Funds, the "Funds"). This
Statement of Additional Information provides additional investment information
with respect to all Funds and should be read in conjunction with the current
Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as described
in their Prospectuses. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet" or the "Investment Adviser"), the investment adviser to
the Funds, must determine that such instrument is comparable to rated
instruments eligible for purchase by a Fund and will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Variable and floating rate obligations with a demand
feature will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
BANK OBLIGATIONS
Investments by the Funds in non-negotiable time deposits are limited to no
more than 5% of each such Fund's total assets at the time of purchase.
<PAGE> 827
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt Bond Funds include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating
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<PAGE> 828
expenses, and the extension of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of public authorities to
finance various privately operated facilities are "Municipal Securities" if the
interest paid thereon is exempt from regular federal income tax and not treated
as a specific tax preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Tax-Exempt Bond Funds' portfolios may also
include "moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a
nationally recognized statistical rating organization ("NRSRO"), such as Moody's
Investors Service, L.P. ("Moody's") and Standard & Poor's Ratings Group ("S&P"),
described in the Prospectus for each Tax-Exempt Bond Fund and in Appendix A
hereto, represent such rating services' opinion as to the quality of Municipal
Securities. It should be emphasized that these ratings are general and are not
absolute standards of quality. Municipal Securities with the same maturity,
interest rate and rating may have different yields. Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Tax-Exempt Bond Fund, an issue of Municipal
Securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund.
The payment of principal and interest on most securities purchased by the
Tax-Exempt Bond Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Tax-Exempt Bond Funds'
Prospectuses. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal
or state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment
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of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Tax-Exempt Bond Funds may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Tax-Exempt Bond Funds may
invest in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectus for each Fund.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt Bond Funds and the liquidity and
value of their respective portfolios. In such an event, each Tax-Exempt Bond
Fund would re-evaluate its investment objective and policies and consider
possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Bond Funds nor Fleet
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will review the proceedings relating to the issuance of Municipal Securities or
the bases for such opinions.
The Taxable Bond Funds may also invest in Municipal Securities when such
investments are deemed appropriate by Fleet in light of the Funds' investment
objectives. As a result of the favorable tax treatment afforded such obligations
under the Internal Revenue Code of 1986, as amended, yields on municipal
obligations can generally be expected under normal market conditions to be lower
than yields on corporate and U.S. Government obligations, although from time to
time Municipal Securities have outperformed, on a total return basis, comparable
corporate and federal debt obligations as a result of prevailing economic,
regulatory or other circumstances.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AND DELAYED SETTLEMENT
TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued", "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its commitments
to purchase "forward commitments," commitments to purchase "when-issued"
securities or commitments to purchase securities on a "delayed settlement" basis
exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from a Fund, at
the Fund's option, specified Municipal Securities at a specified price. Stand-by
commitments are exercisable by a Fund at any time before the maturity of the
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underlying Municipal Security, and may be sold, transferred or assigned by the
Fund only with respect to the underlying instruments.
Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, a Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities that are acquired subject to the commitment. Where a Fund pays
any consideration directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund.
A Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, a Fund's Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
The Funds will acquire stand-by commitments solely to facilitate liquidity
and do not intend to exercise their rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining a Fund's net asset
value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by a Fund's custodian or
sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid securities equal to the
repurchase price (including accrued interest). The Fund will monitor the account
to ensure such equivalent value is maintained. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by a Fund
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would be invested in high quality, short-term "money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
DERIVATIVE SECURITIES
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Short-Term Bond and Corporate Bond Funds may buy and sell
securities denominated in currencies other than the U.S. dollar, and receive
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Funds may enter into foreign currency exchange transactions to convert
United States currency to foreign currency and foreign currency to United
States currency as well as convert foreign currency to other foreign
currencies. A Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit requirement and is
traded at a net price without commission. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Short-Term Bond and Corporate Bond Funds may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
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specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Fund will
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the New York
Municipal Bond Fund's investment in New York Municipal Securities are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Municipal Securities that were available prior to the date
of this Statement of Additional Information. The accuracy and completeness of
the information contained in those official statements have not been
independently verified.
STATE ECONOMY. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries. New York City (the "City"), which is the most populous city
in the State and nation and is the center of the nation's largest metropolitan
area, accounts for a large portion of the State's population and personal
income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position.
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There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1996-97 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
State per capita income for 1994 was estimated at $25,999, which was 19.2% above
the 1994 estimated national average of $21,809. Between 1975 and 1990 total
employment grew by 21.3 percent while the labor force grew only by 15.7 percent,
unemployment fell from 9.5 percent to 5.2 percent of the labor force. In 1991
and 1992, however, total employment in the State fell by 5.5 percent. As a
result, the unemployment rate rose to 8.5 percent reflecting a recession that
has had a particularly strong impact on the entire Northeast. Calendar years
1993 and 1994 saw only a partial recovery.
STATE BUDGET. The State Constitution requires the governor (the "Governor") to
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis State financial plan, and an
explanation of any changes from the previous State financial plan.
The Governor presented his 1996-97 Executive Budget to the
Legislature on December 15, 1995, and subsequently amended it.
The Governor's Executive Budget projected balance on a cash basis
in the General Fund. It reflected a continuing strategy of substantially
reduced State spending, including program restructurings, reductions in social
welfare spending, and efficiency and productivity initiatives.
On March 15, 1996, the Governor presented amendments to the 1996-97
Executive Budget to provide for balancing the 1996-97 State financial plan if
the federal government failed to adopt entitlement changes assumed to produce
savings in the State's 1996-97 Executive Budget.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on July 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including necessary appropriations for all
State-supported debt service. The State Financial Plan for the 1996-97 fiscal
year was formulated on July 25, 1996 and was based on the State's budget as
enacted by the Legislature and signed into law by the Governor, as well as
actual results for the first quarter of the fiscal year (the "1996-97 State
Financial Plan").
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The 1996-97 State Financial Plan was projected to be balanced on a
cash basis. As compared to the Governor's proposed budget as revised on March
20, 1996, the 1996-97 State Financial Plan increases General Fund spending by
$842 million, primarily from funding increased for education, special education
and higher education ($563 million). The balance represented funding increases
to a variety of other programs, including community projects and increased
assistance to fiscally distressed cities. Resources used to fund these
additional expenditures include $540 million in increased revenues projected
for 1996-97 based on higher-than-projected tax collections during the first
half of calendar 1996, $110 million in projected receipts from a new State tax
amnesty program, and other resources including certain non-recurring resources.
The State issued its first update to the 1996-97 State Financial
Plan (the "Mid-Year Update") on October 25, 1996. Revisions have been made to
estimates of both receipts and disbursements based on: (1) updated economic
forecasts for both the nation and the State, (2) an analysis of actual receipts
and disbursements through the first six months of the fiscal year, and (3) an
assessment of changing program requirements. The Mid-Year Update reflected a
balanced 1996-97 State Financial Plan, with a reserve for contingencies in the
General Fund of $300 million. This reserve will be utilized to help offset a
variety of potential risks and other unexpected contingencies that the State
may face during the balance of the 1996-97 fiscal year.
Although revisions to the 1996-97 State Financial Plan contained in
the Mid-Year Update are favorable, the State faces certain risks which could
potentially cost the State up to one-half billion dollars. The Division of the
Budget believes these risks are balanced by reserves in the 1996-97 State
Financial Plan, including the $300 million reserve created in the Mid-year
Update. However, there can be no assurance that these reserves will fully
offset litigation or other risks to the 1996-97 State Financial Plan.
One major uncertainty to the 1996-97 State Financial Plan continues
to be risks related to the economy and tax collections, which could produce
either favorable or unfavorable variances during the balance of the year. An
additional risk to the 1996-97 State Financial Plan arises from the potential
impact of certain litigation now pending against the State, which could produce
adverse effects on the State's projections of receipts and disbursements.
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Similarly, certain litigation which by itself did not produce a
material judgment against the State could have an adverse impact on the 1996-97
State Financial Plan because of the precedential nature of the court's
decision. Specifically, the State Court of Appeals has denied a motion to
appeal a lower court decision in the so-called "GTE Spacenet" case, in which
the court ruled that GTE Spacenet was not subject to the 3.5 percent tax on
gross receipts imposed under section 186-a of the tax law. The court decision
is limited to provisions of section 186-a as it existed prior to the 1995
amendments, and has little prospective effect. While this litigation in and of
itself carries only a small judgment in favor of GTE Spacenet and similar
companies, the consequences of the ruling could eventually entail refunds to
other taxpayers of several hundred million dollars. Refund claims of over $300
million have been filed which, with interest and assuming a similar exposure
for open years for which claims have yet to be filed, could approach $600
million in potential claims.
On August 13, 1996, the State Comptroller released a report in
which he identified several risks to the 1996-97 State Financial Plan and
estimated that the State faces a potential imbalance in receipts and
disbursements of approximately $3 billion for the State's 1997-98 fiscal year
and approximately $3.2 billion for the State's 1998-99 fiscal year.
The Governor is required to submit a balanced budget to the State
Legislature and has indicated he will close any potential imbalance in the
1997-98 State Financial Plan primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. It is expected that the 1997-98 State Financial Plan will reflect a
continuing strategy of substantially reduced State spending, including agency
consolidations, reductions in the State workforce, and efficiency and
productivity initiatives.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The new law abolishes the federal Aid to Families with Dependent Children
program (AFDC), and creates a new Temporary Assistance to Needy Families
program (TANF) funded with a fixed federal block grant to states. The new law
also imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receiving benefits, and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
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On October 16, 1996, the Governor submitted the State's TANF
implementation plan to the federal government as required under the new federal
welfare law. Submission of this plan to the federal government requires New
York State to begin compliance with certain time limits on welfare benefits and
permits the state to become eligible for approximately $2.36 billion in federal
block grant funding. Legislation will be required to implement the State's TANF
plan. The Governor has indicated that he plans to introduce legislation
necessary to conform with federal law shortly, and that he may submit
amendments to the State plan if necessary.
States are required to comply with the new federal welfare reform
law no later than July 1, 1997. Given the size and scope of the changes
required under federal law, it is likely that these proposals will produce
extensive public discussions. There can be no assurances that the State
Legislature will enact welfare reform proposals as submitted by the Governor
and as required under federal law.
The economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the 1996-97 State
Financial Plan is based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and the State economies. The Division of
Budget believes that its projections of receipts and disbursements relating to
the current State Financial Plan, and the assumptions on which they are based,
are reasonable. Actual results, however, could differ materially and adversely
from the projections set therein, and those projections may be changed
materially and adversely from time to time. There are also risks and
uncertainties concerning the future-year impact of actions taken in the 1996-97
budget.
In the State's 1997 fiscal year and in certain recent fiscal years,
the State has failed to enact a budget prior to the beginning of the State's
fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund of
the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
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The General Fund is projected to be balanced on a cash basis for
the 1996-97 fiscal year. Total receipts and transfers from other funds are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected to be $33.12 billion, an increase of $444 million from the total in
the prior fiscal year.
Total revenues for 1994-95 were $31.455 billion. Revenues decreased
by $173 million over the prior fiscal year, a decrease of less than one percent.
Total expenditures for 1994-95 totaled $33.079 billion, an increase of $2.083
billion, or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1995 showed an accumulated deficit
in its combined governmental funds of $1.666 billion, reflecting liabilities of
$14.778 billion and assets of $13.112 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the
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State. Under these financing arrangements, certain public authorities and
municipalities have issued obligations to finance the construction and
rehabilitation of facilities or the acquisition and rehabilitation of equipment,
and expect to meet their debt service requirements through the receipt of rental
or other contractual payments made by the State. Although these financing
arrangements involve a contractual agreement by the State to make payments to a
public authority, municipality or other entity, the State's obligation to make
such payments is generally expressly made subject to appropriation by the
Legislature and the actual availability of money to the State for making the
payments. The State has also entered into a contractual-obligation financing
arrangement with the Local Government Assistance Corporation ("LGAC") in an
effort to restructure the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued by LGAC and
bonds issued to provide for capitalized interest, except in cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion,
completing the program. The impact of LGAC's borrowing is that the State is able
to meet its cash flow needs in the first quarter of the fiscal year without
relying on short-term seasonal borrowings.
In June 1994, the Legislature passed a proposed constitutional
amendment that would significantly change the long-term financing practices of
the State and its public authorities. The proposed amendment would permit the
State, within a formula-based cap, to issue revenue bonds, which would
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be debt of the State secured solely by a pledge of certain State tax receipts
(including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would (i) permit multiple purpose general obligation bond
proposals to be proposed on the same ballot, (ii) require that State debt be
incurred only for capital projects included in a multi-year capital financing
plan, and (iii) prohibit, after its effective date, lease-purchase and
contractual-obligation financing mechanisms for State facilities.
Before the approved constitutional amendment could be presented to
the voters for their consideration, it had to be passed by a separately elected
Legislature. The amendment was passed by the Senate and Assembly in June 1995.
The Amendment was thereafter submitted to voters in November 1995, where it was
defeated.
On January 13, 1992, Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. Standard & Poor's also
continued its negative rating outlook assessment on State general obligation
debt. On April 26, 1993, Standard & Poor's revised the rating outlook assessment
to stable. On February 14, 1994, Standard & Poor's raised its outlook to
positive and, on February 28, 1994, confirmed its A- rating. On January 6, 1992,
Moody's Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State anticipated that its capital programs would be financed,
in part, by State and public authorities borrowings in 1996-97. The State
expected to issue $411 million in general obligation bonds (including $153.6
million for purposes of redeeming outstanding bond anticipation notes) and $154
million in general obligation commercial paper. The Legislature had also
authorized the issuance of up to $101 million in certificates of participation
during the State's 1996-97 fiscal year for equipment purchases. The projection
of the State regarding its borrowings for the 1996-97 fiscal year may change if
circumstances require.
In the 1996 legislative session, the Legislature approved the
Governor's proposal to present to the voters in November 1996 a $1.75 billion
State general obligation bond referendum to finance various environmental
improvement and remediation projects. The Clean Water, Clean Air Bond Act was
approved by the voters in November 1996. As a result, the amount of
general obligation bonds issued during the 1996-97 fiscal year may increase
above the $411 million currently included in the 1996-97 borrowing plan to
finance a portion of this new program.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $735 million for the 1995-96
fiscal year and were estimated to be $719 million for the 1996-97 fiscal year.
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Principal and interest payments on fixed rate and variable rate bonds issued
by LGAC were $340 million for the 1995-96 fiscal year, and were estimated to be
$323 million for 1996-97.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its officers or
employees could have a substantial or long-term adverse effect on New York State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges by commercial insurers,
employee welfare benefit plans, and health maintenance organizations to the
imposition of 13%, 11% and 9% surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of a State lottery game; and (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for children with handicapped conditions.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller has developed a plan to restore the State's retirement systems to
prior funding levels. Such funding is expected to exceed prior levels by $116
million in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241
million in fiscal 1998-99. Beginning in
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<PAGE> 842
fiscal 2001-02, State contributions required under the Comptroller's plan are
projected to be less than that required under the prior funding method. As a
result of the United States Supreme Court decision in the case of State of
Delaware v. State of New York, on January 21, 1994, the State entered into a
settlement agreement with various parties. Pursuant to all agreements executed
in connection with the action, the State is required to make aggregate payments
of $351.4 million, of which $90.3 million have been made. Annual payments to the
various parties will continue through the State's 2002-03 fiscal year in amounts
which will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of certain
moneys held in a reserve fund was settled in June 1996 and certain amounts in a
Supplemental Reserve Fund previously credited by the State against prior State
and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State. Adverse
developments in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced 1996-97 State Financial
Plan. An adverse decision in any of these proceedings could exceed the amount of
the 1996-97 State Financial Plan reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1996-97
State Financial Plan. In its audited financial statements for the fiscal year
ended March 31, 1996, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $474 million.
Although other litigation is pending against New York State, except
as described herein, no current litigation involves New York State's authority,
as a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1995, date of the latest
data available, there were 17 Authorities that had outstanding debt of
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<PAGE> 843
$100 million or more. The aggregate outstanding debt, including refunding bonds,
of these 17 Authorities was $73.45 billion.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New York
may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
City has achieved balanced operating results for each of its fiscal years since
1981 as reported in accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from Standard & Poor's. On July 2,
1985, Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to
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<PAGE> 844
Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and
again in February 1991 to Baa1. On July 10, 1995, Standard & Poor's downgraded
its rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing to the City's chronic structural budget problems and
weak economic outlook. Standard & Poor's stated that New York City's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and state and
federal aid and the City's continued high debt levels also contributed to its
decision to lower the rating. Moody's currently has the City's rating under
review for a possible downgrade.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
it creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of
such aid revenues below a specified level are included among the events of
default in the resolutions authorizing MAC's long-term debt. The occurrence of
an event of default may result in the acceleration of the maturity of all or a
portion of MAC's debt. MAC bonds and notes constitute general obligations of
MAC and do not constitute an enforceable obligation or debt of either the State
or the City. As of December 31, 1995, MAC had outstanding an aggregate of
approximately $4.684 billion of its bonds. MAC is authorized to issue bonds and
notes to refund its outstanding bonds and notes and to fund certain reserves,
without limitation as to principal amount, and to finance certain capital
commitments to the Transit Authority and the New York City School Construction
Authority for the 1992 through 1997 fiscal years in the event the City fails
to provide such financing.
The City and MAC have reached an agreement in principle under which
MAC will develop and implement a debt restructuring program which will provide
the City with $125 million in budget relief in fiscal year 1996, in addition to
the $20 million of additional budget relief provided by MAC to the City since
January 1996. The City has agreed with MAC that it will reduce certain
expenditures by $125 million in each of the four fiscal years starting in
fiscal year 1997. The proposed refinancing, which must satisfy MAC refinancing
criteria, is subject to market conditions.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its
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<PAGE> 845
powers and responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
From time to time, the Control Board staff, OSDC, the City
comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services.
On January 31, 1996, the City published the financial plan for the
1996-1999 fiscal years (the "City Financial Plan"), which is a modification to
a financial plan submitted to the Control Board on July 11, 1995. The City
Financial Plan set forth proposed actions by the City for the 1996 fiscal year
to close substantial projected budget gaps resulting from lower than projected
tax receipts and other revenues and greater than projected expenditures. In
addition to substantial proposed agency expenditure reductions, the City
Financial Plan reflected a strategy to substantially reduce spending for
entitlements for the 1996 and subsequent fiscal years, and to decrease the
City's costs for Medicaid in the 1997 fiscal year and thereafter by increasing
the federal share of Medicaid costs otherwise paid by the City. This strategy
has been the subject of substantial debate, and implementation of this strategy
will be significantly affected by State and federal budget proposals currently
being considered. It is likely that the City Financial Plan will be changed
significantly in connection with the preparation of the Executive Budget for
the 1997 fiscal year as a result of the status of State and federal budget
proposals and other factors.
The City Financial Plan also set forth projections for the 1997
through 1999 fiscal years and outlined a proposed gap-closing program to
eliminate a projected gap of $2.0 billion for the 1997 fiscal year, and to
reduce projected gaps of $3.3 billion and $4.1 billion for the 1998 and 1999
fiscal years, respectively, assuming successful implementation of the
gap-closing program for the 1996 fiscal year.
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<PAGE> 846
The proposed gap-closing actions for the 1997 through 1999 fiscal
years included: (i) additional agency actions, totaling between $643 million
and $691 million in each of the 1997 through 1999 fiscal years; (ii) additional
savings resulting from State and federal aid and cost containment in
entitlement programs to reduce City expenditures and increase revenues by $650
million in the 1997 fiscal year and by $727 million in each of the 1998 and
1999 fiscal years; (iii) additional proposed federal aid of $50 million in the
1997 fiscal year and State aid of $100 million in each of the 1997 through 1999
fiscal years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, certain of which actions is expected to
require legislative action by the City Council; and (v) the assumed receipt of
revenues relating to rent payments for the City's airports, totaling $244
million, $226 million and $70 million in the 1997 through 1999 fiscal years,
respectively, which are currently the subject of a dispute with the Port
Authority and the collection of which may depend on the successful completion
of negotiations with the Port Authority or the enforcement of the City's
remedies under the leases through pending legal actions. The City was also
preparing an additional contingency gap-closing program for the 1997 fiscal
year to be comprised of $200 million in additional agency actions.
The federal and State budgets, when adopted, may result in
substantial reductions in revenues for the City, as well as a reduction in
projected expenditures in entitlement programs, including Medicare, Medicaid
and welfare programs. The nature and extent of the impact on the City of the
federal and State budgets, when adopted, is uncertain, and no assurance can be
given that federal or State actions included in the federal and State adopted
budgets may not have a significant adverse impact on the City's budget and the
City Financial Plan.
The projections for the 1996 through 1999 fiscal years reflected
the costs of the proposed settlement with the teachers union and the recent
settlement with a coalition of municipal unions, and assumed that the City will
reach agreement with its remaining municipal unions under terms which are
generally consistent with such settlements.
The City's financial plans have been the subject of extensive
public comment and criticism. The City comptroller has issued reports
identifying risks ranging between $440 million and $560 million in the 1996
fiscal year before taking into account the availability of $160 million in the
general reserve, and between $2.05 billion and $2.15 billion in the 1997 fiscal
year after implementation of the City's proposed gap-closing actions. With
respect to the 1997 fiscal year, the report noted that the City Financial Plan
assumed the implementation of highly uncertain State and federal actions, most
of which are unlikely to be implemented, that would provide between $1.2
billion and $1.4 billion in relief to the City, and identified additional
risks. The report concluded that the magnitude of the budget risk for the 1997
fiscal year, after two years of large agency cutbacks and workforce reductions,
indicated the seriousness of the City's continuing budget difficulties, and
that the City Financial Plan would require substantial revision in order to
provide a credible program for dealing with the large projected budget gap for
the 1997 fiscal year.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. The City has issued $2.4 million of short-term
obligations in fiscal year 1996 to finance the City's current estimate of its
seasonal cash flow needs for the 1996 fiscal year. Seasonal financing
requirements for the 1995 fiscal year increased to $2.2 billion from $1.75
billion and $1.4 billion in the 1994 and 1993 fiscal years, respectively.
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<PAGE> 847
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance. The
potential impact on the State of such requests by localities was not included in
the projections of the State's receipts and disbursements.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board
for the City of Troy in 1994. The Supervisory Board's powers were increased in
1995, when Troy MAC was created to help Troy avoid default on certain
obligations. The legislation creating Troy MAC prohibits the City of Troy from
seeking federal bankruptcy protection while Troy MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1994, the total indebtedness of all
localities in New York State other than New York City was approximately $17.7
billion. A small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local
government units other than New York City authorized by State law to issue debt
to finance deficits during the period that such deficit financing is
outstanding. Seventeen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1994.
From time to time, federal expenditure reductions could reduce, or
in some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy
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<PAGE> 848
of Connecticut and to the fiscal stability of issuers of Connecticut Municipal
Securities. The latter may include such matters as the ability of issuers to
raise sufficient tax and other revenues to meet their needs, the availability of
aid from other governmental bodies, and the burdens that may be imposed on
issuers by law or necessity. To the extent that the Fund invests in obligations
that are not general obligations of their issuers, payments of principal and
interest will depend on all factors affecting the revenue sources from which
payments thereon are to be derived. The value of the obligations held by the
Fund would be adversely affected not only by any actual inability of their
issuers to pay the principal and interest thereon, but also by a public
perception that such ability is in doubt.
Investors should be aware that manufacturing has historically been
Connecticut's single most important economic activity. The State's manufacturing
industry is diversified, but from 1970 to 1995 manufacturing employment declined
35.5%. During this period, employment in other non-agricultural establishments
(including government) increased 69.7%, particularly in the service, trade, and
finance categories. In 1995, manufacturing accounted for only 17.9% of total
nonagricultural employment in Connecticut. Defense-related business plays an
important role in the Connecticut economy, and economic activity has been
affected by the volume of defense contracts awarded to Connecticut firms. On a
per capita basis, defense awards in Connecticut have traditionally been among
the highest in the nation, but reductions in defense spending have had a
substantial adverse impact on Connecticut's economy, and the State's largest
defense contractors have announced substantial labor force reductions to occur
over the next several years.
The average unemployment rate (seasonally adjusted) in Connecticut
increased from a low of 3.0% in 1988 to 7.5% in 1992 and, after a number of
important changes in the method of calculation, was reported to be 5.5% in 1995.
Pockets of more significant unemployment and poverty exist in some of
Connecticut's cities and towns, the economic conditions of which are causing
them severe financial problems, resulting in some cases in the reporting of
operating and accumulated deficits. Connecticut is in a recession the depth and
duration of which are uncertain.
The State recorded operating deficits in its General Fund for fiscal
1987-88, 1988-89, 1989-90, and 1990-91 of $115,600,000, $28,000,000,
$259,000,000, and $809,000,000, respectively. In the fall of 1991, the State
issued $965,712,000 of Economic Recovery Notes to help fund its accumulated
General Fund deficit. Largely as a result of the enactment in 1991 of a general
income tax on resident and non-resident individuals, trusts, and estates the
State's General Fund ended fiscal 1991-
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<PAGE> 849
92, 1992-93, 1993-94, 1994-95, and 1995-96 with operating surpluses of
$110,000,000, $113,500,000, $19,700,000, $80,500,000, and $250,000,000,
respectively.
The General Fund is the main operating fund of the State. The three
major revenue sources for the General Fund are the personal income tax, the
sales and use taxes, and the corporation business tax, all of which are
sensitive to changes in the level of economic activity in the State. Since its
enactment, the personal income tax has superseded the other two as
the largest revenue source for the State's General Fund. Motor fuel taxes and
other transportation-related taxes are paid into a Special Transportation Fund
while all other tax revenues are carried in the General Fund.
The repair and maintenance of the State's highways and bridges will
require major expenditures in the near term. The State has adopted legislation
that provides for, among other things, the issuance of special tax obligation
bonds, the proceeds of which will be used to pay for improvements to the State's
transportation system. The bonds are payable solely from motor vehicle and other
transportation-related taxes and fees deposited in the Special Transportation
Fund. However, the amount of revenues is dependent on the occurrence of future
events, including a possible rise in fuel prices, and may thus differ materially
from projected amounts. The cost of this infrastructure program, to be met from
federal, State and local funds, is currently estimated at $11.2 billion. The
State expects to issue $4.2 billion of special tax obligation bonds over a
sixteen-year period commenced July 1, 1984 to finance a major portion of the
State's share of such costs.
The tax revenues of Connecticut municipalities are derived only from ad
valorem taxes on real and tangible personal property. Problems inherent with
these impose practical limitations on the ability of Connecticut municipalities
to raise additional tax revenues. The U.S. Census Bureau reports that, at the
time of the 1990 census, Connecticut's capital city of Hartford was the eighth
poorest city in the nation based on the percentage of its residents living in
poverty; the same report indicates that four of Connecticut's largest cities
ranked among the 130 poorest cities in the nation by the same measure.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's
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<PAGE> 850
outstanding shares (as defined under "Miscellaneous" in the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
2. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
3. Purchase or sell real estate; except that each Taxable
Bond Fund may purchase securities that are secured by
real estate and may purchase securities of issuers
which deal in real estate or interests therein; and
except that the Tax-Exempt Bond Funds may invest in
Municipal Securities secured by real estate or
interests therein; however, the Funds will not purchase
or sell interests in real estate limited partnerships.
4. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided
however, that the New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds may enter into
municipal bond index futures contracts, and each Fund
except the Tax-Exempt Bond Fund may enter into
interest rate futures contracts to the extent
permitted under the Commodity Exchange Act and the
1940 Act; and further provided that the Short-Term
Bond and Corporate Bond Funds may enter into forward
currency contracts and foreign currency futures
contracts and related options to the extent permitted
by their respective investment objectives and policies.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
6. Invest in companies for the purpose of exercising
management or control.
7. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that all Funds may acquire
such securities in accordance with the 1940 Act.
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<PAGE> 851
In addition to the above limitations:
8. The Tax-Exempt Bond Funds may not invest in industrial
revenue bonds where the payment of principal and
interest are the responsibility of a company (including
its predecessors) with less than three years of
continuous operation.
9. The Funds, with the exception of the Short-Term Bond and Corporate
Bond Funds, may not purchase foreign securities, except that the
Intermediate Government Income and High Quality Bond Funds and the
Tax-Exempt Bond Funds may purchase certificates of deposit, bankers'
acceptances, or other similar obligations issued by U.S. branches of
foreign banks or foreign branches of U.S. banks; and provided,
however, that the Intermediate Government Income and High Quality
Bond Funds may also purchase obligations of Canadian Provincial
Governments in accordance with each Fund's investment objective and
policies.
The investment restrictions described below are not fundamental policies
of Galaxy and may be changed by Galaxy's Board of Trustees. These
non-fundamental investment policies require that:
(A) subject to fundamental investment limitation No. 8 above, the Funds
may not purchase any security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for less than three years;
and
(B) the Funds may not invest in warrants (other than warrants acquired by
a Fund as part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of a Fund's net assets or if, as a result, more than 2%
of a Fund's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by applicable
state securities laws.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by 440 Financial
Distributors, Inc. (the "Distributor"), and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, Retail A Shares of the Funds and Retail B Shares of the
Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds ("CDSC Funds") are
sold to customers ("Customers") of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). As described in the applicable Prospectuses, Retail A Shares
of the Funds and Retail B Shares of the CDSC
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<PAGE> 852
Funds may also be sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). As described in the
applicable Prospectuses, Trust Shares in the Funds are offered to investors
maintaining qualified accounts at bank and trust institutions, including
institutions affiliated with Fleet Financial Group, Inc., and with respect to
the Taxable Bond Funds, to participants in employer-sponsored defined
contribution plans. Trust Shares of the Corporate Bond Fund are also offered to
Direct Investors and Customers of Institutions.
Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the applicable Prospectuses. Retail B Shares of the
CDSC Funds are sold to Direct Investors and Customers at the net asset value
next determined after a purchase order is received, but are subject to a
contingent deferred sales charge which is payable on redemption of such shares
as described in the applicable prospectuses.
Effective December 1, 1995, Retail A Shares of the Funds are offered for
sale with a maximum front-end sales charge of 3.75%, with certain exemptions as
described in the applicable Prospectuses. An illustration of the computation of
the offering price per share of Retail A Shares of the Funds, using the value of
each Fund's net assets attributable to such Shares and the number of outstanding
Retail A Shares of each Fund at the close of business on October 31, 1996, is as
follows:
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Income
Bond Fund Fund
<S> <C> <C>
Net Assets............ $___________ $____________
Outstanding Shares ___________ ____________
Net Asset Value Per
Share................. $___________ $____________
Sales Charge (3.75% of
the offering price) $___________ $____________
Offering to Public $___________ $____________
</TABLE>
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<PAGE> 853
<TABLE>
<CAPTION>
High Quality Tax-Exempt
Bond Fund Bond Fund
<S> <C> <C>
Net Assets............ $___________ $____________
Outstanding Shares ___________ ____________
Net Asset Value Per
Share................. $___________ $____________
Sales Charge (3.75% of
the offering price) $___________ $____________
Offering to Public $___________ $____________
New York Municipal Connecticut Municipal
Bond Fund Bond Fund
Net Assets............ $____________ $____________
Outstanding Shares ____________ ____________
Net Asset Value Per
Share................. $____________ $____________
Sales Charge (3.75% of
the offering price) $____________ $____________
Offering to Public $____________ $____________
Massachusetts Rhode Island
Municipal Bond Municipal
Fund Bond Fund
Net Assets................. $___________ $__________
Outstanding Shares......... ___________ __________
Net Asset Value Per
Share...................... $___________ $__________
Sales Charge (3.75% of
the offering price)........ $___________ $__________
Offering to Public......... $___________ $__________
</TABLE>
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<PAGE> 854
If the Board of Trustees determines that conditions exist that make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of twenty-four
classes of shares, each representing interests in one of twenty-four separate
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Treasury Money Market Fund, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity Fund,
Small Company Equity Fund, Asset Allocation Fund, Growth and Income Fund, Small
Cap Value Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High
Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund. As stated in the applicable Prospectuses,
two separate series of shares (Retail A Shares and Trust Shares) of the Funds
(plus a third series of shares, i.e. Retail B Shares, of the CDSC Funds) are
offered under separate Prospectuses to different categories of investors.
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<PAGE> 855
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of a Fund), the
Distribution and Services Plan for Retail B Shares of a Fund, and differing
transfer agency fees, Trust Shares, Retail A Shares and Retail B Shares bear pro
rata the same expenses and are entitled equally to a Fund's dividends and
distributions. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the particular
Fund involved in liquidation, based on the number of shares of the Fund that are
held by each shareholder, except that currently each Fund's Retail A Shares
would be solely responsible for the Fund's payments to Service Organizations
under the Shareholder Services Plan and each CDSC Fund's Retail B Shares would
be solely responsible for the Fund's payments to the Distributor and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only Retail A
Shares and Trust Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to Galaxy's Shareholder Services Plan for
Retail A and Trust Shares and only Retail B Shares of a Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Distribution and Services Plan for Retail B Shares. Further, shareholders of all
of the Funds, as well as those of any other investment portfolio now or
hereafter offered by Galaxy, will vote together in the aggregate and not
separately on a Fund-by-Fund basis, except as otherwise required by law or when
permitted by the Board of Trustees. Rule 18f-2 under the 1940 Act provides that
any matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as Galaxy shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of each
Fund in the matter are substantially identical or that the matter does not
affect any interest of the Fund. Under the Rule, the approval of an investment
advisory agreement or any change in fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares
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<PAGE> 856
of such Fund (irrespective of series designation). However, the Rule also
provides that the ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts, and the election
of trustees may be effectively acted upon by shareholders of Galaxy voting
without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
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<PAGE> 857
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders (including amounts derived from
interest on Municipal Securities) would be taxable as ordinary income, to the
extent of the current and accumulated earnings and profits of the particular
Fund, and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year (the "90% distribution requirement"). In
addition, each Fund must satisfy certain requirements with respect to the source
of its income for a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "90% gross income test").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the
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<PAGE> 858
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
A Fund will not be treated for a taxable year as a regulated investment
company under the Code if 30% or more of the Fund's gross income for such year
is derived from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in Section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. Although proposed legislation would repeal the
30% test, it is unclear if or when such legislation would become effective. With
respect to covered call options, if the call is exercised by the holder, the
premium and the price received upon exercise constitute the proceeds of sale,
and the difference between the proceeds and the cost of the securities subject
to the call is capital gain or loss. Premiums from expired call options written
by a Fund and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses. With respect to forward
contracts, futures contracts, options on futures contracts, and other financial
instruments subject to the mark-to-market rules described below under "Taxation
of Certain Financial Instruments," the Internal Revenue Service (the "Service")
has ruled in private letter rulings issued to other registered investment
companies that a gain realized from such a contract, option or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract, option
or instrument is held), if the gain arises as a result of a constructive sale
under the mark-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract, option or
instrument is terminated (or transferred) during the taxable year (other than by
reason of marking-to-market) and less than three months time has elapsed between
the date the contract, option or instrument is acquired and the termination
date. Although a private letter ruling is binding on the Service only with
respect to the taxpayer receiving the ruling, it is
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<PAGE> 859
anticipated that the Service would take the same position with respect to the
Funds. Increases and decreases in the value of a Fund's forward contracts,
futures contracts, options on futures contracts and other investments that
qualify as part of a "designated hedge," as defined in Section 851(g) of the
Code, may be netted for purposes of determining whether the 30% test is met.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange of
Fund Shares, if the shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the Shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (an
effective marginal rate of 39% applies in the case of corporations having
taxable income between $100,000 and $335,000, and an effective marginal rate of
38% applies in the case of corporations having taxable income between
$15,000,000 and $18,333,333).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
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<PAGE> 860
TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND,
MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS
As stated in the Prospectuses for the Tax-Exempt Bond Funds, an investment
in the respective Fund is not intended to constitute a balanced investment
program. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the shareholder
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when
distributed. In addition, the Funds may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
In order for the Tax-Exempt Bond Funds to pay exempt-interest dividends
for any taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of a Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, each Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by a Fund cannot exceed
the excess of the amount of interest exempt from tax under Section 103 of the
Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by a Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
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<PAGE> 861
Shareholders should note that, upon the sale or exchange of Fund Shares,
if the shareholder has not held such Shares for more than six months, any loss
on the sale or exchange of those Shares will be disallowed to the extent of the
exempt dividends received with respect to the Shares.
SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND AND CORPORATE
BOND FUNDS
Income received by the Taxable Bond Funds from sources within foreign
countries may be subject to withholding and other foreign taxes. The payment of
such taxes will reduce the amount of dividends and distributions paid to a
Fund's shareholders. So long as a Fund qualifies as a regulated investment
company, certain distribution requirements are satisfied, and more than 50% of
the value of the Fund's assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Fund may elect, for U.S.
federal income tax purposes, to treat foreign income taxes paid by the Fund that
can be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election, an
amount equal to the foreign income taxes paid by the Fund would be included in
the income of its shareholders, and each shareholder would be entitled either
(i) to credit their portions of this amount against their U.S. tax due, if any,
or (ii) to deduct such portion from their U.S taxable income, if any. Shortly
after any year for which it makes such an election, a Fund will report to its
shareholders, in writing, the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for deduction or credit. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions. Certain limitations are
imposed on the extent to which the credit (but not the deduction) for foreign
taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities generally
will be treated as derived from United States sources and certain foreign
currency gains and losses likewise will be treated as derived from United States
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. Additional limitations apply to
using the foreign tax credit to
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<PAGE> 862
offset the alternative minimum tax imposed on corporations and individuals.
Because of these limitations, shareholders may be unable to claim a credit for
the full amount of their proportionate shares of the foreign income taxes paid
by a Fund.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the 90% distribution requirement, on the
income or gain qualifying under the 90% gross income test and on their ability
to comply with the 30% test described above.
Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Taxable Bond
Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell related options, and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain (if any) with respect to the other part of the straddle, and
to certain wash sales regulations. Under short sales rules, which also are
applicable, the holding period of the securities forming part of the straddle
(if they have not been held for the long-term holding period) will be deemed not
to begin prior to termination of the straddle. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40%-60% rule" and "mark-to-market," but gains and
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<PAGE> 863
losses will be subject to such short sales, wash sales and loss deferral rules
and the requirement to capitalize interest and carrying charges. Under Temporary
Regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from portions that are part of a mixed straddle by
separately identifying each mixed straddle to which such treatment applies, or
(2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40%-60% rule" will apply to the net gain or loss attributable to
the Instruments, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury Department
has not issued any such regulations. Other foreign currency contracts entered
into by a Fund may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts and foreign currency
contracts, may be subject to the provisions of Subpart J of the Code, which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S dollar. The types of
transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules
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<PAGE> 864
if they are or would be treated as sold for their fair market value at year-end
under the mark-to-market rules, unless an election is made to have such currency
rules apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations, certain
transactions that are part of a "Section 988 hedging transaction" (as defined in
the Code and Treasury regulations) may be integrated and treated as a single
transaction or otherwise treated consistently for purposes of the Code. "Section
988 hedging transactions" are not subject to the mark-to-market or loss deferral
rules under the Code. Gain or loss attributable to the foreign currency
component of transactions engaged in by the Funds, which is not subject to the
special currency rules (such as foreign equity investments other than certain
preferred stocks), is treated as capital gain or loss and is not segregated from
the gain or loss on the underlying transaction.
The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law, distributions
of net investment income may be taxable to shareholders as dividend income even
though a substantial portion of such distributions may be derived from interest
on U.S. Government obligations which, if realized directly, would be exempt from
such income taxes. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
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<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing Corporation
Printing Corporation (book manufacturing and commercial
Commercial Drive printing); Director, Utica Fire
P.O. Box 270 Insurance Company; Trustee, Savings
Yorkville, NY 13495 Bank of Utica; Director, Monitor
Age 62 Life Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee, The
Galaxy VIP Fund; Trustee, Galaxy
Fund II.
John T. O'Neill1 President, Executive Vice President and CFO,
Hasbro, Inc. Treasurer & Hasbro, Inc. (toy and game
200 Narragansett Trustee manufacturer), since 1987; Trustee,
Park Drive The Galaxy VIP Fund; Trustee,
Pawtucket, RI 02862 Galaxy Fund II; Managing Partner,
Age 55 KPMG Peat Marwick (accounting
firm), 1986.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee,
Age 55 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
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<PAGE> 866
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL Director/Trustee, Lexington Funds;
33436 President and CEO, Media General
Age 70 Broadcast Services, Inc. (1986 to
1989); Chairman, Executive
Committee, Compton International,
Inc. (advertising agency); Trustee,
Keuka College; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Projects, Incorporated (land
Inc. development); President, The Astra
One Citizens Plaza Ventures, Incorporated (previously,
Providence, RI 02903 Buffinton Box Company manufacturer
Age 55 of cardboard boxes); Trustee, The
Galaxy VIP Fund; Trustee, Galaxy
Fund II; Commissioner, Rhode Island
Investment Commission.
Bradford S. Wellman(1) Trustee Private Investor; President, Ames &
2468 Ohio Street Wellman, from 1978 to 1991;
Bangor, ME 04401 President, Pingree Associates,
Age 65 Inc., from 1974 until 1990;
Director, Essex County Gas Company,
until January 1994; Director, Maine
Mutual Fire Insurance Co.; Member,
Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
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<PAGE> 867
<TABLE>
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath,
Bank Building Philadelphia,
Broad & Chestnut Sts. Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice First Data Investor
First Data Investor President Services Group, Inc.,
Services Group, Inc. and 1992 to present; Vice
4400 Computer Drive Assistant President, Investment
Westboro, MA 01581 Treasurer Marketing and Strategic
Age 36 Planning, Manufacturers
and Traders Trust Co.,
1990 to 1992.
</TABLE>
- -------------------------
1. An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
Effective November 1, 1996, each trustee receives an annual aggregate fee
of $29,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $500 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets.
For the fiscal year ended October 31, 1996, each trustee was authorized to
receive an annual aggregate fee of $18,000 for his services as a trustee of
Galaxy and Galaxy VIP plus a separate annual fee of $5,000 for his services as a
trustee of Galaxy II, in addition to meeting fees of $1,500 for each in-person
Galaxy
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<PAGE> 868
Board meeting attended, $1,500 for each in-person Galaxy VIP Board meeting
attended not held concurrently with a Galaxy Board meeting, and $750 for each
Galaxy II Board meeting attended, and reimbursement for expenses incurred in
attending meetings. Annual fees to the Chairman of the Boards and the President
and Treasurer of the Trusts were the same as the current fees as were the fees
for telephone and Board committee meetings.
Beginning March 1, 1996, each trustee is also entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of First Data Investor Services Group, Inc., ("FDISG")
receives any compensation from Galaxy for acting as an officer. No person who is
an officer, director or employee of Fleet, or any of its affiliates, or of the
Sub-Adviser, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
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<PAGE> 869
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
--------------- ----------- -------- -----------
<S> <C> <C> <C>
Bradford S. Wellman $________ None $________
Trustee
Dwight E. Vicks, Jr. $________ None $________
Chairman & Trustee
Donald B. Miller** $________ None $________
Trustee
Rev. Louis DeThomasis $________ None $________
Trustee
John T. O'Neill $________ None $________
President, Treasurer
& Trustee
James M. Seed** $________ None $________
Trustee
</TABLE>
- -------------
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy
VIP Fund and Galaxy Fund II.
** Deferred compensation in the amounts of $_____ and $_____ accrued during
Galaxy's fiscal year ended October 31, 1996 for Messrs. Miller and Seed,
respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is
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<PAGE> 870
limited to circumstances in which Galaxy itself would be unable to meet its
obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. The Investment Adviser has also agreed to pay
all expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet received advisory fees (net of fee waivers) of $463,521,
$293,801 and $__________, respectively, with respect to the Short-Term Bond
Fund; $2,055,130, $1,467,085 and $__________, respectively, with respect to the
Intermediate Government Income Fund; $862,228, $783,564 and $__________,
respectively, with respect to the High Quality Bond Fund; $725,718, $568,671 and
$__________ respectively, with respect to the Tax-Exempt Bond Fund; and
$372,534, $240,943 and $__________, respectively, with respect to the New York
Municipal Bond Fund.
-45-
<PAGE> 871
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet waived advisory fees of $175,814, $130,062 and $__________,
respectively, with respect to the Short-Term Bond Fund; $757,729, $557,058 and
$__________, respectively, with respect to the Intermediate Government Income
Fund; $316,813, $297,640 and $__________, respectively, with respect to the High
Quality Bond Fund; $300,314, $238,933 and $__________, respectively, with
respect to the Tax-Exempt Bond Fund; and $155,369, $126,783 and $__________,
respectively, with respect to the New York Municipal Bond Fund.
For the fiscal years ended October 31, 1995 and October 31, 1996, Fleet
reimbursed advisory fees of $65,354 and $________, respectively, with respect to
the Short-Term Bond Fund; $60,356 and $________, respectively, with respect to
the Intermediate Government Income Fund; and $34,946 and $________,
respectively, with respect to the High Quality Bond Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet reimbursed advisory fees of $10,125, $88,394 and $_____,
respectively, with respect to the Tax-Exempt Bond Fund; and $10,583, $167,711
and $______, respectively, with respect to the New York Municipal Bond Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet received advisory fees (net of fee waivers) of $0, $29,758 and
$__________, respectively, with respect to the Connecticut Municipal Bond Fund;
and $0, $161,226 and $_________, respectively, with respect to the Massachusetts
Municipal Bond Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet waived advisory fees of $172,537, $125,384 and $__________,
respectively, with respect to the Connecticut Municipal Bond Fund; and $165,730,
$128,951 and $_________, respectively, with respect to the Massachusetts
Municipal Bond Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet reimbursed advisory fees of $54,947, $1,528 and $__________,
with respect to the Connecticut Municipal Bond Fund; and $33,698, $14,041 and
$_________, respectively, with respect to the Massachusetts Municipal Bond Fund.
For the period December 12, 1994 (commencement of operations) to October
31, 1995 and for the fiscal year ended October 31, 1996, Fleet received advisory
fees (net of fee waivers) of $171,959 and $__________, respectively, with
respect to the Corporate Bond Fund. For the same periods, Fleet waived
-46-
<PAGE> 872
advisory fees of $62,531 and $__________, respectively, with respect to the
Corporate Bond Fund.
For the period December 20, 1994 (commencement of operations) to October
31, 1995 and for the fiscal year ended October 31, 1996, Fleet received advisory
fees (net of fee waivers) of $0 and $__________, respectively, with respect to
the Rhode Island Municipal Bond Fund.
For the period December 20, 1994 (commencement of operations) through
October 31, 1995 and for the fiscal year ended October 31, 1996, Fleet
reimbursed advisory fees of $71,657 and $__________, respectively, and waived
advisory fees of $32,013 and $__________, respectively, with respect to the
Rhode Island Municipal Bond Fund.
The advisory agreement provides that the Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of its duties under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. Unless sooner terminated, the advisory agreement
will continue in effect with respect to a particular Fund from year to year as
long as such continuance is approved at least annually (i) by the vote of a
majority of trustees who are not parties to such advisory agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval; and (ii)
by Galaxy's Board of Trustees, or by a vote of a majority of the outstanding
shares of such Fund. The term "majority of the outstanding shares of such Fund"
means, with respect to approval of an advisory agreement, the vote of the lesser
of (i) 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The advisory agreement may be terminated by Galaxy or by Fleet on sixty
days' written notice, and will terminate immediately in the event of its
assignment.
Fleet Bank, an affiliate of the Investment Adviser, is paid a fee for
sub-account and administrative services performed with respect to Trust Shares
of the Taxable Bond Funds held by defined contribution plans. Pursuant to an
agreement between Fleet Bank and FDISG, Fleet Bank will be paid $21.00 per year
for each defined contribution plan participant sub-account. As of October 31,
1996, there were approximately ____________ defined contribution plan
participant sub-accounts invested in Trust Shares of the Taxable Bond Funds;
thus it is expected
-47-
<PAGE> 873
that Fleet Bank will receive annually approximately $__________ for sub-account
services. FDISG bears this expense directly, and shareholders of Trust Shares of
the Taxable Bond Funds bear this expense indirectly through fees paid to FDISG
for transfer agency services.
FDISG, a wholly-owned subsidiary of First Data Corporation, serves as
Galaxy's administrator. Under the administration agreement, FDISG has agreed to
maintain office facilities for Galaxy, furnish Galaxy with statistical and
research data, clerical, accounting, and bookkeeping services, certain other
services such as internal auditing services required by Galaxy, and compute the
net asset value and net income of the Funds. FDISG prepares the Funds' annual
and semi-annual reports to the Securities and Exchange Commission, federal and
state tax returns, and filings with state securities commissions, arranges for
and bears the cost of processing share purchase and redemption orders, maintains
the Funds' financial accounts and records, and generally assists in all aspects
of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, FDISG acquired all of the
assets of 440 Financial Group of Worcester, Inc.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, FDISG and/or its predecessors received administration fees of $71,444,
$57,153 and $__________, respectively, with respect to the Short-Term Bond Fund;
$312,525, $244,446 and $__________, respectively, with respect to the
Intermediate Government Income Fund; $131,746, $130,250 and $__________,
respectively, with respect to the High Quality Bond Fund; $115,702, $104,560 and
$__________, respectively, with respect to the Tax-Exempt Bond Fund and $60,223,
$55,482 and $__________, respectively, with respect to the New York Municipal
Bond Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, FDISG and/or its predecessors received administration fees (net of fee
waivers) of $0, $0 and $__________, respectively, with respect to the
Connecticut Municipal Bond Fund; and $0, $0 and $_________, respectively, with
respect to the Massachusetts Municipal Bond Fund. For the fiscal years ended
October 31, 1994, October 31, 1995 and October 31, 1996, FDISG and/or its
predecessors waived administration fees of $51,576, $39,479 and $__________,
respectively, with respect to the Connecticut Municipal Bond Fund; and $50,862,
$39,000 and $_________, respectively, with respect to the Massachusetts
Municipal Bond Fund.
-48-
<PAGE> 874
For the period December 12, 1994 (commencement of operations) to October
31, 1995 and for the fiscal year ended October 31, 1996, FDISG and/or its
predecessors received administration fees of $27,410 and $__________,
respectively, and waived administration fees of $______ and $______,
respectively, with respect to the Corporate Bond Fund.
For the period December 20, 1994 (commencement of operations) to October
31, 1995 and for the fiscal year ended October 31, 1996, FDISG and/or its
predecessors received administration fees of $4,850 and $__________,
respectively, and waived administration fees of $______ and $______,
respectively, with respect to the Rhode Island Municipal Bond Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of each
Fund; (iii) collect and make disbursements of money on behalf of each Fund; (iv)
collect and receive all income and other payments and distributions on account
of each Fund's portfolio securities; (v) respond to correspondence from security
brokers and others relating to its duties; and (vi) make periodic reports to the
Board of Trustees concerning the Funds' operations. Chase Manhattan is
authorized to select one or more banks or trust companies to serve as
sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Short-Term Bond and Corporate Bond Funds upon
prior approval by the Board of Trustees in accordance with the regulations of
the SEC, for the purpose of providing custodial services for the foreign assets
of those Funds held outside the United States. The assets of the Funds are held
under bank custodianship in compliance with the 1940 Act.
FDISG also serves as Galaxy's transfer agent and dividend disbursing agent
pursuant to a Transfer Agency Agreement ("Transfer Agency Agreement"). Under the
Transfer Agency Agreement, FDISG has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders of
record, including reports to shareholders, dividend and distribution notices and
proxy materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain
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<PAGE> 875
shareholder accounts; and (v) make periodic reports to the Board of Trustees
concerning Galaxy's operations.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, the
Investment Adviser, First Data, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to such
transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1996, _______.
Investment decisions for each Fund are made independently from those for
the other Funds and for any other investment companies and accounts advised or
managed by Fleet. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund, another portfolio of Galaxy,
and/or another investment company or account, the transaction will be averaged
as to price, and available investments allocated as to amount, in a manner which
Fleet believes to be equitable to the Fund and such other portfolio, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or sold by such Fund. To the extent permitted by law, Fleet may aggregate the
securities to be sold or purchased for a
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<PAGE> 876
Fund with those to be sold or purchased for its other portfolios, or other
investment companies or accounts in order to obtain best execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for providing certain
administrative and support services to Customers who are the beneficial owners
of Retail A Shares and Trust Shares of a Fund. As of October 31, 1996, Galaxy
had entered into Servicing Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agree to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
For the one-month period October 1, 1994 (date of implementation of
Services Plan) through October 31, 1994, payments to Service Organizations
totaled $4,524, $3,465, $12,348, $4,723, $5,577, $2,410 and $2,114 with respect
to the Short-Term Bond Fund, High Quality Bond Fund, Intermediate Government
Income Fund, Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund and Massachusetts Municipal Bond Fund, respectively.
For the fiscal years ended October 31, 1995 and October 31, 1996, payments
to Service Organizations totaled $45,148 and $__________, respectively, with
respect to Retail A Shares of the Short-Term Bond Fund; $122,743 and $________,
respectively, with respect to Retail A Shares of the Intermediate Government
Income Fund; $39,826 and $________, respectively, with respect to Retail A
Shares of the High Quality Bond Fund, $47,093 and $_____, respectively, with
respect to Retail A Shares of the Tax-Exempt Bond Fund; $60,513 and $_____,
respectively, with respect to Retail A Shares of the New York Municipal Bond
Fund; $25,383 and $_______, respectively, with respect to Retail A Shares of the
Connecticut Municipal Bond Fund; $22,206 and $_____, respectively, with respect
to Retail A Shares of the Massachusetts Municipal Bond Fund; and $_____ and
$_____, respectively, with respect to Retail A Shares of the Rhode Island
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<PAGE> 877
Municipal Bond Fund. As of the date of this Statement of Additional Information,
Galaxy has not offered Retail A Shares of the Corporate Bond Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds. The 12b-1 Plan is
described in the applicable Prospectuses.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed .65% (annualized) of the average daily net
assets attributable to such Funds' outstanding Retail B Shares, (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed .25% (annualized) and .25% (annualized), respectively,
of the average daily net assets attributable to each such Funds' outstanding
Retail B Shares which are owned of record or beneficially by that Institution's
Customers for whom the Institution is the dealer of record or shareholder of
record
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<PAGE> 878
or with whom it has a servicing relationship. As of the date of this Statement
of Additional Information, Galaxy intends to limit the Funds' payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of a Fund
may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval, and that any other type of material amendment must be approved by a
majority of the Board of Trustees, and by a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan or in
any related agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments (the "Disinterested Trustees").
For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Short-Term
Bond, High Quality Bond and Tax-Exempt Bond Funds bore the following
distribution and shareholder servicing fees under the 12b-1 Plan: $______ in
distribution fees and $______ in shareholder servicing fees with respect to
Retail B Shares of the Short-Term Bond Fund; $______ in distribution fees and
$_____ in shareholder servicing fees with respect to Retail B Shares of the High
Quality Bond Fund; and $_______ in distribution fees and $______ in shareholder
servicing fees with respect to Retail B Shares of the Tax-Exempt Bond Fund. For
the fiscal year ended October 31, 1996, all amounts paid under the 12b-1 Plan
were attributable to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement
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<PAGE> 879
entered into pursuant to the 12b-1 Plan with a Service Organization is
terminable with respect to any Fund without penalty, at any time, by vote of a
majority of the Disinterested Trustees, by vote of the holders of a majority of
the Retail B Shares of such Fund, by the Distributor or by the Service
Organization. An agreement will also terminate automatically in the event of its
assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
440 Financial Distributors, Inc., a wholly-owned subsidiary of FDISG,
serves as Galaxy's Distributor. On March 31, 1995, FDISG acquired all of the
issued and outstanding stock of the Distributor. Prior to that time, the
Distributor was a wholly-owned subsidiary of 440 Financial Group of Worcester,
Inc. and an indirect subsidiary of State Mutual Life Assurance Company of
America.
Unless otherwise terminated, the Distribution Agreement among Galaxy, the
Distributor and its parent, FDISG, remains in effect until May 31, 1997, and
thereafter will continue from year to year upon annual approval by Galaxy's
Board of Trustees, or by the vote of a majority of the outstanding shares of
Galaxy and by the vote of a majority of the Board of Trustees of Galaxy who are
not parties to the Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement will terminate in the event of its assignment, as defined in the 1940
Act.
The Distributor is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectuses. For the period December 1, 1996 (date of imposition of such
charge) through October 31, 1996, the Distributor received front-end sales
charges in connection with Retail A Share purchases as follows: Short-Term Bond
Fund -- $________; Intermediate Government Income Fund -- $________; High
Quality Bond Fund -- $________; Tax-Exempt Bond Fund -- $________; New York
Municipal Bond Fund -- $________; Connecticut Municipal Bond Fund -- $________;
Massachusetts Municipal Bond Fund -- $______; and Rhode Island Municipal Bond
Fund -- $_______. Of these amounts, the Distributor and affiliates of Fleet
retained $________ and $________, respectively, with respect to the Short-Term
Bond Fund; $________ and $________, respectively, with respect to the
Intermediate Government Income Fund; $________ and $________, respectively, with
respect to the High Quality Bond Fund;
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<PAGE> 880
$________ and $________, respectively, with respect to the Tax-Exempt Bond Fund;
$________ and $________, respectively, with respect to the New York Municipal
Bond Fund; $________ and $________, respectively, with respect to the
Connecticut Municipal Bond Fund; $_____ and $______, respectively, with respect
to the Massachusetts Municipal Bond Fund; and $______ and ______, respectively,
with respect to the Rhode Island Municipal Bond Fund.
The Distributor is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Funds. For the
period from March 4, 1996 (date of the initial public offering of Retail B
Shares) through October 31, 1996, the Distributor received contingent deferred
sales charges in connection with Retail B Share redemptions as follows:
Short-Term Bond Fund -- $________; High Quality Bond Fund -- $________; and
Tax-Exempt Bond Fund -- $________. All such amounts were paid over to affiliates
of Fleet.
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the Funds
during the fiscal year ended October 31, 1996:
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<PAGE> 881
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Short-Term $ $ $ $
Bond
Intermediate $ N/A $ $
Government
Income
High Quality $ $ $ $
Bond
Corporate Bond $ N/A $ $
Tax-Exempt $ $ $ $
Bond
New York $ N/A $ $
Municipal
Bond
Connecticut $ N/A $ $
Municipal
Bond
Massachusetts $ N/A $ $
Municipal
Bond
Rhode Island $ N/A $ $
Municipal
Bond
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan that have been adopted by Galaxy (see
"Shareholder Services Plan" and "Distribution and Services Plan" above).
AUDITORS
[_____________], independent certified public accountants, with offices at
[__________________], serve as auditors to Galaxy. The financial highlights for
the respective Funds included in their Prospectuses and the financial statements
for the Funds contained in Galaxy's Annual Reports to Shareholders and
[_______________________] into this Statement of Additional Information for the
respective fiscal periods ended October 31 of each calendar year have been
audited by [__________________] for
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<PAGE> 882
the periods included in their report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107, are counsel to Galaxy and will pass
upon certain legal matters on its behalf. The law firm of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
serves as special New York counsel to Galaxy and has reviewed the portion of
this Statement of Additional Information and the Prospectuses with respect to
the New York Municipal Bond Fund concerning New York taxes and the description
of special considerations relating to New York Municipal Securities. The law
firm of Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves
as special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The law
firm of Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624
serves as special Massachusetts counsel and special Rhode Island counsel to
Galaxy and has reviewed the portion of the Prospectuses with respect to the
Massachusetts Municipal Bond Fund concerning Massachusetts taxes and the
description of special considerations relating to Massachusetts Municipal
Securities and the portion of the Prospectuses with respect to the Rhode Island
Municipal Bond Fund concerning Rhode Island taxes and the description of Special
Considerations relating to Rhode Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
YIELD AND PERFORMANCE OF THE FUNDS
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund in
accordance with the method prescribed by the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1 )6 - 1]
cd
Where: a = dividends and interest earned by a
Fund during the period;
-57-
<PAGE> 883
b = expenses accrued for the period
(net of reimbursements);
c = average daily number of shares
outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on
the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market
-58-
<PAGE> 884
value that are less than the then-remaining portion of the original issue
discount (market premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
The "tax-equivalent" yield of the New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds is computed by: (a) dividing the portion of each Fund's yield (calculated
as above) that is exempt from both federal and state income taxes by one minus a
stated combined federal and state income tax rate; (b) by dividing the portion
of the Fund's yield (calculated as above) that is exempt from federal income tax
only by one minus a stated federal income tax rate; and (c) adding the figures
resulting from (a) and (b) above to that portion, if any, of the yield that is
not exempt from federal income tax. The tax-equivalent yield of the Tax-Exempt
Bond Fund is computed by (a) dividing the portion of the yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and (b) adding that figure to that portion, if any, of the yield
that is not exempt from federal income tax.
Based on the foregoing calculation, (i) the standard yields for Retail A
Shares of the Short-Term Bond, Intermediate Government Income, High Quality
Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds for the 30-
day period ended October 31, 1996 were _____%, _____%, _____%, _____%, _____%,
_____%, _____% and _____%, respectively, and (ii) the tax-equivalent yield for
Retail A Shares of the Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds for the 30-day period ended October 31, 1995 were _____%, _____%, _____%,
_____% and _____%, respectively.
Based on the foregoing calculation, (i) the standard yields for Retail B
Shares of the Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds for
the 30-day period ended October 31, 1996 were _____%, _____% and _____%,
respectively, and (ii) the
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<PAGE> 885
tax-equivalent yield for Retail B Shares of the Tax-Exempt Bond Fund for the
30-day period ended October 31, 1996 was _____%.
Based on the foregoing calculation, (i) the standard yield for Trust
Shares of the Short-Term Bond, Intermediate Government Income, High Quality
Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond and Massachusetts Municipal Bond Funds for the 30-day period
ended October 31, 1996 were _____%, _____%, _____%, _____%, _____%, _____%,
_____% and _____%, respectively, and (ii) the tax-equivalent yield for Trust
Shares of the Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal
Bond and Massachusetts Municipal Bond Funds for the 30-day period ended October
31, 1996 were _____%, _____%, _____% and _____%, respectively.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
ERV l/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year (or
other) periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment
-60-
<PAGE> 886
dates at the price per share existing on the reinvestment date, (2) all
recurring fees charged to all shareholder accounts are included, and (3) for any
account fees that vary with the size of the account, a mean (or median) account
size in the Fund during the periods is reflected. The ending redeemable value
(variable "ERV" in the formula) is determined by assuming complete redemption of
the hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period.
Aggregate total return for Retail A Shares of the Intermediate Government
Income Fund for the period September 1, 1988 (inception) to October 31, 1996 was
_____%. From September 1, 1988 (inception) to October 31, 1996, the average
annual total return for Retail A Shares of the Intermediate Government Income
Fund was _____%. For the one-year and five-year periods ended October 31, 1996,
the average annual total returns for Retail A Shares of the Intermediate
Government Income Fund were _____% and _____%, respectively.
Aggregate total returns for Retail A Shares of the High Quality Bond Fund
from December 14, 1990 (inception) to October 31, 1996 was _____%. From December
14, 1990 (inception) to October 31, 1996, the average annual total return for
Retail A Shares of the High Quality Bond Fund was _____%. For the one-year
period ended October 31, 1996, the average annual total return for Retail A
Shares of the High Quality Bond Fund was _____%.
Aggregate total returns for Retail A Shares of the Short-Term Bond,
Tax-Exempt Bond and New York Municipal Bond Funds from December 30, 1991
(inception) to October 31, 1996 were _____%, _____% and _____%, respectively.
From December 30, 1991 (inception) to October 31, 1996, average annual total
returns for Retail A Shares of the Short-Term Bond, Tax-Exempt Bond and New York
Municipal Bond Funds were _____%, _____% and _____%, respectively. For the
one-year period ended October 31, 1996, the average annual total returns for
Retail A Shares of the Short-Term Bond, Tax-Exempt Bond and New York Municipal
Bond Funds were _____%, _____% and _____%, respectively.
Aggregate total return for Retail A Shares of the Connecticut Municipal
Bond Fund from March 16, 1993 (inception) to October 31, 1996 was _____%; and
for Retail A Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1996 was _____%. From March 16, 1993 (inception) to
October 31, 1996, average annual total return for Retail A Shares of the
Connecticut Municipal Bond Fund was _____%. From March 12, 1993 (inception) to
October 31, 1996, average annual total return for Retail A Shares of the
Massachusetts Municipal Bond Fund was _____%. For the one-year period ending
October 31, 1996, the average annual total returns for Retail A Shares of the
Connecticut Municipal Bond and
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<PAGE> 887
Massachusetts Municipal Bond Funds were _____% and _____%, respectively.
Aggregate total return for Retail A Shares of the Rhode Island Municipal
Bond Fund from December 20, 1994 (inception) to October 31, 1996 was _____%. For
the one-year period ended October 31, 1996, the average annual return for Retail
A Shares of the Rhode Island Municipal Bond Fund was ___%.
Aggregate total return for Trust Shares of the Intermediate Government
Income Fund for the period September 1, 1988 (inception) to October 31, 1996 was
_____%. From September 1, 1988 (inception) to October 31, 1996, average annual
total return for Trust Shares of the Intermediate Government Income Fund was
_____%. For the one-year and five-year periods ended October 31, 1996, the
average annual total returns for Trust Shares of the Intermediate Government
Income Fund were _____% and _____%, respectively.
Aggregate total return for Trust Shares of the High Quality Bond Fund from
December 14, 1990 (inception) to October 31, 1996 was ______%. From December 14,
1990 (inception) to October 31, 1995, average annual total return for Trust
Shares of the High Quality Bond Fund was ______%. For the one-year period ended
October 31, 1996, the average annual total return for Trust Shares of the High
Quality Bond Fund was ______%.
Aggregate total returns for Trust Shares of the Short-Term Bond,
Tax-Exempt Bond and New York Municipal Bond Funds from December 30, 1991
(inception) to October 31, 1996 were _____%, ______% and ______%, respectively.
From December 30, 1991 (inception) to October 31, 1996, average annual total
returns for Trust Shares of the Short-Term Bond, Tax-Exempt Bond and New York
Municipal Bond Funds were _____%, _____% and _____%, respectively. For the
one-year period ended October 31, 1996, the average annual total returns for
Trust Shares of the Short-Term Bond, Tax-Exempt Bond and New York Municipal Bond
Funds were _____%, _____% and _____%, respectively.
Aggregate total returns for Trust Shares of the Connecticut Municipal Bond
Fund from March 16, 1993 (inception) to October 31, 1996 was ______% and for
Trust Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1996 was _____%. From March 16, 1993 (inception) to
October 31, 1996, the average annual total return for Trust Shares of the
Connecticut Municipal Bond Fund was _____%. From March 12, 1993 (inception) to
October 31, 1996, average annual total return for Trust Shares of the
Massachusetts Municipal Bond Fund was _____%. For the one-year period ended
October 31, 1996, the average annual total returns for Trust Shares of the
Connecticut Municipal Bond and
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<PAGE> 888
Massachusetts Municipal Bond Funds were ______% and ______%, respectively.
Aggregate total return for Trust Shares of the Corporate Bond Fund from
December 12, 1994 (inception) to October 31, 1996 was _____%. For the one-year
period ended October 31, 1996, the average annual total return for Trust Shares
of the Corporate Bond Fund was ____%.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares in
that particular series of the Fund, together with all income, earnings, profits,
and proceeds derived from the investment thereof, including any proceeds from
the sale of such investments, any funds or payments derived from any
reinvestment of such proceeds and a portion of any general assets of Galaxy not
belonging to a particular series or Fund. In determining the net asset value of
a particular Series of a Fund, assets belonging to the particular series of the
Fund are charged with the direct liabilities in respect of that series and with
a share of the general liabilities of Galaxy, which are allocated in proportion
to the relative asset values of the respective series and Funds at the time of
allocation. Subject to the provisions of Galaxy's Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular series or Fund, are conclusive.
As of February ___, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of Galaxy's investment portfolios were as follows:
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<PAGE> 889
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1996 have been filed with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") are [_______________] this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
Funds for the fiscal year ended October 31, 1996 have been audited by Galaxy's
independent accountants, [______________________], whose report thereon also
appears in such Annual Reports and [_________________]. The Financial
Statements in such Annual Reports [___________________] herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
-64-
<PAGE> 890
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, L.P. ("Fitch"), Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), IBCA Limited and IBCA Inc. ("IBCA") and Thomson
BankWatch, Inc. ("Thomson").
Corporate and Tax-Exempt Bond Ratings
The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Securities that are
rated "A" have protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Securities
that are rated "BBB" have below average protection factors but are still
considered sufficient for prudent investment. Considerable variability in risk
is present during economic cycles. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Fitch for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. AAA
bonds are considered to be investment grade and of the highest credit quality.
The obligor is judged to have an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A bonds
are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
A-1
<PAGE> 891
conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
may modify a rating of Aa, A or Baa by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon
A-2
<PAGE> 892
completion of construction or elimination of the basis of the condition.
The four highest ratings of IBCA for tax-exempt and corporate bonds are
AAA, AA, A and BBB. IBCA assesses the investment quality of unsecured debt with
an original maturity of more than one year, which is issued by bank holding
companies and their principal banking subsidiaries. Obligations rated AAA by
IBCA have the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to increase investment
risk significantly. Obligations for which there is a very low expectation of
investment risk are rated AA. Obligations rated A have a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although changes in business, economic or financial conditions may lead
to increased investment risk. Obligations rated BBB currently have a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories. IBCA may append a rating of plus (+) or
minus (-) to a rating to denote relative status within a major rating category.
Corporate and Tax-Exempt Commercial Paper Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. Duff 3 indicates satisfactory liquidity and other protection factors
qualify such issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.
A-3
<PAGE> 893
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. F-1 securities possess very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 securities possess good
credit quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories. F-3 securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade. Fitch may also
use the symbol "LOC" with its short-term ratings to indicate that the rating is
based upon a letter of credit issued by a commercial bank.
S&P's commercial paper ratings are current assessments of the likelihood
of timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics will be denoted with a plus (+) designation.
Issues rated A-2 by S&P indicate that capacity for timely payment on these
issues is satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1. Issues rated A-3 have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes and circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only a speculative capacity for timely
payment.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of
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<PAGE> 894
the characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a good capacity for timely repayment.
Obligations rated A3 are supported by a satisfactory capacity for timely
repayment. Obligations are rated B if there is an uncertainty as to the capacity
to ensure timely repayment.
Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation TBW-3
represents the lowest investment grade category and indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
Tax-Exempt Note Ratings
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated SP-3
are issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the
A-5
<PAGE> 895
differences between short-term credit risk and long-term risk. Loans bearing the
designation MIG-1 or VMIG-1 are of the best quality, enjoying strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. Loans bearing the designation
MIG-2 or VMIG-2 are of high quality, with margins of protection ample although
not so large as with loans rated MIG-1 or VMIG-1. Loans bearing the designation
MIG-3 or VMIG-3 are of favorable quality with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established. Loans bearing the designation MIG-4 or VMIG-4 are
of adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
A-6
<PAGE> 896
APPENDIX B
As stated in the applicable Prospectuses, the Funds may enter into futures
transactions for hedging purposes. The following is a description of such
transactions.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
B-1
<PAGE> 897
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts for
which there exists a public market, including, without limitation, the foregoing
instruments.
Example of Futures Contract Sale. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The adviser wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
B-2
<PAGE> 898
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Example of Futures Contract Purchase. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset
B-3
<PAGE> 899
by the 5 point gain realized by closing out the futures contract purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
II. Municipal Bond Index Futures Contracts
A municipal bond index assigns relative values to the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds, and its composition is updated regularly
as new bonds meeting the criteria of the Index are issued and existing bonds
mature. The Index is intended to provide an accurate indicator of trends and
changes in the municipal bond market. Each bond in the Index is independently
priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then
are averaged and multiplied by a coefficient. The coefficient is used to
maintain the continuity of the Index when its composition changes. The Chicago
Board of Trade, on which futures contracts based on this Index are traded, as
well as other U.S. commodities exchanges, are regulated by the Commodity Futures
Trading Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund will sell index futures contracts in order to offset a
decrease in market value of their respective portfolio securities that might
otherwise result from a market decline. A Fund may do so either to hedge the
value of its portfolio as a whole, or to protect against declines
B-4
<PAGE> 900
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by a Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Example of a Municipal Bond Index Futures Contract
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ----- ------ ---------- ---- -----------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
B-5
<PAGE> 901
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- -----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. Margin Payments
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of
B-6
<PAGE> 902
the underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by the
B-7
<PAGE> 903
Investment Adviser. It is also possible that, where a Fund had sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the value of instruments held in the Fund may decline. If this occurred, the
Fund would lose money on the futures and also experience a decline in value in
its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures
B-8
<PAGE> 904
only on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
In such event, it may not be possible to close a futures investment position,
and in the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of variation margin. However, in the event
futures contracts have been used to hedge portfolio securities, such securities
will not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may partially
or completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities will in fact
correlate with the price movements in the futures contract and thus provide an
offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
B-9
<PAGE> 905
TRUST
THE GALAXY FUND
EQUITY VALUE FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 906
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY................................................ 3
FINANCIAL HIGHLIGHTS .......................................... 4
INVESTMENT OBJECTIVE AND POLICIES.............................. 6
In General............................................. 6
Special Risk Considerations............................ 7
Other Investment Policies and
Risk Considerations................................... 8
INVESTMENT LIMITATIONS......................................... 16
PRICING OF SHARES.............................................. 18
HOW TO PURCHASE AND REDEEM SHARES.............................. 19
Distributor............................................ 19
Purchase of Shares..................................... 19
Redemption of Shares................................... 20
DIVIDENDS AND DISTRIBUTIONS.................................... 21
TAXES ......................................................... 21
Federal................................................ 21
State and Local........................................ 23
MANAGEMENT OF THE FUND......................................... 23
Investment Adviser .................................... 23
Authority to Act as Investment Adviser................. 24
Administrator.......................................... 24
DESCRIPTION OF GALAXY AND ITS SHARES........................... 25
Shareholder Services Plan.............................. 26
Affiliate Agreement for Sub-Account
Services.............................................. 27
CUSTODIAN AND TRANSFER AGENT................................... 28
EXPENSES....................................................... 28
PERFORMANCE AND YIELD INFORMATION.............................. 28
MISCELLANEOUS.................................................. 30
<PAGE> 907
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call 1-800-
Westboro, Massachusetts 628-0414. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the EQUITY VALUE FUND (the "Fund")
offered by Galaxy.
The Fund's investment objective is to seek long-term capital
appreciation. Income is secondary to the objective of capital appreciation. The
Fund attempts to achieve this objective by investing, under normal market and
economic conditions, at least 75% of its total assets in common stock, preferred
stock and debt securities convertible into common stock that the Fund's
investment adviser believes are undervalued.
This prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares, (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"), which are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities Inc., Fleet Brokerage Corporation, Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares represent equal pro rata interests in the Fund, except they
bear different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
<PAGE> 908
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 909
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
EQUITY
VALUE
SHAREHOLDER TRANSACTION EXPENSES FUND
------
<S> <C>
Sales Load............................................................. None
Sales Load on Reinvested
Dividends............................................................. None
Deferred Sales Load.................................................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)...................................... .___%
12b-1 Fees............................................................. None
Other Expenses (After Fee Waivers and
Expense Reimbursements).............................................. . %
-----
Total Fund Operating Expenses (After Fee
Waivers and Expense Reimbursements).................................. %
=====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return, and (2) redemption
of your investment at the end of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund........................ $ $ $ $
---- ---- ---- ----
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in the Fund
will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75%, Other Expenses would be ____% and
Total Fund Operating Expenses would be ____% for Trust Shares of the Fund. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and its Shares" in this Prospectus and the
financial statements and notes incorporated by reference into the Statement of
Additional Information relating to the Fund. Any fees that are charged by
-3-
<PAGE> 910
affiliates of Fleet Investment Advisors Inc. or other institutions directly to
their customer accounts for services related to an investment in Trust Shares of
the Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue two additional series of shares in the Fund, Retail
A Shares and Retail B Shares. As described below under "Description of Galaxy
and Its Shares", Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except that (i) effective October 1, 1994
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .30% of the average daily
net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Fund bear the expenses incurred under Galaxy's Distribution and Services
Plan for Retail B Shares at an annual rate of up to .95% of the average daily
net asset value of the Fund's outstanding Retail B Shares, and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by
(______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (________________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the
investment results of both Trust Shares and Retail A Shares of the Fund (Retail
A Shares of the Fund were first offered during the fiscal year ended October
31, 1991). More information about the performance of the Fund is also contained
in the Annual Report, which may be obtained without charge by contacting Galaxy
at its telephone numbers or address provided above.
-4-
<PAGE> 911
EQUITY VALUE FUND(1)
(FOR A SHARE (2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994 YEAR ENDED OCTOBER 31,(2)
---------------------------------- -----------------------------------------------
TRUST SHARES 1993 1992 1991
---------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45
----------- ----------- ----------- ----------- -----------
Income from Investment
Operations:
Net Investment Income 0.28 0.19 0.19 0.26 0.37
Net realized and
unrealized gain
(loss) on investments 2.24 0.45 2.14 0.33 2.41
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: 2.52 0.64 2.33 0.59 2.78
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment
income (0.30) (0.16) (0.20) (0.27) (0.37)
Dividends from net
realized capital
gains (1.21) (0.28) (0.42) (0.43) (0.34)
----------- ----------- ----------- ----------- -----------
Total Dividends: (1.51) (0.44) (0.62) (0.70) (0.71)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value 1.01 0.20 1.71 (0.11) 2.07
----------- ----------- ----------- ----------- -----------
Net Asset Value, End
of Period $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52
=========== =========== =========== =========== ===========
Total Return 21.31% 5.05% 21.18% 5.66% 30.45%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) $ 165,330 $ 154,403 $ 176,107 $ 133,578 $ 99,601
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver 2.10% 1.46% 1.52% 2.24% 3.25%
Operating expenses
including reimbursement/
waiver 1.02% 1.06% 0.97% 0.94% 0.94%
Operating expenses
excluding
reimbursement/waiver 1.02% 1.06% 0.97% 0.94% 0.94%
Portfolio Turnover Rate 76% 71% 50% 136% 40%
Average Commission Rate Paid(A) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED OCTOBER 31,(2) OCTOBER 31,
--------------------------
1990 1989 1988(1),(2)
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 11.51 $ 10.41 $ 10.00
----------- ----------- -----------
Income from Investment
Operations:
Net Investment Income 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on investments (1.37) 1.10 0.38
----------- ----------- -----------
Total from Investment
Operations: (0.98) 1.46 0.41
----------- ----------- -----------
Less Dividends:
Dividends from net
investment
income (0.38) (0.36) --
Dividends from net
realized capital
gains (0.70) -- --
----------- ----------- -----------
Total Dividends: (1.08) (0.36) --
----------- ----------- -----------
Net increase (decrease)
in net asset value (2.06) 1.10 0.41
----------- ----------- -----------
Net Asset Value, End
of Period $ 9.45 $ 11.51 $ 10.41
=========== =========== ===========
Total Return (9.43%) 14.19% 4.10%(3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) $ 92,893 $ 92,366 $ 75,774
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver 3.66% 3.25% 1.89%(4)
Operating expenses
including reimbursement/
waiver 0.95% 0.97% 0.95%(4)
Operating expenses
excluding
reimbursement/waiver 0.95% 0.98% 0.95%(4)
Portfolio Turnover Rate 94% 44% 4%(3)
Average Commission Rate Paid(A) N/A N/A N/A
</TABLE>
- -------------------------------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts reflect the financial results of both Trust and Retail Shares.
On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Not Annualized.
(4) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 912
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund, is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that Fleet Investment
Advisors Inc., the Fund's investment adviser ("Fleet" or the "Investment
Adviser") believes to be undervalued, as measured by various financial tests,
including one or more of the following: cash flow, return on equity, return on
assets, fixed charge coverage and ratios of market capitalization to revenues.
In addition, the Fund's Investment Adviser considers the current value of an
issuer's fixed assets (including real estate), cash items, net working capital,
indebtedness and historical book value. The Fund also seeks to purchase stock
with a projected price-earnings ratio below that of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"). The Investment Adviser invests less
than 25% of the value of the Fund's total assets at the time of purchase in
securities of issuers conducting their principal business activities in the same
industry.
Under normal market and economic conditions, the Fund invests at
least 75% of its total assets in common stock, preferred stock and debt
securities convertible into common stock that the Investment Adviser believes to
be undervalued. Debt securities convertible into common stock are purchased
primarily during periods of relative market instability and are acquired
principally for income with the potential for appreciation being a secondary
consideration. Equity investments consist primarily of common stock of companies
having capitalizations that exceed $100 million. Stocks of such companies
generally are listed on a national exchange or are unlisted securities with an
established over-the-counter market.
The Fund may hold other types of securities in such proportions as,
in the opinion of the Investment Adviser, existing market and economic
conditions may warrant, including obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and other high quality "money
market" instruments. The Fund may also hold cash pending investment, during
temporary defensive periods or if, in the opinion of the Investment Adviser,
suitable stock or convertible debt securities are unavailable. The Fund may also
invest up to 20% of its total assets in foreign securities either directly or
indirectly through American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). For additional information concerning investments in options
and similar securities, see "Special Risk Considerations" and "Other Investment
Policies" below. The Fund may also write covered call
-6-
<PAGE> 913
options. See "Other Investment Policies -- Options" and "Other Investment
Policies -- Derivative Securities" below. See "Other Investment Policies" below
for information regarding additional investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the
Fund's investment objective, although its achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income securities, its
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and debt securities
fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
-7-
<PAGE> 914
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
Ratings
All debt obligations, including convertible bonds, purchased by the
Fund are rated investment grade by Moody's Investment Services, Inc. ("Moody's")
("Aaa", "Aa", "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA",
"AA", "A" and "BBB"), or, if not rated, are determined to be of comparable
quality by the Investment Adviser.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest
from time to time in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and in "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain
-8-
<PAGE> 915
agencies and instrumentalities of the U.S. Government, such as those of the
Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and
U.S. branches of foreign banks may subject the Fund to additional risk because
such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments
-9-
<PAGE> 916
provide for periodic adjustments in the interest rate. Floating rate instruments
provide for automatic adjustment of the interest rate whenever some other
specified interest rate changes. Some variable and floating rate obligations are
direct lending arrangements between the purchaser and the issuer and there may
be no active secondary market. However, in the case of variable and floating
rate obligations with a demand feature, the Fund may demand payment of principal
and accrued interest at a time specified in the instrument or may resell the
instrument to a third party. In the event that an issuer of a variable or
floating rate obligation defaulted on its payment obligation, the Fund might be
unable to dispose of the note because of the absence of a secondary market and
could, for this or other reasons, suffer a loss to the extent of the default.
The Fund may also purchase Rule 144A securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may
-10-
<PAGE> 917
decline below the repurchase price. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, will be
made only to borrowers deemed by the Investment Adviser to be of good standing
and only when, in the Investment Adviser's judgment, the income to be earned
from the loan justifies the attendant risks. The Fund currently intends to limit
the lending of its portfolio securities so that, at any given time, securities
loaned by the Fund represent not more than one-third of the value of its total
assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
-11-
<PAGE> 918
Options
Covered Call Options. To further increase return on its portfolio
securities and in accordance with its investment objective and policies, the
Fund may engage in writing covered call options (options on securities owned by
the Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, the Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price, except insofar as the premium represents such
a profit. The Fund will not be able to sell the underlying security until the
option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. Such options would
normally be written only on underlying securities as to which the Investment
Adviser does not anticipate significant short-term capital appreciation. See
"Derivative Securities" below.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar
-12-
<PAGE> 919
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. The Fund either enters
into these transactions on a spot (i.e. cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not used to achieve leverage with respect to the Fund's
investments, the Fund will establish with its custodian a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade debt
securities equal in value to the fluctuating market value of the currency as to
which the short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the Statement of Additional Information
relating to the Fund for additional information regarding foreign currency
exchange transactions.
-13-
<PAGE> 920
Convertible Securities
The Fund may from time to time, in accordance with its investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities in which the
Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Convertible securities are senior
to equity securities, and therefore, have a claim to the assets of the issuer
prior to the holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar nonconvertible
securities of the same issuer. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-convertible
securities of similar quality. The Fund will exchange or convert the convertible
securities held in its portfolio into shares of the underlying common stock in
instances in which, in the Investment Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the Fund, the
Investment Adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Investment Adviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain "derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, options and foreign currency exchange transactions.
-14-
<PAGE> 921
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which
it is based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine, in connection
with its day-to-day management of the Fund, how such securities will be used in
furtherance of the Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Fund will, because
of the risks discussed above, incur loss as a result of its investments in
derivative securities. See "Investment Objective and Policies -- Derivative
Securities" in the Statement of Additional Information for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
the Fund's investment objective. Portfolio investments may be sold for a variety
of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover may result
in the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for Federal income tax purposes.
See "Financial Highlights" and "Taxes -- Federal."
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<PAGE> 922
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental
policy and may not be changed with respect to the Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio
securities against collateral consisting of cash or securities
which are consistent with its permitted investments, where the
value of the collateral is equal at all times to at least 100% of
the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of
10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in
amounts not in excess of 10% of the value of its respective total
assets at the time of such borrowing); or mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of
5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities
in excess of seven days, restricted securities, non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5%
of the
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<PAGE> 923
value of the Fund's total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be
invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would
cause 25% or more of the value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends
to limit any borrowings (including reverse repurchase agreements) to not more
than 10% of the value of its total assets at the time of such borrowing.
The Securities and Exchange Commission ("SEC") has adopted Rule
144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if the Investment Adviser has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment,
a later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
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<PAGE> 924
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the close
of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). The net asset value per Share is determined
on each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of the Fund, by the number of outstanding
Shares of that series of the Fund.
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by the Investment Adviser
under the supervision of Galaxy's Board of Trustees. An option is generally
valued at the last sale price or, in the absence of a last sale price, the last
offer price.
Portfolio securities which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities will be determined through
consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation.
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<PAGE> 925
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or
in part.
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<PAGE> 926
The issuance of Trust Shares is recorded on the books of the Fund
and Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established
by Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Funds may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share
next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure
that a redemption has been duly authorized. The Fund
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<PAGE> 927
reserves the right to redeem Shares in any account at their net asset value
involuntarily, upon sixty days written notice, if the value of the account is
less than $250 as a result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and
paid quarterly. Dividends on each Share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may
elect to have their dividends reinvested in additional Trust Shares of the Fund
at the net asset value of such shares on the ex-dividend date. Such election, or
any revocation thereof, must be communicated in writing by an Institution on
behalf of its Customers to Galaxy's transfer agent and will become effective
with respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially
all of its investment company taxable income and any net tax-exempt interest
income each year. Such dividends will be taxable as ordinary income to the
Fund's shareholders who are not currently exempt from federal income taxes,
whether such dividends are received in cash or reinvested in additional Trust
Shares. (Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) Such ordinary income distributions
will qualify for the dividends received deduction for corporations to the extent
of the total qualifying dividends received by the Fund from domestic
corporations for the taxable year.
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<PAGE> 928
Distribution by the Fund of the excess of its net long-term capital
gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any year
which are payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January of
the following year.
If you are considering buying Shares of the Fund on or just before
the record date of a dividend or capital gain distribution, you should be aware
that the amount of the forthcoming distribution payment, although in effect a
return of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own
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<PAGE> 929
tax situation. Shareholders will be advised annually as to the federal income
tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market Fund,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees
and in accordance with the Fund's investment policies, Fleet manages the Fund,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fees for the Fund are higher than fees paid by most
other
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<PAGE> 930
mutual funds, although the Board of Trustees of Galaxy believes that they
are not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of 0.__% of the Fund's average daily net assets.
The Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978 and has been the
Fund's portfolio manager since its inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder. State securities laws on this issue may
differ from federal law and banks and financial institutions may be required to
register as dealers pursuant to state law.
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<PAGE> 931
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid administration fees to FDISG at the effective annual rate of . % of
its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in the Fund: Class C shares (Trust Shares), Class
C - Special Series 1 shares (Retail A Shares) and Class C - Special 2 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of Shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact the Distributor at 1-800-628-0414.
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<PAGE> 932
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear
their pro rata portion of all operating expenses paid by the Fund except as
follows. Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such Shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to the Fund's Trust Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of Shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
a proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be
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<PAGE> 933
provided to Customers who are the beneficial owners of Retail A Shares and are
intended to supplement the services provided by FDISG as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by customers. Institutions may receive up to one-half
of this fees for providing one or more of the following services to such
Customers: aggregating processing purchase and redemption requests and placing
net purchase and redemption orders with the Distributor; processing dividend
payments from the Fund; providing sub-accounting with respect to Retail A Shares
or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in confection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate
of the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares
-27-
<PAGE> 934
in each sub-account; crediting to each participant's sub-account all dividends
and distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Fleet Bank is
compensated by FDISG for the Sub-Account Services and in connection therewith
the transfer agency fees payable by Trust Shares of the Fund to FDISG have been
increased by an amount equal to these fees. In substance, therefore, the holders
of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
FDISG Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
FDISG Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by these entities for the Fund are described in the Statement
of Additional Information. Communications to FDISG should be directed to FDISG
at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; costs of independent pricing services; costs of
shareholders' reports and shareholder meetings; and any extraordinary expenses.
The Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
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<PAGE> 935
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders,
the performance and yields of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Fund may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, an unmanaged index of
groups of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily
net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any quotation
of performance or yield should not be considered as
-29-
<PAGE> 936
representative of future performance. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund's Shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance and yield are generally functions
of the kind and quality of the instruments held in a portfolio, portfolio
maturity, operating expenses, and market conditions. Any additional fees charged
by Institutions with respect to accounts of Customers that have invested in
Trust Shares of the Fund will not be included in calculations of yield and
performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing
the Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of either Galaxy or the Fund means, with respect to the
approval of an investment advisory agreement or change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or the
Fund or (b) 67% or more of the shares of Galaxy or the Fund present at a meeting
if more than 50% of the outstanding shares of Galaxy or the Fund are represented
at the meeting in person or by proxy.
-30-
<PAGE> 937
TRUST
THE GALAXY FUND
EQUITY GROWTH FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 938
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXPENSE SUMMARY........................................................................................ 3
FINANCIAL HIGHLIGHTS................................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES...................................................................... 6
In General.................................................................................... 6
Special Risk Considerations and Risk Considerations........................................... 7
Other Investment Policies and Risk Considerations ............................................ 8
INVESTMENT LIMITATIONS................................................................................. 15
PRICING OF SHARES...................................................................................... 17
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 18
Distributor................................................................................... 18
Purchase of Shares............................................................................ 18
Redemption of Shares.......................................................................... 20
DIVIDENDS AND DISTRIBUTIONS............................................................................ 20
TAXES.................................................................................................. 21
Federal....................................................................................... 21
State and Local............................................................................... 22
MANAGEMENT OF THE FUND................................................................................. 22
Investment Adviser............................................................................ 22
Authority to Act as Investment Adviser........................................................ 23
Administrator................................................................................. 24
DESCRIPTION OF GALAXY AND ITS SHARES................................................................... 24
Shareholder Services Plan..................................................................... 25
Affiliate Agreement for Sub-Account Services.................................................. 26
CUSTODIAN AND TRANSFER AGENT........................................................................... 27
EXPENSES............................................................................................... 27
PERFORMANCE AND YIELD INFORMATION...................................................................... 27
MISCELLANEOUS.......................................................................................... 29
</TABLE>
<PAGE> 939
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call (800)
Westboro, Massachusetts 1-800-628-0414. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the EQUITY GROWTH FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue two additional series of shares in the Fund, Retail A
Shares and Retail B Shares (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail Shares are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities, Inc., Fleet Brokerage Corporation, Fleet Securities Inc., Fleet
Enterprises Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares represent equal pro rata interests in the Fund, except they bear
different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
<PAGE> 940
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information Relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 941
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
EQUITY
GROWTH FUND
-----------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<S> <C>
Sales Load.................................................................. None
Sales Load on Reinvested
Dividends.................................................................. None
Deferred Sales Load......................................................... None
Redemption Fees............................................................. None
Exchange Fees............................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)........................................... .__%
12b-1 Fees.................................................................. None
Other Expenses (After Fee Waivers and Expense
Reimbursements)........................................................... . %
----
Total Fund Operating
Expenses (After Fee Waivers and Expense
Reimbursements)........................................................... %
====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Growth Fund $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers and/or
expense reimbursements by the Investment Adviser and/or Administrator, Advisory
Fees would be .75%, Other Expenses would be ____% and Total Fund Operating
Expenses would be ____% for Trust Shares of the Fund. For more complete
descriptions of these costs and expenses, see "Management of the Fund" and
"Description of Galaxy and Its Shares" in this Prospectus and the financial
statements and notes incorporated by reference into the Statement of Additional
Information relating to the Fund. Any fees that are charged by
-3-
<PAGE> 942
affiliates of Fleet Investment Advisors Inc. or other institutions directly to
their customer accounts for services related to an investment in Trust Shares of
the Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue two additional series of Shares in the Fund, Retail
A Shares and Retail B Shares. As described below under "Description of Galaxy
and Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except that (i) effective October 1, 1994
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .30% of the average daily
net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Fund bear the expenses incurred under Galaxy's Distribution and Services
Plan for Retail B Shares at an annual rate of up to .95% of the average daily
net asset value of the Fund's outstanding Retail B Shares and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by
(_______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (______________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the
investment results of both Trust Shares and Retail A Shares of the Fund (Retail
A Shares of the Fund were first offered during the fiscal period ended October
31, 1991). More information about the performance of the Fund is also contained
in the Annual Report, which may be obtained without charge by contacting Galaxy
at its telephone numbers or address provided above.
-4-
<PAGE> 943
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED PERIOD ENDED
1996 1995 1994 OCTOBER 31,(2) OCTOBER 31,
------------------------------ ---------------------
TRUST SHARES 1993 1992 1991(1,2)
------------------------------ --------------------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
------ -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income............................... 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments.................................... 3.28 0.47 0.95 0.91 1.97
------ -------- -------- -------- --------
Total from Investment Operations:................. 3.48 0.65 1.10 1.08 2.13
------ -------- -------- -------- --------
Less Dividends:
Dividends from net investment income................ (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains............................................. (0.17) (0.06) (0.09) -- --
----- -------- -------- -------- -------
Total Dividends:.................................. (0.37) (0.22) (0.24) (0.17) (0.14)
----- -------- -------- -------- --------
Net increase (decrease) in net asset
value............................................... 3.11 0.43 0.86 0.91 1.99
----- -------- -------- -------- --------
Net Asset Value, End of Period........................ $17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
====== ======== ======== ======== ========
Total Return.......................................... 25.08% 4.80% 8.58% 9.10% 21.39%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $420,016 $362,094 $427,298 $224,630 $ 92,224
Ratios to average net assets:
Net investment income
including reimbursement/waiver.................... 1.31% 1.27% 1.20% 1.37% 1.46%(4)
Operating expenses
including reimbursement/waiver.................... 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Operating expenses excluding
reimbursement/waiver.............................. 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Portfolio Turnover Rate............................... 14% 18% 16% 22% 16%(3)
Average Commission Rate Paid(A)....................... N/A N/A N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Not Annualized.
(4) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 944
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that Fleet Investment Advisors Inc., the Fund's
investment adviser ("Fleet" or the "Investment Adviser") believes will increase
future earnings to a level above the average earnings of similar issuers. Such
companies often retain their earnings to finance current and future growth and,
for this reason, generally pay little or no dividends. Equity securities in
which the Fund invests are selected based on analysis of trends in industries
and companies, earning power, growth features, quality and depth of management,
marketing and manufacturing skills, financial conditions and other investment
criteria. By investing in convertible securities, the Fund will seek the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible. See
"Other Investment Policies -- Convertible Securities" below. The Investment
Adviser invests less than 25% of the value of the Fund's total assets at the
time of purchase in securities of issuers conducting their principal business
activities in the same industry.
The Fund may invest up to 20% of its total assets in foreign
securities either directly or indirectly through the purchase of American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations" and "Other Investment
Policies" below. The Fund may also write covered call options. See "Other
Investment Policies -- Options" and "Other Investment Policies -- Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Other Investment Policies" below) and U.S. Government obligations at such times
and in such proportions as, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. See "Other Investment Policies" below for
information regarding additional investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve
the Fund's investment objective, although its achievement
-6-
<PAGE> 945
cannot be assured. The investment objective of the Fund may not be changed
without the approval of the holders of a majority of its outstanding Shares (as
defined under "Miscellaneous"). Except as noted below under "Investment
Limitations," the Fund's investment policies may be changed without shareholder
approval. An investor should not consider an investment in the Fund to be a
complete investment program.
SPECIAL RISK CONSIDERATIONS AND RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stock will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income
securities, its holdings of debt securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs
than investments in U.S. securities, including higher transaction costs, as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about the issuers, less
market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the
-7-
<PAGE> 946
Fund makes its investments could reduce the effect of increases and magnify the
effect of decreases in the prices of the Fund's securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
Ratings
All debt obligations, including convertible bonds, purchased
by the Fund are rated investment grade by Moody's Investors Service, Inc.
("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still
-8-
<PAGE> 947
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but
different government regulation which may limit the amount and types of their
loans and the interest rates that may be charged. In addition, the profitability
of the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks
and U.S. branches of foreign banks may subject the Fund to additional risk
because such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may demand payment of principal and accrued interest at a time
-9-
<PAGE> 948
specified in the instrument or may resell the instrument to a third party. In
the event that an issuer of a variable or floating rate obligation defaulted on
its payment obligation, the Fund might be unable to dispose of the note because
of the absence of a secondary market and could, for this or other reasons,
suffer a loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund may decline
below the repurchase price. The Fund would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would
-10-
<PAGE> 949
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral, should the borrower
of the securities fail financially. Any portfolio securities purchased with cash
collateral would also be subject to possible depreciation. Loans will generally
be short-term, will be made only to borrowers deemed by the Investment Adviser
to be of good standing and only when, in the Investment Adviser's judgment, the
income to be earned from the loan justifies the attendant risks. The Fund
currently intends to limit the lending of its portfolio securities so that, at
any given time, securities loaned by the Fund represent not more than one-third
of the value of its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
Options
Covered Call Options. To further increase return on its
portfolio securities and in accordance with its investment objectives and
policies, the Fund may engage in writing covered call options (options on
securities owned by the Fund) and may enter into closing purchase transactions
with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
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aggregate value of the securities subject to options written by the Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, the
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price, except insofar as the premium
represents such a profit. The Fund will not be able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. Such options
would normally be written only on underlying securities as to which the
Investment Adviser does not anticipate significant short-term capital
appreciation. See "Derivative Securities" below.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued
in registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency exchange contracts
are agreements to exchange one currency for another -- for example, to exchange
a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
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<PAGE> 951
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the
Fund to hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information
regarding Foreign Currency Exchange Transactions.
Convertible Securities
The Fund may from time to time, in accordance with its
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities in
which the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment
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<PAGE> 952
characteristics of fixed income securities until they have been converted but
also react to movements in the underlying equity securities. The holder is
entitled to receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion privilege.
Convertible securities are senior to equity securities, and therefore, have a
claim to the assets of the issuer prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar non-convertible securities of the same issuer. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the Investment Adviser's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, the Fund will hold or trade
the convertible securities. In selecting convertible securities for the Fund,
the Investment Adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Investment
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
Derivative Securities
The Fund may from time to time, in accordance with its
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, options and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate
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<PAGE> 953
systems and controls, human error or otherwise. Some derivative securities are
more complex than others, and for those instruments that have been developed
recently, data are lacking regarding their actual performance over complete
market cycles.
The Investment Adviser will evaluate the risks presented by
the derivative securities purchased by the Fund, and will determine, in
connection with its day-to-day management of the Fund, how such securities will
be used in furtherance of the Fund's investment objective. It is possible,
however, that the Investment Adviser's evaluations will prove to be inaccurate
or incomplete and, even when accurate and complete, it is possible that the Fund
will, because of the risks discussed above, incur loss as a result of its
investments in derivative securities. See "Investment Objective and Policies --
Derivative Securities" in the Statement of Additional Information for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover may result
in the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for federal income tax purposes.
See "Financial Highlights" and "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information relating to the Fund under "Investment Objectives and
Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii)
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<PAGE> 954
the Fund may lend portfolio securities against collateral consisting of
cash or securities which are consistent with the its permitted
investments, where the value of the collateral is equal at all times to
at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 33% of the value of its respective total assets at the
time of such borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 33% of the value
of the Fund's total assets at the time of such borrowing. The Fund will
not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of the Fund's total assets would be invested in such
issuer, except that up to 25% of the value of its total assets may be
invested without regard to this limitation.
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided, however, that (a)
there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
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<PAGE> 955
With respect to Investment Limitation No. 2 above, the Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 33% of the value of its total assets at the time of such borrowing.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if the Investment Adviser has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). The net asset value per Share is determined
on each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-
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<PAGE> 956
the-counter markets are valued on the basis of their closing over-the-counter
bid prices. Securities for which there were no transactions are valued at the
average of the most recent bid and asked prices. Investments in debt securities
with remaining maturities of 60 days or less are valued based upon the amortized
cost method. Restricted securities, securities for which market quotations are
not readily available, and other assets are valued at fair value by the
Investment Adviser under the supervision of Galaxy's Board of Trustees. An
option is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price.
Portfolio securities which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities will be determined through
consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial
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<PAGE> 957
ownership of Trust Shares will be recorded by the Institution and reflected in
the account statements it provides to its Customers. Confirmations of purchases
and redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which the
Distributor, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part.
The issuance of Trust Shares is recorded on the books of the
Fund and Trust Share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (or, in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirements with respect to Trust Shares, Institutions
may impose such requirements on the accounts maintained by their Customers, and
may also require that Customers maintain minimum account balances with respect
to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by
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<PAGE> 958
an Institution to its Customers. Information pertaining to such plans is
available directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their Respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon
sixty days' written notice, if the value of the account is less than $250 as a
result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid quarterly. Dividends of each Share of the Fund are determined in the
same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of such shares on the ex-dividend date. Such
election, or any revocation thereof, must be communicated in writing by an
Institution on behalf of its Customers to Galaxy's transfer agent and will
become effective with respect to dividends paid after its receipt. The crediting
and payment of dividends to Customers
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<PAGE> 959
will be in accordance with the procedures governing such Customers' accounts at
their Respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification relieves the
Fund of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying Shares of the Fund on or just
before the record date of a dividend or capital gain distribution, you should be
aware that the amount of the forthcoming distribution payment, although in
effect a return of capital to the shareholder, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund
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<PAGE> 960
depending upon the tax basis of such Shares and their price at the time of
redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with its total assets of approximately $84.8
billion at December 31, 1995. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients, and manages the other investment portfolios of Galaxy:
the Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal
Money Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Income, International Equity, Small Company Equity,
Growth and Income, Asset Allocation, Small Cap Value, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
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For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an annual rate of .75% of the average daily net
assets of the Fund. The fees for the Fund are higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that they
are not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and other services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1996,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.__% of the Fund's average daily net assets.
The Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Armknecht, an Executive Vice President, has been with Fleet and
its predecessor since 1989 and has been the Fund's portfolio manager since its
inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
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<PAGE> 962
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG") located at
4400 Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly- owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid FDISG administration fees at the effective annual rate of .___% of its
average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify and reclassify any unissued shares into one or more classes or
series of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of Shares in the Fund: Class H -
Series 1 shares (Trust Shares), Class H - Series 2 shares (Retail A Shares) and
Class H - Series 3 shares (Retail B Shares), each series representing interests
in the Fund. The Fund is classified as a diversified company under the 1940 Act.
The Board of Trustees has also authorized the issuance of additional classes and
series of shares representing interests in other portfolios of Galaxy. For
information regarding the Fund's Retail Shares and these other portfolios, which
are offered through separate prospectuses, contact the Distributor at 1-800-
628-0414.
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Trust Shares, Retail A Shares and Retail B Shares in the Fund
bear their pro rata portion of all operating expenses paid by the Fund except as
follows. Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of Shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end
sales charge of 3.75%. Retail B Shares are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements, to which
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A Shares and
are intended to supplement the services provided by FDISG as administrator and
transfer agent to the shareholders of record of the Retail Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by Customers. Institutions may receive up to one-half
of this fee for providing one or more of the following services to such
Customers: aggregating and processing
-25-
<PAGE> 964
purchase and redemption requests and placing net purchase and redemption orders
with the Distributor; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
-26-
<PAGE> 965
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Fund are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy
bears the expenses incurred in the Fund's operations. Such expenses include:
taxes; interest; fees (including fees paid to its trustees and officers who are
not affiliated with FDISG; SEC fees; state securities qualification fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholders' reports and shareholder meetings; and any extraordinary
expenses. The Fund also pays for brokerage fees and commissions in connection
with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund may be compared to data prepared
by Lipper Analytical Services, Inc., a widely recognized independent service
which monitors the performance of mutual funds, the S&P 500, an unmanaged index
of groups of common stocks, the Consumer Price Index, or the Dow Jones
Industrial
-27-
<PAGE> 966
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in the Fund for the specified period. Both methods of calculating
total return assume that dividends and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in the Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in calculations of yield and performance.
-28-
<PAGE> 967
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Funds performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of either Galaxy or the Fund means, with
respect to the approval of an investment advisory agreement or change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
Galaxy or the Fund, or (b) 67% or more of the shares of Galaxy or the Fund
present at a meeting if more than 50% of the outstanding shares of Galaxy or the
Fund are represented at the meeting in person or by proxy.
-29-
<PAGE> 968
TRUST
THE GALAXY FUND
EQUITY INCOME FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 969
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY.............................................. 3
FINANCIAL HIGHLIGHTS......................................... 5
INVESTMENT OBJECTIVE AND POLICIES............................ 7
In General........................................... 7
Special Risk Considerations ......................... 8
Other Investment Policies and
Risk Considerations................................. 9
INVESTMENT LIMITATIONS....................................... 16
PRICING OF SHARES............................................ 18
HOW TO PURCHASE AND REDEEM SHARES............................ 19
Distributor.......................................... 19
Purchase of Shares................................... 19
Redemption of Shares................................. 21
DIVIDENDS AND DISTRIBUTIONS.................................. 21
TAXES........................................................ 22
Federal.............................................. 22
State and Local...................................... 23
MANAGEMENT OF THE FUND....................................... 23
Investment Adviser................................... 23
Authority to Act as Investment Adviser............... 24
Administrator........................................ 25
DESCRIPTION OF GALAXY AND ITS SHARES......................... 25
Shareholder Services Plan............................ 26
Affiliate Agreement for Sub-Account Services......... 27
CUSTODIAN AND TRANSFER AGENT................................. 28
EXPENSES..................................................... 28
PERFORMANCE AND YIELD INFORMATION............................ 29
MISCELLANEOUS................................................ 30
</TABLE>
<PAGE> 970
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call 1-800-
Westboro, Massachusetts 628-0414. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the EQUITY INCOME FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
common stock and securities convertible into common stock that offer income
potential.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY,
<PAGE> 971
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 FUND, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 972
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES EQUITY INCOME FUND
- -------------------------------- ------------------
<S> <C>
Sales Load......................................................... None
Sales Load on Reinvested
Dividends......................................................... None
Deferred Sales Load................................................ None
Redemption Fees.................................................... None
Exchange Fees...................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers).................................. .__%
12b-1 Fees......................................................... None
Other Expenses (After Fee Waivers)
and Expense Reimbursements)...................................... . %
----
Total Fund Operating
Expenses (After Fee Waivers
and Expense Reimbursements)..................................... %
====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Income Fund $__ $__ $__ $__
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in the Fund
will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75%, Other Expenses would be ____% and
Total Fund Operating Expenses would be ____% for Trust Fund Operating Expenses
would be _____% for Trust Shares of the Fund. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
-3-
<PAGE> 973
to the Fund. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Fund are in addition to
and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
-4-
<PAGE> 974
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue an additional series of Shares in the Fund, Retail A
Shares. As described below under "Description of Galaxy and Its Shares," Trust
Shares and Retail A Shares represent equal pro rata interests in the Fund except
that (i) effective October 1, 1994 Retail A Shares of the Fund bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.30% of the average daily net asset value of the Fund's outstanding Retail A
Shares, and (ii) Trust Shares and Retail A Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by
(_______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (___________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflect the investment
results of both Trust Shares and Retail A Shares of the Fund. (Retail A Shares
of the Fund were first offered during the fiscal year ended October 31, 1992).
More information about the performance of the Fund is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-5-
<PAGE> 975
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
------------------------------------- ------------------------ OCTOBER 31,
TRUST SHARES 1993 1992 1991(1)(2)
------------------------------------- ------------------------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.75 $ 12.85 $ 11.85 $ 11.29 $ 10.00
---------- -------- --------- -------- --------
Income from Investment Operations:
Net Investment Income3 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized gain (loss)
on investments 2.45 0.07 1.09 0.76 1.26
---------- -------- --------- -------- --------
Total from Investment Operations: 2.81 0.38 1.39 1.06 1.55
---------- -------- --------- -------- --------
Less Dividends:
Dividends from net investment income (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized
capital gains (0.21) (0.19) (0.11) (0.20) --
---------- -------- --------- -------- --------
Total Dividends: (0.57) (0.48) (0.39) (0.50) (0.26)
---------- -------- --------- -------- --------
Net increase (decrease) in net asset
value 2.24 (0.10) 1.00 0.56 1.29
---------- -------- --------- -------- --------
Net Asset Value, End of Period $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29
========== ======== ========= ======== ========
Total Return 22.81% 3.02% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 87,819 $ 78,880 $ 123,970 $ 21,778 $ 7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver 2.60% 2.49% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver 0.98% 1.07% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver 1.00% 1.07% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(A) N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1993 and 1992 and for the period ended October 31, 1991 were $0.29,
$0.25 and $0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-6-
<PAGE> 976
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements. Less than 25% of the value of the
Fund's total assets at the time of purchase will be invested in securities of
issuers conducting their principal business activities in the same industry.
The Fund may invest up to 20% of its total assets in foreign
securities either directly or indirectly through the purchase of American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See
"Special Risk Considerations" and "Other Investment Policies" below. The Fund
may also write covered call options. See "Other Investment Policies --Options"
and "Other Investment Policies -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Other Investment Policies" below) and U.S. Government obligations at such times
and in such proportions as, in the opinion of Fleet Investment Advisors Inc.,
the Fund's investment adviser ("Fleet" or the "Investment Adviser"), prevailing
market or economic conditions warrant. See "Other Investment Policies" below for
information regarding additional investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the
Fund's investment objective, although its achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
-7-
<PAGE> 977
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income securities,
its holdings of such securities are sensitive to changes in interest rates and
the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of a Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible
-8-
<PAGE> 978
imposition of exchange control regulations or freezes on convertibility of
currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
Ratings
All debt obligations, including convertible bonds, purchased by
the Fund are rated investment grade by Moody's Investor's Service, Inc.
("Moody's") ("Aaa", "Aa", "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA", "AA", "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser. Issuers of commercial paper, bank
obligations or repurchase agreements in which the Fund invests must have, at the
time of investment, outstanding debt rated A or higher by Moody's or S&P, or, if
they are not rated, the instrument purchased must be determined to be of
comparable quality.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest
from time to time in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and in "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
-9-
<PAGE> 979
financial support to U.S. Government-sponsored instrumentalities if it is not
obligated to do so by law. Some of these instruments may be variable or floating
rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Time deposits with a maturity longer than seven days or that do not
provide for payment within seven days after notice will be limited to 10% of the
Fund's total assets.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and
U.S. branches of foreign banks may subject the Fund to additional risk because
such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser and/or the Sub-Adviser believes that the
credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may
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demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser and/or the Sub-Adviser under guidelines
approved by Galaxy's Board of Trustees. The Fund will not enter into repurchase
agreements with Fleet or any of its affiliates. Unless a repurchase agreement
has a remaining maturity of seven days or less or may be terminated on demand
upon notice of seven days or less, the repurchase agreement will be considered
an illiquid security and will be subject to the 10% limit described in
Investment Limitation No. 3 under "Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with
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the investment limitations described below. Such loans would involve risks of
delay in receiving additional collateral or in recovering the securities loaned
or even loss of rights in the collateral, should the borrower of the securities
fail financially. Any portfolio securities purchased with cash collateral would
also be subject to possible depreciation. Loans will generally be short-term,
will be made only to borrowers deemed by the Investment Adviser to be of good
standing and only when, in the Investment Adviser's judgment, the income to be
earned from the loan justifies the attendant risks. The Fund currently intends
to limit the lending of its portfolio securities so that, at any given time,
securities loaned by the Fund represent not more than one-third of the value of
its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
Options
Covered Call Options. To further increase return on its portfolio
securities and in accordance with its investment objective and policies, the
Fund may engage in writing covered call options (options on securities owned by
the Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities
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exchange and issued by the Options Clearing Corporation. The aggregate value of
the securities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, the Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price, except insofar as the premium represents such
a profit. The Fund will not be able to sell the underlying security until the
option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. Such options would
normally be written only on underlying securities as to which the Investment
Adviser does not anticipate significant short-term capital appreciation. See
"Derivative Securities" below.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency exchange contracts
are agreements to exchange one currency for another -- for example, to exchange
a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a
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specified price. Typically, the other party to a currency exchange contract will
be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information
regarding foreign currency exchange transactions.
Convertible Securities
The Fund may from time to time, in accordance with its
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities in
which the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
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Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements in
the underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Convertible securities are
senior to equity securities, and therefore, have a claim to the assets of the
issuer prior to the holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar non-convertible
securities of the same issuer. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-convertible
securities of similar quality. The Fund will exchange or convert the convertible
securities held in its portfolio into shares of the underlying common stock in
instances in which, in the Investment Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the Fund, the
Investment Adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Investment Adviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
Derivative Securities
The Fund may from time to time, in accordance with its
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, options and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the
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<PAGE> 985
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by
the derivative securities purchased by the Fund, and will determine, in
connection with its day-to-day management of the Fund, how such securities will
be used in furtherance of the Fund's investment objective. It is possible,
however, that the Investment Adviser's evaluations will prove to be inaccurate
or incomplete and, even when accurate and complete, it is possible that the Fund
will, because of the risks discussed above, incur loss as a result of its
investments in derivative securities. See "Investment Objective and Policies --
Derivative Securities" in the Statement of Additional Information for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover may result
in the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for Federal income tax purposes.
See "Financial Highlights" and "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information relating to the Fund under "Investment Objectives and
Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect to
portfolio securities, and (ii) the Fund may lend portfolio securities
against collateral consisting of cash or securities which are
consistent with its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess
of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 33% of the value of its respective total assets at the
time of such borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 33% of the value
of the Fund's total assets at the time of such borrowing. The Fund will
not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in
excess of seven days, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if immediately after such purchase more than 5%
of the value of the Fund's total assets would be invested in such
issuer, except that up to 25% of the value of its total assets may be
invested without regard to this limitation.
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided, however, that (a)
there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily
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related to financing the activities of the parents, and (c) utilities will be
classified according to their services. (For example, gas, gas transmission,
electric and gas, electric and telephone each will be considered a separate
industry.)
With respect to Investment Limitation No. 2 above, the Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 33% of the value of its total assets at the time of such borrowing.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if the Investment Adviser has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). The net asset value per Share is determined
on each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
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The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by the Investment Adviser
under the supervision of Galaxy's Board of Trustees. An option is generally
valued at the last sale price or, in the absence of a last sale price, the last
offer price.
Portfolio securities which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities will be determined through
consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to
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such investors ("Customers") will be held of record by Institutions. The
Institution is responsible for transmitting to the Distributor orders for
purchases of Trust Shares and for wiring required funds in payment to Galaxy's
custodian on a timely basis. The Distributor is responsible for transmitting
such orders to Galaxy's transfer agent for execution. Beneficial ownership of
Trust Shares will be recorded by the Institution and reflected in the account
statements it provides to its Customers. Confirmations of purchases and
redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which the
Distributor, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part.
The issuance of Trust Shares is recorded on the books of the
Fund and Share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (in the case of employer-sponsored deferred
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirements with respect to Trust Shares, Institutions or
employers may impose such requirements on the accounts maintained by their
customers, and may also require that
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Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
Share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon
sixty days written notice, if the value of the account is less than $250 as a
result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid quarterly. Dividends on each Share of the Fund are determined in the
same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of
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such shares on the ex-dividend date. Such election, or any revocation thereof,
must be communicated in writing by an Institution on behalf of its Customers to
Galaxy's transfer agent and will become effective with respect to dividends paid
after its receipt. The crediting and payment of dividends to Customers will be
in accordance with the procedures governing such Customers' accounts at their
respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification relieves the
Fund of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying Shares of the Fund on or just
before the record date of a dividend or capital gain distribution, you should be
aware that the amount of the
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forthcoming distribution payment, although in effect a return of capital, will
be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect, wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, International Equity, Growth and Income,
Asset Allocation, Small Company Equity, Small Cap Value, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds.
-23-
<PAGE> 993
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an annual rate of .75% of the average daily net
assets of the Fund. The fees for the Funds are higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that they
are not higher than the average advisory fees paid by funds with similar
investment objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Funds in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .___% of the Fund's average daily net assets.
The Fund's portfolio manager, J. Edward Klisiewicz of Fleet,
is primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
-24-
<PAGE> 994
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid FDISG administration fees at the effective annual rate of .___% of its
average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of Shares in the Fund: Class I - Series 1 shares
(Trust Shares) and Class I - Series 2 shares ("Retail A Shares), both series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of
-25-
<PAGE> 995
additional classes and series of shares representing interests in other
portfolios of Galaxy. For information regarding the Fund's Retail A Shares and
these other portfolios, which are offered through separate prospectuses, contact
the Distributor at 1-800-628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, Trust Shares and Retail A Shares in the Fund bear differing
transfer agency expenses. Standardized yield and total return quotations are
computed separately for each series of Shares. The difference in the expenses
paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end
sales charge of 3.75% and have certain exchange and other privileges which are
not available with respect to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has
a par value of $.001 per Share, represents an equal proportionate interest in
the related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A
-26-
<PAGE> 996
Shares and are intended to supplement the services provided by FDISG as
administrator and transfer agent to the shareholders of record of the Retail A
Shares. The Plan provides that Galaxy will pay fees for such services at an
annual rate of up to .50% of the average daily net asset value of the Fund's
outstanding Retail A Shares beneficially owned by Customers. Institutions may
receive up to one-half of this fee for providing one or more of the following
services to such Customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with the Distributor;
processing dividend payments from the Fund; providing sub-accounting with
respect to Retail A Shares or the information necessary for sub-accounting; and
providing periodic mailings to Customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account
-27-
<PAGE> 997
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Fleet Bank is compensated by FDISG for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of the Fund indirectly bear
these fees.
Shareholders are entitled to one vote for each full share
held, and a proportionate fractional vote for each fractional share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Funds are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, shareholder servicing, fund
accounting and
-28-
<PAGE> 998
custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund may be compared to data prepared
by Lipper Analytical Services, Inc., a widely recognized independent service
which monitors the performance of mutual funds, the S&P 500, an unmanaged index
of groups of common stocks, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods,
-29-
<PAGE> 999
representing the cumulative change in the value of an investment in the Fund for
the specified period. Both methods of calculating total return assume that
dividends and capital gain distributions made by the Fund during the period are
reinvested in Fund Shares.
Performance and yield of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in the Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in calculations of yield and performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of either Galaxy or the Fund means, with
respect to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
Galaxy or the Fund, or (b) 67% or more of the shares of Galaxy or the Fund
present at a meeting if more than 50% of the outstanding shares of Galaxy or the
Fund are represented at the meeting in person or by proxy.
-30-
<PAGE> 1000
TRUST
THE GALAXY FUND
INTERNATIONAL EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 1001
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
PAGE
EXPENSE SUMMARY......................................................
FINANCIAL HIGHLIGHTS ................................................
INVESTMENT OBJECTIVE AND POLICIES....................................
In General...................................................
Special Risk Considerations..................................
Other Investment Policies and Risk
Considerations...............................................
INVESTMENT LIMITATIONS...............................................
PRICING OF SHARES....................................................
HOW TO PURCHASE AND REDEEM SHARES....................................
Distributor..................................................
Purchase of Shares...........................................
Redemption of Shares.........................................
DIVIDENDS AND DISTRIBUTIONS..........................................
TAXES...
Federal......................................................
State and Local..............................................
MANAGEMENT OF THE FUND...............................................
Investment Adviser and Sub-Adviser...........................
Authority to Act as Investment Adviser.......................
Administrator................................................
DESCRIPTION OF GALAXY AND ITS SHARES.................................
Shareholder Services Plan....................................
Affiliate Agreement for Sub-Account Services.................
CUSTODIAN AND TRANSFER AGENT.........................................
EXPENSES.............................................................
PERFORMANCE AND YIELD INFORMATION....................................
MISCELLANEOUS........................................................
<PAGE> 1002
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call 1-800-
Westboro, Massachusetts 628-0414. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the INTERNATIONAL EQUITY FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
equity securities of foreign issuers.
This prospectus describes Trust Shares in each Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loans associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates. Oechsle International Advisors, L.P. serves as the
sub-adviser to the Fund.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET
<PAGE> 1003
BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 1004
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
-------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<S> <C>
Sales Load................................................. None
Sales Load on Reinvested
Dividends................................................. None
Deferred Sales Load........................................ None
Redemption Fees............................................ None
Exchange Fees.............................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees (After Fee Waivers).......................... .__%
12b-1 Fees................................................. None
Other Expenses (After Fee Waivers and .__%
Expense Reimbursements)..................................
Total Fund Operating
Expenses (After Fee Waivers and Expense
Reimbursements).......................................... %
----
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
International Equity
<S> <C> <C> <C> <C>
Fund..................................... $ $ $ $
----- ----- ----- -----
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in the Fund
will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the
-3-
<PAGE> 1005
Investment Adviser and/or Administrator, Advisory Fees would be 1.15%, Other
Expenses would be ____% and Total Fund Operating Expenses would be % for Trust
Shares of the Fund. For more complete descriptions of these costs and expenses,
see "Management of the Fund" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet Investment Advisors Inc. or other institutions
directly to their customer accounts for services related to an investment in
Trust Shares of the Fund are in addition to and not reflected in the fees and
expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue an additional series of Shares in the Fund, Retail A
Shares. As described below under "Description of Galaxy and Its Shares", Trust
Shares and Retail A Shares represent equal pro rata interests in the Fund,
except that (i) effective October 1, 1994 Retail A Shares of the Fund bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .30% of the average daily net asset value of the Fund's outstanding Retail
A Shares and (ii) Trust Shares and Retail A Shares bear differing transfer
agency expenses.
The financial highlights presented below have been audited by
(______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (___________________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the results of
both Trust Shares and Retail A Shares of the Fund. More information about the
performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
-4-
<PAGE> 1006
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31,
----------------------
1996 1995 1994 1993(2) 1992(1),(2)
------------------------------------------- ----------- -----------
TRUST SHARES
-------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.20 $ 12.13 $ 9.66 $ 10.00
----------- ----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(3) 0.16 0.06 0.02 0.06
Net realized and unrealized gain (loss)
on investments (0.18) 1.02 2.51 (0.40)
----------- ----------- ----------- -----------
Total from Investment Operations: (0.02) 1.08 2.53 (0.34)
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment income (0.04) (0.01) (0.06) --
Dividends from net realized capital gains (0.16) -- -- --
----------- ----------- ----------- -----------
Total Dividends: (0.20) (0.01) (0.06) --
----------- ----------- ----------- -----------
Net increase (decrease) in net asset value (0.22) 1.07 2.47 (0.34)
----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 12.98 $ 13.20 $ 12.13 $ 9.66
=========== =========== =========== ===========
Total Return (0.02%) 8.91% 26.36% (3.40%)(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 89,614 $ 82,350 $ 39,246 $ 12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver 1.36% 0.74% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver 1.22% 1.43% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver 1.48% 1.72% 2.04% 2.79%(5)
Portfolio Turnover Rate 48% 39% 29% 21%(4)
Average Commission Rate Paid(6) N/A N/A N/A N/A
</TABLE>
- ----------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1996, 1995, 1994 and 1993 and for the period ended October 31, 1992
were $____, $0.13, $0.04, $0.00 and $0.00, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 1007
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by investing
at least 75% of its total assets in equity securities of foreign issuers. The
Fund's assets will be invested at all times in the securities of issuers located
in at least three different foreign countries. Although the Fund may earn income
from dividends, interest and other sources, current income will not be its
primary consideration. The Fund emphasizes established companies, although it
may invest in companies of varying sizes as measured by assets, sales and
capitalization.
The Fund may invest in securities of issuers located in a
variety of different foreign regions and countries, including, but not limited
to, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico,
The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and The United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 15% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other
securities with equity characteristics, consisting of trust or limited
partnership interests, preferred stock, rights and warrants. The Fund may also
invest in convertible securities, consisting of debt securities or preferred
stock that may be converted into common stock or that carry the right to
purchase common stock. See "Other Investment Policies -- Convertible Securities"
below. The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
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<PAGE> 1008
Securities issued in certain countries are currently
accessible to the Fund only through investment in other investment companies
that are specifically authorized to invest in such securities. The limitations
on the Fund's investment in other investment companies are described under
"Other Investment Policies -- Investment Company Securities" below.
During temporary defensive periods in response to unusual and
adverse conditions affecting the equity markets, or to meet anticipated
day-to-day operating expenses, the Fund's assets may be invested in short-term
debt instruments. In addition, when the Fund experiences large cash inflows from
the issuance of new shares or the sale of portfolio securities, and desirable
equity securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold short-term investments
for a limited time pending availability of suitable equity securities. The
short-term debt instruments in which the Fund may invest may be denominated in
foreign currencies or U.S. dollars, and include foreign and domestic: (i)
short-term debt securities, including short-term obligations of national
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) commercial paper, including master notes; (iii) bank
obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances, and Euro-currency instruments and securities; and (iv)
repurchase agreements.
Subject to applicable securities regulations, the Fund may,
for the purpose of hedging its portfolio, purchase and write covered call
options on specific portfolio securities and may purchase and write put and call
options on foreign stock indices listed on foreign and domestic stock exchanges.
In addition, the Fund may invest up to 100% of its total assets in securities of
foreign issuers in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or Global Depository Receipts ("GDRs") as described
under "Other Investment Policies." Furthermore, the Fund may purchase and sell
securities on a when-issued basis. For temporary defensive purposes, the Fund
may also invest a major portion of its assets in securities of United States'
issuers. Less than 25% of the value of the Fund's total assets at the time of
purchase will be invested in securities of issuers conducting their principal
business activities in the same industry. See "Other Investment Policies" below
regarding additional investment policies of the Fund.
Fleet Investment Advisors Inc., the Fund's investment adviser
("Fleet" or the "Investment Adviser") and Oechsle International Advisors, L.P.,
the Fund's sub-adviser ("Oechsle" or the "Sub-Adviser") will use their best
efforts to achieve the Fund's investment objective, although its achievement
cannot be assured. The investment objective of the Fund may not be changed
without the approval of the holders of a majority of its
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<PAGE> 1009
outstanding Shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income
securities, its holdings of debt securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs
than investments in U.S. securities, including higher transaction costs, as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about the issuers, less
market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
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<PAGE> 1010
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
Ratings
The Fund may only purchase debt securities rated "A" or higher
by Moody's Investors Service Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P"), or if unrated, determined by the Investment Adviser and/or Sub-Adviser
to be of comparable quality. Issuers of commercial paper, bank obligations or
repurchase agreements in which the Fund invests must have, at the time of
investment, outstanding debt rated A or higher by Moody's or S&P, or, if they
are not rated, the instrument purchased must be determined to be of comparable
quality.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are
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<PAGE> 1011
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Time deposits with a maturity longer than seven days or that do not
provide for payment within seven days after notice will be limited to 10% of the
Fund's total assets.
Domestic and foreign banks are subject to extensive but
different government regulation which may limit the amount and types of their
loans and the interest rates that may be charged. In addition, the profitability
of the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks
and U.S. branches of foreign banks may subject the Fund to additional risk
because such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser and/or the Sub-Adviser believes that the
credit risk with respect to the instrument is minimal.
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<PAGE> 1012
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event that an issuer of a variable or floating rate obligation defaulted on
its payment obligation, the Fund might be unable to dispose of the note because
of the absence of a secondary market and could, for this or other reasons,
suffer a loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser and/or the Sub-Adviser under guidelines
approved by Galaxy's Board of Trustees. The Fund will not enter into repurchase
agreements with Fleet or Oechsle or any of their affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% limit described
in Investment Limitation No. 3 under "Investment Limitations" in this
Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a
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<PAGE> 1013
mutually specified date and price ("reverse repurchase agreements"). Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price. The Fund would pay
interest on amounts obtained pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, will be
made only to borrowers deemed by the Investment Adviser and/or the Sub-Adviser
to be of good standing and only when, in the Investment Adviser's and/or the
Sub-Adviser's judgment, the income to be earned from the loan justifies the
attendant risks. The Fund currently intends to limit the lending of its
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. The Fund may also purchase shares of investment companies
investing primarily in foreign securities, including so-called "country funds."
Country funds have portfolios consisting exclusively of securities of issuers
located in one foreign country. Investments in other investment companies will
cause the Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by the
Fund within the limits prescribed by the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund currently intends to limit its investments so
that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by the Fund; and (d) not more than 10%
of the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by the Fund, other investment portfolios of Galaxy, or
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any other investment companies advised by the Investment Adviser or the
Sub-Adviser.
Options
Covered Call Options. To further increase return on its
portfolio securities and in accordance with its investment objective and
policies, the Fund may engage in writing covered call options (options on
securities owned by the Fund) and may enter into closing purchase transactions
with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to options written by the Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, the
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price, except insofar as the premium
represents such a profit. The Fund will not be able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. Such
options would normally be written only on underlying securities as to which the
Investment Adviser and/or the Sub-Adviser does not anticipate significant
short-term capital appreciation. See "Derivative Securities" below.
Options on Foreign Stock Indices. The Fund may, for the
purpose of hedging its portfolio, subject to applicable securities regulations,
purchase and write put and call options on foreign stock indices listed on
foreign and domestic stock exchanges. A stock index fluctuates with changes in
the market values of the stocks included in the index. Examples of foreign stock
indices are the Canadian Market Portfolio Index (Montreal Stock Exchange), The
Financial Times - Stock Exchange 100 (London Stock Exchange) and the Toronto
Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indices are generally similar to options on
stock except that the delivery requirements are different. Instead of giving the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (a) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the
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<PAGE> 1015
option is based being greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options prior to expiration by
entering into a closing transaction on an exchange or the option may expire
unexercised. For additional information relating to option trading practices and
related risks, see "Derivative Securities" below and in the Statement of
Additional Information.
American, European and Global Depository Receipts
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs, EDRs and
GDRs involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency exchange contracts
are agreements to exchange one currency for another -- for example, to exchange
a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
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<PAGE> 1016
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the
Fund to hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information
regarding foreign currency exchange transactions.
Convertible Securities
The Fund may from time to time, in accordance with its investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities in which the Fund
may invest may take the form of convertible preferred stock and convertible
bonds or debentures.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment
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<PAGE> 1017
characteristics of fixed income securities until they have been converted but
also react to movements in the underlying equity securities. The holder is
entitled to receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion privilege.
Convertible securities are senior to equity securities, and therefore, have a
claim to the assets of the issuer prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the Investment Adviser's and/or
Sub-Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Investment Adviser and/or Sub-Adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a particular
convertible security, the Investment Adviser and/or Sub-Adviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain "derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, options and options on foreign stock indices and foreign currency
exchange transactions.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
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<PAGE> 1018
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
The Investment Adviser and/or Sub-Adviser will evaluate the risks
presented by the derivative securities purchased by the Fund, and will
determine, in connection with their day-to-day management of the Fund, how such
securities will be used in furtherance of the Fund's investment objective. It is
possible, however, that the Investment Adviser's and/or Sub-Adviser's
evaluations will prove to be inaccurate or incomplete and, even when accurate
and complete, it is possible that the Fund will, because of the risks discussed
above, incur loss as a result of its investments in derivative securities. See
"Investment Objective and Policies -- Derivative Securities" in the Statement of
Additional Information for additional information.
When-Issued Transactions
The Fund may purchase eligible securities on a "when-issued" basis.
When-issued transactions, which involve a commitment by the Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund to lock in a price or
yield on a security it owns or intends to purchase, regardless of future changes
in interest rates. When-issued transactions involve the risk, however, that the
yield or price obtained in a transaction may be less favorable than the yield or
price available in the market when the securities delivery takes place.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser and/or the Sub-Adviser believes that such
a disposition is consistent with the Fund's investment objective. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
Federal income tax purposes. See "Financial Highlights" and "Taxes -- Federal."
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<PAGE> 1019
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information relating to the Fund under "Investment Objectives and
Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase
or hold debt instruments in accordance with its investment
objective and policies, and may enter into repurchase
agreements with respect to portfolio securities, and (ii) the
Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its
permitted investments, where the value of the collateral is
equal at all times to at least 100% of the value of the
securities loaned.
2. Borrow money or issue senior securities, except
from domestic banks for temporary purposes and then in amounts
not in excess of 33% of the value of its total assets at the
time of such borrowing (provided that the Fund may borrow
pursuant to reverse repurchase agreements in accordance with
its investment policies and in amounts not in excess of 33% of
the value of its total assets at the time of such borrowing);
or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 33% of
the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess
of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time
deposits with maturities in excess of seven days, securities
which are restricted as to transfer in their principal market,
non-negotiable time deposits and other securities which are
not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such
purchase more than 5% of the
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<PAGE> 1020
value of the Fund's total assets would be invested in such
issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of the its total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however,
that (a) there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (b) wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of the
parents, and (c) utilities will be classified according to their services. (For
example, gas, gas transmission, electric and gas, electric and telephone each
will be considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 33% of the value of its total assets at the time of such borrowing.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if the Investment Adviser and/or the Sub-Adviser
has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
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<PAGE> 1021
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). The net asset value per share is determined
on each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The Fund's portfolio securities which are primarily traded on
a domestic exchange are valued at the last sale price on that exchange or, if
there is no recent sale, at the last current bid quotation. Portfolio securities
which are primarily traded on foreign securities exchanges are generally valued
at the preceding closing values of such securities on their respective
exchanges, except when an occurrence subsequent to the time a value was so
established is likely to have changed such value, then the fair value of those
securities will be determined through consideration of other factors by or under
the direction of the Board of Trustees. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange determined to
be the primary market for such security. Investments in debt securities having a
maturity of 60 days or less are valued based upon the amortized cost method. All
other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by Galaxy's Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
An option is generally valued at the last sale price or, in the absence of a
last sale price, the last offer price.
Certain of the securities acquired by the Fund may be traded
on foreign exchanges or over-the-counter markets on days on which the Fund's net
asset value is not calculated. In such cases, the net asset value of the Fund's
Shares may be significantly affected on days when investors can neither purchase
nor redeem Shares of the Fund.
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<PAGE> 1022
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in Federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part.
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<PAGE> 1023
The issuance of Trust Shares is recorded on the books of the
Fund and Share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirements with respect to Trust Shares, Institutions
may impose such requirements on the accounts maintained by their customers, and
may also require that Customers maintain minimum account balances with respect
to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
Trust Shares of the Fund described in this Prospectus may also
be sold to clients, partners and employees of the Fund's Sub-Adviser.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
Share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds
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<PAGE> 1024
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon
sixty days written notice, if the value of the account is less than $250 as a
result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid annually. Dividends on each Share of the Fund are determined in the
same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of such shares on the ex-dividend date. Such
election, or any revocation thereof, must be communicated in writing by an
Institution on behalf of its Customers to Galaxy's transfer agent and will
become effective with respect to dividends paid after its receipt. The crediting
and payment of dividends to Customers will be in accordance with the procedures
governing such Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends
-23-
<PAGE> 1025
received deduction for corporations to the extent of the total qualifying
dividends received by the Fund from domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying Shares of the Fund on or just
before the record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
It is expected that the Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their U.S. federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own
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<PAGE> 1026
tax situation. Shareholders will be advised annually as to the federal income
tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients, and manages the other investment portfolios of Galaxy: the Money
Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Value, Equity Growth, Equity Income, Growth and Income, Asset
Allocation, Small Company Equity, Small Cap Value, Short-Term Bond, Intermediate
Government Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records (except with
respect to such functions that have been delegated to the Fund's Sub-Adviser as
described below).
For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an
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<PAGE> 1027
annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus .95% of the next $50 million of such assets, plus .85% of net
assets in excess of $100 million. The fees for the Fund are higher than fees
paid by most other mutual funds, although the Board of Trustees of Galaxy
believes that they are not higher than average advisory fees paid by funds with
similar investment objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .__% of the Fund's average daily net assets.
The advisory agreement between Galaxy and Fleet with respect
to the Fund provides that Fleet will provide a continuous investment program for
the Fund, including research and management with respect to all securities and
investments and cash equivalents in the Fund. In addition, the advisory
agreement authorizes Fleet to engage a sub-adviser to assist it in the
performance of its services. Pursuant to such authorization, Fleet has appointed
Oechsle, a Delaware limited partnership with principal offices at One
International Place, Boston, Massachusetts 02210, as the Sub-Adviser to the
Fund. The general partner of Oechsle is Oechsle Group, L.P., and the managing
general partner of Oechsle Group, L.P. is Walter Oechsle. Oechsle currently
manages approximately $9.4 billion in assets. Oechsle began serving as
sub-adviser to the Fund on August 12, 1996.
Under its sub-advisory agreement with Fleet, Oechsle
determines which securities and other investments will be purchased, retained or
sold for the Fund; places orders for the Fund; manages the Fund's overall cash
position; and provides the Investment Adviser with foreign broker research and a
quarterly review of international economic and investment developments. Fleet,
among other things, assists and consults with the Sub- Adviser in connection
with the Fund's continuous investment program; approves lists of foreign
countries recommended by the Sub-Adviser for investment; reviews the investment
policies and restrictions of the Fund and recommends appropriate changes to the
Board of Trustees; and provides the Board of Trustees and the Sub-Adviser with
information concerning relevant economic and political developments.
For the services provided and the expenses assumed pursuant to
the sub-advisory agreement, Fleet pays a fee to
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<PAGE> 1028
Oechsle, computed daily and paid quarterly, at the annual rate of .40% of the
first $50 million of the Fund's average daily net assets, plus .35% of average
daily net assets in excess of $50 million. For the period from August 12, 1996
through October 31, 1996, Oechsle received sub-advisory fees from Fleet at the
effective annual rate of __% of the Fund's average daily net assets.
Prior to August 12, 1996, Wellington Management Company
("Wellington Management") served as the Fund's sub-adviser. For the services
provided and expenses assumed pursuant to its sub- advisory agreement,
Wellington Management was entitled to receive a fee from Fleet, computed daily
and paid quarterly, at the annual rate of .50% of the first $50 million of the
Fund's average daily net assets, plus .30% of the next $50 million of such
assets, plus .20% of all net assets in excess of $100 million. For the period
from November 1, 1995 through August 11, 1996, Wellington Management received
sub-advisory fees at the effective annual rate of ___% of the Fund's average
daily net assets.
The Fund's portfolio managers, David von Hemert of Fleet and
S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr. von
Hemert, a Senior Vice- President, has been with Fleet and its predecessors since
1980 and has been managing the Fund since August 1994. Mr. Keesler, General
Partner and Portfolio Manager, has been with Oechsle since its founding in 1986.
Ms. Harris has been a Portfolio Manager at Oechsle since January 1995. Prior
thereto, she was Portfolio Manager and Investment Director for the State of
Wisconsin Investment Board and a Fund Manager and Equity Analyst for Northern
Trust Company.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
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<PAGE> 1029
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid FDISG administration fees at the effective annual rate of .___% of the
Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of Shares in the Fund: Class G-Series 1 shares
(Trust Shares) and Class G-Series 2 shares (Retail A Shares), both series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of
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<PAGE> 1030
additional classes and series of shares representing interests in other
portfolios of Galaxy. For information regarding the Fund's Retail A Shares and
these other portfolios, which are offered through separate prospectuses, contact
the Distributor at 1-800- 628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, Trust Shares and Retail A Shares in the Fund bear differing
transfer agency expenses. Standardized yield and total return quotations are
computed separately for each series of Shares. The difference in the expenses
paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end
sales charge of 3.75% and have certain exchange and other privileges which are
not available with respect to Trust Shares.
Each Share of Galaxy (irrespective of series designation) has
a par value of $.001 per Share, represents an equal proportionate interest in
the related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A
-29-
<PAGE> 1031
Shares and are intended to supplement the services provided by FDISG as
administrator and transfer agent to the shareholders of record of the Retail A
Shares. The Plan provides that Galaxy will pay fees for such services at an
annual rate of up to .50% of the average daily net asset value of the Fund's
outstanding Retail A Shares beneficially owned by Customers. Institutions may
receive up to one-half of this fee for providing one or more of the following
services to such Customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with the Distributor;
processing dividend payments from the Fund; providing sub-accounting with
respect to Retail A Shares or the information necessary for sub- accounting; and
providing periodic mailings to Customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") or a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account
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<PAGE> 1032
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Fleet Bank is compensated by FDISG for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of the Fund indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Fund are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. The Fund bears
its operating expenses. Such expenses include: taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with FDISG); SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yields of the Fund may be
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<PAGE> 1033
quoted and compared to those of other mutual funds with similar investment
objectives and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of the Fund may be
compared to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds,
the S&P 500, an unmanaged index of groups of common stocks, the Consumer Price
Index, or the Dow Jones Industrial Average, a recognized unmanaged index of
common stocks of 30 industrial companies listed on the New York Stock Exchange.
In addition, the performance of the Fund may be compared to either the Morgan
Stanley Capital International Index or the FT World Actuaries Index.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in the Fund for the specified period. Both methods of calculating
total return assume that dividends and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in
-32-
<PAGE> 1034
the Fund's Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance and yield
are generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged by Institutions with respect to accounts of Customers
that have invested in Trust Shares of the Fund will not be included in
calculations of yield and performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of either Galaxy or the Fund means, with
respect to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
Galaxy or the Fund, or (b) 67% or more of the shares of Galaxy or the Fund
present at a meeting if more than 50% of the outstanding shares of Galaxy or the
Fund are represented at the meeting in person or by proxy.
-33-
<PAGE> 1035
TRUST
THE GALAXY FUND
SMALL COMPANY EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 1036
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXPENSE SUMMARY........................................................................................ 3
FINANCIAL HIGHLIGHTS .................................................................................. 4
INVESTMENT OBJECTIVE AND POLICIES...................................................................... 6
In General.................................................................................... 6
Special Risk Considerations and Risk Considerations........................................... 7
Other Investment Policies..................................................................... 8
INVESTMENT LIMITATIONS................................................................................. 15
PRICING OF SHARES...................................................................................... 17
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 18
Distributor................................................................................... 18
Purchase of Shares............................................................................ 18
Redemption of Shares.......................................................................... 20
DIVIDENDS AND DISTRIBUTIONS............................................................................ 20
TAXES.................................................................................................. 21
Federal....................................................................................... 21
State and Local............................................................................... 22
MANAGEMENT OF THE FUND................................................................................. 22
Investment Adviser............................................................................ 22
Authority to Act as Investment Adviser........................................................ 23
Administrator................................................................................. 24
DESCRIPTION OF GALAXY AND ITS SHARES................................................................... 24
Shareholder Services Plan..................................................................... 26
Affiliate Agreement for Sub-Account Services.................................................. 27
CUSTODIAN AND TRANSFER AGENT........................................................................... 27
EXPENSES............................................................................................... 27
PERFORMANCE AND YIELD INFORMATION...................................................................... 28
MISCELLANEOUS.......................................................................................... 29
</TABLE>
<PAGE> 1037
THE GALAXY FUND
For applications and
information concerning
initial
purchases and current
4400 Computer Drive performance, call 1-800
Westboro, Massachusetts 628-0414. For additional
01581-5108 purchases, redemptions,
exchanges and other
shareholder services, call 1-
800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the SMALL COMPANY EQUITY FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with capitalizations of $500 million or less that
the Fund's investment adviser believes represent the potential for significant
capital appreciation. Under normal market and economic conditions, the Fund will
invest at least 65% of its assets in the equity securities of companies with
capitalizations of $500 million or less.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Corporation, Fleet Securities,
Inc., Fleet Enterprises Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares represent equal pro rata interests in the Fund, except they
bear different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
<PAGE> 1038
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-2-
<PAGE> 1039
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
SMALL
COMPANY
EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND
- -------------------------------- ----
<S> <C>
Sales Load.......................................................... None
Sales Load on Reinvested
Dividends.......................................................... None
Deferred Sales Load................................................. None
Redemption Fees..................................................... None
Exchange Fees....................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)................................... .__%
12b-1 Fees.......................................................... None
Other Expenses (After Fee Waivers and Expense
Reimbursements)................................................... . %
----
Total Fund Operating
Expenses (After Fee Waivers and
Expense Reimbursements)........................................... . %
====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Company
Equity Fund $____ $____ $____ $____
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers and/or
expense reimbursements by the Investment Adviser and/or Administrator, Advisory
Fees would be .75%, Other Expenses would be ____% and Total Fund Operating
Expenses would be ____% for Trust Shares of the Fund. For more complete
descriptions of these costs and expenses, see "Management of the Fund" and
"Description of Galaxy and Its
-3-
<PAGE> 1040
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information relating to the Fund.
Any fees that are charged by affiliates of Fleet Investment Advisors Inc. or
other institutions directly to their customer accounts for services related to
an investment in Trust Shares of the Fund are in addition to and not reflected
in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue two additional series of shares in the Fund, Retail
A Shares and Retail B Shares. As described below under "Description of Galaxy
and Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except that effective October 1, 1994 (i)
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate not to exceed .30% of the average
daily net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B
Shares of the Fund bear the expenses incurred under Galaxy's Distribution and
Services Plan for Retail B Shares at an annual rate not to exceed .95% of the
average daily net asset value of the Fund's outstanding Retail B Shares and
(iii) Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses.
The financial highlights presented below have been audited by
(______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (____________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the
investment results of both Trust Shares and Retail A Shares of the Fund. More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-4-
<PAGE> 1041
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
---------------------------- YEAR ENDED PERIOD ENDED
TRUST OCTOBER 31, OCTOBER 31,
SHARES 1993(2) 1992(1,2)
------ ------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 12.36 $ 12.41 $ 8.79 $ 10.00
-------- -------- -------- --------
Income from Investment Operations:
Net Investment Income (loss)3............. (0.04) -- (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments........................ 4.25 -- 3.66 (1.18)
-------- -------- -------- --------
Total from Investment Operations: 4.21 -- 3.62 (1.21)
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income...... -- -- --
Dividends from net realized capital gains (0.19) (0.05) -- --
-------- -------- -------- -------
Total Dividends:.................... (0.19) (0.05) -- --
-------- -------- -------- -------
Net increase (decrease) in net asset value 4.02 (0.05) 3.62 (1.21)
-------- -------- -------- --------
Net Asset Value, End of Period.............. $ 16.38 $ 12.36 $ 12.41 $ 8.79
======== ======== ======== ========
Total Return................................ 34.73% 0.02% 41.18% (12.10%)(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........... $ 94,831 $ 66,462 $ 55,683 $ 29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver...................... (0.37%) (0.35%) (0.66%) (0.63%)(5)
Operating expenses including
reimbursement/waiver.................... 1.12% 1.27% 1.18% 1.06% (5)
Operating expenses excluding
reimbursement/waiver.................... 1.12% 1.27% 1.22% 1.33% (5)
Portfolio Turnover Rate..................... 54% 35% 57% 87% (4)
Average Commision Rate Paid(A).............. N/A N/A N/A N/A
</TABLE>
- --------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Adviser and/or Administrator for the period ended October
31, 1992 was $(0.05).
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 1042
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with capitalizations of $500 million or
less ("Small Capitalization Securities") which Fleet Investment Advisors Inc.,
the Fund's investment adviser ("Fleet" or the "Investment Adviser"), believes
represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest
include common stock, preferred stock, securities convertible into common stock,
rights and warrants. Under normal market and economic conditions, at least 65%
of the Fund's total assets will be invested in the equity securities of
companies with capitalizations of $500 million or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be
companies which are smaller or newer than those listed on the New York or
American Stock Exchanges. As a result, Small Capitalization Securities are
primarily traded on the over-the-counter market, although they may also be
listed for trading on the New York or American Stock Exchanges. Because the
issuers of Small Capitalization Securities tend to be smaller or less
well-established companies, they may have limited product lines, markets or
financial resources. As a result, Small Capitalization Securities are often less
marketable and may experience a higher level of price volatility than the
securities of larger or more well-established companies.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). See "Special Risk
Considerations" and "Other Investment Policies" below.
The Fund may purchase and write covered call options as a
hedge against changes resulting from market conditions and in the value of the
securities held in the Fund or which it intends to purchase and where the
transactions are economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund. See "Other Investment Policies--Options" and
"Other Investment Policies--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Other Investment Policies" below) and U.S.
-6-
<PAGE> 1043
Government obligations at such times and in such proportions as, in the opinion
of the Investment Adviser, prevailing market or economic conditions warrant. See
"Other Investment Policies" below for information regarding additional
investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve
the Fund's investment objective, although its achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
SPECIAL RISK CONSIDERATIONS AND RISK CONSIDERATIONS
Interest Rate Risk
To the extent that the Fund invests in fixed income
securities, its holdings of such securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs
than investments in U.S. securities, including higher transaction costs, as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about the issuers, less
market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the
-7-
<PAGE> 1044
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange-rate developments, the Funds are subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with
emerging economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
Ratings
All debt obligations, including convertible bonds, purchased
by the Fund are rated investment grade by Moody's Investor's Service, Inc.
("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
-8-
<PAGE> 1045
financial support to U.S. Government-sponsored instrumentalities if it is not
obligated to do so by law. Some of these instruments may be variable or floating
rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but
different government regulation which may limit the amount and types of their
loans and the interest rates that may be charged. In addition, the profitability
of the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks
and U.S. branches of foreign banks may subject the Fund to additional risk
because such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event that an issuer of a variable or floating rate obligation defaulted on
its payment obligation, the
-9-
<PAGE> 1046
Fund might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. The Fund may also purchase Rule 144A securities. See
"Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund may decline
below the repurchase price. The Fund would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
-10-
<PAGE> 1047
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, will be
made only to borrowers deemed by the Investment Adviser to be of good standing
and only when, in the Investment Adviser's judgment, the income to be earned
from the loan justifies the attendant risks. The Fund currently intends to limit
the lending of its portfolio securities so that, at any given time, securities
loaned by the Fund represent not more than one-third of the value of its total
assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
Options
Covered Call Options. To further increase return on its
portfolio securities and in accordance with its investment objective and
policies, the Fund may engage in writing covered call options (options on
securities owned by the Fund) and may enter into closing purchase transactions
with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to options written by the Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, the
Fund forgoes the opportunity
-11-
<PAGE> 1048
to profit from an increase in the market price of the underlying security above
the exercise price, except insofar as the premium represents such a profit. The
Fund will not be able to sell the underlying security until the option expires
or is exercised or the Fund effects a closing purchase transaction by purchasing
an option of the same series. Such options would normally be written only on
underlying securities as to which the Investment Adviser does not anticipate
significant short-term capital appreciation. See "Derivative Securities" below.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued
in registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency exchange contracts
are agreements to exchange one currency for another -- for example, to exchange
a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution.
-12-
<PAGE> 1049
Forward foreign currency exchange contracts also allow the
Fund to hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information
regarding foreign currency exchange transactions.
Convertible Securities
The Fund may from time to time, in accordance with its
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities in
which the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements in
the underlying equity securities. The holder is entitled to receive the fixed
income
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<PAGE> 1050
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Convertible securities are senior
to equity securities, and therefore, have a claim to the assets of the issuer
prior to the holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar non-convertible
securities of the same issuer. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-convertible
securities of similar quality. The Fund will exchange or convert the convertible
securities held in its portfolio into shares of the underlying common stock in
instances in which, in the Investment Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, the
Investment Adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Investment Adviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
Derivative Securities
The Fund may from time to time, in accordance with its
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, options and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those
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<PAGE> 1051
instruments that have been developed recently, data are lacking regarding their
actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by
the derivative securities purchased by the Fund, and will determine, in
connection with its day-to-day management of the Fund, how such securities will
be used in furtherance of the Fund's investment objective. It is possible,
however, that the Investment Adviser's evaluations will prove to be inaccurate
or incomplete and, even when accurate and complete, it is possible that the Fund
will, because of the risks discussed above, incur loss as a result of its
investments in derivative securities. See "Investment Objective and Policies --
Derivative Securities" in the Statement of Additional Information for additional
information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover may result
in the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for federal income tax purposes.
See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information relating to the Fund under "Investment Objectives and
Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold
debt instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) the
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<PAGE> 1052
Fund may lend portfolio securities against collateral consisting of cash or
securities which are consistent with its permitted investments, where the
value of the collateral is equal at all times to at least 100% of the value
of the securities loaned.
2. Borrow money or issue senior securities, except from
domestic banks for temporary purposes and then in amounts not in excess of
33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 33% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 33% of the value of the Fund's
total assets at the time of such borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess
of seven days, non-negotiable time deposits and other securities which are
not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of the Fund's total assets would be invested in such issuer, except
that up to 25% of the value of its total assets may be invested without
regard to this limitation.
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided, however, that (a)
there is no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the
Fund intends to limit any borrowings (including reverse
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<PAGE> 1053
repurchase agreements) to not more than 33% of the value of its total assets at
the time of such borrowing.
The Securities and Exchange Commission ("SEC") has adopted
Rule 144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if the Investment Adviser has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value per Share is determined on
each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no
-17-
<PAGE> 1054
transactions are valued at the average of the most recent bid and asked prices.
Investments in debt securities with remaining maturities of 60 days or less are
valued based upon the amortized cost method. Restricted securities, securities
for which market quotations are not readily available, and other assets are
valued at fair value by the Investment Adviser under the supervision of Galaxy's
Board of Trustees. An option is generally valued at the last sale price or, in
the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities will be determined through
consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collaterally as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers.
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<PAGE> 1055
Confirmations of purchases and redemptions of Trust Shares will be sent to the
appropriate Institution. Purchases of Trust Shares will be effected only on days
on which the Distributor, Galaxy's custodian and the purchasing Institution are
open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non- Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part.
The issuance of Trust Shares is recorded on the books of the
Fund and Share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (or, in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirements with respect to Trust Shares, Institutions
may impose such requirements on the accounts maintained by their Customers, and
may also require that Customers maintain minimum account balances with respect
to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
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<PAGE> 1056
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institution. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
Share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon
sixty days' written notice, if the value of the account is less than $250 as a
result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid quarterly. Dividends on each Share of the Fund are determined in the
same manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of such shares on the ex-dividend date. Such
election, or any revocation thereof, must be communicated in writing by an
Institution on behalf of its Customers to Galaxy's transfer agent and will
become effective with respect to dividends paid after its receipt. The crediting
and payment of dividends to Customers will be in accordance with the procedures
governing such Customers' accounts at their respective Institutions.
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<PAGE> 1057
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying Shares of the Fund on or just
before the record date of a dividend or capital gain distribution, you should be
aware that the amount of the forthcoming distribution payment, although in
effect a return of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its
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<PAGE> 1058
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, potential investors in the Fund should consult their tax advisers
with specific reference to their own tax situation. Shareholders will be advised
annually as to the federal income tax consequences of distributions made each
year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Fund. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets of approximately $_____ billion at
December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Institutional Treasury Money Market,
Connecticut Municipal Money Market, Massachusetts Municipal Money Market, Equity
Value, Equity Growth, Equity Income, International Equity, Growth and Income,
Asset Allocation, Small Cap Value, Short-Term Bond, Intermediate Government
Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at an
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<PAGE> 1059
annual rate of .75% of the average daily net assets of the Fund. The fees for
the Fund are higher than fees paid by most other mutual funds, although the
Board of Trustees of Galaxy believes that they are not higher than average
advisory fees paid by funds with similar investment objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of ___% of the Fund's average daily net assets.
The Fund's portfolio manager, Stephen D. Barbaro, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been with Fleet
and its predecessors since 1976 and has been the Fund's portfolio manager since
its inception.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
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<PAGE> 1060
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and 0.75% of combined average
daily net assets over $5 billion. Prior to September 5, 1996 for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid FDISG administration fees at the effective rate of .___% of the Fund's
average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of Shares in the Fund: Class K - Series 1 shares
(Trust Shares), Class K - Series 2 shares (Retail A Shares) and Class K - Series
3 Shares (Retail B Shares), each series representing interests in the Fund. The
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Fund's Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
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<PAGE> 1061
Trust Shares, Retail A Shares and Retail B Shares in the Fund
bear their pro rata portion of all operating expenses paid by the Fund except as
follows. Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are incurred under Galaxy's Distribution and Services Plan
at an annual rate of up to .95% of the average daily net asset value of the
Fund's outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares
and Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect performance.
Retail A Shares of the Fund are sold with a front-end sales
charge of 3.75%. Retail B Shares are sold with a maximum contingent deferred
sales charge of 5.00% and automatically convert to Retail A Shares of the Fund
six years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation)
has a par value of $.001 per share, represents an equal proportionate
interest in the related Fund with other shares of the same class (irrespective
of series designation), and is entitled to such dividends and distributions out
of the income earned on the assets belonging to such Fund as are declared in
the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements, to which
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A Shares and
are intended to supplement the services provided by FDSIG as administrator and
transfer agent to the shareholders of
-25-
<PAGE> 1062
record of the Retail A Shares. The Plan provides that Galaxy will pay fees for
such services at an annual rate of up to .50% of the average daily net asset
value of the Fund's outstanding Retail A Shares beneficially owned by Customers.
Institutions may received up to one-half of this fee for providing one or more
of the following services to such Customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from the Fund; providing subaccounting
with respect to Retail A Shares or the information necessary for subaccounting;
and providing periodic mailings to Customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub- Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each subaccount; crediting
to each participant's subaccount all dividends and distributions with respect to
that subaccount; and transmitting to each participant a periodic statement
-26-
<PAGE> 1063
regarding the subaccount as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund directly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Fund are described in the
Statement of Additional Information relating to the Fund. Communications to
FDISG should be directed to FDISG at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; costs of independent pricing services; costs of
shareholders' reports and shareholder meetings; and any extraordinary expenses.
The Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted
-27-
<PAGE> 1064
and compared to those of other mutual funds with similar investment objectives
and to stock or other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of the Fund may be
compared to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds,
the S&P 500, an unmanaged index of groups of common stocks, the Consumer Price
Index, or the Dow Jones Industrial Average, a recognized unmanaged index of
common stocks of 30 industrial companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in the Fund for the specified period. Both methods of calculating
total return assume that dividends and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in the Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
-28-
<PAGE> 1065
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in calculations of yield and performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of either Galaxy or the Fund means, with
respect to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
Galaxy or the Fund, or (b) 67% or more of the shares of Galaxy or the Fund
present at a meeting if more than 50% of the outstanding shares of Galaxy or the
Fund are represented at the meeting in person or by proxy.
-29-
<PAGE> 1066
TRUST
THE GALAXY FUND
ASSET ALLOCATION FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 1067
No person has been authorized to give any information or to
make any representations not contained in this Prospectus, or in the Statement
of Additional Information incorporated herein by reference, in connection with
the offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by its Distributor in any jurisdiction in which such offering may not lawfully
be made.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General................................................... 6
Special Risk Considerations.................................. 7
Other Investment Policies and Risk Considerations............ 8
INVESTMENT LIMITATIONS................................................ 18
PRICING OF SHARES..................................................... 20
HOW TO PURCHASE AND REDEEM SHARES..................................... 21
Distributor.................................................. 21
Purchase of Shares........................................... 21
Redemption of Shares......................................... 22
DIVIDENDS AND DISTRIBUTIONS........................................... 23
TAXES................................................................. 23
Federal...................................................... 23
State and Local.............................................. 25
MANAGEMENT OF THE FUND................................................ 25
Investment Adviser........................................... 25
Authority to Act as Investment Adviser....................... 26
Administrator................................................ 26
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 27
Shareholder Services Plan.................................... 28
Affiliate Agreement for Sub-Account Services................. 29
CUSTODIAN AND TRANSFER AGENT.......................................... 30
EXPENSES.............................................................. 30
PERFORMANCE AND YIELD INFORMATION..................................... 30
MISCELLANEOUS......................................................... 32
</TABLE>
<PAGE> 1068
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call 1-800-
Westboro, Massachusetts 628-0413. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services, call
1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the ASSET ALLOCATION FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek 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
the Fund's assets. Due to the Fund's expenses, however, net income distributed
to shareholders may be less than that of the averages. The Fund attempts to
achieve this objective and at the same time reduce volatility by allocating its
assets in varying amounts among short-term obligations, common stocks, preferred
stocks and bonds.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares all
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loans
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares represent equal pro rata interests in the
Fund, except they bear different expenses which reflect the difference in the
range of services provided to them. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors,
<PAGE> 1069
Inc., which is unaffiliated with Fleet Investment Advisors Inc. and its parent,
Fleet Financial Group, Inc. and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
February 28, 1997
-2-
<PAGE> 1070
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to its Trust Shares and
(ii) the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ASSET ALLOCATION FUND
- -------------------------------- ---------------------
<S> <C>
Sales Load........................................................... None
Sales Load on Reinvested
Dividends.......................................................... None
Deferred Sales Load.................................................. None
Redemption Fees...................................................... None
Exchange Fees........................................................ None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------
Advisory Fees (After Fee Waivers).................................... .__%
12b-1 Fees........................................................... None
Other Expenses (After Fee Waivers and
Expense Reimbursements)............................................ .___%
Total Fund Operating Expenses
(After Fee Waivers and Expense
Reimbursements).................................................... %
===
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return, and (2) redemption
of your investment at the end of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Asset Allocation
Fund $__ $__ $__ $__
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in the Fund
will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75%, Other Expenses would be ____% and
Total Fund Operating Expenses would be ____% for Trust Shares of the Fund. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its
-3-
<PAGE> 1071
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information relating to the Fund.
Any fees that are charged by affiliates of Fleet Investment Advisors Inc. or
other institutions directly to their customer accounts for services related to
an investment in Trusts Shares of the Fund are in addition to and not reflected
in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue two additional series of shares in the Fund, Retail
A Shares and Retail B Shares. As described below under "Description of Galaxy
and Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except that effective October 1, 1994 (i)
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .30% of the average daily
net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Fund bear the expenses incurred under Galaxy's Distribution and Services
Plan for Retail B Shares at an annual rate of up to .95% of the average daily
net asset value of the Fund's outstanding Retail B Shares and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by
(______________________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Fund dated
October 31, 1996 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and (_________________________) into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the investment
results of both Trust Shares and Retail A Shares of the Fund. More information
about the performance of the Fund is also contained in the Annual Report, which
may be obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
-4-
<PAGE> 1072
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------
TRUST OCTOBER 31, OCTOBER 31,
SHARES 1993(2) 1992(1),(2)
------ ------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $ 10.68 $ 11.15 $ 10.16 $ 10.00
-------- -------- -------- --------
Income from Investment Operations:
Net Investment Income(3)........................... 0.32 0.28 0.25 0.15
Net realized and unrealized gain (loss)
on investments................................. 2.16 (0.49) 0.99 0.13
-------- -------- -------- --------
Total from Investment Operations:........... 2.48 (0.21) 1.24 0.28
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income............... (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital gains.......... -- -- -- --
-------- -------- -------- --------
Total Dividends:............................. (0.33) (0.26) (0.25) (0.12)
-------- -------- -------- --------
Net increase (decrease) in net asset value........... 2.15 (0.47) 0.99 0.16
-------- -------- -------- --------
Net Asset Value, End of Period....................... $ 12.83 $ 10.68 $ 11.15 $ 10.16
======== ======== ======== ========
Total Return......................................... 23.68% (1.93%) 12.37% 2.85%4
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................... $ 76,771 $ 65,464 $ 92,348 $ 11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver............................. 2.74% 2.70% 2.59% 2.80%5
Operating expenses including
reimbursement/waiver............................. 1.26% 1.18% 1.14% 1.11%5
Operating expenses excluding
reimbursement/waiver............................. 1.30% 1.18% 1.25% 2.39%5
Portfolio Turnover Rate.............................. 41% 23% 7% 2%4
Average Commission Rate Paid(A)...................... N/A N/A N/A N/A
</TABLE>
- -------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 were $0.24 and $0.08,
respectively.
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 1073
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek a high total
return by providing both a current level of income that is greater than that
provided by the popular stock market averages as well as long-term growth in the
value of the Fund's assets. Fleet Investment Advisors Inc., the Fund's
investment adviser ("Fleet" or the "Investment Adviser"), interprets the
objective to refer to the Dow Jones Industrial Average (of 30 companies listed
on the New York Stock Exchange) and the S&P 500. Due to the Fund's expenses, net
income distributed to shareholders may be less than that of these averages.
The Fund attempts to achieve its investment objective and at the
same time reduce volatility by allocating its assets among short-term
obligations, common stock, preferred stock and bonds. The proportion of the
Fund's assets invested in each type of security will vary from time to time as a
result of the Investment Adviser's interpretation of economic and market
conditions. However, at least 25% of the Fund's total assets will at all times
be invested in fixed-income senior securities, including debt securities and
preferred stocks. In selecting common stock for purchase by the Fund, the
Investment Adviser will analyze the potential for changes in earnings and
dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments or
their political subdivisions or instrumentalities, or by supranational banks or
other organizations, or indirectly by purchasing American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). Examples of supranational
banks include the International Bank for Reconstruction and Development ("World
Bank"), the Asia Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitment will be undertaken or met in the future. See "Special Risk
Considerations" and "Other Investment Policies" below. The Fund may also invest
in dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. The Fund may write covered call options, purchase
asset- backed securities and mortgage-backed securities and enter into foreign
currency exchange transactions. See "Other Investment Policies."
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as
-6-
<PAGE> 1074
those listed under "Other Investment Policies" below) and U.S. Government
obligations at such times and in such proportions as, in the opinion of the
Investment Adviser, prevailing market and economic conditions warrant. See
"Other Investment Policies" below for information regarding additional
investment policies of the Fund.
The Investment Adviser will use its best efforts to achieve the
Fund's investment objective, although its achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests in equity securities. As with other mutual funds
that invest to a significant degree in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income securities,
its holdings of such securities are sensitive to changes in interest rates and
the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate change.
Foreign Securities
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions,
-7-
<PAGE> 1075
might adversely affect the payment of dividends or principal and interest on
foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
Ratings
All debt obligations, including convertible bonds, purchased by
the Fund are rated investment grade by Moody's Investors Service, Inc.
("Moody's") ("Aaa", "Aa", "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA", "AA", "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser. Debt securities rated "Baa" by
Moody's or "BBB" by S&P are generally considered to be investment grade
securities although they may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
grade debt obligations. Issuers of commercial paper, bank obligations or
repurchase agreements in which the Fund invests must have, at the time of
investment, outstanding debt rated A or higher by Moody's or S&P, or, if they
are not rated, the instrument purchased must be determined to be of comparable
quality.
-8-
<PAGE> 1076
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies, invest
from time to time in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and in "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation, or by a savings and loan association or savings bank which is
insured by the Federal Deposit Insurance Corporation. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Time deposits with a maturity longer than seven days or that do not
provide for payment within seven days after notice will be limited to 10% of the
Fund's total assets.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely
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dependent upon the availability and cost of funds to finance lending operations
and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and
U.S. branches of foreign banks may subject the Fund to additional risk because
such banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations." The Fund will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when the Investment Adviser believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event that an issuer of a variable or floating rate obligation defaulted on
its payment obligation, a Fund might be unable to dispose of the note because of
the absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
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<PAGE> 1078
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, will be
made only to borrowers deemed by the Investment Adviser to be of good standing
and only when, in the Investment Adviser's judgment, the income to be earned
from the loan justifies the attendant risks. The Fund currently intends to limit
the lending of its portfolio securities so that, at any given time, securities
loaned by the Fund represent not more than one-third of the value of its total
assets.
Investment Company Securities
The Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause the
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the
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<PAGE> 1079
"1940 Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser.
Options
Covered Call Options. To further increase return on its portfolio
securities and in accordance with its investment objective and policies, the
Fund may engage in writing covered call options (options on securities owned by
the Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, the Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price, except insofar as the premium represents such
a profit. The Fund will not be able to sell the underlying security until the
option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. Such options would
normally be written only on underlying securities as to which the Investment
Adviser does not anticipate significant short-term capital appreciation. See
"Derivative Securities" below.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued
in registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active
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<PAGE> 1080
or substantial secondary market will be considered illiquid and therefore will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs and EDRs involve risks
similar to those accompanying direct investments in foreign securities. Certain
of these risks are described above under "Special Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency exchange contracts
are agreements to exchange one currency for another -- for example, to exchange
a certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short
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<PAGE> 1081
relative to the currency that the Fund has contracted to receive in the
exchange. In order to ensure that the short position is not used to achieve
leverage with respect to the Fund's investments, the Fund will establish with
its custodian a segregated account consisting of cash, U.S. Government
securities or other liquid high-grade debt securities equal in value to the
fluctuating market value of the currency as to which the short position is being
maintained. The value of the securities in the segregated account will be
adjusted at least daily to reflect changes in the market value of the short
position. See the Statement of Additional Information relating to the Fund for
additional information regarding foreign currency exchange transactions.
Asset-Backed Securities
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information relating to the Fund.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities
provide a monthly payment consisting of interest and principal payments.
Additional payment may be made out of unscheduled repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred. Prepayments of principal
on mortgage-backed securities may tend to increase due to refinancing of
mortgages as interest rates decline. To the extent that the Fund purchases
mortgage-backed securities at a premium, mortgage foreclosures and
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<PAGE> 1082
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid. The yield of the Fund, should it invest in
mortgage-backed securities, may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described above under "Other Investment Policies --
Investment Company Securities."
Mortgage Dollar Rolls
The Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date not exceeding
120 days. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to
the extent of any difference between the price received for the securities sold
and the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The
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<PAGE> 1083
Fund will hold and maintain in a segregated account until the settlement date
cash, U.S. Government securities or other liquid, high grade debt securities in
an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to
treat mortgage dollar rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
Mortgage dollar rolls involve certain risks. If the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities may be
restricted and the instrument which the Fund is required to repurchase may be
worth less than an instrument which the Fund originally held. Successful use of
mortgage dollar rolls may depend upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
Convertible Securities
The Fund may from time to time, in accordance with its investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities in which the Fund
may invest may take the form of convertible preferred stock and convertible
bonds or debentures.
Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements in
the underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Convertible securities are
senior to equity securities, and therefore, have a claim to the assets of the
issuer prior to the holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar non-convertible
securities of the same issuer. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-convertible
securities of similar quality. The Fund will exchange or convert the convertible
securities held in its portfolio into shares of the underlying common stock in
instances in which, in the Investment
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<PAGE> 1084
Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Investment Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Investment Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain "derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, options and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine, in connection
with its day-to-day management of the Fund, how such securities will be used in
furtherance of the Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Fund will, because
of the risks discussed above, incur loss as a result of its investments in
derivative securities. See "Investment Objective and Policies -- Derivative
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<PAGE> 1085
Securities" in the Statement of Additional Information relating to the Fund for
additional information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor on making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover rate may
result in the realization of substantial net capital gains; distributions
derived from such gains will be treated as ordinary income for federal income
tax purposes. See "Financial Highlights" and Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental
policy and may not be changed with respect to the Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) the Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 33%
of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts
not in excess of 33% of the value of its total assets at the time of
such borrowing);
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<PAGE> 1086
or mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 33% of the value of the Fund's total
assets at the time of such borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities
in excess of seven days, time deposits with maturities in excess of
seven days, non-negotiable time deposits and other securities which are
not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of the Fund's total assets would be invested in such issuer,
except that up to 25% of the value of its total assets may be invested
without regard to this limitation.
In addition, the Fund may not purchase any securities which would
cause 25% or more of the value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 33% of the value of its total assets at the time of such borrowing,
and (b) mortgage dollar rolls entered into by the Fund that are not accounted
for as financings shall not constitute borrowings.
The Securities and Exchange Commission ("SEC") has adopted Rule
144A which allows for a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of
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<PAGE> 1087
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if the Investment Adviser has determined, in accordance with guidelines
established by the Board of Trustees, that an adequate trading market exists for
such securities.
If a percentage limitation is satisfied at the time of investment,
a later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value per Share is determined on
each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by the Investment Adviser
under the supervision of Galaxy's Board of Trustees. An option is generally
valued at the last sale price or, in the absence of a last sale price, the last
offer price.
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<PAGE> 1088
Portfolio securities which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities will be determined through
consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of valuation. An option is generally valued at the last
sale price or, in the absence of a last sale price, the last offer price.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular
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<PAGE> 1089
trading hours on the Exchange (currently, 4:00 p.m. Eastern Time) will be priced
at the net asset value determined on that day, provided that the Fund's
custodian receives the purchase price in federal funds or other immediately
available funds prior to 4:00 p.m. on the following Business Day, at which time
the order will be executed. If funds are not received by such date and time, the
order will not be accepted and notice thereof will be given promptly to the
Institution which submitted the order. Payments for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution. If an Institution accepts a purchase order from its Customer on a
non- Business Day, the order will not be executed until it is received and
accepted by the Distributor on a Business Day in accordance with the foregoing
procedures.
Galaxy reserves the right to reject any purchase order, in whole
or in part.
The issuance of Trust Shares is recorded on the books of the Fund
and Trust Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established
by Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored deferred contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is
-22-
<PAGE> 1090
imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share
next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the Distributor on a Business Day will normally be
wired on the following Business Day to the Institution. Payment for redemption
orders received on a non-Business Day will normally be wired to the Institution
on the next Business Day. However, in both cases Galaxy reserves the right to
wire redemption proceeds within seven days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure
that a redemption has been duly authorized. The Fund reserves the right to
redeem Shares in any account at their net asset value involuntarily, upon sixty
days' written notice, if the value of the account is less than $250 as a result
of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and
paid quarterly. Dividends on each Share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may
elect to have their dividends reinvested in additional Trust Shares of the Fund
at the net asset value of such shares on the ex-dividend date. Such election, or
any revocation thereof, must be communicated in writing by an Institution on
behalf of its Customers to Galaxy's transfer agent and will become effective
with respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the
-23-
<PAGE> 1091
"Code"). Such qualification relieves the Fund of liability for federal income
taxes to the extent the Fund's earnings are distributed in accordance with the
Code.
The policy of the Fund is to distribute as dividends substantially
all of its investment company taxable income and any net tax-exempt interest
income each year. Such dividends will be taxable as ordinary income to the
Fund's shareholders who are not currently exempt from federal income taxes,
whether such dividends are received in cash or reinvested in additional Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any year
which are payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January of
the following year.
If you are considering buying Shares of the Fund on or just before
the record date of a dividend or capital gain distribution, you should be aware
that the amount of the forthcoming distribution payment, although in effect a
return of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
-24-
<PAGE> 1092
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Fund. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets of approximately $____ billion at
December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Institutional Treasury Money Market,
Connecticut Municipal Money Market, Massachusetts Municipal Money Market, Equity
Value, Equity Growth, Equity Income, International Equity, Growth and Income,
Small Company Equity, Small Cap Value, Short- Term Bond, Intermediate Government
Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees
and in accordance with the Fund's investment policies, Fleet manages the Fund,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fees for the Fund are higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that they
are not higher than average advisory fees paid by funds with similar investment
objectives and policies.
-25-
<PAGE> 1093
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders. For the fiscal year
ended October 31, 1996, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .__% of the Fund's average daily net assets.
The Fund's co-portfolio managers, Donald Jones and David Lindsay,
are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones determines the allocation of the Fund's assets
between equity and fixed income investments and manages the equity portion of
the Fund's investment portfolio. Mr. Lindsay manages the fixed income portion
of the Fund's investment portfolio. Mr. Jones, who currently serves as a Vice
President, has been with Fleet and its predecessors as a portfolio manager
since 1988, has been the Fund's portfolio manager since May 1, 1995 and has
managed Galaxy's New York Municipal Bond Fund since September 1994. Mr.
Lindsay, a Senior Vice President, has been with Fleet and its predecessors
since 1986. He has managed the fixed income portion of the Fund's portfolio
since ______, 1996 and has managed Galaxy's Corporate Bond Fund since its
inception in December 1994.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581- 5108, serves as the Fund's
administrator. FDISG is a wholly- owned subsidiary of First Data Corporation.
-26-
<PAGE> 1094
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Fund paid FDISG administration fees at the effective annual rate of .___% of the
Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March
31, 1986. Galaxy's Declaration of Trust authorizes the board of Trustees to
classify or reclassify any unissued Shares into one or more Classes or series of
Shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of Shares in the Fund: Class N - Series 1 shares
(Trust Shares), Class N - Series 2 shares (Retail A Shares) and Class N - Series
3 Shares (Retail B Shares), each series representing interests in the Fund. The
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Fund's Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800- 628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear
their pro rata portion of all operating expenses paid by the Fund except as
follows. Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of
-27-
<PAGE> 1095
the average daily net asset value of the Fund's outstanding Retail B Shares.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear differing
transfer agency expenses. Standardized yield and total return quotations are
computed separately for each series of Shares. The differences in the expenses
paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a front-end sales charge
of 3.75%. Retail B Shares are sold with a maximum contingent deferred sales
charge of 5.00% and automatically convert to Retail A Shares of the Fund six
years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a
par value of $.001 per Share, represents an equal proportionate interest in the
related Fund with other Shares of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held,
and a proportionate fractional vote for each fractional Share held, and will
vote in the aggregate and not by class or series, 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 or
series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which
it intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at the annual rate of up to .50% of the average
daily net asset value of the Fund's outstanding Retail A Shares beneficially
owned by its customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such Customers: aggregating
and processing purchase and redemption requests and placing net
-28-
<PAGE> 1096
purchase and redemption orders with the Distributor; processing dividend
payments from the Fund; providing subaccounting with respect to Retail A Shares
or the information necessary for sub- accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate
of the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub- Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including; maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
-29-
<PAGE> 1097
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Fund are described in the
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred the Fund's operations. Such expenses include: taxes; interest;
fees (including fees paid to its trustees and officers who are not affiliated
with FDISG); SEC fees; state securities qualification fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; costs of independent pricing services; costs of
shareholders' reports and shareholder meetings; and any extraordinary expenses.
The Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund may be compared to data prepared
by Lipper Analytical Services, Inc., a widely recognized independent service
which monitors the performance of mutual funds, the S&P 500, an unmanaged index
of groups of common stocks, the Consumer Price Index, or the Dow Jones
Industrial
-30-
<PAGE> 1098
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in the Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in calculations of yield and performance.
-31-
<PAGE> 1099
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing
the Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority
of the outstanding shares" of either Galaxy or the Fund means, with respect to
the approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or the
Fund (b) 67% or more of the shares of Galaxy or the Fund present at a meeting if
more than 50% of the outstanding shares of Galaxy or the Fund are represented at
the meeting in person or by proxy.
-32-
<PAGE> 1100
TRUST
THE GALAXY FUND
SMALL CAP VALUE FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 1101
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
EXPENSE SUMMARY........................................................................................ 3
FINANCIAL HIGHLIGHTS .................................................................................. 4
INVESTMENT OBJECTIVE AND POLICIES...................................................................... 7
Special Risk Considerations................................................................... 8
Other Investment Policies and Risk Considerations............................................. 9
INVESTMENT LIMITATIONS................................................................................. 19
PRICING OF SHARES...................................................................................... 20
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 21
Distributor................................................................................... 21
Purchase of Shares............................................................................ 21
Redemption of Shares.......................................................................... 22
DIVIDENDS AND DISTRIBUTIONS............................................................................ 23
TAXES.................................................................................................. 23
Federal....................................................................................... 23
State and Local............................................................................... 24
MANAGEMENT OF THE FUND................................................................................. 25
Investment Adviser............................................................................ 25
Authority to Act as Investment Adviser........................................................ 26
Administrator................................................................................. 27
DESCRIPTION OF GALAXY AND ITS SHARES................................................................... 27
CUSTODIAN AND TRANSFER AGENT........................................................................... 30
EXPENSES............................................................................................... 30
PERFORMANCE AND YIELD INFORMATION...................................................................... 30
MISCELLANEOUS.......................................................................................... 32
</TABLE>
<PAGE> 1102
THE GALAXY FUND
4400 Computer Drive For applications and information
Westboro, Massachusetts concerning initial purchases and
01581-5180 current performance, call 1-800-
628-0414. For additional
purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management
investment company. This Prospectus describes a series of Galaxy's shares
("Trust Shares") which represent interests in the SMALL CAP VALUE FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loans associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY,
<PAGE> 1103
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 FUND, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
February 28, 1997
-2-
<PAGE> 1104
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder
transaction expenses imposed by the Fund with respect to Trust Shares and (ii)
the operating expenses for Trust Shares of the Fund. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
SMALL
CAP VALUE
SHAREHOLDER TRANSACTION EXPENSES FUND
- -------------------------------- ----
<S> <C>
Sales Load.......................................................... None
Sales Load on Reinvested
Dividends.......................................................... None
Deferred Sales Load................................................. None
Redemption Fees..................................................... None
Exchange Fees....................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers)................................... . %
--
12b-1 Fees.......................................................... None
Other Expenses (After Fee Waivers and Expense
Reimbursements)................................................... %
---
Total Fund Operating
Expenses (After Fee Waivers and Expense
Reimbursements)................................................... %
====
</TABLE>
- ------------------------------
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Cap
Value Fund............................. $____ $____ $____ $____
</TABLE>
The Expense Summary and Example are intended to assist
investors in understanding the costs and expenses that an investor in Trust
Shares of the Fund will bear directly or indirectly. The information contained
in the Expense Summary and Example is based on the expenses incurred by the Fund
during the last fiscal year, restated to reflect the current fees for the Fund's
Trust Shares that would have been applicable had they been in effect. Without
voluntary fee waivers and/or expense reimbursements by the Investment Adviser
and/or Administrator, Advisory Fees would be .75%, Other Expenses would be ____%
and Total Fund Operating Expenses would be ____% for Trust Shares of the Fund.
For more complete descriptions of these costs and expenses, see "Management of
the Fund" and "Description of Galaxy
-3-
<PAGE> 1105
and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Fund are in addition to
and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy
is also authorized to issue an additional series of Shares in the Fund, Retail A
Shares, which are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Trust Shares and Retail A Shares
represent equal pro rata interests in the Fund, except that (i) Retail A Shares
of the Fund bear the expenses incurred under Galaxy's Shareholder Services Plan
at an annual rate of up to .30% of the average daily net asset value of the
Fund's outstanding Retail A Shares and (ii) Trust Shares and Retail A Shares
bear differing transfer agency expenses.
The Small Capitalization Equity Fund commenced operations on
December 14, 1992 as a separate investment portfolio (the "Predecessor Fund") of
The Shawmut Funds, which was organized as a Massachusetts business trust. On
December 4, 1995, the Fund was reorganized as a new portfolio of Galaxy. Prior
to the reorganization, the Predecessor Fund offered and sold two series of
shares of beneficial interest that were similar to the Fund's Trust Shares and
Retail A Shares, respectively.
The financial highlights presented below set forth certain
information concerning (i) the investment results of the Small Cap Value Fund's
Trust Shares for the fiscal year ended October 31, 1996 and (ii) the investment
results of the Predecessor Fund's Trust Shares (the series that is similar to
the Trust Shares of the Fund) for the fiscal years ended October 31, 1995 and
October 31, 1994 and the fiscal period ended October 31, 1993. The information
about the Fund for the fiscal year ended October 31, 1996 has been audited by
(_____________), Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1996 (the "Annual Report"). The information about the Predecessor Fund for the
fiscal years ended October 31, 1995 and October 31, 1994 and the
-4-
<PAGE> 1106
fiscal period ended October 31, 1993 was audited by [__________________],
independent accountants for the Predecessor Fund, whose report is contained in
The Shawmut Funds' Annual Report to Shareholders relating to the Predecessor
Fund dated October 31, 1995 (the "Shawmut Annul Report"). The financial
highlights should be read in conjunction with the financial statements and notes
thereto contained in the Annual Report and the Shawmut Annual Report and
(_______________________) into the Statement of Additional Information
relating to the Fund. More information about the performance of the Fund is
contained in the Annual Report which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-5-
<PAGE> 1107
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31, October 31,
1996 1995 1994 1993(1),(2)
------ ----- ------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 11.07 $ 11.21 $ 10.00
---------- ---------- ---------
Income from Investment Operations:
Net Investment Income(3),(4).............................. 0.01 0.02 --
Net realized and unrealized gain/(loss)
on investments........................................ 2.21 0.17 1.21
---------- ---------- ---------
Total from Investment Operations: 2.22 0.19 1.21
---------- ---------- ---------
Less Dividends:
Dividends from net
investment income(4).................................. (0.01) (0.01) --
Dividends from net realized
capital gains......................................... (0.57) (0.32) --
---------- ----------- -------
Total Dividends(4).................................. (0.58) (0.33) --
---------- ----------- -------
Net increase (decrease) in net asset value.................. 1.64 (0.14) 1.21
---------- ---------- ---------
Net Asset Value, End of Period.............................. $ 12.71 $ 11.07 $ 11.21
========== =========== =========
Total Return................................................ 21.52% 1.86% 12.12%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................... $ 121,364 $101,905 $ 100,382
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................................... 0.07% 0.15% 0.02%(5)
Operating expenses including
reimbursement/waiver.................................... 1.10% 1.06% 1.01%(5)
Operating expenses excluding
reimbursement/waiver.................................... 1.35% 1.34% 1.29%(5)
Portfolio Turnover Rate..................................... 32% 29% 29%(6)
Average Commission Rate Paid(7)............................. N/A N/A N/A
</TABLE>
1 The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
2 On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, the predecessor shareholders exchanged
Investment Shares and Trust Shares, respectively, in the Galaxy Small Cap
Value Fund.
3 Represents less than $0.01 per share for the year 1993.
4 Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Adviser and/or Administrator for the fiscal years ended
October 31, 1995 and 1994 were $(0.03) and $(0.01), respectively.
5 Annualized.
6 Not Annualized.
7 Required for fiscal years beginning on or after September 1, 1995.
<PAGE> 1108
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
Small capitalization stocks have historically been more
volatile in price than larger capitalization stocks, such as those included in
the S&P 500. This is because, among other things, smaller companies have a lower
degree of liquidity in the equity market and tend to have a greater sensitivity
to changing economic conditions. Further, in addition to exhibiting greater
volatility, these stocks may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stock of small capitalization companies
may decline in price as the prices of large company stocks rise or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities. See "Other Investment Policies -- Convertible Securities"
below. The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities, and
options on futures contracts. See "Other Investment Policies -- Options and
Futures Contracts", "Other Investment Policies -- Stock Index Futures, Swap
Agreements, Indexed Securities and Options" and "Other Investment Policies --
Derivative Securities" below.
The Fund may invest in securities of foreign issuers which are
freely traded on United States securities exchanges or in the over-the-counter
market in the form of American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk appears
to the Investment Adviser to be substantial. See "Special Risk Considerations"
and "Other Investment Policies" below.
As a temporary defensive measure, in such proportions as, in
the judgment of the Investment Adviser, prevailing market conditions warrant,
the Fund may invest in: (i) short-term money market instruments (such as those
listed below under "Other
-7-
<PAGE> 1109
Investment Policies") rated in one of the top two rating categories by a
nationally recognized statistical rating organization, such as Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch
Investors Service, L.P. ("Fitch"); (ii) securities issued and/or guaranteed as
to payment of principal and interest by the U.S. Government, its agencies, or
instrumentalities; and (iii) repurchase agreements. Additional information about
the types of money market instruments and U.S. Government obligations in which
the Small Cap Value Fund is permitted to invest is contained in the Statement of
Additional Information. See "Other Investment Policies" below for information
regarding additional investment policies of the Fund.
Fleet Investment Advisors Inc., the Fund's adviser ("Fleet" or
the "Investment Adviser"), will use its best efforts to achieve the Fund's
investment objective, although its achievement cannot be assured. The investment
objective of the Fund may not be changed without the approval of the holders of
a majority of its outstanding Shares (as defined under "Miscellaneous"). Except
as noted below under "Investment Limitations," the Fund's investment policies
may be changed without shareholder approval. An investor should not consider an
investment in the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income
securities, its holdings of such securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and debt
securities fluctuate inversely with interest rate changes.
Foreign Securities
Investments in foreign securities may involve higher costs
than investments in U.S. securities, including higher transaction costs, as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include
-8-
<PAGE> 1110
additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of dividend or principal and interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
Ratings
The Fund may purchase convertible bonds rated "BB" or higher
by S&P or Fitch, or "Ba" or higher by Moody's, at the time of investment. See
"Other Investment Policies -- Convertible Securities" below for a discussion of
the risks of investing in convertible bonds rated either "BB" or "Ba".
Short-term money market instruments purchased by the Fund must be rated in one
of the top two rating categories by a nationally recognized statistical rating
agency, such as S&P, Moody's or Fitch.
U.S. Government Obligations and Money Market Instruments
The Fund may, in accordance with its investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in other "money market"
instruments, including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities
-9-
<PAGE> 1111
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than 10 years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation ("FDIC"), or by a savings and loan association or savings bank which
is insured by the Federal Deposit Insurance Corporation. Investments in bank
obligations are limited to the obligations of financial institutions having
capital, surplus and undivided profits of over $100 million or obligations where
the principal amount of the instrument is insured in full by the FDIC. Time
deposits with a maturity longer than seven days or that do not provide for
payment within seven days after notice will be limited to 15% of the Fund's
total assets.
Banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Commercial paper may include variable and floating rate
instruments which are unsecured instruments that permit the indebtedness
thereunder to vary. Variable rate instruments provide for periodic adjustments
in the interest rate. Floating rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, the Fund may demand payment of principal and accrued interest at a time
-10-
<PAGE> 1112
specified in the instrument or may resell the instrument to a third party. In
the event that an issuer of a variable or floating rate obligation defaulted on
its payment obligation, the Fund might be unable to dispose of the note because
of the absence of a secondary market and could, for this or other reasons,
suffer a loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
Each Fund may purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 15% limit described below in Investment Limitation No. 3
under "Investment Limitations."
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the agreement and held
by the Fund at not less than the agreed upon repurchase price. If the seller
defaulted on its repurchase obligation, the Fund holding such obligation would
suffer a loss to the extent that the proceeds from a sale of the underlying
securities (including accrued interest) were less than the repurchase price
(including accrued interest) under the agreement. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund may decline
below the repurchase price. The Fund would pay interest on amounts obtained
pursuant to a reverse repurchase agreement. Additional information regarding the
Fund's policies with respect to reverse repurchase agreements is contained in
the Statement of Additional Information.
-11-
<PAGE> 1113
Securities Lending
The Fund may lend its portfolio securities to financial
institutions such as banks and broker/dealers in accordance with the investment
limitations described below. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans may be on a long-term or short-term
basis or both, will be made only to borrowers deemed by the Investment Adviser
to be of good standing and only when, in the Investment Adviser's judgment, the
income to be earned from the loan justifies the attendant risks. The Fund
currently intends to limit the lending of its portfolio securities so that, at
any given time, securities loaned by the Fund represent not more than one-third
of the value of its total assets.
Investment Company Securities
The Fund may invest in other investment companies primarily
for the purpose of investing its short-term cash which has not yet been invested
in other portfolio instruments. However, from time to time, on a temporary
basis, the Fund may invest exclusively in one other investment company similar
to the Fund. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by the Investment Adviser.
-12-
<PAGE> 1114
Options and Futures Contracts
Options and Futures Contracts. The Fund may buy and sell options and
futures contracts to manage its exposure to changing interest rates, security
prices and currency exchange rates. The Fund may invest in options and futures
based on any type of security, index, or currency, including options and futures
based on foreign exchanges and options not traded on exchanges. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge the Fund's investments against price fluctuations. Other
strategies, including buying futures, writing puts, and buying calls, tend to
increase market exposure. Options and futures may be combined with each other or
with forward contracts in order to adjust the risk and return characteristics of
the overall strategy.
Options and futures can be volatile investments, and involve
certain risks. If the Investment Adviser applies a hedge at an inappropriate
time or judges market conditions incorrectly, options and futures may lower the
Fund's individual return. The Fund could also experience losses if the prices of
its options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an illiquid
secondary market. See the Statement of Additional Information relating to the
Fund for additional information as to the Fund's policies on options and futures
trading.
The Fund will not hedge more than 20% of its total assets by
selling futures, buying puts, and writing calls under normal conditions. The
Fund will not buy futures or write puts whose underlying value exceeds 20% of
its total assets, and will not buy calls with a value exceeding 5% of its total
assets.
Stock Index Futures, Swap Agreements, Indexed Securities and Options.
The Fund may utilize stock index futures contracts, options, swap agreements,
indexed securities, and options on futures contracts, subject to the limitation
that the value of these futures contracts, swap agreements, indexed securities,
and options will not exceed 20% of the Fund's total assets. The Fund will not
purchase options to the extent that more than 5% of the value of its total
assets would be invested in premiums on open put option positions. In addition,
the Fund does not intend to invest more than 5% of the market value of its total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When the Fund enters into a swap agreement, assets of the Fund equal
to the value of the swap agreement will be segregated by the Fund.
There are several risks accompanying the utilization of
futures contracts. Positions in futures contracts may be closed only on an
exchange or board of trade that furnishes a secondary market for such contracts.
While the Fund plans to utilize
-13-
<PAGE> 1115
futures contracts only if there exists an active market for such contracts,
there is no guarantee that a liquid market will exist for the contracts at a
specified time. Furthermore, because by definition, futures contracts look to
projected price levels in the future and not to current levels of valuation,
market circumstances may result in there being a discrepancy between the price
of the stock index future and the movement in the corresponding stock index. The
absence of a perfect price correlation between the futures contract and its
underlying stock index could stem from investors choosing to close futures
contracts by offsetting transactions, rather than satisfying additional margin
requirements. This could result in a distortion of the relationship between the
index and the futures market. In addition, because the futures market imposes
less burdensome margin requirements than the securities market, an increased
amount of participation by speculators in the futures market could result in
price fluctuations.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued
in registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's respective limitations with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Fund from time to
time may enter into foreign currency exchange transactions to convert the U.S.
dollar to foreign currencies, to convert foreign currencies to the U.S. dollar
and to convert foreign currencies to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. Forward foreign currency
-14-
<PAGE> 1116
exchange contracts are agreements to exchange one currency for another -- for
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese yen -- at a future date and at a specified price. Typically, the other
party to a currency exchange contract will be a commercial bank or other
financial institution.
Forward foreign currency exchange contracts also allow the
Fund to hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information
regarding foreign currency exchange transactions.
Convertible Securities
The Fund may from time to time, in accordance with its
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or
-15-
<PAGE> 1117
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities.
Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements in
the underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Usable bonds are corporate
bonds that can be used in whole or in part, customarily at full face value, in
lieu of cash to purchase the issuer's common stock. When owned as part of a unit
along with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the Investment
Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Investment Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Investment Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
The Fund may invest in convertible bonds rated "BB" or higher
by S&P or Fitch, or "Ba" or higher by Moody's at the time of investment.
Securities rated "BB" by S&P or Fitch or "Ba" by Moody's provide questionable
protection of principal and interest in that such securities either have
speculative characteristics or are predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Debt obligations that are not rated, or determined to be, investment
grade are high-yield, high-risk bonds, typically subject to greater market
fluctuations, and securities in the lowest rating category may be in danger of
loss of income
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<PAGE> 1118
and principal due to an issuer's default. To a greater extent than
investment-grade bonds, the value of lower-rated bonds tends to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower-rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Investment Adviser will attempt to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments. If a convertible bond is rated below "BB" or "Ba" after the Fund
has purchased it, the Fund is not required to eliminate the convertible bond
from the portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives. The
Fund does not intend to invest in such lower-rated bonds during the current
fiscal year. A description of the rating categories is contained in the Appendix
to the Statement of Additional Information relating to the Fund.
Derivative Securities
The Fund may from time to time, in accordance with its
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, options, stock index futures and options,
indexed securities and swap agreements, and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by
the derivative securities purchased by the Fund, and will determine, in
connection with its day-to-day management of
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<PAGE> 1119
the Fund, how such securities will be used in furtherance of the Fund's
investment objective. It is possible, however, that the Investment Adviser's
evaluations will prove to be inaccurate or incomplete and, even when accurate
and complete, it is possible that the Fund will, because of the risks discussed
above, incur loss as a result of its investments in derivative securities. See
"Investment Objectives and Policies -- Derivative Securities" in the Statement
of Additional Information relating to the Fund for additional information.
When-Issued and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued"
or "delayed settlement" basis. When-issued transactions, which involve a
commitment by the Fund to purchase or sell particular securities with payment
and delivery taking place at a future date (perhaps one or two months later),
permit the Fund to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. Delayed settlement
describes settlement of a securities transaction in the secondary market which
will occur sometime in the future. When-issued and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place.
The Fund may dispose of a commitment prior to settlement if
the Investment Adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its
acquisition if the Investment Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by the Fund's shareholders. High portfolio turnover may result
in the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for Federal income tax purposes.
See "Taxes -- Federal."
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<PAGE> 1120
INVESTMENT LIMITATIONS
The following investment limitations are matters of
fundamental policy and may not be changed with respect to the Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information relating to the fund under "Investment Objectives and
Policies."
The Fund may not:
1. Borrow money directly or through reverse
repurchase agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash value with
an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of its total assets to secure
such borrowings; or
2. With respect to 75% of the value of its total
assets, invest more than 5% in securities of any one issuer,
other than cash, cash items, or securities issued or
guaranteed by the government of the United States or, its
agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of
the outstanding voting securities of any one issuer.
The following investment limitation may be changed by Galaxy's
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in this limitation becomes effective:
3. The Fund may not invest more than 15% of its net
assets in securities subject to restrictions on resale under
the Securities Act of 1933 (except for commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain
other securities which meet the criteria for liquidity as
established by the Board of Trustees).
In addition, the Fund may not purchase any securities which
would cause 25% or more of the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry; provided however that (a)
there is no limitation with respect to obligations issued or guaranteed by
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<PAGE> 1121
the U.S. Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
The Fund intends to invest in restricted securities.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies, but which are subject to
restriction on resale under federal securities law. The Fund will limit its
investments in illiquid securities, including certain restricted securities not
determined by the Board of Trustees to be liquid, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
If a percentage limitation is satisfied at the time of
investment, a later increase in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per Share of the Fund is determined as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value per Share is determined on
each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of the Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and
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<PAGE> 1122
asked prices. Investments in debt securities with remaining maturities of 60
days or less are valued based upon the amortized cost method. Restricted
securities, securities for which market quotations are not readily available,
and other assets are valued at fair value by the Investment Adviser under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc.. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor
on a Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given
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<PAGE> 1123
promptly to the Institution which submitted the order. Payments for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Institution. If an Institution accepts a purchase order from its
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in
whole or in part.
The issuance of Trust Shares is recorded on the books of the
Fund and Share certificates will not be issued.
Customers may purchase Trust Shares through procedures
established by Institutions in connection with the requirements of their
Customer accounts. Such accounts may include discretionary investment management
accounts, custodial accounts, agency accounts and different types of
tax-advantaged accounts (including defined contribution plans). Investors should
contact their Institution (or, in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or
subsequent investment requirements with respect to Trust Shares, an Institution
may impose such requirements on the accounts maintained by its customers, and
may also require that Customers maintain minimum account balances with respect
to Trust Shares.
Trust Shares of the Fund may also be available for purchase
through different types of retirement plans offered by an Institution to its
Customers. Information pertaining to such plans is available directly from the
Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to the Distributor and to credit its Customers' accounts with the
redemption proceeds on a timely basis. No charge for wiring redemption payments
is imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per
Share next determined after receipt of the order by the Distributor. Payment for
redemption orders received by the
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<PAGE> 1124
Distributor on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. The Fund reserves the right
to redeem Shares in any account at their net asset value involuntarily, upon
sixty days' written notice, if the value of the account is less than $250 as a
result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid quarterly. Net realized capital gains are distributed at least
annually. Dividends on each Share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series.
Dividends and distributions will be paid in cash. Customers
may elect to have their dividends reinvested in additional Trust Shares of the
Fund at the net asset value of such shares on the ex-dividend date. Such
election, or any revocation thereof, must be communicated in writing by an
Institution on behalf of its Customers to Galaxy's transfer agent and will
become effective with respect to dividends paid after its receipt. The crediting
and payment of dividends to Customers will be in accordance with the procedures
governing such Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who
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<PAGE> 1125
are not currently exempt from federal income taxes, whether such dividends are
received in cash or reinvested in additional Trust Shares. (Federal income taxes
for distributions to an IRA or a qualified retirement plan are deferred under
the Code.) Such ordinary income distributions will qualify for the dividends
received deduction for corporations to the extent of the total qualifying
dividends received by the Fund from domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term
capital gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any
year which are payable to shareholders of record on a specified date in such
months will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year if such dividends are actually paid during January
of the following year.
If you are considering buying Shares of the Fund on or just
before the record date of a dividend or capital gain distribution, you should be
aware that the amount of the forthcoming distribution payment, although in
effect a return of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning
the application of state and local taxes, which may have different consequences
from those of the federal income tax law described above.
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<PAGE> 1126
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of Galaxy's Board of Trustees. The Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Asset
Allocation, Growth and Income, Small Company Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of
Trustees and in accordance with the Fund's investment policies, Fleet manages
the Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to
the Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fees for the Fund are higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes that they
are not higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group,
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<PAGE> 1127
Inc., in consideration for administrative and shareholder support services which
they provide to beneficial shareholders.
For the period from December 4, 1995 through October 31, 1996,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
____% of the Fund's average daily net assets. Without fee waivers, the Fund
would have borne advisory fees at the annual rate of 0.75% of its average daily
net assets.
The Predecessor Fund bore advisory fees during the period from
November 1, 1995 through December 3, 1995 pursuant to the investment advisory
agreement then in effect with Shawmut Bank, N.A., its former adviser at the
effective annual rate of ___% of the Predecessor Fund's average daily net assets
after fee waivers. Without fee waivers, the Predecessor Fund would have borne
advisory fees at the annual rate of 1.00% of its average daily net assets.
The Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Larson served as the portfolio manager of the Predecessor Fund since its
inception in 1992. He joined Shawmut Bank in 1963 as an investment officer and
was a Vice President in charge of Shawmut Bank's Small Cap Equity Management
product since inception in 1982.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per Share or result in
financial loss to any shareholder.
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<PAGE> 1128
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as the Fund's
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily assets and .075% of the combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations.
For the period from December 4, 1995 through October 31, 1996,
the Fund paid FDISG administration fees at the effective annual rate of ___% of
its average daily net assets.
The Predecessor Fund bore administration fees during the
period from November 1, 1995 through December 3, 1995 pursuant to the agreement
in effect with Federated Administrative Services, its prior administrator, at
the effective annual rate of .__% of its average daily net assets after fee
waivers.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on
March 31, 1986. Galaxy's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares into one or more classes or series
of shares. Pursuant to such authority, the Board of Trustees has authorized the
issuance of an unlimited number of Shares in the Fund: Class X - Series 1 shares
(Trust Shares) and Class X - Series 2 shares (Retail A Shares), both series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act.
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<PAGE> 1129
The Board of Trustees has also authorized the issuance of additional classes and
series of shares representing interests in other portfolios of Galaxy. For
information regarding the Fund's Retail A Shares and these other portfolios,
which are offered through separate prospectuses, contact the Distributor at
1-800-628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, Trust Shares and Retail A Shares in the Fund bear differing
transfer agency expenses. Standardized yield and total return quotations are
computed separately for each series of Shares. The difference in the expenses
paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end
sales charge of 3.75% and have certain exchange and other privileges which are
not available with respect to Trust Shares.
Each Share of Galaxy has a par value of $.001 per Share,
represents an equal proportionate interest in the related Fund with other Shares
of the same class, and is entitled to such dividends and distributions out of
the income earned on the assets belonging to such Fund as are declared in the
discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share
held, and a proportionate fractional vote for each fractional Share held, and
will vote in the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to
which it intends to enter into servicing agreements with Institutions (including
Fleet Bank and its affiliates). Pursuant to these servicing agreements,
Institutions will render certain administrative and support services to
Customers who are the beneficial owners of Retail A Shares. Such services will
be provided to Customers who are the beneficial owners of Retail A
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<PAGE> 1130
Shares and are intended to supplement the services provided by FDISG as
administrator and transfer agent to the shareholders of record of the Retail A
Shares. The Plan provides that Galaxy will pay fees for such services at an
annual rate of up to .50% of the average daily net asset value of the Fund's
Retail A Shares beneficially owned by Customers. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with the Distributor; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information relating to the Fund under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an
affiliate of the Investment Adviser, pursuant to which Fleet Bank performs
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account
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<PAGE> 1131
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Fleet Bank is compensated by FDISG for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of the Fund indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1
Chase Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Fund's assets. First
Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First
Data Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by these entities for the Fund are described in the Statement
of Additional Information relating to the Fund. Communications to FDISG should
be directed to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro,
Massachusetts 01581-5180.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with FDISG); SEC fees; state securities qualification fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; advisory, administration, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholders' reports and shareholder meetings; and
any extraordinary expenses. The Fund also pays for brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant indices or to rankings prepared by independent services or
other financial
-30-
<PAGE> 1132
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, an unmanaged index of
groups of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average
daily net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average
annual total return" over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well, such as from the commencement of the Fund's operations, or on a
year-by-year basis. The Fund may also use "aggregate total return" figures for
various periods, representing the cumulative change in the value of an
investment in the Fund for the specified period. Both methods of calculating
total return assume that dividends and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance and yields of the Fund will fluctuate and any
quotation of performance or yield should not be considered as representative of
future performance. Since yields fluctuate, yield data cannot necessarily be
used to compare an investment in the Fund's Shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses, and
market
-31-
<PAGE> 1133
conditions. Any additional fees charged by Institutions with respect to accounts
of Customers that have invested in Trust Shares of the Fund will not be included
in calculations of yield and performance.
The portfolio manager of the Fund and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of Galaxy or the Fund means, with respect to
the approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or the
Fund, or (b) 67% or more of the shares of Galaxy or the Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or the Fund are
represented at the meeting in person or by proxy.
-32-
<PAGE> 1134
TRUST
THE GALAXY FUND
GROWTH AND INCOME FUND
PROSPECTUS
FEBRUARY 28, 1997
<PAGE> 1135
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
EXPENSE SUMMARY...................................................... 3
FINANCIAL HIGHLIGHTS................................................. 4
INVESTMENT OBJECTIVE AND POLICIES.................................... 7
Special Risk Considerations.................................... 8
Other Investment Policies and Risk Considerations.............. 9
INVESTMENT LIMITATIONS............................................... 19
PRICING OF SHARES.................................................... 20
HOW TO PURCHASE AND REDEEM SHARES.................................... 21
Distributor.................................................... 21
Purchase of Shares............................................. 21
Redemption of Shares........................................... 22
DIVIDENDS AND DISTRIBUTIONS.......................................... 23
TAXES................................................................ 23
Federal........................................................ 23
State and Local................................................ 25
MANAGEMENT OF THE FUND............................................... 25
Investment Adviser............................................. 25
Authority to Act as Investment Adviser......................... 26
Administrator.................................................. 27
DESCRIPTION OF GALAXY AND ITS SHARES................................. 28
Shareholder Services Plan...................................... 29
Affiliate Agreement for Sub-Account Services................... 30
CUSTODIAN AND TRANSFER AGENT......................................... 30
EXPENSES............................................................. 30
PERFORMANCE AND YIELD INFORMATION.................................... 31
MISCELLANEOUS........................................................ 32
<PAGE> 1136
THE GALAXY FUND
For applications and information
concerning initial purchases and
4400 Computer Drive current performance, call 1-800-
Westboro, Massachusetts 628-0414. For additional
01581-5108 purchases, redemptions, exchanges
and other shareholder services,
call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes a series of Galaxy's shares ("Trust Shares")
which represent interests in the GROWTH AND INCOME FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to provide a relatively high
total return through long-term capital appreciation and current income. The Fund
attempts to achieve this objective by investing in a professionally managed,
diversified portfolio consisting primarily of common stocks of companies
believed to have prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market and economic conditions, the Fund will invest at least 65% of its assets
in growth and income equity securities. The Fund seeks to achieve a current
dividend yield that exceeds the composite yield of securities included in the
Standard & Poor's 500 Composite Stock Index ("S&P 500").
This prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loans
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares represent equal pro rata interests in the
Fund, except they bear different expenses which reflect the difference in the
range of services provided to them. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
<PAGE> 1137
The Fund is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by 440 Financial Distributors, Inc., which is unaffiliated with
Fleet Investment Advisors Inc. and its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that
prospective investors should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
February 28, 1997
-2-
<PAGE> 1138
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Fund with respect to Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
GROWTH AND
SHAREHOLDER TRANSACTION EXPENSES INCOME FUND
<S> <C>
Sales Load................................. None
Sales Load on Reinvested
Dividends................................. None
Deferred Sales Load........................ None
Redemption Fees............................ None
Exchange Fees.............................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (After Fee Waivers).......... .__%
12b-1 Fees................................. None
Other Expenses (After Fee Waivers and Expense
Reimbursements).......................... . %
----
Total Fund Operating
Expenses (After Fee Waivers and Expense
Reimbursements).......................... . %
====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth and Income
Fund $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the current fees for the Fund's Trust Shares
that would have been applicable had they been in effect. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75%, Other Expenses would be ____% and
Total Fund Operating Expenses would be ____% for Trust Shares of the Fund. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its Shares" in this Prospectus and the
financial statements and notes incorporated by reference into the Statement of
-3-
<PAGE> 1139
Additional Information relating to the Fund. Any fees that are charged by
affiliates of Fleet Investment Advisors Inc. or other institutions directly to
their customer accounts for services related to an investment in Trust Shares of
the Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is
also authorized to issue two additional series of Shares in the Fund, Retail A
Shares and Retail B Shares. As described below under "Description of Galaxy and
Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal
pro rata interests in the Fund, except that (i) effective October 1, 1994,
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .30% of the average daily
net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Fund bear the expenses incurred under Galaxy's Distribution and Services
Plan for Retail B Shares at an annual rate of up to .95% of the average daily
net asset value of the Fund's outstanding Retail B Shares, and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses.
The Growth and Income Fund commenced operations on December 14, 1992
as a separate investment portfolio (the "Predecessor Fund") of The Shawmut
Funds, which was organized as a Massachusetts business trust. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior
to the reorganization, the Predecessor Fund offered and sold two series of
shares of beneficial interest that were similar to the Fund's Trust Shares and
Retail A Shares, respectively.
The financial highlights presented below set forth certain
information concerning (i) the investment results of the Growth and Income
Fund's Trust Shares for the fiscal year ended October 31, 1996 and (ii) the
investment results of the Predecessor Fund's Trust Shares (the series that is
similar to the Trust Shares of the Fund) for the fiscal years ended October 31,
1995 and October 31, 1994 and the fiscal period ended October 31, 1993. The
information about the Fund for the fiscal year ended October 31, 1996 has been
audited by (______________), Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1996 (the "Annual Report"). The
-4-
<PAGE> 1140
information about the Predecessor Fund for the fiscal years ended October 31,
1995 and October 31, 1994 and the fiscal period ended October 31, 1993 was
audited by (__________), independent accountants for the Predecessor Fund, whose
report is contained in The Shawmut Funds' Annual Report to Shareholders relating
to the Predecessor Fund dated October 31, 1995 (the "Shawmut Annual Report").
The financial highlights should be read in conjunction with the financial
statements and notes thereto contained in the Annual Report and the Shawmut
Annual Report and (_______________________) into the Statement of Additional
Information relating to the Fund. More information about the performance of the
Fund is contained in the Annual Report which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-5-
<PAGE> 1141
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Year
Ended Ended Year Ended Period Ended
October 31, October 31, October 31, October 31,
1996 1995 1994 1993(1,2)
----------- ----------- ----------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 11.15 $ 10.69 $ 10.00
----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(3) ............... 0.28 0.25 0.18
Net realized and unrealized gain/(loss)
on investments ..................... 1.69 0.72 0.69
----------- ----------- -----------
Total from Investment Operations: 1.97 0.97 0.87
----------- ----------- -----------
Less Dividends:
Dividends from net investment income ... (0.28) (0.23) (0.18)
Dividend from net realized capital
gains .............................. (0.49) (0.28) --
----------- ----------- -----------
Total Dividends .................. (0.77) (0.51) (0.18)
----------- ----------- -----------
Net increase (decrease) in net asset value 1.20 0.46 0.69
----------- ----------- -----------
Net Asset Value, End of Period ........... $ 12.35 $ 11.15 $ 10.69
=========== =========== ===========
Total Return ............................. 18.80% 9.45% 8.80%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $ 189,011 $ 156,827 $ 147,090
Ratio to average net assets:
Net investment income including
reimbursement/waiver ................. 2.42% 2.31% 2.11%(4)
Operating expenses including
reimbursement/waiver ................. 1.07% 1.04% 0.98%(4)
Operating expenses excluding
reimbursement/waiver ................. 1.27% 1.24% 1.25%(4)
Portfolio Turnover Rate .................. 51% 73% 38%(5)
Average Commission Rate Paid(6) .......... N/A N/A N/A
</TABLE>
1 The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds.
2 On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively.
In connection with the reorganization, the predecessor shareholders
exchanged Investment Shares and Trust Shares, respectively, in the Galaxy
Growth and Income Fund.
3 Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal years ended October
31, 1995 and 1994 and the fiscal period ended October 31, 1993 were $0.25,
and $0.22 and $0.15, respectively.
4 Annualized.
5 Not Annualized
6 Required for fiscal years beginning on or after September 1, 1995.
-6-
<PAGE> 1142
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a relatively high
total return through long-term capital appreciation and current income. The Fund
attempts to achieve this objective by investing in a professionally managed,
diversified portfolio consisting primarily of common stocks of companies with
prospects for above-average growth and dividends or of companies where
significant fundamental changes are taking place. Under normal market
circumstances, the Fund will invest at least 65% of its assets in growth and
income equity securities. The Fund generally looks to achieve a current dividend
yield that exceeds the composite yield of securities included on the S&P 500.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. Small
capitalization stocks have historically been more volatile in price than larger
capitalization stocks, such as those included in the S&P 500. This is because,
among other things, smaller companies have a lower degree of liquidity in the
equity market and tend to have a greater sensitivity to changing economic
conditions. Further, in addition to exhibiting greater volatility, these stocks
may, to some degree, fluctuate independently of the stocks of large companies.
That is, the stock of small capitalization companies may decline in price as the
price of large company stocks rises or vice versa. Therefore, investors should
expect that the Fund will be more volatile than, and may fluctuate independently
of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies -- Convertible Securities" below. The
Fund may also buy and sell options and futures contracts and utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts. See "Other Investment Policies -- Options and Futures
Contracts," "Other Investment Policies -- Stock Index Futures, Swap Agreements,
Indexed Securities and Options" and "Other Investment Policies -- Derivative
Securities" below.
The Fund may invest in securities of foreign issuers which are
freely traded on United States securities exchanges or in the over-the-counter
market in the form of American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the
-7-
<PAGE> 1143
securities of foreign issuers if any such risk appears to the Investment Adviser
to be substantial. See "Special Risk Considerations" and "Other Investment
Policies" below.
As a temporary defensive measure, in such proportions as, in the
judgment of the Investment Adviser, prevailing market conditions warrant, the
Fund may invest in: (i) short-term money market instruments (such as those
listed below under "Other Investment Policies") rated in one of the top two
rating categories by a nationally recognized statistical rating organization,
such as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch Investors Services, L.P. ("Fitch"); (ii) securities issued
and/or guaranteed as to payment of principal and interest by the U.S.
Government, its agencies, or instrumentalities; and (iii) repurchase agreements.
Additional information about the types of money market instruments and U.S.
Government obligations in which the Fund is permitted to invest is contained in
the Statement of Additional Information. See "Other Investment Policies" below
for information regarding additional investment policies of the Growth and
Income Fund.
Fleet Investment Advisors, Inc., the Fund's investment adviser
("Fleet" or the "Investment Adviser"), will use its best efforts to achieve the
Fund's investment objective, although its achievement cannot be assured. The
investment objective of the Fund may not be changed without the approval of the
holders of a majority of its outstanding Shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," the
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Fund to be a complete
investment program.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Fund invests primarily in equity securities. As with other
mutual funds that invest primarily in equity securities, the Fund is subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk
To the extent that the Fund invests in fixed income securities, its
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment.
-8-
<PAGE> 1144
Generally, the prices of bonds and debt securities fluctuate inversely with
interest rate changes.
Foreign Securities
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risk of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
Ratings
The Fund may purchase convertible bonds rated "BB" or higher by S&P
or Fitch, or "Ba" or higher by Moody's, at the time of investment. See "Other
Investment Policies -- Convertible Securities" below for a discussion of the
risks of investing in
-9-
<PAGE> 1145
convertible bonds rated either "BB" or "Ba." Short-term money market instruments
purchased by the Fund must be rated in one of the top two rating categories by a
nationally recognized statistical rating agency, such as S&P, Moody's or Fitch.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest
from time to time in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and in other "money market" instruments,
including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include U.S. Treasury securities, which differ
only in their interest rates, maturities and time of issuance: Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of more than 10 years. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation ("FDIC"), or by a savings and loan association or savings bank which
is insured by the Federal Deposit Insurance Corporation. Investments in bank
obligations are limited to the obligations of financial institutions having
capital, surplus and undivided profits of over $100 million or obligations where
the principal amount of the instrument is insured in full by the FDIC. Time
deposits with a maturity longer than seven days or that do not provide for
payment within seven days after notice will be limited to 15% of the Fund's
total assets.
Banks are subject to extensive but different government regulation
which may limit the amount and types of their loans
-10-
<PAGE> 1146
and the interest rates that may be charged. In addition, the profitability of
the banking industry is largely dependent upon the availability and cost of
funds to finance lending operations and the quality of underlying bank assets.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
Repurchase and Reverse Repurchase Agreements
The Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser under guidelines approved by Galaxy's
Board of Trustees. The Fund will not enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 15% limit described below in Investment Limitation No. 3
under "Investment Limitations."
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action.
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The Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Fund's policies with
respect to reverse repurchase agreements is contained in the Statement of
Additional Information.
Securities Lending
The Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans may be on a long-term or short-term basis or both,
will be made only to borrowers deemed by the Investment Adviser to be of good
standing and only when, in the Investment Adviser's judgement, the income to be
earned from the loan justifies the attendant risks. The Fund currently intends
to limit the lending of its portfolio securities so that, at any given time,
securities loaned by the Fund represent not more than one-third of the value of
its total assets.
Investment Company Securities
The Fund may invest in other investment companies primarily for the
purpose of investing its short-term cash which has not yet been invested in
other portfolio instruments. However, from time to time, on a temporary basis,
the Fund may invest exclusively in one other investment company similar to the
Fund. Investments in other investment companies will cause the Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the
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<PAGE> 1148
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
the Investment Adviser.
Options and Futures Contracts
Options and Futures Contracts. The Fund may buy and sell options and
futures contracts to manage its exposure to changing interest rates, security
prices and currency exchange rates. The Fund may invest in options and futures
based on any type of security, index, or currency, including options and futures
based on foreign exchanges and options not traded on exchanges. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge the Fund's investments against price fluctuations. Other
strategies, including buying futures, writing puts, and buying calls, tend to
increase market exposure. Options and futures may be combined with each other or
with forward contracts in order to adjust the risk and return characteristics of
the overall strategy.
Options and futures can be volatile investments, and involve certain
risks. If the Investment Adviser applies a hedge at an inappropriate time or
judges market conditions incorrectly, options and futures may lower the Fund's
individual return. The Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. See the Statement of Additional Information relating to the Fund for
additional information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
Stock Index Futures, Swap Agreements, Indexed Securities and Options. The
Fund may utilize stock index futures contracts, options, swap agreements,
indexed securities, and options on futures contracts, subject to the limitation
that the value of these futures contracts, swap agreements, indexed securities,
and options will not exceed 20% of the Fund's total assets. The Fund will not
purchase options to the extent that more than 5% of the value of its total
assets would be invested in premiums on open put option positions. In addition,
the Fund does not intend to invest more than 5% of the market value of its total
assets in
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<PAGE> 1149
each of the following: futures contracts, swap agreements, and indexed
securities. When the Fund enters into a swap agreement, assets of the Fund equal
to the value of the swap agreement will be segregated by the Fund.
There are several risks accompanying the utilization of futures
contracts. Positions in futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While the
Fund plans to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
American and European Depository Receipts
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's respective limitations with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs and EDRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described above under "Special
Risk Considerations."
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in
currencies other than the U.S. dollar, and may
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<PAGE> 1150
receive interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Fund from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to other
foreign currencies. The Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
Forward foreign currency exchange contracts are agreements to exchange one
currency for another -- for example, to exchange a certain amount of U.S.
dollars for a certain amount of Japanese yen -- at a future date and at a
specified price. Typically, the other party to a currency exchange contract will
be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. Because there is a
risk of loss to the Fund if the other party does not complete the transaction,
forward foreign currency exchange contracts will be entered into only with
parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not used to achieve leverage with respect to the Fund's
investments, the Fund will establish with its custodian a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade debt
securities equal in value to the fluctuating market value of the currency as to
which the short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the Statement of Additional Information
relating to the Fund for additional information regarding foreign currency
exchange transactions.
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<PAGE> 1151
Convertible Securities
The Fund may from time to time, in accordance with its investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities may take the form
of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Usable bonds are corporate bonds
that can be used in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the Investment
Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Investment Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Investment Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
The Fund may invest in convertible bonds rated "BB" or higher by S&P
or Fitch, or "Ba" or higher by Moody's at the time
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<PAGE> 1152
of investment. Securities rated "BB" by S&P or Fitch or "Ba" by Moody's provide
questionable protection of principal and interest in that such securities either
have speculative characteristics or are predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. Debt obligations that are not rated, or determined to be,
investment grade are high-yield, high-risk bonds, typically subject to greater
market fluctuations, and securities in the lowest rating category may be in
danger of loss of income and principal due to an issuer's default. To a greater
extent than investment-grade bonds, the value of lower-rated bonds tends to
reflect short-term corporate, economic, and market developments, as well as
investor perceptions of the issuer's credit quality. In addition, lower-rated
bonds may be more difficult to dispose of or to value than high-rated,
lower-yielding bonds. The Investment Adviser will attempt to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer, as well as by monitoring broad economic trends and corporate and
legislative developments. If a convertible bond is rated below "BB" or "Ba"
after the Fund has purchased it, the Fund is not required to eliminate the
convertible bond from the portfolio, but will consider appropriate action. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives. The Fund does not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information relating to the Fund.
Derivative Securities
The Fund may from time to time, in accordance with its investment
policies, purchase certain "derivative" securities. Derivative securities are
instruments that derive their value from the performance of underlying assets,
interest or currency exchange rates, or indices, and include, but are not
limited to, options, stock index futures and options, indexed securities and
swap agreements, and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and
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operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
The Investment Adviser will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine, in connection
with its day-to-day management of the Fund, how such securities will be used in
furtherance of the Fund's investment objective. It is possible, however, that
the Investment Adviser's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Fund will, because
of the risks discussed above, incur loss as a result of its investments in
derivative securities. See "Investment Objectives and Policies -- Derivative
Securities" in the Statement of Additional Information relating to the Fund for
additional information.
When-Issued and Delayed Settlement Transactions
The Fund may purchase eligible securities on a "when-issued" or
"delayed settlement" basis. When-issued transactions, which involve a commitment
by the Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
The Fund may dispose of a commitment prior to settlement if the
Investment Adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
the Fund's investment objective. Portfolio investments may be sold for a variety
of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves
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correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental
policy and may not be changed with respect to the Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an arrangement to
buy it back on a set date) or pledge securities except, under
certain circumstances, the Fund may borrow up to one-third of the
value of its total assets and pledge up to 10% of the value of its
total assets to secure such borrowings; or
2. With respect to 75% of the value of its total assets,
invest more than 5% in securities of any one issuer, other than
cash, cash items, or securities issued or guaranteed by the
government of the United States or, its agencies or
instrumentalities and repurchase agreements collateralized by such
securities, or acquire more than 10% of the outstanding voting
securities of any one issuer.
The following investment limitation may be changed by Galaxy's Board
of Trustees without shareholder approval. Shareholders will be notified before
any material change in this limitation becomes effective:
3. The Fund may not invest more than 15% of its net assets in
securities subject to restrictions on resale under the Securities
Act of 1933 (except for commercial paper issued under Section 4(2)
of the Securities Act of 1933 and certain other securities which
meet the criteria for liquidity as established by the Board of
Trustees).
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<PAGE> 1155
In addition, the Fund may not purchase any securities which would
cause 25% or more of the value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
The Fund intends to invest in restricted securities. Restricted
securities are any securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject to restriction on
resale under federal securities law. The Fund will limit its investments in
illiquid securities, including certain restricted securities not determined by
the Board of Trustees to be liquid, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of the
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close
of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value per share is determined on
each day on which the Exchange is open for trading. Currently, the holidays
which Galaxy observes are New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share of the Fund for purposes of pricing sales and redemptions is
calculated separately for each series of Shares by dividing the value of all
securities and other assets attributable to a particular series of Shares of the
Fund, less the liabilities attributable to the Shares of that series of the
Fund, by the number of outstanding Shares of that series of the Fund.
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<PAGE> 1156
The assets in the Fund 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 quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by the Investment Adviser
under the supervision of Galaxy's Board of Trustees. An option is generally
valued at the last sale price or, in the absence of a last sale price, the last
offer price.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered broker/dealer with principal offices located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
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A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or
in part.
The issuance of Trust Shares is recorded on the books of the Fund
and Trust Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established
by Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by its customers and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their respective Institutions. It is
the responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on
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a timely basis. No charge for wiring redemption payments is imposed by Galaxy,
although an Institution may charge its Customers' accounts for redemption
services. Information relating to such redemption services and charges, if any,
is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure
that a redemption has been duly authorized. The Fund reserves the right to
redeem Shares in any account at their net asset value involuntarily, upon sixty
days written notice, if the value of the account is less than $250 as a result
of redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and
paid quarterly. Dividends on each Share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may
elect to have their dividends reinvested in additional Trust Shares of the Fund
at the net asset value of such shares on the ex-dividend date. Such election, or
any revocation thereof, must be communicated in writing by an Institution on
behalf of its Customers to Galaxy's transfer agent and will become effective
with respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment
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<PAGE> 1159
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for federal income taxes
to the extent the Fund's earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially
all of its investment company taxable income and any net tax-exempt interest
income each year. Such dividends will be taxable as ordinary income to the
Fund's shareholders who are not currently exempt from federal income taxes,
whether such dividends are received in cash or reinvested in additional Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of the excess of its net long-term capital
gain over its net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has held shares
and whether such gains are received in cash or reinvested in additional Trust
Shares. Such distributions are not eligible for the dividends received
deduction.
Dividends declared in October, November or December of any year
which are payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January of
the following year.
If you are considering buying Shares of the Fund on or just before
the record date of a dividend or capital gain distribution, you should be aware
that the amount of the forthcoming distribution payment, although in effect a
return of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of the Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
-24-
<PAGE> 1160
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction
of Galaxy's Board of Trustees. The Statement of Additional Information contains
the names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Fund.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $_____
billion at December 31, 1996. Fleet, which commenced operations in 1984, also
provides investment management and advisory services to individual and
institutional clients and manages the other investment portfolios of Galaxy: the
Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, Institutional Treasury Money
Market, Equity Growth, Equity Value, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value, Short-Term Bond, Intermediate
Government Income, High Quality Bond, Corporte Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and
in accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of .75% of the average daily net
assets of the Fund. The fees for the Fund are higher than fees paid by most
other mutual funds, although the Board of Trustees of Galaxy believes
-25-
<PAGE> 1161
that they are not higher than average advisory fees paid by funds with similar
investment objectives and policies.
Fleet may from time to time, in its discretion, waive all or a
portion of the advisory fees payable by the Fund in order to help maintain a
competitive expense ratio and may from time to time allocate a portion of its
advisory fees to Fleet Trust Company or other subsidiaries of Fleet Financial
Group, Inc., in consideration for administrative and shareholder support
services which they provide to beneficial shareholders.
For the period from December 4, 1995 through October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rate of ____%
of the Fund's average daily net assets. Without fee waivers, the Fund would have
borne advisory fees at the annual rate of 0.75% of its average daily net assets.
The Predecessor Fund bore advisory fees during the period from
November 1, 1995 through December 3, 1995 pursuant to the investment advisory
agreement then in effect with Shawmut Bank, N.A., its former adviser at the
effective annual rate of ___% of the Predecessor Fund's average daily net assets
after fee waivers. Without fee waivers, the Predecessor Fund would have borne
advisory fees at the annual rate of 1.00% of its average daily net assets.
The Fund's portfolio manager, Brendan Henebry, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Henebry served as portfolio manager for the Predecessor Funds since its
inception in 1992. He was associated with Shawmut Bank and its predecessor since
1965 and was a Vice President since 1978. During the past six years he served as
manager of Shawmut Bank's Growth and Income Equity Management Group.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates
-26-
<PAGE> 1162
are subject to such banking laws and regulations. Should legislative, judicial,
or administrative action prohibit or restrict the activities of such companies
in connection with their services to the Fund, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Fund's method of operation would not affect the Fund's net asset value per
share or result in financial loss to any shareholder. State securities laws on
this issue may differ from federal law and banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581- 5180, serves as the Fund's
administrator. FDISG is a wholly- owned subsidiary of First Data Corporation.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Fund, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory expense limitations.
For the period from December 4, 1995 through October 31, 1996, the
Fund paid FDISG administration fees at the effective annual rate of ____% of its
average daily net assets.
The Predecessor Growth and Income Fund bore administration fees
during the period from November 1, 1995 through December 3, 1995 pursuant to the
administration agreement then in effect with Federated Administrative Services,
its prior administrator, at the effective annual rate of ____% of the
Predecessor Fund's average daily net assets.
-27-
<PAGE> 1163
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in the Fund: Class U-Series 1 shares (Trust
Shares), Class U-Series 2 shares (Retail A Shares) and Class U-Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Fund's Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear
their pro rata portion of all operating expenses paid by the Fund except as
follows. Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below. Holders
of the Fund's Retail B Shares bear the fees described in the Prospectus for such
shares that are incurred under Galaxy's Distribution and Services Plan at an
annual rate not to exceed .95% of the average daily net asset value of the
Fund's outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares
and Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of Shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares are sold with a maximum contingent deferred
sales charge of 5.0% and automatically convert to Retail A Shares of the Fund
six years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per Share, represents an equal proportionate interest in the
related Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and
a proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law
-28-
<PAGE> 1164
or when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .50% of the average
daily net asset value of the Fund's Retail A Shares beneficially owned by
Customers. Institutions may receive up to one-half of these fees for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the Distributor; processing dividend payments from the
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information relating to the Fund under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with
respect to both Retail A Shares and Trust Shares of the Fund, as of the date of
this Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an
-29-
<PAGE> 1165
Institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, Institutions are required to
provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-account and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Fleet Bank is compensated by FDISG for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Fund to FDISG have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund upon approval of the Trustees
in accordance with the regulations of the SEC, for the purposes of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Fund's transfer and dividend disbursing
agent. Services performed by these entities for the Fund are described in the
Statement of Additional Information relating to the Fund. Communications to
FDISG should be directed to FDISG at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5180.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in
connection with the performance of their services for the Fund. Galaxy bears the
expenses incurred in the Fund's
-30-
<PAGE> 1166
operations. Such expenses include: taxes; interest; fees (including fees paid to
its trustees and officers who are not affiliated with FDISG); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders,
the performance and yield of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Fund may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, an unmanaged index of
groups of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Fund. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily
net investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the
-31-
<PAGE> 1167
measuring period to the end of the measuring period. Average total return
figures will be given for the most recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well, such as from the
commencement of the Fund's operations, or on a year-by-year basis. The Fund may
also use "aggregate total return" figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specified
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by the Fund during the period are reinvested in
Fund Shares.
Performance and yields of the Fund will fluctuate and any quotation
of performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in calculations of yield and performance.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature or other
materials, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing
the Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of either Galaxy or the Fund, with respect to the
approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, means the affirmative vote of the
holders of the lesser of (a) more than 50% of the outstanding shares of Galaxy
or the
-32-
<PAGE> 1168
Fund, or (b) 67% or more of the shares of Galaxy or the Fund present at a
meeting if more than 50% of the outstanding shares of Galaxy or the Fund are
represented at the meeting in person or by proxy.
-33-
<PAGE> 1169
TRUST
THE GALAXY FUND
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
Asset Allocation Fund
Small Cap Value Fund
Growth and Income Fund
Prospectus
February 28, 1997
<PAGE> 1170
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
Page
EXPENSE SUMMARY....................................................
FINANCIAL HIGHLIGHTS ..............................................
INVESTMENT OBJECTIVES AND POLICIES.................................
Equity Value Fund............................................
Equity Growth Fund...........................................
Equity Income Fund...........................................
International Equity Fund....................................
Small Company Equity Fund....................................
Asset Allocation Fund........................................
Small Cap Value Fund.........................................
Growth and Income Fund.......................................
Special Risk Considerations..................................
Other Investment Policies and Risk Considerations............
INVESTMENT LIMITATIONS.............................................
PRICING OF SHARES..................................................
HOW TO PURCHASE AND REDEEM SHARES..................................
Distributor..................................................
Purchase of Shares...........................................
Redemption of Shares.........................................
DIVIDENDS AND DISTRIBUTIONS........................................
TAXES..............................................................
Federal......................................................
State and Local..............................................
MANAGEMENT OF THE FUNDS............................................
Investment Adviser and Sub-Adviser...........................
Authority to Act as Investment Adviser.......................
Administrator................................................
DESCRIPTION OF GALAXY AND ITS SHARES...............................
Shareholder Services Plan....................................
Affiliate Agreement for Sub-Account Services.................
CUSTODIAN AND TRANSFER AGENT.......................................
EXPENSES...........................................................
PERFORMANCE AND YIELD INFORMATION..................................
MISCELLANEOUS......................................................
<PAGE> 1171
THE GALAXY FUND
4400 Computer Drive For applications and
Westboro, Massachusetts information concerning
01581-5108 initial purchases and
current performance, call
1-800-628-0414. For additional
purchases, redemptions,
exchanges and other shareholder
services, call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes eight series of Galaxy's shares (collectively, the
"Trust Shares") which represent interests in eight separate diversified
investment portfolios (individually, a "Fund," collectively, the "Funds")
offered to investors by Galaxy, each having its own investment objective and
policies:
The EQUITY VALUE FUND'S investment objective is to seek long-term capital
appreciation. Income is secondary to the objective of capital appreciation. The
Fund attempts to achieve this objective by investing, under normal market and
economic conditions, at least 75% of its total assets in common stock, preferred
stock and debt securities convertible into common stock that the Fund's
investment adviser believes are undervalued.
The EQUITY GROWTH FUND'S investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
The EQUITY INCOME FUND'S investment objective is to seek current income
and capital appreciation. The Fund attempts to achieve this objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential.
The INTERNATIONAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
equity securities of foreign issuers.
The SMALL COMPANY EQUITY FUND'S investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with capitalizations of $500 million or less that
the Fund's investment adviser believes represent the potential for
<PAGE> 1172
significant capital appreciation. Under normal market and economic conditions,
the Fund will invest at least 65% of its assets in the equity securities of
companies with capitalizations of $500 million or less.
The ASSET ALLOCATION FUND'S investment objective is to seek 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 the Fund's assets. Due to the Fund's expenses, however, net income
distributed to shareholders may be less than that of the averages. The Fund
attempts to achieve this objective and at the same time reduce volatility by
allocating its assets in varying amounts among short-term obligations, common
stocks, preferred stocks and bonds.
The SMALL CAP VALUE FUND'S investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
The GROWTH AND INCOME FUND'S investment objective is to provide a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing in a
professionally managed, diversified portfolio consisting primarily of common
stocks of companies believed to have prospects for above-average growth and
dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its assets in growth and income securities. The Fund seeks to
achieve a current dividend yield that exceeds the composite yield of securities
included in the Standard & Poor's 500 Composite Stock Index ("S&P 500").
This Prospectus describes the Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in each of the Equity Income Fund, International Equity Fund and Small
Cap Value Fund and two additional series of shares, Retail A Shares and Retail B
Shares, in each of the Equity Value Fund, Equity Growth Fund, Small Company
Equity Fund, Asset Allocation Fund and Growth and Income Fund (Retail A Shares
and Retail B Shares are referred to herein collectively as "Retail Shares").
Retail Shares are offered under a separate prospectus primarily to individuals,
corporations or other entities, purchasing either for their own accounts or for
the accounts of others and to FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks and other qualified banks,
savings and loans
-2-
<PAGE> 1173
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares in a Fund represent equal pro rata interests
in the Fund, except they bear different expenses that reflect the difference in
the range of services provided to them. See "Financial Highlights," "Management
of the Funds" and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates. Oechsle International Advisors, L.P. serves as the
sub-adviser to the International Equity Fund.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statements of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statements of Additional Information are available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statements of Additional Information, as they may be amended
from time to time, are incorporated by reference in their entireties into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-3-
<PAGE> 1174
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of each Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
Small
Equity Equity Equity International Company Asset Small Cap Growth and
Value Growth Income Equity Equity Allocation Value Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
Shareholder Transaction Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load .......................... None None None None None None None None
Sales Load on Reinvested
Dividends .......................... None None None None None None None None
Deferred Sales Load ................. None None None None None None None None
Redemption Fees ..................... None None None None None None None None
Exchange Fees ....................... None None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Advisory Fees (After Fee
Waivers) .......................... .__% .__% .__% .__% .__% .__% .__% .__%
12b-1 Fees .......................... None None None None None None None None
Other Expenses (After Fee
Waivers and Expense
Reimbursements) ................... . % . % . % . % . % . % . % . %
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses (After
Fee Waivers and Expense
Reimbursements) ................. . % . % . % . % . % . % . % . %
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund ..................... $__ $__ $__ $___
Equity Growth Fund .................... $__ $__ $__ $___
Equity Income Fund .................... $__ $__ $__ $___
International Equity Fund ............. $__ $__ $__ $___
Small Company Equity Fund ............. $__ $__ $__ $___
Asset Allocation Fund ................. $__ $__ $__ $___
Small Cap Value Fund .................. $__ $__ $__ $___
Growth and Income Fund ................ $__ $__ $__ $___
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by each Fund during the last fiscal year,
restated to reflect the expenses which each Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers and/or
expense reimbursements by the Investment Adviser and/or Administrator, Advisory
Fees would be .75%, .75%, .75%, 1.15%, .75%, .75%, .75% and .75%, Other Expenses
would be _____%, ____%, ____%, ____%, ____%, ____%, ____% and _____%, and Total
-4-
<PAGE> 1175
Fund Operating Expenses would be ____% ____%, ____%, ____%, ____%, ____%, ____%
and _____%, for Trust Shares of the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds, respectively. For more complete descriptions of
these costs and expenses, see "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Funds. Any fees that are charged by affiliates of Fleet Investment
Advisors Inc. or other institutions directly to their customer accounts for
services related to an investment in Trust Shares of the Funds are in addition
to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund. Galaxy is also
authorized to issue an additional series of Shares, Retail A Shares, in each of
the Equity Income Fund, International Equity Fund and Small Cap Value Fund, and
two additional series of shares, Retail A Shares and Retail B Shares, in each of
the Equity Value Fund, Equity Growth Fund, Small Company Equity Fund, Asset
Allocation Fund and Growth and Income Fund. As described below under
"Description of Galaxy and Its Shares," Trust Shares, Retail A Shares and Retail
B Shares represent equal pro rata interests in a Fund, except that (i) effective
October 1, 1994, Retail A Shares of a Fund bear the expenses incurred under
Galaxy's Shareholder Services Plan at an annual rate of up to .30% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B Shares of a Fund bear the expenses incurred under Galaxy's Distribution
and Services Plan for Retail B Shares at an annual rate of up to .95% of the
average daily net asset value of the Fund's outstanding Retail B Shares, and
(iii) Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses.
The financial highlights presented below for the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds have been audited by (______________________), Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Funds dated October 31, 1996 (the "Annual Report").
Such financial highlights should be read in conjunction with the financial
statements and notes thereto contained in the Annual Report and
(______________________)
-5-
<PAGE> 1176
into the Statement of Additional Information relating to these Funds.
Information in the financial highlights presented below with respect to
these Funds for periods prior to the fiscal year ended October 31, 1994 reflect
the investment results of both Trust Shares and Retail A Shares of the Funds
(Retail A Shares of the Equity Value and Equity Growth Funds were first offered
during the fiscal year/period ended October 31, 1991, and Retail A Shares of
the Equity Income Fund were first offered during the fiscal year ended October
31, 1992). More information about the performance of the Funds is also
contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-6-
<PAGE> 1177
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994 YEAR ENDED OCTOBER 31,(2)
-------------------------------------- ---------------------------
TRUST SHARES 1993 1992
-------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .................. $ 13.32 $ 13.12 $ 11.41 $ 11.52
----------- ----------- ----------- -----------
Income from Investment
Operations:
Net Investment Income .... 0.28 0.19 0.19 0.26
Net realized and
unrealized gain
(loss) on investments .... 2.24 0.45 2.14 0.33
----------- ----------- ----------- -----------
Total from Investment
Operations: ......... 2.52 0.64 2.33 0.59
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment
income ............... (0.30) (0.16) (0.20) (0.27
Dividends from net
realized capital
gains ................ (1.21) (0.28) (0.42) (0.43)
----------- ----------- ----------- -----------
Total Dividends: ..... (1.51) (0.44) (0.62) (0.70)
----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value ......... 1.01 0.20 1.71 (0.11)
----------- ----------- ----------- -----------
Net Asset Value, End
of Period .................. $ 14.33 $ 13.32 $ 13.12 $ 11.41
=========== =========== =========== ===========
Total Return ................. 21.31% 5.05% 21.18% 5.66%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) .................... $ 165,330 $ 154,403 $ 176,107 $ 133,578
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver ................. 2.10% 1.46% 1.52% 2.24%
Operating expenses
including reimbursement/
waiver ................. 1.02% 1.06% 0.97% 0.94%
Operating expenses
excluding
reimbursement/waiver ... 1.02% 1.06% 0.97% 0.94%
Portfolio Turnover Rate ...... 76% 71% 50% 136%
Average Commission Rate Paid(A) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED OCTOBER 31,(2) OCTOBER 31,
------------------------------------------- -----------
1991 1990 1989 1988(1,2)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ........................... $ 9.45 $ 11.51 $ 10.41 $ 10.00
----------- ----------- ----------- -----------
Income from Investment
Operations:
Net Investment Income ............. 0.37 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on investments ............. 2.41 (1.37) 1.10 0.38
----------- ----------- ----------- -----------
Total from Investment
Operations: .................. 2.78 (0.98) 1.46 0.41
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment
income ........................ (0.37) (0.38) (0.36) --
Dividends from net
realized capital
gains ......................... (0.34) (0.70) -- --
----------- ----------- ----------- -----------
Total Dividends: .............. (0.71) (1.08) (0.36) --
----------- ----------- ----------- -----------
Net increase (decrease)
in new asset value ................. 2.07 (2.06) 1.10 0.41
----------- ----------- ----------- -----------
Net Asset Value, End
of Period ........................... $ 11.52 $ 9.45 $ 11.51 $ 10.41
=========== =========== =========== ===========
Total Return .......................... 30.45% (9.43%) 14.19% 4.10%(3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ............................. $ 99,601 $ 92,893 $ 92,366 $ 75,774
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver .......................... 3.25% 3.66% 3.25% 1.89%(4)
Operating expenses
including reimbursement/
waiver .......................... 0.94% 0.95% 0.97% 0.95%(4)
Operating expenses
excluding
reimbursement/waiver ............ 0.94% 0.95% 0.98% 0.95%(4)
Portfolio Turnover Rate ............... 40% 94% 44% 4%(3)
Average Commission Rate Paid(A) ....... N/A N/A N/A N/A
</TABLE>
- -------------------------------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
reflect the financial results of both Trust and Retail Shares. On September
7, 1995, Retail Shares of the Fund were redesignated "Retail A Shares."
(3) Not Annualized.
(4) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-7-
<PAGE> 1178
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
------------------------------------ ----------------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from Investment Operations:
Net Investment Income ................... 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments ........................ 3.28 0.47 0.95 0.91 1.97
----------- ----------- ----------- ----------- -----------
Total from Investment Operations: ..... 3.48 0.65 1.10 1.08 2.13
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment income .... (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains ................................. (0.17) (0.06) (0.09) -- --
----------- ----------- ----------- ----------- -----------
Total Dividends: ...................... (0.37) (0.22) (0.24) (0.17) (0.14)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value ................................... 3.11 0.43 0.86 0.91 1.99
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ............ $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
=========== =========== =========== =========== ===========
Total Return .............................. 25.08% 4.80% 8.58% 9.10% 21.39%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......... $ 420,016 $ 362,094 $ 427,298 $ 224,630 $ 92,224
Ratios to average net assets:
Net investment income
including reimbursement/waiver ........ 1.31% 1.27% 1.20% 1.37% 1.46%(4)
Operating expenses
including reimbursement/waiver ........ 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Operating expenses excluding
reimbursement/waiver .................. 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Portfolio Turnover Rate ................... 14% 18% 16% 22% 16%(3)
Average Commission Rate Paid(A) ........... N/A N/A N/A N/A N/A
</TABLE>
- -----------------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Not Annualized.
(4) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-8-
<PAGE> 1179
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
------------------------------------ --------------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
------------------------------------ --------------------------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 12.75 $ 12.85 $ 11.85 $ 11.29 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(3) ............... 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized gain (loss)
on investments ..................... 2.45 0.07 1.09 0.76 1.26
----------- ----------- ----------- ----------- -----------
Total from Investment Operations: .. 2.81 0.38 1.39 1.06 1.55
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment income ... (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized
capital gains ........................ (0.21) (0.19) (0.11) (0.20) --
----------- ----------- ----------- ----------- -----------
Total Dividends: ................... (0.57) (0.48) (0.39) (0.50) (0.26)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value .................................. 2.24 (0.10) 1.00 0.56 1.29
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........... $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29
=========== =========== =========== =========== ===========
Total Return ............................. 22.81% 3.02% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $ 87,819 $ 78,880 $ 123,970 $ 21,778 $ 7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 2.60% 2.49% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver ................. 0.98% 1.07% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver ................. 1.00% 1.07% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate .................. 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(A) .......... N/A N/A N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the years ended October 31,
1993 and 1992 and for the period ended October 31, 1991 were $0.29, $0.25
and $0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-9-
<PAGE> 1180
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
------------------------------------- YEAR ENDED PERIOD ENDED
TRUST OCTOBER 31, OCTOBER 31,
SHARES 1993(2) 1992(1,2)
------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 13.20 $ 12.13 $ 9.66 $ 10.00
---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income(3) ................ 0.16 0.06 0.02 0.06
Net realized and unrealized gain (loss)
on investments ...................... (0.18) 1.02 2.51 (0.40)
---------- ---------- ---------- ----------
Total from Investment Operations: (0.02) 1.08 2.53 (0.34)
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income .... (0.04) (0.01) (0.06) --
Dividends from net realized capital gains (0.16) -- -- --
---------- ---------- ---------- ----------
Total Dividends: .................. (0.20) (0.01) (0.06) --
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value (0.22) 1.07 2.47 (0.34)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............ $ 12.98 $ 13.20 $ 12.13 $ 9.66
========== ========== ========== ==========
Total Return .............................. (0.02%) 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......... $ 89,614 $ 82,350 $ 39,246 $ 12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 1.36% 0.74% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver .................. 1.22% 1.43% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver .................. 1.48% 1.72% 2.04% 2.79%(5)
Portfolio Turnover Rate ................... 48% 39% 29% 21%(4)
Average Commission Rate Paid(A) ........... N/A N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the years ended October 31,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 were
$____, $0.13, $0.04, $0.00 and $0.00, respectively.
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-10-
<PAGE> 1181
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
---------------------------------- YEAR ENDED PERIOD ENDED
TRUST OCTOBER 31, OCTOBER 31,
SHARES 1993(2) 1992(1,2)
---------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 12.36 $ 12.41 $ 8.79 $ 10.00
---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income (loss)3 ............ (0.04) -- (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments ....................... 4.25 -- 3.66 (1.18)
---------- ---------- ---------- ----------
Total from Investment Operations: . 4.21 -- 3.62 (1.21)
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income -- -- --
Dividends from net realized capital gains (0.19) (0.05) -- --
---------- ---------- ---------- ----------
Total Dividends: ................... (0.19) (0.05) -- --
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value . 4.02 (0.05) 3.62 (1.21)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............. $ 16.38 $ 12.36 $ 12.41 $ 8.79
========== ========== ========== ==========
Total Return ............................... 34.73% 0.02% 41.18% (12.10%)(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......... $ 94,831 $ 66,462 $ 55,683 $ 29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver ..................... (0.37)% (0.35)% (0.66)% (0.63)%(5)
Operating expenses including
reimbursement/waiver ................... 1.12% 1.27% 1.18% 1.06%(5)
Operating expenses excluding
reimbursement/waiver ................... 1.12% 1.27% 1.22% 1.33%(5)
Portfolio Turnover Rate .................... 54% 35% 57% 87%(4)
Average Commission Rate Paid(A) ............ N/A N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Adviser and/or Administrator for the period ended
October 31, 1992 was $(0.05).
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-11-
<PAGE> 1182
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995 1994
------------------------------------ YEAR ENDED PERIOD ENDED
TRUST OCTOBER 31, OCTOBER 31,
SHARES 1993(2) 1992(1,2)
------------------------------------ ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 10.68 $ 11.15 $ 10.16 $ 10.00
---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income(3) ................. 0.32 0.28 0.25 0.15
Net realized and unrealized gain (loss)
on investments ....................... 2.16 (0.49) 0.99 0.13
---------- ---------- ---------- ----------
Total from Investment Operations: . 2.48 (0.21) 1.24 0.28
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..... (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital gains -- -- -- --
---------- ---------- ---------- ----------
Total Dividends: ................... (0.33) (0.26) (0.25) (0.12)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value . 2.15 (0.47) 0.99 0.16
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............. $ 12.83 $ 10.68 $ 11.15 $ 10.16
========== ========== ========== ==========
Total Return ............................... 23.68% (1.93)% 12.37% 2.85%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......... $ 76,771 $ 65,464 $ 92,348 $ 11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 2.74% 2.70% 2.59% 2.80%(5)
Operating expenses including
reimbursement/waiver ................... 1.26% 1.18% 1.14% 1.11%(5)
Operating expenses excluding
reimbursement/waiver ................... 1.30% 1.18% 1.25% 2.39%(5)
Portfolio Turnover Rate .................... 41% 23% 7% 2%(4)
Average Commission Rate Paid(A) ............ N/A N/A N/A N/A
</TABLE>
- ------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Trust
and Retail Shares. On September 7, 1995, Retail Shares of the Fund were
redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 were $0.24 and $0.08,
respectively.
(4) Not Annualized.
(5) Annualized.
(A) Required for fiscal years beginning on or after September 1, 1995.
-12-
<PAGE> 1183
The Small Cap Value Fund and Growth and Income Fund commenced operations
on December 14, 1992 as separate investment portfolios (the "Predecessor Small
Cap Value Fund" and the "Predecessor Growth and Income Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold two series of shares of beneficial interest
that were similar to the Funds' Trust Shares and Retail A Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Small Cap Value and Growth and
Income Funds' Trust Shares for the fiscal year ended October 31, 1996 and (ii)
the investment results of the Predecessor Funds' Trust Shares (the series that
is similar to the Trust Shares of the Small Cap Value and Growth and Income
Funds) for the fiscal years ended October 31, 1995 and October 31, 1994 and the
fiscal period ended October 31, 1993. The information about the Small Cap Value
and Growth and Income Funds for the fiscal year ended October 31, 1996 has been
audited by (______________________), Galaxy's independent accountants, whose
report is contained in Galaxy's Annual Report to Shareholders relating to the
Funds dated October 31, 1996 (the "Annual Report"). The information about the
Predecessor Small Cap Value and Predecessor Growth and Income Funds for the
fiscal years ended October 31, 1995 and October 31, 1994 and the fiscal period
ended October 31, 1993 was audited by (____________), independent accountants
for the Predecessor Funds, whose report is contained in The Shawmut Funds'
Annual Report to Shareholders relating to the Predecessor Funds dated October
31, 1995 (the "Shawmut Annul Report"). The financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and the Shawmut Annual Report and (_________________________) into
the Statement of Additional Information relating to these Funds. More
information about the performance of the Funds is contained in the Annual
Report which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
-13-
<PAGE> 1184
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31, October 31,
1996 1995 1994 1993(1,2)
------ ------ ------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 11.07 $ 11.21 $ 10.00
----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(3,4) ................. 0.01 0.02 --
Net realized and unrealized gain/(loss)
on investments ......................... 2.21 0.17 1.21
----------- ----------- -----------
Total from Investment Operations: ... 2.22 0.19 1.21
----------- ----------- -----------
Less Dividends:
Dividends from net
investment income(4) ................... (0.01) (0.01) --
Dividends from net realized
capital gains .......................... (0.57) (0.32) --
----------- ----------- -----------
Total Dividends(4) ................... (0.58) (0.33) --
----------- ----------- -----------
Net increase (decrease) in net asset value ... 1.64 (0.14) 1.21
----------- ----------- -----------
Net Asset Value, End of Period ............... $ 12.71 $ 11.07 $ 11.21
=========== =========== ===========
Total Return ................................. 21.52% 1.86% 12.12%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $ 121,364 $ 101,905 $ 100,382
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 0.07% 0.15% 0.02%(5)
Operating expenses including
reimbursement/waiver ..................... 1.10% 1.06% 1.01%(5)
Operating expenses excluding
reimbursement/waiver ..................... 1.35% 1.34% 1.29%(5)
Portfolio Turnover Rate ...................... 32% 29% 29%(6)
Average Commission Rate Paid(7) .............. N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively.
In connection with the reorganization, the predecessor shareholders
exchanged Investment Shares and Trust Shares, respectively, in the Galaxy
Small Cap Value Fund.
(3) Represents less than $0.01 per share for the year 1993.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
of the Investment Adviser and/or Administrators for the fiscal years ended
October 31, 1995 and 1994 were $(0.03) and $(0.01), respectively.
(5) Annualized.
(6) Not Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
-14-
<PAGE> 1185
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Year
Ended Ended Year Ended Period Ended
October 31, October 31, October 31, October 31,
1996 1995 1994 1993(1,2)
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $ 11.15 $ 10.69 $ 10.00
----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(3) .................. 0.28 0.25 0.18
Net realized and unrealized gain/(loss)
on investments ........................ 1.69 0.72 0.69
----------- ----------- -----------
Total from Investment Operations: .. 1.97 0.97 0.87
----------- ----------- -----------
Less Dividends:
Dividends from net investment income ...... (0.28) (0.23) (0.18)
Dividend from net realized capital
gains ................................. (0.49) (0.28) --
----------- ----------- -----------
Total Dividends ..................... (0.77) (0.51) (0.18)
----------- ----------- -----------
Net increase (decrease) in net asset value .. 1.20 0.46 0.69
----------- ----------- -----------
Net Asset Value, End of Period .............. $ 12.35 $ 11.15 $ 10.69
=========== =========== ===========
Total Return ................................ 18.80% 9.45% 8.80%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........... $ 189,011 $ 156,827 $ 147,090
Ratio to average net assets:
Net investment income including
reimbursement/waiver .................... 2.42% 2.31% 2.11%(4)
Operating expenses including
reimbursement/waiver .................... 1.07% 1.04% 0.98%(4)
Operating expenses excluding
reimbursement/waiver .................... 1.27% 1.24% 1.25%(4)
Portfolio Turnover Rate ..................... 51% 73% 38%(5)
Average Commission Rate Paid(6) ............. N/A N/A N/A
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively.
In connection with the reorganization, the predecessor shareholders
exchanged Investment Shares and Trust Shares, respectively, in the Galaxy
Growth and Income Fund.
(3) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the fiscal years ended October
31, 1995 and 1994 and the fiscal period ended October 31, 1993 were $0.25,
$0.22 and $0.15, respectively.
(4) Annualized.
(5) Not Annualized
(6) Required for fiscal years beginning on or after September 1, 1995.
-15-
<PAGE> 1186
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc., the Funds' investment adviser ("Fleet" or
the "Investment Adviser"), and, with respect to the International Equity Fund,
Oechsle International Advisors, L.P. ("Oechsle" or the "Sub-Adviser"), will use
their best efforts to achieve each Fund's investment objective, although such
achievement cannot be assured. The investment objective of a Fund may not be
changed without the approval of the holders of a majority of its outstanding
Shares (as defined under "Miscellaneous"). Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
shareholder approval. An investor should not consider an investment in the Funds
to be a complete investment program.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that the Investment
Adviser believes to be undervalued, as measured by various financial tests,
including one or more of the following: cash flow, return on equity, return on
assets, fixed charge coverage and ratios of market capitalization to revenues.
In addition, the Fund's Investment Adviser considers the current value of an
issuer's fixed assets (including real estate), cash items, net working capital,
indebtedness and historical book value. The Fund also seeks to purchase stock
with a projected price-earnings ratio below that of the S&P 500. The Investment
Adviser invests less than 25% of the value of the Fund's total assets at the
time of purchase in securities of issuers conducting their principal business
activities in the same industry.
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that the Investment Adviser believes to be
undervalued. Debt securities convertible into common stock are purchased
primarily during periods of relative market instability and are acquired
principally for income with the potential for appreciation being a secondary
consideration. Equity investments consist primarily of common stock of companies
having capitalizations that exceed $100 million. Stocks of such companies
generally are listed on a national exchange or are unlisted securities with an
established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in the
opinion of the Investment Adviser, existing market and economic conditions may
warrant, including
-16-
<PAGE> 1187
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and other high quality "money market" instruments. The Fund
may also hold cash pending investment, during temporary defensive periods or if,
in the opinion of the Investment Adviser, suitable stock or convertible debt
securities are unavailable.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). See "Special Risk
Considerations" and "Other Investment Policies and Risk Considerations" below.
The Fund may also write covered call options. For additional information
concerning investments in options and similar securities, see "Other Investment
Policies and Risk Considerations -- Options and Futures Contracts" and "Other
Investment Policies and Risk Considerations -- Derivative Securities" below. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's Investment Adviser believes will
increase future earnings to a level above the average earnings of similar
issuers. Such companies often retain their earnings to finance current and
future growth and, for this reason, generally pay little or no dividends. Equity
securities in which the Fund invests are selected based on analysis of trends in
industries and companies, earning power, growth features, quality and depth of
management, marketing and manufacturing skills, financial conditions and other
investment criteria. By investing in convertible securities, the Fund will seek
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible. The
Investment Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations" and "Other Investment
Policies and
-17-
<PAGE> 1188
Risk Considerations" below. The Fund may also write covered call options. See
"Other Investment Policies and Risk Considerations -- Options and Futures
Contracts" and "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation
in cash, "money market" instruments (such as those listed under "Other
Investment Policies and Risk Considerations" below) and U.S. Government
obligations at such times and in such proportions as, in the opinion of the
Investment Adviser, prevailing market or economic conditions warrant. See "Other
Investment Policies and Risk Considerations" below for information regarding
additional investment policies of the Equity Growth Fund.
EQUITY INCOME FUND
The Equity Income Fund's investment objective is to seek current income
and capital appreciation. The Fund attempts to achieve its investment objective
by investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements. Less than 25% of the value of the
Fund's total assets at the time of purchase will be invested in securities of
issuers conducting their principal business activities in the same industry.
The Equity Income Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and EDRs.
See "Special Risk Considerations" and "Other Investment Policies and Risk
Considerations" below. The Fund may also write covered call options. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts"
and "Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
As a temporary defensive measure, the Fund may invest without limitation
in cash, "money market" instruments (such as those listed under "Other
Investment Policies and Risk Considerations" below) and U.S. Government
obligations at such times and in such proportions as, in the opinion of the
Investment Adviser, prevailing market or economic conditions warrant. See "Other
Investment Policies and Risk Considerations" below for information regarding
additional investment policies of the Equity Income Fund.
-18-
<PAGE> 1189
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing at least 75% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, current income will
not be its primary consideration. The Fund emphasizes established companies,
although it may invest in companies of varying sizes as measured by assets,
sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and The United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 15% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the
Fund only through investment in other
-19-
<PAGE> 1190
investment companies that are specifically authorized to invest in such
securities. The limitations on the Fund's investment in other investment
companies are described below under "Other Investment Policies and Risk
Considerations -- Investment Company Securities."
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested in short-term debt
instruments. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold short-term investments
for a limited time pending availability of suitable equity securities. The
short-term debt instruments in which the Fund may invest may be denominated in
foreign currencies or U.S. dollars, and include foreign and domestic: (i)
short-term debt securities, including short-term obligations of national
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) commercial paper, including master notes; (iii) bank
obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances, and Euro-currency instruments and securities; and (iv)
repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the
purpose of hedging its portfolio, purchase and write covered call options on
specific portfolio securities and may purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. In
addition, the Fund may invest up to 100% of its total assets in securities of
foreign issuers in the form of ADRs, EDRs or Global Depository Receipts ("GDRs")
as described under "Other Investment Policies and Risk Considerations."
Furthermore, the Fund may purchase and sell securities on a when-issued basis.
For temporary defensive purposes, the Fund may also invest a major portion of
its assets in securities of United States issuers. Less than 25% of the value of
the Fund's total assets at the time of purchase will be invested in securities
of issuers conducting their principal business activities in the same industry.
See "Other Investment Policies and Risk Considerations" below regarding
additional investment policies of the Fund.
SMALL COMPANY EQUITY FUND
The Small Company Equity Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with capitalizations of $500 million or
less ("Small Capitalization Securities") which the Fund's Investment Adviser
-20-
<PAGE> 1191
believes represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include
common stock, preferred stock, securities convertible into common stock, rights
and warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
capitalizations of $500 million or less. For temporary defensive purposes, the
Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs and EDRs. See "Special Risk
Considerations" and "Other Investment Policies and Risk Considerations" below.
The Fund may purchase and write covered call options as a hedge against
changes resulting from market conditions and in the value of the securities held
in the Fund or which it intends to purchase and where the transactions are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. See "Other Investment Policies and Risk Considerations
- -- Options and Futures Contracts" and "Other Investment Policies and Risk
Considerations -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation
in cash, "money market" instruments (such as those listed under "Other
Investment Policies and Risk Considerations" below) and U.S. Government
obligations at such times and in such proportions as, in the opinion of the
Investment Adviser, prevailing market or economic conditions warrant. See "Other
Investment Policies and Risk Considerations" below for information regarding
additional investment policies of the Small Company Equity Fund.
-21-
<PAGE> 1192
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. The Investment Adviser interprets the
objective to refer to the Dow Jones Industrial Average (of 30 companies listed
on the New York Stock Exchange) and the S&P 500. Due to the Fund's expenses, net
income distributed to shareholders may be less than that of these averages.
The Fund attempts to achieve its investment objective and at the same time
reduce volatility by allocating its assets among short-term obligations, common
stock, preferred stock and bonds. The proportion of the Fund's assets invested
in each type of security will vary from time to time as a result of the
Investment Adviser's interpretation of economic and market conditions. However,
at least 25% of the Fund's total assets will at all times be invested in
fixed-income senior securities, including debt securities and preferred stocks.
In selecting common stock for purchase by the Fund, the Investment Adviser will
analyze the potential for changes in earnings and dividends for a foreseeable
period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing ADRs and EDRs. Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations" and "Other Investment Policies and Risk
Considerations" below. The Fund may also invest in dollar-denominated high
quality debt obligations of U.S. corporations issued outside the United States.
The Fund may write covered call options, purchase asset-backed securities and
mortgage-backed securities and enter into foreign currency exchange
transactions. See "Other Investment Policies and Risk Considerations" below.
As a temporary defensive measure, the Fund may invest without limitation
in cash, "money market" instruments (such as those listed under "Other
Investment Policies and Risk Considerations" below) and U.S. Government
obligations at such times and in such proportions as, in the opinion of the
Investment Adviser, prevailing market and economic conditions
-22-
<PAGE> 1193
warrant. See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal circumstances, at least 65% of its assets in equity
securities of companies that have a market value capitalization of up to $1
billion.
Small capitalization stocks have historically been more volatile in price
than larger capitalization stocks, such as those included in the S&P 500. This
is because, among other things, smaller companies have a lower degree of
liquidity in the equity market and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, these stocks may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stock of small capitalization companies
may decline in price as the prices of large company stocks rise or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations --
Convertible Securities" below. The Fund may also buy and sell options and
futures contracts and utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts,"
"Other Investment Policies and Risk Considerations -- Stock Index Futures, Swap
Agreements, Indexed Securities and Options" and "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
The Fund may invest in securities of foreign issuers which are freely
traded on United States securities exchanges or in the over-the-counter market
in the form of ADRs and EDRs. Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk appears
to the Investment Adviser to be substantial. See "Special Risk Considerations"
and "Other Investment Policies and Risk Considerations" below.
-23-
<PAGE> 1194
As a temporary defensive measure, in such proportions as, in the judgment
of the Investment Adviser, prevailing market conditions warrant, the Fund may
invest in: (i) short-term money market instruments (such as those listed below
under "Other Investment Policies and Risk Considerations") rated in one of the
top two rating categories by a nationally recognized statistical rating
organization, such as Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") or Fitch Investors Service, L.P. ("Fitch");
(ii) securities issued and/or guaranteed as to payment of principal and interest
by the U.S. Government, its agencies, or instrumentalities; and (iii) repurchase
agreements. Additional information about the types of money market instruments
and U.S. Government obligations in which the Small Cap Value Fund is permitted
to invest is contained in the Statement of Additional Information relating to
the Fund. See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Cap Value
Fund.
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing in a
professionally managed, diversified portfolio consisting primarily of common
stocks of companies with prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market conditions, the Fund will invest at least 65% of its assets in growth and
income equity securities. The Fund seeks to achieve a current dividend yield
that exceeds the composite yield of securities included on the S&P 500.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. See
"Small Company Equity Fund" and "Small Cap Value Fund" above for a description
of the risks associated with investments in small capitalization stocks.
Investors should expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations --
Convertible Securities" below. The Fund may also buy and sell options and
futures contracts and utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts,"
"Other Investment Policies and Risk Considerations -- Stock Index Futures, Swap
Agreements, Indexed Securities and Options" and
-24-
<PAGE> 1195
"Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
The Fund may invest in securities of foreign issuers which are freely
traded on United States securities exchanges or in the over-the-counter market
in the form of ADRs and EDRs. Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of foreign issuers if any such risk appears to
the Investment Adviser to be substantial. See "Special Risk Considerations" and
Other Investment Policies and Risk Considerations" below.
As a temporary defensive measure, in such proportions as, in the judgment
of the Investment Adviser, prevailing market conditions warrant, the Fund may
invest in: (i) short-term money market instruments (such as those listed below
under "Other Investment Policies") rated in one of the top two rating categories
by a nationally recognized statistical rating organization, such as S&P, Moody's
or Fitch; (ii) securities issued and/or guaranteed as to payment of principal
and interest by the U.S. Government, its agencies, or instrumentalities; and
(iii) repurchase agreements. Additional information about the types of money
market instruments and U.S. Government obligations in which the Fund is
permitted to invest is contained in the Statement of Additional Information
relating to the Fund. See "Other Investment Policies and Risk Considerations"
below for information regarding additional investment policies of the Growth
and Income Fund.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
Each Fund invests primarily (or with respect to the Asset Allocation Fund,
to a significant degree) in equity securities. As with other mutual funds that
invest primarily or to a significant degree in equity securities, the Funds are
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, their
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and debt securities
fluctuate inversely with interest rate changes.
-25-
<PAGE> 1196
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about the issuers, less
market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of a Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of a Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange-rate developments, the Funds are subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
securities markets. The risks of expropriation, nationalization and social,
political and economic instability are greater in those countries than in more
developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one
or more of the Funds has the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be
utilized or, if it is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Equity
Value, Equity Growth, Equity Income, Small Company Equity and Asset Allocation
Funds are rated investment grade by Moody's ("Aaa," "Aa," "A" and "Baa") or S&P
("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser. Debt securities rated "Baa" by
Moody's or "BBB" by S&P are generally considered to be
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<PAGE> 1197
investment grade securities although they may have speculative characteristics
and changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher grade debt obligations.
The International Equity Fund may only purchase debt securities rated "A"
or higher by Moody's or S&P, or if unrated, determined by the Investment Adviser
or Sub-Adviser to be of comparable quality. Issuers of commercial paper, bank
obligations or repurchase agreements in which the International Equity Fund
invests must have, at the time of investment, outstanding debt rated A or higher
by Moody's or S&P, or, if they are not rated, the instrument purchased must be
determined to be of comparable quality.
The Small Cap Value and Growth and Income Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch, or at
the time of investment. See "Other Investment Policies and Risk Considerations
- -- Convertible Securities" below for a discussion of the risks of investing in
convertible bonds rated either "Ba" or "BB". Short-term money market instruments
purchased by the Small Cap Value and Growth and Income Funds must be rated in
one of the top two rating categories by a nationally recognized statistical
rating agency, such as Moody's, S&P or Fitch.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in other "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S.
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<PAGE> 1198
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the Federal Deposit Insurance Corporation. With respect to each Fund other
than the Small Cap Value and Growth and Income Funds, bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited (i) with respect to the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity and Asset Allocation Funds, to the obligations of financial institutions
having more than $1 billion in total assets at the time of purchase, and (ii)
with respect to the Small Cap Value and Growth and Income Funds, to the
obligations of financial institutions having capital, surplus and undivided
profits of over $100 million or obligations where the principal amount of the
instrument is insured in full by the FDIC. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% (15% with respect to the Small Cap Value Fund and
Growth and Income Fund) of a Fund's total assets.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
a Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations -- Foreign Securities." A
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when the Investment Adviser and/or the Sub-Adviser
believe that the credit risk with respect to the instrument is minimal.
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<PAGE> 1199
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by the Investment Adviser and/or the Sub-Adviser under guidelines
approved by Galaxy's Board of Trustees. No Fund will enter into repurchase
agreements with Fleet or Oechsle or any of their affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% limit described
below in Investment Limitation No. 3 under "Investment Limitations" with respect
to the Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds, and to the 15% limit described below
in Investment Limitation No. 7 under "Investment Limitations" with respect to
the Small Cap Value and Growth and Income Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
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<PAGE> 1200
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Small Cap Value and
Growth and Income Funds' policies with respect to reverse repurchase agreements
is contained in the Statement of Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term (except in the case of
the Small Cap Value and Growth and Income Funds which may loan their securities
on a long-term or short-term basis or both), will be made only to borrowers
deemed by the Investment Adviser and/or the Sub-Adviser to be of good standing
and only when, in the Investment Adviser's and/or the Sub-Adviser's judgement,
the income to be earned from the loan justifies the attendant risks. The Funds
currently intend to limit the lending of their portfolio securities so that, at
any given time, securities loaned by a Fund represent not more than one-third of
the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds may invest in securities issued
by other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Small Cap Value and Growth and Income Funds may invest in other investment
companies primarily for the purpose of investing their short-term cash which has
not yet been invested in other portfolio instruments. However, from time to
time, on a temporary basis, the Small Cap Value and Growth and Income Funds may
invest exclusively in one other investment
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<PAGE> 1201
company similar to the respective Funds. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Except as provided above with respect to the Small Cap Value and
Growth and Income Funds, securities of other investment companies will be
acquired by a Fund within the limits prescribed by the Investment Company Act of
1940, as amended (the "1940 Act"). Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of other
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund; and (d) not more
than 10% of the outstanding voting stock of any one closed-end investment
company will be owned in the aggregate by the Funds, other investment portfolios
of Galaxy, or any other investment companies advised by the Investment Adviser
or the Sub-Adviser.
OPTIONS AND FUTURES CONTRACTS
Covered Call Options -- Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity and Asset Allocation Funds. To
further increase return on their portfolio securities, in accordance with their
investment objectives and policies, the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may engage in writing covered call options (options on securities owned by a
Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. The Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option of the same
series. Such options would normally be written only on underlying securities
as to which the Investment
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<PAGE> 1202
Adviser and/or Sub-Adviser does not anticipate significant short-term capital
appreciation.
Options on Foreign Stock Indexes -- International Equity Fund. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised. For additional
information relating to option trading practices and related risks, see
"Derivative Securities" below and the Statement of Additional Information
relating to the Fund.
Options and Futures Contracts -- Small Cap Value and Growth and Income
Funds. The Small Cap Value and Growth and Income Funds may buy and sell options
and futures contracts to manage their exposure to changing interest rates,
security prices and currency exchange rates. The Funds may invest in options and
futures based on any type of security, index, or currency, including options and
futures based on foreign exchanges (see "Options on Foreign Stock Indexes --
International Equity Fund" above) and options not traded on exchanges. Some
options and futures strategies, including selling futures, buying puts, and
writing calls, tend to hedge a Fund's investments against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of the overall strategy.
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<PAGE> 1203
Options and futures can be volatile investments, and involve certain
risks. If the Investment Adviser applies a hedge at an inappropriate time or
judges market conditions incorrectly, options and futures may lower a Fund's
individual return. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. See the Statement of Additional Information for additional information
as to the Funds' policies on options and futures trading.
The Small Cap Value and Growth and Income Funds will not hedge more than
20% of their respective total assets by selling futures, buying puts, and
writing calls under normal conditions. The Funds will not buy futures or write
puts whose underlying value exceeds 20% of their respective total assets, and
will not buy calls with a value exceeding 5% of their respective total assets.
Stock Index Futures, Swap Agreements, Indexed Securities and Options --
Small Cap Value and Growth and Income Funds. The Small Cap Value and Growth and
Income Funds may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Funds' respective total
assets. The Funds will not purchase options to the extent that more than 5% of
the value of their respective total assets would be invested in premiums on open
put option positions. In addition, the Funds do not intend to invest more than
5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When a
Fund enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by that Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds plan
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a
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<PAGE> 1204
distortion of the relationship between the index and the futures market. In
addition, because the futures market imposes less burdensome margin requirements
than the securities market, an increased amount of participation by speculators
in the futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The International Equity Fund may
also invest in GDRs. ADRs are receipts issued in registered form by a U.S. bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. EDRs are receipts issued in Europe typically by non-U.S. banks
or trust companies and foreign branches of U.S. banks that evidence ownership of
foreign or U.S. securities. GDRs are receipts structured similarly to EDRs and
are marketed globally. ADRs may be listed on a national securities exchange or
may be traded in the over-the-counter market. EDRs are designed for use in
European exchange and over-the-counter markets. GDRs are designed for trading in
non-U.S. securities markets. ADRs, EDRs and GDRs traded in the over-the-counter
market which do not have an active or substantial secondary market will be
considered illiquid and therefore will be subject to the Funds' respective
limitations with respect to such securities. ADR prices are denominated in U.S.
dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities. Certain of these risks
are described above under "Special Risk Considerations."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds from time to time
may enter into foreign currency exchange transactions to convert the U.S. dollar
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities
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<PAGE> 1205
denominated in a foreign currency. This technique permits the assessment of the
merits of a security to be considered separately from the currency risk. By
separating the asset and the currency decision, it is possible to focus on the
opportunities presented by the security apart from the currency risk. Although
forward foreign currency exchange contracts are of short duration, generally
between one and twelve months, the forward foreign currency exchange contracts
are rolled over in a manner consistent with a more long-term currency decision.
Because there is a risk of loss to a Fund if the other party does not complete
the transaction, forward foreign currency exchange contracts will be entered
into only with parties approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency -- for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S. dollars
- -- at a future date and at a specified price in anticipation of a decline in the
value of the currency sold short relative to the currency that the Fund has
contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash, U.S. Government securities or other liquid high-grade debt securities
equal in value to the fluctuating market value of the currency as to which the
short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the applicable Statement of Additional
Information relating to the Fund for additional information regarding foreign
currency exchange transactions.
ASSET-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic
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<PAGE> 1206
factors will be involved. See "Asset-Backed Securities" in the
Statement of Additional Information relating to the Fund.
MORTGAGE-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities
provide a monthly payment consisting of interest and principal payments.
Additional payment may be made out of unscheduled repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred. Prepayments of principal
on mortgage-backed securities may tend to increase due to refinancing of
mortgages as interest rates decline. To the extent that the Fund purchases
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal by mortgagors (which may be made at any time without penalty) may
result in some loss of the Fund's principal investment to the extent of the
premium paid. The yield of the Fund, should it invest in mortgage-backed
securities, may be affected by reinvestment of prepayments at higher or lower
rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates. To the extent that collateralized mortgage
obligations are considered to be investment companies, investments in such
obligations will be subject to the percentage limitations described above under
"Other Investment Policies and Risk Considerations -- Investment Company
Securities."
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<PAGE> 1207
MORTGAGE DOLLAR ROLLS -- ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government securities or other liquid, high grade
debt securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom the Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities
may take
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the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Usable bonds are corporate bonds
that can be used in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. A Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the Investment
Adviser's and/or Sub-Adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, a Fund will hold or trade the convertible securities. In
selecting convertible securities for a Fund, the Investment Adviser and/or
Sub-Adviser evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the Investment Adviser and/or
Sub-Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
The Small Cap Value and Growth and Income Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch, or "Ba" or higher by Moody's at the
time of investment. Securities rated "BB" by S&P or Fitch or "Ba" by Moody's
provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or determined
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<PAGE> 1209
to be, investment grade are high-yield, high-risk bonds, typically subject to
greater market fluctuations, and securities in the lowest rating category may be
in danger of loss of income and principal due to an issuer's default. To a
greater extent than investment-grade bonds, the value of lower-rated bonds tends
to reflect short-term corporate, economic, and market developments, as well as
investor perceptions of the issuer's credit quality. In addition, lower-rated
bonds may be more difficult to dispose of or to value than high-rated,
lower-yielding bonds. The Investment Adviser will attempt to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer, as well as by monitoring broad economic trends and corporate and
legislative developments. If a convertible bond is rated below "BB" or "Ba"
after a Fund has purchased it, the Fund is not required to eliminate the
convertible bond from the portfolio, but will consider appropriate action. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information relating to the Small
Cap Value and Growth and Income Funds.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, put and call options, stock index futures and
options, indexed securities and swap agreements, and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based;
liquidity risk that a Fund will be unable to sell a derivative security when it
wants because of lack of market depth or market disruption; pricing risk that
the value of a derivative security will not correlate exactly to the value of
the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others,
and for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
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The Investment Adviser and/or the Sub-Adviser will evaluate the risks
presented by the derivative securities purchased by the Funds, and will
determine, in connection with their day-to-day management of the Funds, how such
securities will be used in furtherance of the Funds' investment objectives. It
is possible, however, that the Investment Adviser's evaluations will prove to be
inaccurate or incomplete and, even when accurate and complete, it is possible
that the Funds will, because of the risks discussed above, incur loss as a
result of their investments in derivative securities. See "Investment Objectives
and Policies -- Derivative Securities" in the applicable Statement of Additional
Information for additional information relating to the Funds.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS -- INTERNATIONAL
EQUITY, SMALL CAP VALUE AND GROWTH AND INCOME FUNDS
The International Equity, Small Cap Value and Growth and Income Funds may
purchase eligible securities on a "when-issued" basis. The Small Cap Value and
Growth and Income Funds may also purchase eligible securities on a "delayed
settlement" basis. When-issued transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
A Fund may dispose of a commitment prior to settlement if the Investment
Adviser or Sub-Adviser, as the case may be, deems it appropriate to do so. In
addition, a Fund may enter into transactions to sell its purchase commitments
to third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may
realize short-term profits or losses upon the sale of such commitments.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
the Investment Adviser and/or the Sub-Adviser believes that such a disposition
is consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves
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correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by a Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
Federal income tax purposes. See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a particular Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the applicable Statements
of Additional Information under "Investment Objectives and Policies."
The Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10%,
with respect to the Equity Value Fund, or 33%, with respect to the Equity
Growth, Equity Income, International Equity, Small Company Equity and
Asset Allocation Funds, of the value of its total assets at the time of
such borrowing (provided that the Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment policies and in
amounts not in excess of 10%, with respect to the Equity Value Fund, or
33%, with respect to the Equity Growth, Equity Income, International
Equity, Small Company Equity and Asset Allocation Funds, of the value of
their respective total assets at the time of such borrowing); or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10%, with respect to the Equity Value Fund, or 33%, with
respect to the Equity Growth, Equity Income, International Equity, Small
Company Equity
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and Asset Allocation Funds, of the value of a Fund's total assets at the
time of such borrowing. No Fund will purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven
days, restricted securities (with respect to the Equity Value Fund),
securities which are restricted as to transfer in their principal market
(with respect to the International Equity Fund), non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of a Fund's total assets would be invested in such issuer, except
that up to 25% of the value of its total assets may be invested without
regard to this limitation.
The Small Cap Value and Growth and Income Funds may not:
5. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective total assets
and pledge up to 10% of the value of their respective total assets to
secure such borrowings.
6. With respect to 75% of the value of their respective total
assets, invest more than 5% in securities of any one issuer, other than
cash, cash items, or securities issued or guaranteed by the government of
the United States or, its agencies or instrumentalities and repurchase
agreements collateralized by such securities, or acquire more than 10% of
the outstanding voting securities of any one issuer.
The following investment policy may be changed by Galaxy's Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective:
7. The Small Cap Value and Growth and Income Funds may not invest
more than 15% of their respective net assets
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in securities subject to restrictions on resale under the Securities Act
of 1933 (except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value
Fund intends to limit any borrowings (including reverse repurchase agreements to
not more than 10% of the value of its total assets at the time of such
borrowing) and each of the Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds intends to limit any borrowings
(including reverse repurchase agreements to not more than 33% of the value of
its total assets at the time of such borrowing), and (b) mortgage dollar rolls
entered into by the Asset Allocation Fund that are not accounted for as
financings shall not constitute borrowings.
The Small Cap Value and Growth and Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and repurchase agreements providing for settlement in
more than seven days after notice, to 15% of its net assets.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. A Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any
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period that qualified institutional buyers were no longer interested in
purchasing these securities. For purposes of each Fund's 10% limitation (15%
with respect to the Small Cap Value and Growth and Income Funds) on purchases of
illiquid instruments described above, Rule 144A securities will not be
considered to be illiquid if the Investment Adviser and/or the Sub-Adviser has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per Share of a Fund for purposes of pricing sales and redemptions is calculated
separately for each series of Shares by dividing the value of all securities and
other assets attributable to a particular series of Shares of a Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of that series of the Fund.
Valuation of the Equity Value, Equity Growth, Equity Income, Small Company
Equity, Asset Allocation, Small Cap Value and Growth and Income Funds
The assets in the Equity Value, Equity Growth, Equity Income, Small
Company Equity, Asset Allocation, Small Cap Value and Growth and Income Funds
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 quoted
on the NASD National Market System are also valued at the last sale price. Other
securities traded on over-the-counter markets are valued on the basis of their
closing over-the-counter bid prices. Securities for which there were no
transactions are valued at the average of the most recent bid and asked prices.
Investments in debt securities with remaining maturities of 60 days or less are
valued based upon the amortized cost method. Restricted securities, securities
for which market quotations are not readily available, and other assets are
valued
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at fair value by the Investment Adviser under the supervision of Galaxy's Board
of Trustees. An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price. See "Valuation of
International Equity Fund" below for a description of the valuation of certain
foreign securities held by the Equity Value, Equity Growth, Equity Income, Small
Company Equity, Asset Allocation, Small Cap Value and Growth and Income Funds.
Valuation of the International Equity Fund
The International Equity Fund's portfolio securities which are primarily
traded on a domestic exchange are valued at the last sale price on that exchange
or, if there is no recent sale, at the last current bid quotation. Portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value, then the fair value of
those securities will be determined through consideration of other factors by or
under the direction of the Board of Trustees. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in debt
securities having a maturity of 60 days or less are valued based upon the
amortized cost method. All other securities are valued at the last current bid
quotation if market quotations are available, or at fair value as determined in
accordance with policies established in good faith by Galaxy's Board of
Trustees. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market rate
on the day of valuation. An option is generally valued at the last sale price
or, in the absence of a last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's Shares may be significantly affected on days when investors can
neither purchase nor redeem Shares of the Fund.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, 440 Financial Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of First Data Investor Services Group, Inc. The
Distributor is a registered
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broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to the Distributor orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. The Distributor is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which the Distributor, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by the Distributor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be priced at the net asset value
determined on that day, provided that the Fund's custodian receives the purchase
price in federal funds or other immediately available funds prior to 4:00 p.m.
on the following Business Day, at which time the order will be executed. If
funds are not received by such date and time, the order will not be accepted and
notice thereof will be given promptly to the Institution which submitted the
order. Payments for orders which are not received or accepted will be returned
after prompt inquiry to the sending Institution. If an Institution accepts a
purchase order from its Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Distributor on a Business Day
in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in
part.
The issuance of Trust Shares is recorded on the books of the Funds and
Trust Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts,
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agency accounts and different types of tax-advantaged accounts. Investors should
contact their Institution (in the case of employer-sponsored defined
contribution plans, their employer) for further information concerning the types
of eligible Customer accounts and the related purchase and redemption
procedures.
Although Galaxy does not impose any minimum initial or subsequent
investment requirements with respect to Trust Shares, Institutions may impose
such requirements on the accounts maintained by their customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by an Institution to their
Customers. Information pertaining to such plans is available directly from the
Institution.
Trust Shares of the International Equity Fund described in this Prospectus
may also be sold to clients, partners and employees of the Sub-Adviser to the
International Equity Fund.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to the
Distributor and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by the Distributor. Payment for redemption
orders received by the Distributor on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
Shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value and
Growth and Income Funds are declared and paid quarterly. Dividends from net
investment income of the International Equity Fund are declared and paid
annually. Dividends on each share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by each series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
Each of the Funds qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such qualification generally
relieves a Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) Such ordinary income distributions will qualify for
the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of the excess of its net long-term capital gain
over its net short-term capital loss is taxable to shareholders as long-term
capital gain, regardless of how long
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the shareholder has held shares and whether such gains are received in cash or
reinvested in additional Trust Shares. Such distributions are not eligible for
the dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying Shares of a Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of Shares of a Fund depending upon the tax basis of such
Shares and their price at the time of redemption, transfer or exchange.
It is expected that the International Equity Fund will be subject to
foreign withholding taxes with respect to income received from sources within
foreign countries. So long as more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may elect, for U.S. federal income tax purposes,
to treat certain foreign taxes paid by it, including generally any withholding
taxes and other foreign income taxes, as paid by its shareholders. If the Fund
makes this election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and shareholders would be entitled
either (a) to credit their proportionate amount of such taxes against their U.S.
federal income tax liabilities, subject to certain limitations described in the
Statement of Additional Information, or (b) if they itemize their deductions, to
deduct such proportionate amount from their U.S. income. Shareholders of the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value and Growth and Income Funds should not
expect to claim a foreign tax credit or deduction.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own
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tax situation. Shareholders will be advised annually as to the federal income
tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor, Providence,
Rhode Island 02903, serves as the Investment Adviser to the Funds. Fleet is an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a registered
bank holding company with total assets of approximately $____ billion at
December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions that have been delegated to the International Equity Fund's
Sub-Adviser as described below).
For the services provided and expenses assumed with respect to the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation,
Small Cap Value and Growth and Income Funds, the Investment Adviser is entitled
to receive advisory fees, computed daily and paid monthly, at the annual rate of
.75% of the average daily net assets of each Fund. For the services provided and
expenses assumed with respect to the International
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Equity Fund, the Investment Adviser is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 1.15% of the first $50
million of the Fund's average daily net assets, plus .95% of the next $50
million of such assets, plus .85% of net assets in excess of $100 million. The
fees for the Funds are higher than fees paid by most other mutual funds,
although the Board of Trustees of Galaxy believes that they are not higher than
average advisory fees paid by funds with similar investment objectives and
policies.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Funds in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Trust Company or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1996,
Fleet received advisory fees (after fee waivers) at the effective annual rates
of 0.__%, 0.__%, 0.__%, 0.__%, 0.__% and 0.__% of the average daily net assets
of the Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds, respectively.
For the period from December 4, 1995 through October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rates of
____% and ____% of the average daily net assets of the Small Cap Value and
Growth and Income Funds, respectively. Without fee waivers, each Fund would have
borne advisory fees at the annual rate of 0.75% of its average daily net assets.
The Predecessor Small Cap Value and Predecessor Growth and Income Funds
bore advisory fees during the period from November 1, 1995 through December 3,
1995 pursuant to the investment advisory agreement then in effect with Shawmut
Bank, N.A., their former adviser at the effective annual rates of ___% and ___%
of each such Predecessor Fund's average daily net assets after fee waivers.
Without fee waivers, each Predecessor Fund would have borne advisory fees at the
annual rate of 1.00% of its average daily net assets.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited partnership, with principal offices at One
International Place, Boston, Massachusetts 02210, as the Sub-Adviser to the
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International Equity Fund. The general partner of Oechsle is Oechsle Group,
L.P., and the managing general partner of Oechsle Group, L.P. is Walter Oechsle.
Oechsle currently manages approximately $9.4 billion in assets. Oechsle began
serving as sub-adviser to the Fund on August 12, 1996.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides the Investment Adviser with foreign broker research and a quarterly
review of international economic and investment developments. Fleet, among other
things, assists and consults with the Sub-Adviser in connection with the Fund's
continuous investment program; approves lists of foreign countries recommended
by the Sub-Adviser for investment; reviews the investment policies and
restrictions of the Fund and recommends appropriate changes to the Board of
Trustees; and provides the Board of Trustees and the Sub-Adviser with
information concerning relevant economic and political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million. For the period from August 12, 1996 through
October 31, 1996, Oechsle received sub-advisory fees from Fleet at the effective
annual rate of ____% of the Fund's average daily net assets.
Prior to August 12, 1996, Wellington Management Company ("Wellington
Management") served as the International Equity Fund's sub-adviser. For the
services provided and expenses assumed pursuant to its sub-advisory agreement,
Wellington Management was entitled to receive a fee from Fleet, computed daily
and paid quarterly, at the annual rate of .50% of the first $50 million of the
Fund's average daily net assets, plus .30% of the next $50 million of such
assets, plus .20% of all net assets in excess of $100 million. For the period
from November 1, 1995 through August 11, 1996, Wellington Management received
sub-advisory fees at the effective annual rate of ___% of the Fund's average
daily net assets.
The Equity Value Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978 and has been the
Fund's portfolio manager since its inception.
The Equity Growth Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management
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of the Fund's investment portfolio. Mr. Armknecht, an Executive Vice President,
has been with Fleet and its predecessors since 1989 and has been the Fund's
portfolio manager since its inception.
The Equity Income Fund's portfolio manager, J. Edward Klisiewicz, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
The International Equity Fund's portfolio managers, David von Hemert of
Fleet and S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. von Hemert, a Senior Vice President, has been with Fleet and its
predecessors since 1980 and has been managing the Fund since August 1994. Mr.
Keesler, General Partner and Portfolio Manager, has been wit Oechsle since its
founding in 1986. Ms. Harris has been a Portfolio Manager at Oechsle since
January 1995. Prior thereto, she was Portfolio Manager and Investment Director
for the State of Wisconsin Investment Board and a Fund Manager and Equity
Analyst for Northern Trust Company.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been
with Fleet and its predecessors since 1976 and has been the Fund's portfolio
manager since its inception.
The Asset Allocation Fund's co-portfolio managers, Donald Jones and David
Lindsay, are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones determines the allocation of the Fund's assets
between equity and fixed income investments and manages the equity portion of
the Fund's investment portfolio. Mr. Lindsay manages the fixed income portion
of the Fund's investment portfolio. Mr. Jones, who currently serves as a Vice
President, has been with Fleet and its predecessors as a portfolio manager
since 1988 and has been the Fund's portfolio manager since May 1, 1995 and has
managed Galaxy's New York Municipal Bond Fund since September 1994. Mr.
Lindsay, a Senior Vice President, has been with Fleet and its predecessors
since 1986. He has managed the fixed income portion of the Fund's portfolio
since _______, 1996 and has managed Galaxy's Corporate Bond Portfolio since its
inception in December 1994.
The Small Cap Value Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Larson served as the portfolio manager of the Predecessor Small Cap Value
Fund since its inception in 1992. He joined Shawmut Bank in 1963 as an
investment officer and was a Vice President in charge of Shawmut Bank's Small
Cap Equity Management product since inception in 1982.
The Growth and Income Fund's portfolio manager, Brendan Henebry, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Henebry served as
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<PAGE> 1224
portfolio manager for the Predecessor Growth and Income Fund since its inception
in 1992. He was associated with Shawmut Bank and its predecessor since 1965 and
was a Vice President since 1978. During the past six years he served as manager
of Shawmut Bank's Growth and Income Equity Management Group.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at 4400
Computer Drive, Westboro, Massachusetts 01581-5108, serves as the Funds'
administrator. FDISG is a wholly-owned subsidiary of First Data Corporation.
FDISG generally assists the Funds in their administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. Effective
September 5, 1996, FDISG is entitled to receive administration fees, computed
daily and paid monthly, at the annual rate of .09% of the first $2.5 billion of
combined average daily net assets of the Funds and the other portfolios offered
by Galaxy (collectively the "Portfolios"), .085% of the next $2.5 billion of
combined average daily net assets and .075% of combined average daily net assets
over $5 billion. Prior to September 5, 1996, for the services provided to the
Funds, FDISG was entitled to receive administration fees,
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<PAGE> 1225
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
daily net assets over $5 billion. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive all or a portion of the administration fee payable to
it by the Funds, either voluntarily or pursuant to applicable statutory expense
limitations. For the fiscal year ended October 31, 1996, the Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity and
Asset Allocation Funds paid administration fees at the effective annual rate of
_____% of each Fund's average daily net assets.
For the period from December 4, 1995 through October 31, 1996, the Small
Cap Value and Growth and Income Funds paid FDISG administration fees at the
effective annual rate of ____% of each Fund's average daily net assets.
The Predecessor Small Cap Value and Predecessor Growth and Income Funds
bore administration fees during the period from November 1, 1995 through
December 3, 1995 pursuant to the agreement then in effect with Federated
Administrative Services, their prior administrator, at the effective annual rate
of ____% of each such Predecessor Fund's average daily net assets after fee
waivers.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each series in the Funds as follows: Class C
shares (Trust Shares), Class C - Special Series 1 shares (Retail A Shares) and
Class C - Special Series 2 shares (Retail B Shares), each series representing
interests in the Equity Value Fund; Class G - Series 1 shares (Trust Shares) and
Class G - Series 2 shares (Retail A Shares), both series representing interests
in the International Equity Fund; Class H - Series 1 shares (Trust Shares),
Class H - Series 2 shares (Retail A Shares) and Class H - Series 3 shares
(Retail B Shares), each series representing interests in the Equity Growth Fund;
Class I - Series 1 shares (Trust Shares) and Class I Series 2 shares (Retail A
Shares), both series representing interests in the Equity Income Fund; Class K -
Series 1 shares (Trust Shares), Class K - Series 2 shares (Retail A Shares) and
Class K - Series 3 shares (Retail B Shares), each series representing interests
in the Small Company Equity Fund; Class N
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<PAGE> 1226
- - Series 1 shares (Trust Shares), Class N - Series 2 shares (Retail A Shares)
and Class N - Series 3 shares (Retail B Shares), each series representing
interests in the Asset Allocation Fund; Class U - Series 1 shares (Trust
Shares), Class U - Series 2 shares (Retail A Shares) and Class U - Series 3
shares (Retail B Shares), each series representing interest in the Growth and
Income Fund; and Class X - Series 1 shares (Trust Shares) and Class X - Series 2
shares (Retail A Shares), each series representing interests in the Small Cap
Value Fund. Each Fund is classified as a diversified company under the 1940 Act.
The Board of Trustees has also authorized the issuance of additional classes and
series of shares representing interests in other portfolios of Galaxy. For
information regarding the Funds' Retail Shares and these other portfolios, which
are offered through separate prospectuses, contact the Distributor at 1-800-
628-0414.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below and holders of Retail B Shares of the
Equity Value Fund, Equity Growth Fund, Small Company Equity Fund, Asset
Allocation and Growth and Income Funds bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate not to exceed .95% of the average daily net asset value of each
Fund's outstanding Retail B Shares. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Each Share of Galaxy (irrespective of series designation) has a par value
of $.001 per Share, represents an equal proportionate interest in the related
Fund with other Shares of the same class (irrespective of series designation),
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of Galaxy's
Board of Trustees.
Retail A Shares of the Funds are sold with a maximum front-end sales
charge of 3.75%. Retail B Shares of the Equity Value Fund, Equity Growth Fund,
Small Company Equity Fund, Asset Allocation Fund and Growth and Income Fund are
sold with a maximum contingent deferred sales charge of 5.0% and automatically
convert to Retail A Shares of the same Fund six years after the date of
purchase. Retail A and Retail B Shares have certain exchange and other
privileges which are not available with respect to Trust Shares.
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<PAGE> 1227
Shareholders are entitled to one vote for each full Share held, and a
proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .50% of the average
daily net asset value of Retail A Shares beneficially owned by Customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such Customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to Customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers
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<PAGE> 1228
who are the beneficial owners of Retail A Shares in connection with their
accounts with such Institutions. Any such fees would be in addition to any
amounts which may be received by an Institution under the Shareholder Services
Plan. Under the terms of each servicing agreement entered into with Galaxy,
Institutions are required to provide to their Customers a schedule of any fees
that they may charge in connection with Customer investments in Retail A Shares.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of the
Investment Adviser, pursuant to which Fleet Bank performs certain sub-account
and administrative functions ("Sub-Account Services") on a per account basis
with respect to Trust Shares of each Fund held by defined contribution plans,
including maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and the
dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to that
sub-account; and transmitting to each participant a periodic statement regarding
the sub-account as well as any proxy materials, reports and other material Fund
communications. Fleet Bank is compensated by FDISG for the Sub-Account Services
and in connection therewith the transfer agency fees payable by Trust Shares of
the Funds to FDISG have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of these Funds indirectly bear
these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Funds' assets. Chase Manhattan
may employ sub-custodians for the Funds upon approval of the Trustees in
accordance with the regulations of the SEC, for the purpose of providing
custodial services for the Funds' foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as the Funds' transfer and dividend disbursing
agent. Services performed by these entities for the Funds are described in the
applicable Statements of Additional Information. Communications to FDISG should
be directed to FDISG at P.O. Box 5108, 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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<PAGE> 1229
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Funds. Galaxy bears the expenses
incurred in the Funds' operations. Such expenses include: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, Rule 12b-1
distribution (if applicable), fund accounting and custody fees; charges of the
transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholders' reports and shareholder meetings; and any extraordinary
expenses. The Funds also pay for brokerage fees and commissions in connection
with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, an unmanaged index of
groups of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange. In addition, the performance of
the International Equity Fund may be compared to either the Morgan Stanley
Capital International Index or the FT World Actuaries Index and the performance
of the Small Company Equity Fund and Small Cap Value Fund may be compared to the
NASDAQ Composite Index, an unmanaged index of over-the-counter stock prices.
Performance and yield data as reported in national financial publications
including, but not limited to, Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times or publications of a local or regional nature may
also be used in comparing the performance and yields of the Funds. The
performance and yield data will be calculated separately for Trust Shares,
Retail A Shares and/or Retail B Shares of the Funds.
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<PAGE> 1230
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per Share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by a Fund during the period
are reinvested in Fund Shares.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of a Fund will not be
included in calculations of yield and performance.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
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MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in an investment
objective or fundamental investment policy, the affirmative vote of the holders
of the lesser of (a) more than 50% of the outstanding shares of Galaxy or a
Fund, or (b) 67% or more of the shares of Galaxy or a Fund present at a meeting
if more than 50% of the outstanding shares of Galaxy or a Fund are represented
at the meeting in person or by proxy.
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<PAGE> 1232
RETAIL
THE GALAXY FUND
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
Asset Allocation Fund
Small Cap Value Fund
Growth and Income Fund
Prospectus
February 28, 1997
<PAGE> 1233
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
HIGHLIGHTS..........................................................
EXPENSE SUMMARY.....................................................
FINANCIAL HIGHLIGHTS................................................
INVESTMENT OBJECTIVES AND POLICIES..................................
Equity Value Fund..........................................
Equity Growth Fund.........................................
Equity Income Fund.........................................
International Equity Fund..................................
Small Company Equity Fund..................................
Asset Allocation Fund......................................
Small Cap Value Fund.......................................
Growth and Income Fund.....................................
Special Risk Considerations................................
Other Investment Policies and Risk Considerations..........
INVESTMENT LIMITATIONS..............................................
PRICING OF SHARES...................................................
HOW TO PURCHASE SHARES..............................................
Distributor................................................
General....................................................
Purchase Procedures -- Customers of Institutions...........
Purchase Procedures -- Direct Investors....................
Other Purchase Information.................................
Applicable Sales Charge -- Retail A Shares ...............
Quantity Discounts.........................................
Applicable Sales Charges - Retail B Shares.................
Characteristics of Retail A Shares and Retail B Shares.....
Factors to Consider When Selecting Retail A Shares or
Retail B Shares............................................
HOW TO REDEEM SHARES................................................
General....................................................
Redemption Procedures -- Customers of Institutions.........
Redemption Procedures -- Direct Investors..................
Other Redemption Information...............................
INVESTOR PROGRAMS...................................................
Exchange Privilege.........................................
Retirement Plans...........................................
-i-
<PAGE> 1234
PAGE
Automatic Investment Program and Systematic Withdrawal
Plan.....................................................
Payroll Deduction Program................................
College Investment Program...............................
Direct Deposit Program...................................
INFORMATION SERVICES..............................................
Galaxy Information Center -- 24 Hour Information
Service..................................................
Voice Response System....................................
Galaxy Shareholder Services..............................
DIVIDENDS AND DISTRIBUTIONS.......................................
TAXES.............................................................
Federal..................................................
State and Local..........................................
MANAGEMENT OF THE FUNDS....................................................
Investment Adviser and Sub-Adviser.......................
Authority to Act as Investment Adviser...................
Administrator............................................
DESCRIPTION OF GALAXY AND ITS SHARES..............................
Shareholder Services Plan................................
Distribution and Services Plan...........................
Affiliate Agreement for Sub-Account Services.............
CUSTODIAN AND TRANSFER AGENT......................................
EXPENSES..........................................................
PERFORMANCE AND YIELD INFORMATION.................................
MISCELLANEOUS.....................................................
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<PAGE> 1235
THE GALAXY FUND
4400 Computer Drive For applications and information
Westboro, Massachusetts concerning initial purchases and current
01581-5108 performance, call 1-800-628- 0414. For
additional purchases, redemptions,
exchanges and other shareholder
services, call 1-800-628-0413.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes eight separate diversified investment
portfolios (individually, a "Fund," collectively, the "Funds") offered to
investors by Galaxy. Each Fund has its own investment objective and policies:
The EQUITY VALUE FUND'S investment objective is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock and debt securities convertible into common stock
that the Fund's investment adviser believes are undervalued.
The EQUITY GROWTH FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
The EQUITY INCOME FUND'S investment objective is to seek current income
and capital appreciation. The Fund attempts to achieve this objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential.
The INTERNATIONAL EQUITY FUND'S investment objective is to seek
long-term capital appreciation. The Fund attempts to achieve this objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in the equity securities of foreign issuers.
The SMALL COMPANY EQUITY FUND'S investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with capitalizations of $500 million or less that
the Fund's
<PAGE> 1236
investment adviser believes represent the potential for significant capital
appreciation. Under normal market and economic conditions, the Fund will invest
at least 65% of its assets in the equity securities of companies with
capitalizations of $500 million or less.
The ASSET ALLOCATION FUND'S investment objective is to seek 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 the Fund's assets. Due to the Fund's expenses, however, net
income distributed to shareholders may be less than that of the averages. The
Fund attempts to achieve this objective and at the same time reduce volatility
by allocating its assets in varying amounts among short-term obligations, common
stocks, preferred stocks and bonds.
The SMALL CAP VALUE FUND'S investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
The GROWTH AND INCOME FUND'S investment objective is to provide a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing in a
professionally managed, diversified portfolio consisting primarily of common
stocks of companies believed to have prospects for above-average growth and
dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in growth and income equity securities. The Fund
seeks to achieve a current dividend yield that exceeds the composite yield of
securities included in the Standard & Poor's 500 Composite Stock Index ("S&P
500").
This Prospectus describes the Retail A Shares representing interests in
each Fund and the Retail B Shares representing interests in the Equity Value,
Equity Growth, Small Company Equity, Asset Allocation and Growth and Income
Funds (Retail A Shares and Retail B Shares are referred to herein collectively
as "Retail Shares"). Retail A Shares are sold with a front-end sales charge.
Retail B Shares are sold with a contingent deferred sales charge. Retail Shares
are offered to customers ("Customers") of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own account or for the accounts of others ("Direct
Investors"). Galaxy is also
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<PAGE> 1237
authorized to issue an additional series of shares in each Fund ("Trust
Shares"), which are offered under a separate prospectus primarily to investors
maintaining qualified accounts at bank and trust institutions, including
institutions affiliated with Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans. Retail A Shares, Retail B Shares
and Trust Shares in a Fund represent equal pro rata interests in the Fund,
except they bear different expenses that reflect the difference in the range of
services provided to them. See "Financial Highlights," "Management of the Funds"
and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and
sponsored and distributed by 440 Financial Distributors, Inc., which is
unaffiliated with Fleet Investment Advisors Inc. and its parent, Fleet Financial
Group, Inc., and affiliates. Oechsle International Advisors, L.P. serves as the
sub-adviser to the International Equity Fund.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, 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 POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statements of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statements of Additional Information are available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statements of Additional Information, as they may be amended
from time to time, are incorporated by reference in their entireties into this
Prospectus.
-3-
<PAGE> 1238
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 28, 1997
-4-
<PAGE> 1239
HIGHLIGHTS
Q: What is The Galaxy Fund?
A: Galaxy is an open-end management investment company (commonly known
as a mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's EQUITY VALUE FUND, EQUITY GROWTH FUND, EQUITY
INCOME FUND, INTERNATIONAL EQUITY FUND, SMALL COMPANY EQUITY FUND, ASSET
ALLOCATION FUND, SMALL CAP VALUE FUND and GROWTH AND INCOME FUND. Prospectuses
for Galaxy's MONEY MARKET, GOVERNMENT, TAX-EXEMPT, U.S. TREASURY, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
TREASURY MONEY MARKET, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND, CORPORATE BOND, TAX-EXEMPT BOND, NEW YORK MUNICIPAL BOND,
CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND
MUNICIPAL BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet" or
the "Investment Adviser"), an indirect wholly-owned subsidiary of Fleet
Financial Group, Inc. Fleet Financial Group, Inc. is a financial services
company with total assets as of December 31, 1996 of approximately $____
billion. Oechsle International Advisors, L.P. ("Oechsle" or the "Sub-Adviser")
serves as the sub-adviser to the International Equity Fund. As of ___________,
1996, Oechsle had discretionary management authority over approximately $_____
billion of assets. See "Management of the Funds -- Investment Adviser and
Sub-Adviser."
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-four mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors, Inc. Retail
Shares of the Funds are sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Retail Shares may
also be
<PAGE> 1240
purchased on behalf of Customers of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased by employees of Fleet
Financial Group, Inc. and its affiliates through payroll deductions. Retail A
Shares of the Funds may be purchased at their net asset value plus a maximum
initial sales charge of 3.75%. Retail A Shares are subject to a shareholder
servicing fee of up to .30% of the average daily net asset value of such Shares.
Retail B Shares of the Fund may be purchased at their net asset value subject to
a contingent deferred sales charge ("CDSC"). The CDSC is paid on certain share
redemptions made within six years of the purchase date at the maximum rate of
5.00% of the lower of (i) the net asset value of the redeemed Shares or (ii) the
original purchase price of the redeemed Shares. Retail B Shares are subject to
shareholder servicing and distribution fees of up to .95% of the average daily
net asset value of such Shares. Share purchase and redemption information for
both Direct Investors and Customers is provided below under "How to Purchase
Shares" and "How to Redeem Shares." Except as provided below under "Investor
Programs," the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum requirements for investors participating in the Automatic
Investment Program described below. Institutions may require Customers to
maintain certain minimum investments in Retail Shares. See "How to Purchase
Shares" below.
Q: When are dividends paid?
A: Dividends from net investment income of the Equity Value, Equity
Growth, Equity Income, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds are declared and paid quarterly. Dividends from net
investment income of the International Equity Fund are declared and paid
annually. Net realized capital gains of each Fund are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional Shares of the same series of Shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: What potential risks are presented by the Funds' investment
practices?
A: One or more of the Funds may invest in foreign securities either
directly or indirectly through American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs") and, in the case of the International
Equity Fund, Global Depository Receipts
-2-
<PAGE> 1241
("GDRs"). Investments in foreign securities incur higher costs than investments
in U.S. securities, including higher transaction costs as well as the imposition
of additional taxes by foreign governments. In addition, foreign investments may
include additional risks associated with currency exchange rates, less complete
financial information about individual companies, less market liquidity, and
political instability. See "Investment Objectives and Policies -- "Special Risk
Considerations -- Foreign Securities." The Small Cap Value and Small Company
Equity Funds invest primarily in small capitalization stocks. The Growth and
Income Fund invests primarily in growth-oriented equity securities, which may
include securities of issuers with small capitalizations. As a result, these
Funds may be more volatile than, and may fluctuate independently of, broad stock
market indices. See "Investment Objectives and Policies." The Small Cap Value
and Growth and Income Funds may invest in lower-rated convertible securities,
which are high-yield, high-risk bonds that are typically subject to greater
market fluctuations and may be more difficult to value or dispose of than
higher-rated, lower-yielding bonds. See "Investment Objectives and Policies -
Other Investment Policies and Risk Considerations -- Convertible Securities."
One or more of the Funds may also invest in certain "derivative" securities,
such as put and call options, stock index futures and options, indexed
securities and swap agreements. Derivative securities derive their value from
the performance of underlying assets, interest rates and indices and as a result
entail additional market and credit risks. See "Investment Objectives and
Policies - "Other Investment Policies and Risk Considerations -- Derivative
Securities."
Q: What shareholder privileges are offered by the Funds?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of
any other Galaxy portfolio which offers Retail A Shares and for shares of any
other investment portfolio otherwise advised by Fleet or its affiliates. Retail
B Shares of the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation and Growth and Income Funds may be exchanged for Retail B Shares of
any other Galaxy portfolio which offers Retail B Shares. In either case,
exchanges are not subject to sales or additional CDSC charges. Galaxy offers
Individual Retirement Accounts ("IRAs"), Simplified Employee Pension Plan
("SEP") and Keogh Plan accounts which can be established by contacting Galaxy's
distributor. Retail Shares are also available for purchase through
Multi-Employee Retirement Plan ("MERP") accounts which can be established by
Customers directly with Fleet Brokerage Securities, Inc. or its affiliates.
Galaxy also offers an Automatic Investment Program which allows investors to
automatically invest in Retail Shares of the Funds on a monthly or quarterly
basis, as well as certain other shareholder privileges. See "Investor Programs."
-3-
<PAGE> 1242
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction
expenses imposed by the Funds with respect to their Retail A Shares and/or
Retail B Shares, and (ii) the operating expenses for Retail A Shares and/or
Retail B Shares of each Fund. SHAREHOLDER TRANSACTION EXPENSES are charges you
pay when buying or selling shares of the Funds. ANNUAL FUND OPERATING EXPENSES
are paid out of each Fund's assets and include fees for portfolio management,
maintenance of shareholder accounts, general Fund administration, accounting and
other services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
INTER- SMALL
EQUITY EQUITY EQUITY NATIONAL COMPANY
VALUE GROWTH INCOME EQUITY EQUITY
FUND FUND FUND+ FUND+ FUND
------------------ ------------------ --------- -------- ------------------
SHAREHOLDER RETAIL RETAIL RETAIL RETAIL RETAIL A RETAIL A RETAIL RETAIL
TRANSACTION EXPENSES A SHARES B SHARES A SHARES B SHARES SHARES SHARES A SHARES B SHARES
- -------------------- -------- -------- -------- -------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering price) 3.75%(1) None 3.75%(1) None 3.75%(1) 3.75%(1) 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of
offering price) None 5.00%(2) None 5.00%(2) None None None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends None None None None None None None None
Redemption Fees(3) None None None None None None None None
Exchange Fees None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees
(After Fee Waivers) .__% .__% .__% .__% .__% .__% .__% .__%
12b-1 Fees(4) None .95% None .95% None None None .95%
Other Expenses (After
Fee Waivers and Expense
Reimbursements) . % . % . % . % . % . % . % . %
----- ------ ----- ----- ----- ----- ----- ------
Total Fund Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) % % % % % % % %
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ASSET SMALL CAP GROWTH
ALLOCATION VALUE AND INCOME
FUND FUND+ FUND
------------------ --------- ------------------
RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES A SHARES B SHARES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering price 3.75%(1) None 3.75%(1) 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of
offering price) None 5.00%(2) None None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends None None None None None
Redemption Fees(3) None None None None None
Exchange Fees None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees
(After Fee Waivers) .__% .__% .__% .__% .__%
12b-1 Fees(4) None .95% None None .95%
Other Expenses (After
Fee Waivers and Expense
Reimbursements) . % . % . % . % . %
----- ----- ----- ----- -----
Total Fund Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) % % % % %
===== ===== ===== ===== =====
</TABLE>
- ---------------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares - Applicable Sales Charges - Retail A Shares."
(2) This amount applies to redemptions made during the first year. The
charge decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for
redemptions made during the second through sixth years, respectively.
Retail B Shares automatically convert to Retail A Shares after six
years. See "How to Purchase Shares -- Applicable Sales Charges - Retail
B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are
paid by wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares (as well as investors in Retail A Shares if 12b-1 fees
are charged in the future) may pay more than the economic equivalent of
the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc.
+ The Equity Income, International Equity and Small Cap Value Funds do
not currently offer Retail B Shares.
-4-
<PAGE> 1243
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund (Retail A Shares)(1) $__ $__ $___ $___
Equity Value Fund (Retail B Shares)
Assuming complete redemption at end of period(2) $__ $__ $___ $___(3)
Assuming no redemption $__ $__ $___ $___(3)
Equity Growth Fund (Retail A Shares)(1) $__ $__ $___ $___
Equity Growth Fund (Retail B Shares)
Assuming complete redemption at end of period(2) $__ $__ $___ $___(3)
Assuming no redemption $__ $__ $___ $___(3)
Equity Income Fund (Retail A Shares)(1) $__ $__ $___ $___
International Equity Fund (Retail A Shares)(1) $__ $__ $___ $___
Small Company Equity Fund (Retail A Shares)(1) $__ $__ $___ $___
Small Company Equity Fund (Retail B Shares)
Assuming complete redemption at end of period(2) $__ $__ $___ $___(3)
Assuming no redemption $__ $__ $___ $___(3)
Asset Allocation Fund (Retail A Shares)(1) $__ $__ $___ $___
Asset Allocation Fund (Retail B Shares)
Assuming complete redemption at end of period(2) $__ $__ $___ $___(2)
Assuming no redemption $__ $__ $___ $___(2)
Small Cap Value Fund (Retail A Shares) $__ $__ $___ $___
Growth and Income Fund (Retail A Shares) $__ $__ $___ $___
Growth and Income Fund (Retail B Shares)
Assuming complete redemption at end of period(2) $__ $__ $___ $___(2)
Assuming no redemption $__ $__ $___ $___(2)
</TABLE>
- ------------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
(2) Assumes deduction of maximum applicable contingent deferred sales
charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six
years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by each Fund during the last fiscal year,
restated to reflect the expenses each Fund expects to incur during the current
fiscal year on its Retail A and/or Retail B Shares. Without voluntary fee
waivers and/or expense reimbursements by the Investment Adviser and/or
Administrator, Advisory Fees would be .75% and .75% for Retail A Shares and
Retail B Shares, respectively, of the Equity Value Fund, .75% and .75% for
Retail A Shares and Retail B Shares,
-5-
<PAGE> 1244
respectively, of the Equity Growth Fund, .75% for Retail A Shares of the Equity
Income Fund, 1.15% for Retail A Shares of the International Equity Fund, .75%
and .75% for Retail A Shares and Retail B Shares, respectively, of the Small
Company Equity Fund, .75% and .75% for Retail A Shares and Retail B Shares,
respectively, of the Asset Allocation Fund, .75% for Retail A Shares of the
Small Cap Value Fund and .75% and .75% for Retail A Shares and Retail B Shares,
respectively, of the Growth and Income Fund, Other Expenses would be ____% and
____% for Retail A Shares and Retail B Shares, respectively, of the Equity Value
Fund, ___% and ___% for Retail A Shares and Retail B Shares, respectively, of
the Equity Growth Fund, ___% for the Retail A Shares of the Equity Income Fund,
___% for Retail A Shares of the International Equity Fund, ___% and ___% for
Retail A Shares and Retail B Shares, respectively, of the Small Company Equity
Fund, ____% and ____% for Retail A Shares and Retail B Shares, respectively, of
the Asset Allocation Fund, ___% for Retail A Shares of the Small Cap Value Fund
and ___% and ___% for Retail A Shares and Retail B Shares of the Growth and
Income Fund and Total Fund Operating Expenses would be ____% and ____% for
Retail A Shares and Retail B Shares, respectively, of the Equity Value Fund,
___% and ___% for Retail A Shares and Retail B Shares, respectively, of the
Equity Growth Fund, ___% for the Retail A Shares of the Equity Income Fund, ___%
for Retail A Shares of the International Equity Fund, ___% and ___% for Retail A
Shares and Retail B Shares, respectively, of the Small Company Equity Fund,
____% and ____% for Retail A Shares and Retail B Shares, respectively, of the
Asset Allocation Fund, ___% for Retail A Shares of the Small Cap Value Fund and
___% and ___% for Retail A Shares and Retail B Shares of the Growth and Income
Fund. For more complete descriptions of these costs and expenses, see "How to
Purchase Shares," "How to Redeem Shares," "Management of the Funds" and
"Description of Galaxy and its Shares" in this Prospectus and the financial
statements and notes incorporated by reference into the Statements of Additional
Information. Any fees that are charged by affiliates of Fleet or other
Institutions directly to their Customer accounts for services related to an
investment in Retail Shares of the Funds are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES
AND RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in each Fund and the
Retail B Shares in the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation and Growth and Income Funds. Galaxy is also authorized to issue
another series of shares in each
-6-
<PAGE> 1245
Fund, Trust Shares. As described below under "Description of Galaxy and Its
Shares," Retail A Shares, Retail B Shares and Trust Shares represent equal pro
rata interests in a Fund, except that (i) Retail A Shares of the Funds bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .30% of the average daily net asset value of each Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Equity Value, Equity Growth, Small
Company Equity, Asset Allocation and Growth and Income Funds bear the expenses
incurred under Galaxy's Distribution and Services Plan at an annual rate of up
to .95% of the average daily net asset value of each Fund's outstanding Retail B
Shares, and (iii) Retail A Shares, Retail B Shares and Trust Shares bear
differing transfer agency expenses.
The financial highlights presented below for the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds have been audited by [________________], Galaxy's independent
accountants, whose report is contained in Galaxy's Annual Report to Shareholders
relating to the Funds dated October 31, 1996 (the "Annual Report"). Such
financial highlights should be read in conjunction with the financial statements
and notes thereto contained in Galaxy's Annual Report and (____________________)
into the Statement of Additional Information relating to these Funds.
Information in the financial highlights presented below with respect to
Retail A Shares of these Funds for periods prior to the fiscal year ended
October 31, 1994 reflects the investment results of both Retail A Shares and
Trust Shares of the Funds (Retail A Shares of the Equity Value and Equity
Growth Funds were first offered during the fiscal year/period ended October 31,
1991, and Retail A Shares of the Equity Income Fund were first offered during
the fiscal year ended October 31, 1992). More information about the performance
of the Funds is also contained in Galaxy's Annual Report, which may be obtained
without charge by contacting Galaxy at its telephone numbers or address
provided above.
-7-
<PAGE> 1246
EQUITY VALUE FUND (1)
(FOR A SHARE (2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
--------------------------------- ------------- -----
RETAIL A SHARES RETAIL B SHARES (3) RETAIL SHARES RETAIL SHARES 1993(2)
---------------- ---------------- ------------- ------------- ----
<S> <C> <C> <C>
Net Asset Value,
Beginning of
Period................... $13.31 $13.12 $11.41
------ ------ ------
Income from
Investment
Operations:
Net Investment
Income................ 0.22 0.18 0.19
Net realized
and
unrealized
gain
(loss) on
investments........... 2.24 0.45 2.14
------ ------- -----
Total from
Investment
Operations: 2.46 0.63 2.33
------ ------- -----
Less Dividends:
Dividends from
net investment
income................ (0.23) (0.16) (0.20)
Dividends from
net realized
capital gains......... (1.21) (0.28) (0.42)
------- ------- -------
Total
Dividends........... (1.44) (0.44) (0.62)
------- ------- -------
Net increase
(decrease) in
net asset value......... 1.02 (0.19) 1.71
------ ------- -----
Net Asset Value,
End of
Period.................. $14.33 $13.31 $13.12
====== ====== ======
Total Return (6).......... 20.81% 4.97% 21.18%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED OCTOBER 31,(2) ENDED
--------------------------------------------------------- OCTOBER 31,
1992(2) 1991(2) 1990(2) 1989(2) 1988(1),(2)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period................... $11.52 $9.45 $11.51 $ 10.41 $10.00
------ ----- ------ ------- ------
Income from
Investment
Operations:
Net Investment
Income................ 0.26 0.37 0.39 0.36 0.03
Net realized
and
unrealized
gain
(loss) on
investments........... 0.33 2.41 (1.37) 1.10 0.38
----- ------ ------ ------ -----
Total from
Investment
Operations: 0.59 2.78 (0.98) 1.46 0.41
----- ------ ------ ----- -----
Less Dividends:
Dividends from
net investment
income................ (0.27) (0.37) (0.38) (0.36) -
Dividends from
net realized
capital gains......... (0.43) (0.34) (0.70) - -
------- ----- ------ ----- --
Total
Dividends........... (0.70) (0.71) (1.08) (0.36) -
------ ------ ------ ------ --
Net increase
(decrease) in
net asset value......... (0.11) 2.07 (2.06) 1.10 0.41
------ ----- ------ ------ -----
Net Asset Value,
End of
Period.................. $11.41 $11.52 $9.45 $11.51 $10.41
====== ====== ===== ====== ======
Total Return (6).......... 5.66% 30.45% (9.43)% 14.19% 4.10%(4)
</TABLE>
-8-
<PAGE> 1247
<TABLE>
<CAPTION>
YEAR
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
--------------------------------- ---------- -----
RETAIL A SHARES RETAIL B SHARES (3) RETAIL SHARES RETAIL SHARES 1993
---------------- ---------------- ------------- ------------- ----
<S> <C> <C> <C>
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's).......... $96,555 $74,001 $176,107
Ratios to average
net assets:
Net investment
income
including
reimbursement/
waiver................ 1.62% 1.45% 1.52%
Operating
expenses
including
reimbursement/
waiver................. 1.49% 1.08% 0.97%
Operating
expenses
excluding
reimbursement/
waiver................. 1.50% 1.11% 0.97%
Portfolio Turnover
Rate.................... 76% 71% 50%
Average Commission
Rate Paid (B)............ N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED OCTOBER 31,(2) ENDED
--------------------------------------------------------- OCTOBER 31,
1992 1991 1990 1989 19881,(2)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C>
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's).......... $133,578 $99,601 $92,893 $92,366 $75,774
Ratios to average
net assets:
Net investment
income
including
reimbursement/
waiver................ 2.24% 3.25% 3.66% 3.25% 1.89%(5)
Operating
expenses
including
reimbursement/
waiver................. 0.94% 0.94% 0.95% 0.97% 0.95%(5)
Operating
expenses
excluding
reimbursement/
waiver................. 0.94% 0.94% 0.95% 0.98% 0.94%(5)
Portfolio Turnover
Rate.................... 136% 40% 94% 44% 4%(4)
Average Commission
Rate Paid(B)............. N/A N/A N/A N/A N/A
</TABLE>
1 The Fund commenced operations on September 1, 1988.
2 For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of
both Retail and Trust Shares. On September 7, 1995, Retail Shares of
the Fund were redesignated "Retail A Shares."
3 The Fund began issuing Retail B Shares on March 4, 1996.
4 Not Annualized.
5 Annualized.
A Calculation does not include sales charge for Retail A Shares and
Retail B Shares.
B Required for fiscal years beginning on or after September 1, 1995.
-9-
<PAGE> 1248
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR
ENDED
YEAR ENDED OCTOBER 31,
OCTOBER 31, 1996 1995
RETAIL A SHARES RETAIL B SHARES (3) RETAIL SHARES
--------------- ---------------- ---------------
<S> <C>
Net Asset Value, Beginning of Period............... $14.18
------
Income from Investment Operations:
Net Investment Income (4)........................ 0.14
Net realized and unrealized gain (loss)
on investments............................... 3.28
-----
Total from Investment Operations: 3.42
-----
Less Dividends:
Dividends from net investment income............. (0.14)
Dividends from net realized capital
gains.......................................... (0.17)
-------
Total Dividends............................ (0.31)
-------
Net increase (decrease) in net asset value......... 3.11
-----
Net Asset Value, End of Period..................... $17.29
======
Total Return (A)................................... 24.54%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $98,911
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 0.85%
Operating expenses including
reimbursement/waiver........................... 1.45%
Operating expenses excluding
reimbursement/waiver........................... 1.47%
Portfolio Turnover Rate............................ 14%
Average Commission Rate Paid (B)................... N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED Period Ended
OCTOBER 31, 1994 OCTOBER 31,(2) October 31,
RETAIL SHARES 1993 1992 1991(1),(2)
---------------- ---------------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $13.76 $12.90 $11.99 $ 10.00
------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (4)........................... 0.17 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments............................... 0.47 0.95 0.91 1.97
------ ------- ------ -------
Total from Investment Operations: 0.64 1.10 1.08 2.13
------ ------- ------ -------
Less Dividends:
Dividends from net investment income............. (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains.......................................... (0.06) (0.09) - -
------- -------- ------ --------
Total Dividends............................ (0.22) (0.24) (0.17) (0.14)
------- -------- ------- --------
Net increase (decrease) in net asset value......... 0.42 0.86 0.91 1.99
------ ------- ------ -------
Net Asset Value, End of Period..................... $14.18 $ 13.76 $12.90 $ 11.99
====== ======= ====== =======
Total Return (A)................................... 4.72% 8.58% 9.10% 21.39%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $70,338 $427,298 $224,630 $92,224
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 1.22% 1.20% 1.37% 1.46%(6)
Operating expenses including
reimbursement/waiver........................... 0.98% 0.97% 0.95% 0.83%(6)
Operating expenses excluding
reimbursement/waiver........................... 0.99% 0.97% 0.95% 0.83%(6)
Portfolio Turnover Rate............................ 18% 16% 22% 16%(5)
Average Commission Rate Paid (B)...................... N/A N/A N/A N/A
</TABLE>
1 The Fund commenced operations on December 14, 1990.
2 For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
3 The Fund began issuing Retail B Shares on March 4, 1996.
4 Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the year ended October
31, 1995 was $0.13.
5 Not Annualized.
6 Annualized.
A Calculation does not include sales charge for Retail A Shares and
Retail B Shares.
B Required for fiscal years beginning on or after September 1, 1995.
-10-
<PAGE> 1249
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1996 1995 1994 OCTOBER 31,(2)
----------------------------------------------- -------------------
RETAIL A SHARES RETAIL SHARES RETAIL SHARES 1993 1992
--------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.................................. $12.74 $12.85 $11.85 $11.29
------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (3)................ 0.28 0.30 0.30 0.30
Net realized and unrealized gain
(loss) on investments................. 2.47 0.07 1.09 0.76
------ ------- ------- -------
Total from Investment
Operations: 2.75 0.37 1.39 1.06
------ ------- ------- -------
Less Dividends:
Dividends from net investment
income................................ (0.30) (0.29) (0.28) (0.30)
Dividends from net realized
capital gains......................... (0.21) (0.19) (0.11) (0.20
------- ------- ------- -------
Total Dividends..................... (0.51) (0.48) (0.39) (0.50)
------- ------- ------ -------
Net increase (decrease) in net
asset value............................. 2.24 (0.11) 1.00 0.56
------ ------- ------ -------
Net Asset Value, End of Period............ $14.98 $12.74 $12.85 $11.85
====== ======= ====== =======
Total Return (A) 22.23% 2.94% 11.85% 9.71%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $81,802 $63,532 $123,970 $21,778
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 2.08% 2.45% 2.34% 2.84%
Operating expenses including
reimbursement/waiver.................. 1.49% 1.11% 1.16% 1.03%
Operating expenses excluding
reimbursement/waiver.................. 1.51% 1.12% 1.22% 1.54%
Portfolio Turnover Rate................... 21% 31% 27% 18%
Average Commission Rate Paid(B)........... N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1991(1),(2)
----------
<S> <C>
Net Asset Value, Beginning of
Period.................................. $10.00
------
Income from Investment Operations:
Net Investment Income (3).................. 0.29
Net realized and unrealized gain
(loss) on investments................. 1.26
------
Total from Investment
Operations: 1.55
------
Less Dividends:
Dividends from net investment
income................................ (0.26)
Dividends from net realized
capital gains................. -
------
Total Dividends..................... (0.26)
------
Net increase (decrease) in net
asset value............................. 1.29
------
Net Asset Value, End of Period............ $11.29
======
Total Return(A)........................... 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 2.72%(5)
Operating expenses including
reimbursement/waiver.................. 0.85%(5)
Operating expenses excluding
reimbursement/waiver.................. 1.39%(5)
Portfolio Turnover Rate................... 77%(4)
Average Commission Rate Paid(B)........... N/A
</TABLE>
1 The Fund commenced operations on December 14, 1990.
2 For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
3 Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1993 and 1992 and for the period ended October 31, 1991 were $0.29,
$0.25 and $0.23, respectively.
4 Not Annualized.
5 Annualized.
A Calculation does not include sales charge for Retail A Shares.
B Required for fiscal years beginning on or after September 1,
1995.
-11-
<PAGE> 1250
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1996 1995 1994 OCTOBER 31,
----------------------------------------------- ------------------
RETAIL A SHARES RETAIL SHARES RETAIL SHARES 1993
--------------- ------------- ------------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of $12.13 $ 9.66
------ ------
Period.................................. $13.20
------
Income from Investment Operations:
Net Investment Income(3)................ 0.11 0.06 0.02
Net realized and unrealized gain
(loss) on investments................. (0.21) 1.02 2.51
------ ------- -------
Total from Investment
Operations: (0.10) 1.08 2.53
------ ------- -------
Less Dividends:
Dividends from net investment
income................................ (0.02) (0.01) (0.06)
Dividends from net realized
capital gains................. (0.16) - -
------- ------- -------
Total Dividends..................... (0.18) (0.01) (0.06)
------- ------- -------
Net increase (decrease) in net
asset value............................. (0.28) 1.07 2.47
------- ---- -------
Net Asset Value, End of Period............ $12.92 $13.20 $12.13
====== ====== =======
Total Return(A)........................... (0.64%) 8.91% 26.36%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $30,104 $32,887 $39,246
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 0.84% 0.69% 0.37%
Operating expenses including
reimbursement/waiver.................. 1.76% 1.49% 1.57%
Operating expenses excluding
reimbursement/waiver.................. 2.03% 1.79% 2.04%
Portfolio Turnover Rate................... 48% 39% 29%
Average Commission Rate Paid(B)........... N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1991(1),(2)
----------
<S> <C>
Net Asset Value, Beginning of
Period............................... $10.00
------
Income from Investment Operations:
Net Investment Income(3)................ 0.06
Net realized and unrealized gain
(loss) on investments................. (0.40)
------
Total from Investment
Operations:
(0.34)
------
Less Dividends:
Dividends from net investment
income................................ -
Dividends from net realized
capital gains................. -
-----
Total Dividends..................... -
-----
Net increase (decrease) in net
asset value............................. (0.34)
------
Net Asset Value, End of Period............ $ 9.66
======
Total Return(A)........................... (3.40%)(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 1.19%(5)
Operating expenses including
reimbursement/waiver.................. 1.61%(5)
Operating expenses excluding
reimbursement/waiver.................. 2.79%(5)
Portfolio Turnover Rate................... 21%(4)
Average Commission Rate Paid(B)........... N/A
</TABLE>
1 The Fund commenced operations on December 30, 1991.
2 For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
3 Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1996, 1995, 1994 and 1993 and for the period ended October 31, 1992
were $____, $0.08, $0.03, $0.00 and $0.00, respectively.
4 Not Annualized.
5 Annualized.
A Calculation does not include sales charge for Retail A Shares.
B Required for fiscal years beginning on or after September 1,
1995.
-12-
<PAGE> 1251
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR
ENDED
YEAR ENDED OCTOBER 31,
OCTOBER 31, 1996 1995
RETAIL A SHARES RETAIL B SHARES (3) RETAIL SHARES
--------------- ---------------- ---------------
<S> <C>
Net Asset Value, Beginning of Period............... $12.35
------
Income from Investment Operations:
Net Investment Income(4)......................... (0.09)
Net realized and unrealized gain (loss)
on investments............................... 4.21
------
Total from Investment Operations: 4.12
------
Less Dividends:
Dividends from net investment income............. -
Dividends from net realized capital
gains.......................................... (0.19)
------
Total Dividends............................ (0.19)
------
Net increase (decrease) in net asset value......... 3.93
------
Net Asset Value, End of Period..................... $16.28
======
Total Return(A).................................... 34.01%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $45,668
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... (0.85%)
Operating expenses including
reimbursement/waiver........................... 1.60%
Operating expenses excluding
reimbursement/waiver........................... 1.64%
Portfolio Turnover Rate............................ 54%
Average Commission Rate Paid(B).................... N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED Period Ended
OCTOBER 31, 1994 OCTOBER 31, October 31,
RETAIL SHARES 1993 1991(1),(2)
---------------- ------------- ----------
<C> <C> <C>
Net Asset Value, Beginning of Period............... $12.41 $ 8.79 $ 10.00
------ ------ -------
Income from Investment Operations:
Net Investment Income(4)......................... (0.01) (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments............................... - 3.66 (1.18)
------ ------ --------
Total from Investment Operations: (0.01) 3.62 (1.21)
------ ------ --------
Less Dividends:
Dividends from net investment income............. - - -
Dividends from net realized capital
gains.......................................... (0.05) - -
------- ------- ----
Total Dividends............................ (0.05) - -
------- ------- ----
Net increase (decrease) in net asset value......... (0.06) 3.62 (1.21)
------- ------ --------
Net Asset Value, End of Period..................... $12.35 $12.41 $ 8.79
====== ====== =======
Total Return(A).................................... (0.06%) 41.18% (12.10%)(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $30,845 $ 55,683 $29,072
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... (0.40%) (0.66%) (0.63%)(6)
Operating expenses including
reimbursement/waiver........................... 1.31% 1.18% 1.06%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.34% 1.27% 1.33%(6)
Portfolio Turnover Rate............................ 35% 57% 87%(5)
Average Commission Rate Paid(B).................... N/A N/A N/A
</TABLE>
1 The Fund commenced operations on December 30, 1991.
2 For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
3 The Fund began issuing Retail B Shares on March 4, 1996.
4 Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Adviser and/or Administrator for the period ended October
31, 1992 was $(0.05).
5 Not Annualized.
6 Annualized.
A Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
-13-
<PAGE> 1252
B Required for fiscal years beginning on or after September 1,
1995.
-14-
<PAGE> 1253
ASSET ALLOCATION FUND (1)
(FOR A SHARE (2) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR
ENDED
YEAR ENDED OCTOBER 31,
OCTOBER 31, 1996 1995
RETAIL A SHARES RETAIL B SHARES (3) RETAIL SHARES
--------------- ---------------- ---------------
<S> <C>
Net Asset Value, Beginning of Period............... $10.67
------
Income from Investment Operations:
Net Investment Income (4)........................ 0.30
Net realized and unrealized gain (loss)
on investments............................... 2.16
------
Total from Investment Operations: 2.46
------
Less Dividends:
Dividends from net investment income............. (0.31)
Dividends from net realized capital
gains.......................................... -
------
Total Dividends............................ (0.31)
------
Net increase (decrease) in net asset value......... 2.15
------
Net Asset Value, End of Period..................... $12.82
======
Total Return (A)......... 23.42%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $76,368
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 2.52%
Operating expenses including
reimbursement/waiver........................... 1.48%
Operating expenses excluding
reimbursement/waiver........................... 1.50%
Portfolio Turnover Rate............................ 41%
Average Commission Rate Paid (B)................... N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED Period Ended
OCTOBER 31, 1994 OCTOBER 31, October 31,
RETAIL SHARES 1993 1991(1),(2)
---------------- ------------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............... $11.15 $10.16 $10.00
------ ------ ------
Income from Investment Operations:
Net Investment Income (4)........................ 0.27 0.25 0.15
Net realized and unrealized gain (loss)
on investments............................... (0.49) 0.99 0.13
------ ------ -----
Total from Investment Operations: (0.22) 1.24 0.28
------ ------ -----
Less Dividends:
Dividends from net investment income............. (0.26) (0.25) (0.12)
Dividends from net realized capital
gains.......................................... - - -
------- ------- ----
Total Dividends............................ (0.26) (0.25) (0.12)
------- ------- ------
Net increase (decrease) in net asset value......... (0.48) 0.99 0.16
------- ------ -------
Net Asset Value, End of Period..................... $10.67 $11.15 $ 10.16
====== ====== =======
Total Return (A)......... (2.02)% 12.37% 2.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $73,574 $92,348 $11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 2.66% 2.59% 2.80%(6)
Operating expenses including
reimbursement/waiver........................... 1.21% 1.14% 1.11%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.22% 1.25% 2.39%(6)
Portfolio Turnover Rate............................ 23% 7% 2%(5)
Average Commission Rate Paid (B)................... N/A N/A N/A
</TABLE>
1 The Fund commenced operations on December 30, 1991.
2 For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both
Retail and Trust Shares. On September 7, 1995, Retail Shares of the
Fund were redesignated "Retail A Shares."
3 The Fund began issuing Retail B Shares on March 4, 1996.
4 Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the year ended October
31, 1993 and for the period ended October 31, 1992 were $0.24 and
$0.08, respectively.
5 Not Annualized.
6 Annualized.
A Calculation does not include sales charge for Retail A Shares and
Retail B Shares.
-15-
<PAGE> 1254
B Required for fiscal years beginning on or after September 1,
1995.
-16-
<PAGE> 1255
The Small Cap Value Fund and Growth and Income Fund commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Small Cap
Value Fund" and the "Predecessor Growth and Income Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Funds were
reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold two series of shares of beneficial interest
that were similar to the Funds' Retail A Shares and Trust Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Small Cap Value Fund's Retail A
Shares and the Growth and Income Fund's Retail A Shares and Retail B Shares for
the fiscal year ended October 31, 1996 and (ii) the investment results of the
Predecessor Small Cap Value and Predecessor Growth and Income Funds' Investment
Shares (the series that is similar to the Retail A Shares of the Small Cap Value
and Growth and Income Funds) for the fiscal years ended October 31, 1995 and
October 31, 1994 and the fiscal period ended October 31, 1993. The information
about the Small Cap Value and Growth and Income Funds for the fiscal year ended
October 31, 1996 has been audited by [______________________], Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Funds dated October 31, 1996 (the "Annual Report").
The information about the Predecessor Small Cap Value and Predecessor Growth and
Income Funds for the fiscal years ended October 31, 1995 and October 31, 1994
and the fiscal period ended October 31, 1993 was audited by [__________],
independent accountants for the Predecessor Funds, whose report is contained in
The Shawmut Funds' Annual Report to Shareholders relating to the Predecessor
Funds dated October 31, 1995 (the "Shawmut Annual Report"). The financial
highlights should be read in conjunction with the financial statements and notes
thereto contained in the Annual Report and the Shawmut Annual Report and
(______________________) into the Statement of Additional Information relating
to these Funds. More information about the performance of the Funds is
contained in the Annual Report which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
-17-
<PAGE> 1256
SMALL CAP VALUE FUND (1)
(FOR A SHARE (2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED Year Ended Period Ended
1996 OCTOBER 31, October 31, October 31,
RETAIL A SHARES (3) 1995 1994 1993(1),(2)
---------------- ----------- ------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 11.06 $11.21 $10.52
------- ------ ------
Income from Investment Operations:
Net investment income(3)........................ (0.02) (0.01) (0.01)
Net realized gain (loss)
on investments.............................. 2.21 0.18 0.70
------ ---- -----
Total from Investment Operations: 2.19 0.17 0.69
------ ---- -----
Less Dividends:
Dividends from net
investment income .......................... -- -- --
Dividends from net realized gains............... (0.57) (0.32) --
--------- ------ -----
Total Dividends:.......................... (0.57) (0.32) 0.000
--------- ------ -----
Net increase (decrease) in net asset value........ 1.62 (0.15) 0.69
-------- ------ ----
Net Asset Value, End of Period.................... $ 12.68 $11.06 $11.21
======== ====== ======
Total Return4..................................... 21.27% 1.64% 6.56%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000s).................. $27,546 $19,764 $15,014
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... (0.19%) (0.10%) (0.19%)(5)
Operating Expenses including
reimbursement/waiver.......................... 1.35% 1.31% 1.33%(5)
Operating Expenses excluding
reimbursement/waiver.......................... 1.85% 1.84% 1.87%(5)
Portfolio Turnover Rate........................... 32% 29% 29%(6)
Average Commission Rate Paid(7)................... N/A N/A N/A
</TABLE>
- ------------------------------
1 The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds.
2 On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust
Shares, that were similar to the Fund's Retail A and Trust Shares,
respectively. In connection with the reorganization, the predecessor
shareholders exchanged Investment Shares and Trust Shares,
respectively, in the Galaxy Small Cap Value Fund.
3 Net investment income per share before reimbursement/waiver of fees by
the Investment Adviser and/or Administrator for the years ended October
31, 1996, 1995 and 1994 and for the period ended October 31, 1993 were
$____, $(0.08), $(0.06) and $(0.05), respectively.
4 Calculation does not include sales charge for Retail A Shares.
5 Not Annualized.
6 Annualized.
7 Required for fiscal years beginning on or after September 1, 1995.
-18-
<PAGE> 1257
GROWTH AND INCOME FUND (1)
(FOR A SHARE (2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996(3) OCTOBER 31,
RETAIL A SHARES RETAIL B SHARES(4) 1995
--------------- ---------------- ------
<S> <C>
Net Asset Value, Beginning of Period............................ $ 11.15
----------
Income from Investment Operations:
Net Investment Income (4)..................................... 0.24
Net realized gain (loss)
on investments............................................ 1.70
----------
Total from Investment Operations: 1.94
----------
Less Dividends:
Dividends from net investment income.......................... (0.25)
Dividends from net realized gains............................. (0.49)
----------
Total Dividends......................................... (0.74)
----------
Net increase (decrease) in net asset value...................... 1.20
---------
Net Asset Value, End of Period.................................. $12.35
========
Total Return(5)................................................. 18.52%
Ratios/Supplemental Data:
Net Assets, End of Period (000s)................................ $51,078
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................................ 2.10%
Operating Expenses including reimbursement/waiver............. 1.32%
Operating Expenses excluding reimbursement/waiver............. 1.77%
Portfolio Turnover Rate......................................... 51%
Average Commission Rate Paid(8)................................. N/A
</TABLE>
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, October 31,
1994 1993(1),(2)
------ ----------
<S> <C> <C>
Net Asset Value, Beginning of Period............................ $ 10.69 $ 10.23
---------- --------
Income from Investment Operations:
Net Investment Income (4)..................................... 0.22 0.15
Net realized gain (loss)
on investments............................................ 0.72 0.48
---------- --------
Total from Investment Operations: 0.94 0.63
---------- --------
Less Dividends:
Dividends from net investment income.......................... (0.20) (0.17)
Dividends from net realized gains............................. (0.28) --
----------- --------
Total Dividends......................................... (0.48) (0.17)
----------- ---------
Net increase (decrease) in net asset value...................... 0.46 0.46
---------- --------
Net Asset Value, End of Period.................................. $ 11.15 $ 10.69
========== ========
Total Return(5)................................................. 9.12% 6.20%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000s)................................ $22,244 $16,280
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................................ 2.06% 1.77%(6)
Operating Expenses including reimbursement/waiver............. 1.29% 1.25%(6)
Operating Expenses excluding reimbursement/waiver............. 1.74% 1.78%(6)
Portfolio Turnover Rate......................................... 73% 38%(7)
Average Commission Rate Paid(8)................................. N/A N/A
</TABLE>
1 The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
2 On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, the predecessor shareholders exchanged
Investment Shares and Trust Shares, respectively, in the Galaxy Growth and
Income Fund.
3 The Fund began issuing Retail B Shares on March 4, 1996.
4 Net investment income per share before reimbursement/waiver of by the
Investment Adviser and/or Administrator for three years ended October 31,
1996, 1995 and 1994 and for the period ended October 31, 1993 were $____,
$0.22, $0.18 and $0.18, respectively, and for the period ended October 31,
1996 for Retail B Shares was $______.
5 Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
6 Not Annualized.
7 Annualized.
8 Required for fiscal years beginning on or after September 1, 1995.
-19-
<PAGE> 1258
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser, and, with respect to the International Equity Fund,
the Investment Adviser and the Sub-Adviser, will use their best efforts to
achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of its outstanding Shares (as defined
under "Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that the Investment
Adviser believes to be undervalued, as measured by various financial tests,
including one or more of the following: cash flow, return on equity, return on
assets, fixed charge coverage and ratios of market capitalization to revenues.
In addition, the Fund's Investment Adviser considers the current value of an
issuer's fixed assets (including real estate), cash items, net working capital,
indebtedness and historical book value. The Fund also seeks to purchase stock
with a projected price-earnings ratio below that of the S&P 500. The Investment
Adviser invests less than 25% of the value of the Fund's total assets at the
time of purchase in securities of issuers conducting their principal business
activities in the same industry.
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that the Investment Adviser believes to be
undervalued. Debt securities convertible into common stock are purchased
primarily during periods of relative market instability and are acquired
principally for income with the potential for appreciation being a secondary
consideration. Equity investments consist primarily of common stock of companies
having capitalizations that exceed $100 million. Stocks of such companies
generally are listed on a national exchange or are unlisted securities with an
established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in the
opinion of the Investment Adviser, existing market and economic conditions may
warrant, including obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and other high quality "money market"
-18-
<PAGE> 1259
instruments. The Fund may also hold cash pending investment, during temporary
defensive periods or if, in the opinion of the Investment Adviser, suitable
stock or convertible debt securities are unavailable.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). See "Special Risk
Considerations" and "Other Investment Policies and Risk Considerations" below.
The Fund may also write covered call options. For additional information
concerning investments in options and similar securities, see "Other Investment
Policies and Risk Considerations -- Options and Futures Contracts" and "Other
Investment Policies and Risk Considerations - - Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's Investment Adviser believes will
increase future earnings to a level above the average earnings of similar
issuers. Such companies often retain their earnings to finance current and
future growth and, for this reason, generally pay little or no dividends. Equity
securities in which the Fund invests are selected based on analysis of trends in
industries and companies, earning power, growth features, quality and depth of
management, marketing and manufacturing skills, financial conditions and other
investment criteria. By investing in convertible securities, the Fund will seek
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible. The
Investment Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations" and "Other Investment
Policies and Risk Considerations" below. The Fund may also write covered call
options. See "Other Investment Policies and Risk Considerations -- Options and
Futures Contracts" and "Other
-21-
<PAGE> 1260
Investment Policies and Risk Considerations -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of the Investment Adviser,
prevailing market or economic conditions warrant. See "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Equity Growth Fund.
EQUITY INCOME FUND
The Equity Income Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements. Less than 25% of the value of the
Fund's total assets at the time of purchase will be invested in securities of
issuers conducting their principal business activities in the same industry.
The Equity Income Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and EDRs.
See "Special Risk Considerations" and "Other Investment Policies and Risk
Considerations" below. The Fund may also write covered call options. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts"
and "Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of the Investment Adviser,
prevailing market or economic conditions warrant. See "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Equity Income Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing at least 75% of its total
-22-
<PAGE> 1261
assets in equity securities of foreign issuers. The Fund's assets will be
invested at all times in the securities of issuers located in at least three
different foreign countries. Although the Fund may earn income from dividends,
interest and other sources, current income will not be its primary
consideration. The Fund emphasizes established companies, although it may invest
in companies of varying sizes as measured by assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and The United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 15% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations -- Investment Company Securities."
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be
-23-
<PAGE> 1262
invested in short-term debt instruments. In addition, when the Fund experiences
large cash inflows from the issuance of new shares or the sale of portfolio
securities, and desirable equity securities that are consistent with the Fund's
investment objective are unavailable in sufficient quantities, the Fund may hold
short-term investments for a limited time pending availability of suitable
equity securities. The short-term debt instruments in which the Fund may invest
may be denominated in foreign currencies or U.S. dollars, and include foreign
and domestic: (i) short-term debt securities, including short-term obligations
of national governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) commercial paper, including master notes; (iii)
bank obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances, and Euro-currency instruments and securities; and (iv)
repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs or GDRs as described under "Other Investment Policies
and Risk Considerations." Furthermore, the Fund may purchase and sell securities
on a when- issued basis. For temporary defensive purposes, the Fund may also
invest a major portion of its assets in securities of United States issuers.
Less than 25% of the value of the Fund's total assets at the time of purchase
will be invested in securities of issuers conducting their principal business
activities in the same industry. See "Other Investment Policies and Risk
Considerations" below regarding additional investment policies of the Fund.
SMALL COMPANY EQUITY FUND
The Small Company Equity Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with capitalizations of $500 million or
less ("Small Capitalization Securities") which the Fund's Investment Adviser
believes represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
capitalizations of $500 million or less. For temporary defensive purposes, the
Fund may also invest in corporate debt obligations.
-24-
<PAGE> 1263
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the- counter market, although they may also be listed for trading on
the New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs and EDRs. See "Special Risk
Considerations" and "Other Investment Policies and Risk Considerations" below.
The Fund may purchase and write covered call options as a hedge against
changes resulting from market conditions and in the value of the securities held
in the Fund or which it intends to purchase and where the transactions are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. See "Other Investment Policies and Risk Considerations
- -- Options and Futures Contracts" and "Other Investment Policies and Risk
Considerations -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of the Investment Adviser,
prevailing market or economic conditions warrant. See "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Small Company Equity Fund.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. The Investment Adviser interprets the
objective to refer to the Dow Jones Industrial Average (of 30 companies listed
on the New York Stock Exchange) and the S&P 500. Due to the Fund's expenses, net
income distributed to shareholders may be less than that of these averages.
The Fund attempts to achieve its investment objective and at the same time
reduce volatility by allocating its assets among
-25-
<PAGE> 1264
short-term obligations, common stock, preferred stock and bonds. The proportion
of the Fund's assets invested in each type of security will vary from time to
time as a result of the Investment Adviser's interpretation of economic and
market conditions. However, at least 25% of the Fund's total assets will at all
times be invested in fixed-income senior securities, including debt securities
and preferred stocks. In selecting common stock for purchase by the Fund, the
Investment Adviser will analyze the potential for changes in earnings and
dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing ADRs and EDRs. Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations" and "Other Investment Policies and Risk
Considerations" below. The Fund may also invest in dollar-denominated high
quality debt obligations of U.S. corporations issued outside the United States.
The Fund may write covered call options, purchase asset-backed securities and
mortgage-backed securities and enter into foreign currency exchange
transactions. See "Other Investment Policies and Risk Considerations" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of the Investment Adviser,
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Asset Allocation Fund.
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal circumstances, at least 65% of its assets in equity
securities of companies that have a market value capitalization of up to $1
billion.
Small capitalization stocks have historically been more volatile in price
than larger capitalization stocks, such as those
-26-
<PAGE> 1265
included in the S&P 500. This is because, among other things, smaller companies
have a lower degree of liquidity in the equity market and tend to have a greater
sensitivity to changing economic conditions. Further, in addition to exhibiting
greater volatility, these stocks may, to some degree, fluctuate independently of
the stocks of large companies. That is, the stock of small capitalization
companies may decline in price as the prices of large company stocks rise or
vice versa. Therefore, investors should expect that the Fund will be more
volatile than, and may fluctuate independently of, broad stock market indices
such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations --
Convertible Securities" below. The Fund may also buy and sell options and
futures contracts and utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts",
"Other Investment Policies and Risk Considerations -- Stock Index Futures, Swap
Agreements, Indexed Securities and Options" and "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
The Fund may invest in securities of foreign issuers which are freely
traded on United States securities exchanges or in the over-the-counter market
in the form of ADRs and EDRs. Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk appears
to the Investment Adviser to be substantial. See "Special Risk Considerations"
and "Other Investment Policies and Risk Considerations" below.
As a temporary defensive measure, in such proportions as, in the judgment
of the Investment Adviser, prevailing market conditions warrant, the Fund may
invest in: (i) short-term money market instruments (such as those listed below
under "Other Investment Policies") rated in one of the top two rating categories
by a nationally recognized statistical rating organization, such as Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's")
or Fitch Investors Service, L.P. ("Fitch"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Small Cap Value Fund is permitted to invest is
contained in the Statement of Additional Information relating to the Fund. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Small Cap Value Fund.
-27-
<PAGE> 1266
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing in a
professionally managed, diversified portfolio consisting primarily of common
stocks of companies with prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market conditions, the Fund will invest at least 65% of its assets in growth and
income equity securities. The Fund seeks to achieve a current dividend yield
that exceeds the composite yield of securities included on the S&P 500.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. See
"Small Company Equity Fund" and "Small Cap Value Fund" above for a description
of the risks associated with investments in small capitalization stocks.
Investors should expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations --
Convertible Securities" below. The Fund may also buy and sell options and
futures contracts and utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts. See "Other
Investment Policies and Risk Considerations -- Options and Futures Contracts,"
"Other Investment Policies and Risk Considerations -- Stock Index Futures, Swap
Agreements, Indexed Securities and Options" and "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
The Fund may invest in securities of foreign issuers which are freely
traded on United States securities exchanges or in the over-the-counter market
in the form of ADRs and EDRs. Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of foreign issuers if any such risk appears to
the Investment Adviser to be substantial. See "Special Risk Considerations" and
Other Investment Policies and Risk Considerations" below.
As a temporary defensive measure, in such proportions as, in the judgment
of the Investment Adviser, prevailing market conditions warrant, the Fund may
invest in: (i) short-term money market instruments (such as those listed below
under "Other
-28-
<PAGE> 1267
Investment Policies and Risk Considerations") rated in one of the top two rating
categories by a nationally recognized statistical rating organization, such as
S&P, Moody's or Fitch; (ii) securities issued and/or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies, or
instrumentalities; and (iii) repurchase agreements. Additional information about
the types of money market instruments and U.S. Government obligations in which
the Fund is permitted to invest is contained in the Statement of Additional
Information relating to the Fund. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Growth and Income Fund.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
Each Fund invests primarily (or with respect to the Asset Allocation Fund,
to a significant degree) in equity securities. As with other mutual funds that
invest primarily or to a significant degree in equity securities, the Funds are
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, their
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and debt securities
fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities
-29-
<PAGE> 1268
and other assets in U.S. dollars. As a result, the net asset value of a Fund's
shares may fluctuate with U.S. dollar exchange rates as well as with price
changes of the Fund's securities in the various local markets and currencies.
Thus, an increase in the value of the U.S. dollar compared to the currencies in
which a Fund makes its investments could reduce the effect of increases and
magnify the effect of decreases in the price of a Fund's securities in their
local markets. Conversely, a decrease in the value of the U.S. dollar will have
the opposite effect of magnifying the effect of increases and reducing the
effect of decreases in the prices of a Fund's securities in their local markets.
In addition to favorable and unfavorable currency exchange-rate developments,
the Funds are subject to the possible imposition of exchange control regulations
or freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investment in countries with emerging economies or
securities markets. The risks of expropriation, nationalization and social,
political and economic instability are greater in those countries than in more
developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one
or more of the Funds have the power to utilize. Some may be employed on a
regular basis; others may not be used at all. Accordingly, reference to any
particular method or technique carries no implication that it will be utilized
or, if it is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Equity
Value, Equity Growth, Equity Income, Small Company Equity and Asset Allocation
Funds are rated investment grade by Moody's ("Aaa," "Aa," "A" and "Baa") or S&P
("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by the Investment Adviser. Debt securities rated "Baa" by
Moody's or "BBB" by S&P are generally considered to be investment grade
securities although they may have speculative characteristics and changes
in economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
grade debt obligations.
The International Equity Fund may only purchase debt securities rated "A"
or higher by Moody's or S&P, or if unrated, determined by the Investment Adviser
or Sub-Adviser to be of comparable quality. Issuers of commercial paper, bank
obligations or repurchase agreements in which the International Equity Fund
invests must have, at the time of investment, outstanding debt rated A or higher
by Moody's or S&P, or, if they are not rated, the instrument purchased must be
determined to be of comparable quality.
The Small Cap Value and Growth and Income Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch, or at
the time of investment. See "Other Investment Policies -- Convertible
Securities" below for a discussion of the
-30-
<PAGE> 1269
risks of investing in convertible bonds rated either "Ba" or "BB". Short-term
money market instruments purchased by the Small Cap Value and Growth and Income
Funds must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in other "money market" instruments, including
bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the Federal Deposit Insurance Corporation. With respect to each Fund other
than the Small Cap Value and Growth and Income Funds, bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks or
of U.S. branches of foreign banks, all of the same type as domestic bank
obligations. Investment in bank obligations is limited (i) with respect to the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity and Asset Allocation Funds, to the obligations of financial institutions
having more than $1 billion in total assets at the time of purchase, and (ii)
with respect to the Small Cap Value and Growth and Income Funds, to the
obligations of
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financial institutions having capital, surplus and undivided profits of over
$100 million or obligations where the principal amount of the instrument is
insured in full by the FDIC. Time deposits with a maturity longer than seven
days or that do not provide for payment within seven days after notice will be
limited to 10% (15% with respect to the Small Cap Value Fund and Growth and
Income Fund) of a Fund's total assets.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
a Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations -- Foreign Securities." The
Funds will invest in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks only when the Investment Adviser and/or the
Sub-Adviser believe that the credit risk with respect to the instrument is
minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities.
See "Investment Limitations."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be
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entered into only with financial institutions such as banks and broker/dealers
which are deemed to be creditworthy by the Investment Adviser and/or the
Sub-Adviser under guidelines approved by Galaxy's Board of Trustees. No Fund
will enter into repurchase agreements with Fleet or Oechsle or any of their
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described below in Investment Limitation No. 3 under
"Investment Limitations" with respect to the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds,
and to the 15% limit described below in Investment Limitation No. 7 under
"Investment Limitations" with respect to the Small Cap Value and Growth and
Income Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Small Cap Value and
Growth and Income Funds' policies with respect to reverse repurchase agreements
is contained in the Statement of Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term (except in the case of
the Small Cap Value and Growth and Income Funds which may loan their securities
on a long-term or
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short-term basis or both), will be made only to borrowers deemed by the
Investment Adviser and/or the Sub-Adviser to be of good standing and only when,
in the Investment Adviser's and/or the Sub- Adviser's judgement, the income to
be earned from the loan justifies the attendant risks. The Funds currently
intend to limit the lending of their portfolio securities so that, at any given
time, securities loaned by a Fund represent not more than one-third of the value
of its total assets.
INVESTMENT COMPANY SECURITIES
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may invest in securities issued by
other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny- rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Small Cap Value and Growth and Income Funds may invest in other investment
companies primarily for the purpose of investing their short-term cash which has
not yet been invested in other portfolio instruments. However, from time to
time, on a temporary basis, the Small Cap Value and Growth and Income Funds may
invest exclusively in one other investment company similar to the respective
Funds. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Except as provided
above with respect to the Small Cap Value and Growth and Income Funds,
securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). Each Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Funds, other investment portfolios of Galaxy, or any
other investment companies advised by the Investment Adviser or the Sub-Adviser.
Any change by the Funds in the future with respect to their policies concerning
investments in securities issued by other investment companies will be made only
in accordance with the requirements of the 1940 Act.
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OPTIONS AND FUTURES CONTRACTS
Covered Call Options -- Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity and Asset Allocation Funds. To
further increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset Allocation
Funds may engage in writing covered call options (options on securities owned by
a Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. The Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option of the same
series. The use of covered call options is not a primary investment technique of
these Funds, and such options will normally be written on underlying securities
as to which the Investment Adviser and/or Sub-Adviser does not anticipate
significant short-term capital appreciation.
Options on Foreign Stock Indexes -- International Equity Fund. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in
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return for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering into
a closing transaction on an exchange or the option may expire unexercised. For
additional information relating to option trading practices and related risks,
see "Derivative Securities" below and the Statement of Additional Information
related to these Funds.
Options and Futures Contracts -- Small Cap Value and Growth and Income
Funds. The Small Cap Value and Growth and Income Funds may buy and sell options
and futures contracts to manage their exposure to changing interest rates,
security prices and currency exchange rates. The Funds may invest in options and
futures based on any type of security, index, or currency, including options and
futures based on foreign exchanges (see "Options on Foreign Stock Indexes --
International Equity Fund" above) and options not traded on exchanges. Some
options and futures strategies, including selling futures, buying puts, and
writing calls, tend to hedge a Fund's investments against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each other
or with forward contracts in order to adjust the risk and return characteristics
of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If the Investment Adviser applies a hedge at an inappropriate time or judges
market conditions incorrectly, options and futures may lower a Fund's individual
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market. See
the Statement of Additional Information relating to the Small Cap Value and
Growth and Income Funds for additional information as to the Funds' policies on
options and futures trading.
The Small Cap Value and Growth and Income Funds will not hedge more than
20% of their respective total assets by selling futures, buying puts, and
writing calls under normal conditions. The Funds will not buy futures or write
puts whose underlying value exceeds 20% of their respective total assets, and
will not buy calls with a value exceeding 5% of their respective total assets.
Stock Index Futures, Swap Agreements, Indexed Securities and Options --
Small Cap Value and Growth and Income Funds. The Small Cap Value and Growth and
Income Funds may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Funds' respective total
assets. The Funds will not purchase options to the extent that more than 5% of
the value of their respective total
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assets would be invested in premiums on open put option positions. In addition,
the Funds do not intend to invest more than 5% of the market value of their
respective total assets in each of the following: futures contracts, swap
agreements, and indexed securities. When a Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by that Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds plan
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Funds' respective limitations with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Special Risk Considerations."
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds from time to time
may enter into foreign currency exchange transactions to convert the U.S. dollar
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts are rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to a Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency -- for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S. dollars
- -- at a future date and at a specified price in anticipation of a decline in the
value of the currency sold short relative to the currency that the Fund has
contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash, U.S. Government securities or other liquid high-grade debt securities
equal in value to the fluctuating market value of the currency as to which the
short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the applicable Statements of Additional
Information relating to the Funds for additional information regarding foreign
currency exchange transactions.
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ASSET-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset- Backed Securities" in the Statement of Additional
Information relating to the Fund.
MORTGAGE-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage- backed
securities provide a monthly payment consisting of interest and principal
payments. Additional payment may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund, should it invest in
mortgage-backed securities, may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed
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securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline; as a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
To the extent that collateralized mortgage obligations are considered to be
investment companies, investments in such obligations will be subject to the
percentage limitations described above under "Other Investment Policies and Risk
Considerations -- Investment Company Securities."
MORTGAGE DOLLAR ROLLS -- ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government securities or other liquid, high grade
debt securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom the Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
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<PAGE> 1279
rolls may depend upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. For these reasons, there is no
assurance that mortgage dollar rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the
features of several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Usable bonds are corporate bonds
that can be used in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. A Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the Investment
Adviser's and/or Sub-Adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, a Fund will hold or trade the convertible securities. In
selecting convertible securities for a Fund, the Investment Adviser evaluates
the investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a particular
convertible security, the Investment Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the
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<PAGE> 1280
issuer's profits, and the issuer's management capability and practices.
The Small Cap Value and Growth and Income Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch, or "Ba" or higher by Moody's at the
time of investment. Securities rated "BB" by S&P or Fitch or "Ba" by Moody's
provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or determined to be, investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment-grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
high-rated, lower-yielding bonds. The Investment Adviser will attempt to reduce
the risks described above through diversification of the portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
"BB" or "Ba" after a Fund has purchased it, the Fund is not required to
eliminate the convertible bond from the portfolio, but will consider appropriate
action. The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information relating to the Small
Cap Value and Growth and Income Funds.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, put and call options, stock index futures and
options, indexed securities and swap agreements, and foreign currency exchange
transactions.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that a Fund will be unable to sell a derivative security
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when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
The Investment Adviser and/or the Sub-Adviser will evaluate the risks
presented by the derivative securities purchased by the Funds, and will
determine, in connection with their day-to-day management of the Funds, how such
securities will be used in furtherance of the Funds' investment objectives. It
is possible, however, that the Investment Adviser's evaluations will prove to be
inaccurate or incomplete and, even when accurate and complete, it is possible
that the Funds will, because of the risks discussed above, incur loss as a
result of their investments in derivative securities. See "Investment Objectives
and Policies -- Derivative Securities" in the applicable Statements of
Additional Information relating to these Funds for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS -- INTERNATIONAL EQUITY, SMALL
CAP VALUE AND GROWTH AND INCOME FUNDS
The International Equity, Small Cap Value and Growth and Income Funds may
purchase eligible securities on a "when-issued" basis. The Small Cap Value and
Growth and Income Funds may also purchase eligible securities on a "delayed
settlement" basis. When-issued transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
A Fund may dispose of a commitment prior to settlement if the Investment
Adviser or Sub-Adviser, as the case may be, deems it appropriate to do so. In
addition, a Fund may enter into transactions to sell its purchase commitments
to third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may
realize short-term profits or losses upon the sale of such commitments.
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<PAGE> 1282
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if the
Investment Adviser and/or the Sub-Adviser believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A portfolio turnover rate of 100% or more is considered high,
although the rate of portfolio turnover will not be a limiting factor in making
portfolio decisions. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must be
ultimately borne by a Fund's shareholders. High portfolio turnover may result in
the realization of substantial net capital gains; distributions derived from
such gains will be treated as ordinary income for Federal income tax purposes.
See "Taxes -- Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a particular Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the applicable Statements
of Additional Information under "Investment Objectives and Policies."
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except from domestic
banks for temporary purposes and then in amounts not in excess of 10%, with
respect to the Equity Value Fund, or 33%, with respect to the Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds, of the value of its total assets at the time of such
borrowing (provided that the Funds may borrow pursuant to reverse
repurchase agreements in accordance with their
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<PAGE> 1283
investment policies and in amounts not in excess of 10%, with respect to
the Equity Value Fund, or 33%, with respect to the Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation
Funds, of the value of their respective total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10%, with respect to the Equity
Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity and Asset Allocation Funds, of
the value of a Fund's total assets at the time of such borrowing. No Fund
will purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven
days, restricted securities (with respect to the Equity Value Fund),
securities which are restricted as to transfer in their principal market
(with respect to the International Equity Fund), non-negotiable time
deposits and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of a Fund's total assets would be invested in such issuer, except
that up to 25% of the value of its total assets may be invested without
regard to this limitation.
The Small Cap Value and Growth and Income Funds may not:
5. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective total assets
and pledge up to 10% of the value of their respective total assets to
secure such borrowings.
6. With respect to 75% of the value of their respective total
assets, invest more than 5% in securities of any one issuer, other than
cash, cash items, or securities issued or guaranteed by the government of
the United States or, its agencies or instrumentalities and repurchase
agreements collateralized by such securities, or acquire more than 10% of
the outstanding voting securities of any one issuer.
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<PAGE> 1284
The following investment policy may be changed by Galaxy's Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective:
7. The Small Cap Value and Growth and Income Funds may not invest
more than 15% of their respective net assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933
and certain securities which meet the criteria for liquidity as established
by the Board of Trustees).
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value
Fund intends to limit any borrowings (including reverse repurchase agreements)
to not more than 10% of the value of its total assets at the time of such
borrowing and each of the Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds intends to limit any borrowings
(including reverse repurchase agreements) to not more than 33% of the value of
its total assets at the time of such borrowing, and (b) mortgage dollar rolls
entered into by the Asset Allocation Fund that are not accounted for as
financings shall not constitute borrowings.
The Small Cap Value and Growth and Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and repurchase agreements providing for settlement in
more than seven days after notice, to 15% of its net assets.
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<PAGE> 1285
The Securities and Exchange Commission ("SEC") has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. A Fund's
investment in Rule 144A securities could have the effect of increasing the level
of illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation (15% with respect to the Small Cap Value and Growth and
Income Funds) on purchases of illiquid instruments described above, Rule 144A
securities will not be considered to be illiquid if the Investment Adviser
and/or the Sub-Adviser has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per Share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per Share for purposes of pricing sales and redemptions is calculated separately
for each series of Shares by dividing the value of all securities and other
assets attributable to a particular series of Shares of a Fund, less the
liabilities attributable to the Shares of that series of the Fund, by the number
of outstanding Shares of the Fund.
VALUATION OF THE EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, SMALL
COMPANY EQUITY, ASSET ALLOCATION, SMALL CAP VALUE AND GROWTH AND
INCOME FUNDS
The assets in the Equity Value, Equity Growth, Equity Income, Small Company
Equity, Asset Allocation, Small Cap Value and Growth and Income Funds 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 quoted on the NASD
National Market System are also valued at the last sale price. Other securities
traded on over-the-counter markets are valued on the basis of their closing
over-the-counter bid prices. Securities
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<PAGE> 1286
for which there were no transactions are valued at the average of the most
recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by the Investment Adviser
under the supervision of Galaxy's Board of Trustees. An option is generally
valued at the last sale price or, in the absence of a last sale price, the last
offer price. See "Valuation of International Equity Fund" below for a
description of the valuation of certain foreign securities held by the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation,
Small Cap Value and Growth and Income Funds.
VALUATION OF INTERNATIONAL EQUITY FUND
The International Equity Fund's portfolio securities which are primarily
traded on a domestic exchange are valued at the last sale price on that exchange
or, if there is no recent sale, at the last current bid quotation. Portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value, then the fair value of
those securities will be determined through consideration of other factors by or
under the direction of Galaxy's Board of Trustees. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in debt
securities having a remaining maturity of 60 days or less are valued based upon
the amortized cost method. All other securities are valued at the last current
bid quotation if market quotations are available, or at fair value as determined
in accordance with policies established in good faith by the Board of Trustees.
For valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation. An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem Shares of the Fund.
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<PAGE> 1287
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
440 Financial Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of First Data Investor Services Group, Inc. The Distributor is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581.
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity, Asset Allocation and Growth and Income Funds are subject
to a back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
The Distributor has established several procedures to enable different
types of investors to purchase Retail Shares of the Funds. The Retail Shares
described in this Prospectus may be purchased by individuals or corporations who
submit a purchase application to Galaxy, purchasing directly either for their
own accounts or for the accounts of others ("Direct Investors"). Retail Shares
may also be purchased by FIS Securities, Inc., Fleet Brokerage Securities, Inc.,
Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc.,
its affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which the Distributor and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an Institution accepts a purchase
order from a Customer on a non-Business Day, the order will not be executed
until it is received and accepted by the Distributor on a Business Day in
accordance with the Distributor's procedures. Retail Shares of the Funds will be
issued only in exchange for monetary consideration as described below.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to the Distributor and for wiring required funds in
payment to Galaxy's custodian on a timely basis. The Distributor is responsible
for
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<PAGE> 1288
transmitting such orders to Galaxy's transfer agent for execution. Retail Shares
purchased by Institutions on behalf of their Customers will normally be held of
record by the Institution and beneficial ownership of Retail Shares will be
recorded by the Institution and reflected in the account statements provided to
its Customers. Galaxy's transfer agent may establish an account of record for
each Customer of an Institution reflecting beneficial ownership of Retail
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
PURCHASE PROCEDURES -- DIRECT INVESTORS
Purchases by Mail. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at
any time by sending a check for a minimum of $100 payable to the Fund in which
the additional investment is being made to Galaxy at the address above along
with either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from the
Distributor, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be canceled.
Purchases by Wire. Direct Investors may also purchase Retail
Shares by arranging to transmit federal funds by wire to Fleet Bank
of Massachusetts, N.A. as agent for First Data Investor Services
Group, Inc. ("FDISG"), Galaxy's transfer agent. Prior to making
any purchase by wire, an investor must telephone the Distributor at
1-800-628-0413 to place an order and for
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<PAGE> 1289
instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
Shareholder Name
Shareholder Account Number
Direct Investors making initial investments by wire must promptly complete
a purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581. Applications may be obtained by
calling the Distributor at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by the Distributor.
Direct Investors making subsequent investments by wire should follow the
instructions above.
OTHER PURCHASE INFORMATION
Investment Minimums. Except as provided in "Investor Programs" below, the
minimum initial investment by a Direct Investor, or initial aggregate investment
by an Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirement. The issuance of Retail
Shares to Direct Investors and Institutions is recorded on the books of Galaxy
and Retail Share certificates will not be issued.
Retail Shares of the International Equity Fund described in this Prospectus
may be sold to clients, partners and employees of the Sub-Adviser to the
International Equity Fund.
Effective Time of Purchases. A purchase order for Retail Shares received
and accepted by the Distributor from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
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purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the above procedures.
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
------------------------------------- ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than
$50,000 3.75 3.90 3.75
$50,000 but less than
$100,000 3.50 3.63 3.50
$100,000 but less than
$250,000 3.00 3.09 3.00
$250,000 but less than
$500,000 2.50 2.56 2.50
$500,000 but less than
$1,000,000 2.00 2.04 2.00
$1,000,000 but less than
$3,000,000 1.00 1.01 1.00
$3,000,000 and
over 0.50 0.50 0.50
</TABLE>
Further reductions in the sales charges shown above are also possible.
See "Quantity Discounts" below.
The Distributor will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by the Distributor, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
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<PAGE> 1291
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of
Fleet, may at its expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail A Shares of a Fund. Such compensation will not represent an
additional expense to the Funds or their shareholders, since it will be paid
from the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. No sales
charge is assessed on the following types of transactions and/or investors:
- reinvestment of dividends and distributions;
- purchases by IRA, SEP and Keogh Plan accounts that were
beneficial owners of shares of the Funds or any of the other
portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before January 1, 1997;
- purchases by persons who were beneficial owners of shares of
the Funds or any of the other portfolios offered by Galaxy or
any other funds advised by Fleet or its affiliates before
December 1, 1995;
- purchases by directors, officers and employees of the Funds'
Distributor and of broker-dealers having agreements with the
Funds' Distributor pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program
offered by any broker-dealer or other financial
institution or financial planning organization;
- purchases by members of Galaxy's Board of Trustees;
- purchases by officers, directors, employees and retirees
of Fleet Financial Group, Inc. and any of its affiliates;
and
- any purchase of Retail A Shares pursuant to the
Reinstatement Privilege described below.
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<PAGE> 1292
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or
Customer must notify Galaxy's administrator, First Data Investor Services Group,
Inc. ("FDISG") at the time of purchase that he or she would like to take
advantage of any of the discount plans described below. Upon such notification,
the investor will receive the lowest applicable sales charge. Quantity discounts
may be modified or terminated at any time and are subject to confirmation of a
Direct Investor's or Customer's holdings through a check of appropriate records.
For more information about quantity discounts, please contact the Distributor or
your Institution.
Rights of Accumulation. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
Letter of Intent. By completing the Letter of Intent included as part
of the Account Application, a Direct Investor or Customer becomes eligible for
the reduced sales charge applicable to the total number of Eligible Fund Retail
A shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent,
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
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<PAGE> 1293
FDISG will hold in escrow Retail A Shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if a
Direct Investor or Customer does not purchase the full amount indicated in the
Letter of Intent. The escrow will be released when a Direct Investor or Customer
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect a Direct Investor's or Customer's total purchases. If
total purchases are less than the amount specified, a Direct Investor or
Customer will be requested to remit an amount equal to the difference between
the sales charge actually paid and the sales charge applicable to the total
purchases. If such remittance is not received within 20 days, FDISG, as
attorney-in-fact pursuant to the terms of the Letter of Intent and at the
Distributor's direction, will redeem an appropriate number of Retail A shares
held in escrow to realize the difference. Signing a Letter of Intent does not
bind a Direct Investor or Customer to purchase the full amount indicated at the
sales charge in effect at the time of signing, but a Direct Investor or Customer
must complete the intended purchase in accordance with the terms of the Letter
of Intent to obtain the reduced sales charge. To apply, a Direct Investor or
Customer must indicate his or her intention to do so under a Letter of Intent at
the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
Reinstatement Privilege. Direct Investors and Customers may reinvest
all or any portion of their redemption proceeds in Retail A Shares of the Funds
or in Retail A Shares of another portfolio of Galaxy within 90 days of the
redemption trade date without paying a sales load. Retail A Shares so reinvested
will be purchased at a price equal to the net asset value next determined after
the Transfer Agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to the Transfer Agent stating that the
investor is eligible to use the Privilege. The reinstatement request and payment
must be received within 90 days of the trade date of the redemption. Currently,
there are no restrictions on the number of times an investor may use this
Privilege.
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<PAGE> 1294
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity, Asset Allocation and Growth and Income
Funds is the net asset value of the Retail B Shares purchased. Although Direct
Investors and Customers pay no front-end sales charge on purchases of Retail B
Shares, such shares are subject to a contingent deferred sales charge at the
rates set forth below if they are redeemed within six years of purchase.
Securities dealers, brokers, financial institutions and other industry
professionals will receive commissions from the Distributor in connection with
sales of Retail B Shares. These commissions may be different than the
reallowances or placement fees paid to dealers in connection with sales of
Retail A Shares. Certain affiliates of Fleet may, at their own expense, provide
additional compensation to Fleet Enterprises, Inc., a broker-dealer affiliate of
Fleet, whose customers purchase significant amounts of Retail B Shares of a
Fund. See "Applicable Sales Charge - Retail A Shares." The contingent deferred
sales charge on Retail B Shares is based on the lesser of the net asset value of
the Shares on the redemption date or the original cost of the Shares being
redeemed. As a result, no sales charge is imposed on any increase in the
principal value of a Direct Investor's or Customer's Retail B Shares. In
addition, a contingent deferred sales charge will not be assessed on Retail B
Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
---------------------- ---------------------
<S> <C>
Less than one 5.00%
More than one but less than two 4.00%
More than two but less than three 3.00%
More than three but less than four 3.00%
More than four but less than five 2.00%
More than five but less than six 1.00%
After six None
</TABLE>
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<PAGE> 1295
When a Direct Investor or Customer redeems his or her Retail B Shares,
the redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(i.e., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to the Distributor, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
Exemptions from the Contingent Deferred Sales Charge. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (vi) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Programs -- Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of a Fund (or any of the other portfolios offered by
Galaxy or otherwise advised by Fleet or its affiliates) before December 1, 1995.
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<PAGE> 1296
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies
in their sales charge structures and shareholder servicing/distribution
expenses. A Direct Investor or Customer should understand that the purpose and
function of the sales charge structures and shareholder servicing/distribution
arrangements for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges -- Retail A
Shares" and "Quantity Discounts.") Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .30%
of the Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Equity Value, Equity Growth, Small Company
Equity, Asset Allocation and Growth and Income Funds are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. (See "Applicable
Sales Charges -- Retail B Shares.") Retail B Shares of a Fund are currently
subject to ongoing shareholder servicing and distribution fees at an annual
rate of up to .95% of the Fund's average daily net assets attributable to its
Retail B Shares. These ongoing fees, which are higher than those charged on
Retail A Shares, will cause Retail B Shares to have a higher expense ratio and
pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity, Asset Allocation and Growth and Income Funds will
convert automatically to Retail A Shares of the Funds. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those shares, after enough time has passed to allow the
Distributor to recover approximately the amount it would have received if a
front-end sales charge had been charged. The conversion from Retail B Shares to
Retail A Shares takes place at net asset value, as a result of which a Direct
Investor or Customer receives dollar-for-dollar the same value of Retail A
Shares as he or she had of Retail B Shares. The conversion occurs six years
after the beginning of the calendar month in which the Shares are purchased.
Upon conversion, the converted shares will be relieved of the distribution and
shareholder servicing fees borne by Retail B Shares, although they will be
subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charges -- Retail B Shares")
are also converted at the earlier of two dates -- six years after the beginning
of the calendar month in
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<PAGE> 1297
which the reinvestment occurred or the date of conversion of the most recently
purchased Retail B Shares that were not acquired through reinvestment of
dividends or distributions. For example, if a Direct Investor or Customer makes
a one-time purchase of Retail B Shares of a Fund, and subsequently acquires
additional Retail B Shares of such Fund only through reinvestment of dividends
and/or distributions, all of such Direct Investor's or Customer's Retail B
Shares in the Fund, including those acquired through reinvestment, will convert
to Retail A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity, Asset Allocation and Growth and
Income Funds, Direct Investors and Customers should consider whether, during the
anticipated periods of their investments in the particular Funds, the
accumulated distribution and shareholder servicing fees and potential contingent
deferred sales charge on Retail B Shares prior to conversion would be less than
the initial sales charge and accumulated shareholder servicing fees on Retail A
Shares purchased at the same time, and to what extent such differential would be
offset by the higher yield of Retail A Shares. In this regard, to the extent
that the sales charge for Retail A Shares is waived or reduced by one of the
methods described above, investments in Retail A Shares become more desirable.
An investment of $250,000 or more in Retail B Shares would not be in most
shareholders' best interest. Shareholders should consult their financial
advisers and/or brokers with respect to the advisability of purchasing Retail B
Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee,
they are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon
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<PAGE> 1298
redemption, depending upon the year of redemption. Direct Investors or Customers
expecting to redeem during this six-year period should compare the cost of the
contingent deferred sales charge plus the aggregate annual Retail B Shares'
distribution and shareholder servicing fees to the cost of the initial sales
charge and shareholder servicing fees on the Retail A Shares. Over time, the
expense of the annual distribution and shareholder servicing fees on the Retail
B Shares may equal or exceed the initial sales charge and annual shareholder
servicing fee applicable to Retail A Shares. For example, if net asset value
remains constant, the aggregate distribution and shareholder servicing fees with
respect to Retail B Shares of a Fund would equal or exceed the initial sales
charge and aggregate shareholder servicing fees of Retail A Shares approximately
six years after the purchase. In order to reduce such fees for investors that
hold Retail B Shares for more than six years, Retail B Shares will be
automatically converted to Retail A Shares as described above at the end of such
six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by the Distributor. Proceeds from the
redemptions of Retail B Shares of the Equity Value, Equity Growth, Small Company
Equity, Asset Allocation and Growth and Income Funds will be reduced by the
amount of any applicable contingent deferred sales charge. Galaxy reserves the
right to transmit redemption proceeds within seven days after receiving the
redemption order if, in its judgement, an earlier payment could adversely affect
a Fund.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares
in accordance with procedures governing their accounts at Institutions. It is
the responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a
Business Day will normally be wired on the third Business Day to the
Institutions.
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<PAGE> 1299
Direct Investors may redeem all or part of their Retail Shares in
accordance with any of the procedures described below.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Retail Shares may be redeemed by a Direct
Investor by submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund and
the number and series of shares (i.e. Retail A or Retail B) to be redeemed, (ii)
identify the shareholder account number and tax identification number, and (iii)
be signed by each registered owner exactly as the shares are registered. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 90 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. The guarantor of a
signature must be a bank that is a member of the FDIC, a trust company, a member
firm of a national securities exchange or any other eligible guarantor
institution. The Distributor will not accept guarantees from notaries public.
The Distributor may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the Distributor
receives all required documents in proper form. The Funds ordinarily will make
payment for Retail Shares redeemed by mail within five Business Days after
proper receipt by the Distributor of the redemption request. Questions with
respect to the proper form for redemption requests should be directed to the
Distributor at 1-800-628-0413.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0413 and instructing the Distributor to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000 or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 90 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail.")
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<PAGE> 1300
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing the Distributor by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Distributor charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by the
Distributor. To request redemption of Retail Shares by wire, Direct Investors
should call the Distributor at 1-800-628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if
it believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or the
Distributor. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
No redemption by a Direct Investor in any Fund will be processed until
Galaxy has received a completed application with respect to the Direct
Investor's account.
If any portion of the Retail Shares to be redeemed represents an
investment made by personal check, Galaxy reserves the right to delay payment of
proceeds until the Distributor is reasonably satisfied that the check has been
collected, which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase Retail Shares by federal funds or bank wire or by
certified or cashier's check. Banks normally impose a charge in
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connection with the use of bank wires, as well as certified checks, cashier's
checks and federal funds.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange Retail A Shares of a Fund having a value of at
least $100 for Retail A Shares of any of the other Funds or portfolios offered
by Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity, Asset Allocation and Growth and Income Funds for Retail B
Shares of the Money Market, Short-Term Bond, High Quality Bond and Tax-Exempt
Bond Funds offered by Galaxy, provided that such other Retail B Shares may
legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A
Shares of a Fund for Retail A Shares of another Galaxy portfolio that imposes a
sales charge. Retail B Shares may be exchanged without the payment of any
contingent deferred sales charge at the time the exchange is made. In
determining the holding period for calculating the contingent deferred sales
charge payable on redemptions of Retail B Shares, the holding period of the
Retail B Shares originally held will be added to the holding period of the
Retail B Shares acquired through exchange.
The minimum initial investment to establish an account in another
eligible Fund by exchange, except for the Institutional Treasury Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund into which the exchange is being made,
to participate in
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the Automatic Investment Program described below, in which event there is no
minimum initial investment requirement, or in the College Investment Program
described below, in which event the minimum initial investment is generally
$100. The minimum initial investment to establish an account by exchange in the
Institutional Treasury Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail
Shares of a Fund and the investment of the redemption proceeds in Retail Shares
of another Fund or portfolio offered by Galaxy or, with respect to Retail A
Shares otherwise advised by Fleet or its affiliates. The redemption will be made
at the per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call FDISG at 1-800-628-0413. Customers of Institutions should
call their Institution for such information. Customers exercising the exchange
privilege into other eligible Funds should request and review these Funds'
prospectuses prior to making an exchange (call 1-800-628-0414 for a prospectus).
Telephone all exchanges to 1-800-628-0413. See "How to Purchase and Redeem
Shares -- Redemption Procedures -- Direct Investors -- Redemption by Wire" above
for a description of Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy will determine whether to do so based on a consideration of both the
number of exchanges that any particular shareholder or group of shareholders has
requested and the time period over which their exchange requests have been made,
together with the level of expense to Galaxy which will result from effecting
additional exchange requests. The exchange privilege may be modified or
terminated at any time. At least 60 days' notice of any material modification or
termination will be given to shareholders except where notice is not required
under the regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
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For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, a Customer or Direct Investor should consult
a tax or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection
with the following tax-deferred prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500
(including a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan
for sole proprietors, partnerships and corporations. The minimum initial
investment for a SEP account is $500.
Multi-Employee Pension Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Internal Revenue Code. The minimum initial investment
for a MERP is $500.
Keogh Plans, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are
not subject to the minimum investment provisions described above under "How to
Purchase and Redeem Shares -- Other Purchase Information." Detailed information
concerning eligibility and other matters related to these plans and the form of
application is available from Galaxy's Distributor (call 1-800-628-0413) with
respect to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased, on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the
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purchase will be made on the Business Day closest to the designated day. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to
automatically redeem Retail Shares on a monthly, quarterly, semi-annual, or
annual basis on any Business Day designated by a Direct Investor, if the account
has a starting value of at least $10,000. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to the Transfer Agent (but not
less than five days before a payment date). There is no charge for this service.
Purchases of additional Retail A Shares concurrently with withdrawals are
ordinarily not advantageous because of the sales charge involved in the
additional purchases. The maintenance of a Systematic Withdrawal Plan may also
be disadvantageous for holders of Retail B Shares due to the effect of the
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor
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purchases Retail Shares through the Automatic Investment Program, the minimum
per transaction is $50. The College Program is designed to assist Direct
Investors who want to finance a college savings plan. See "Investor Programs --
Automatic Investment Program and Systematic Withdrawal Plan" for information on
the Automatic Investment Program. Galaxy reserves the right to redeem accounts
participating in the College Program involuntarily, upon 60 days' written
notice, if the account's net asset value falls below the applicable minimum
initial investment as a result of redemptions. See "How to Purchase and Redeem
Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated
monthly statements of their accounts. Detailed information concerning College
Program accounts and applications may be obtained from the Distributor (call
1-800-628-0413).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call the Distributor at 1-800-628-0413. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800- FOR-GLXY (367-4599) from any touch-tone telephone and follow the
recorded instructions.
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GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct
Investors can call Galaxy Shareholder Services Monday through Friday, between
the hours of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0413.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy
by calling 1-508-855-5237.
Investment returns and principal values will vary with market
conditions so that an investor's Retail Shares, when redeemed, may be worth more
or less than their original cost. Past performance is no guarantee of future
results. Unless otherwise indicated, total return figures include changes in
share price, deduction of any applicable sales charge, and reinvestment of
dividends and capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity
Growth, Equity Income, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds are declared and paid quarterly. Dividends from net
investment income of the International Equity Fund are declared and paid
annually. Dividends on each Share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such Retail Shares
on the ex-dividend date. Such election, or any revocation thereof, must be
communicated in writing to Galaxy's transfer agent (see "Custodian and Transfer
Agent" below) and will become effective with respect to dividends paid after its
receipt.
TAXES
FEDERAL
Each of the Funds qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Code. Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent the Fund's earnings are distributed in accordance with the Code.
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The policy of each Fund is to distribute as dividends substantially all
of its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Retail Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of the excess of its net long-term capital gain
over its net short-term capital loss is taxable to shareholders as long-term
capital gain, regardless of how long the shareholder has held shares and whether
such gains are received in cash or reinvested in additional Retail Shares. Such
distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year which
are payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying Shares of a Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital to the shareholder, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon
redemption, transfer or exchange of Shares of a Fund depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
It is expected that the International Equity Fund will be subject to
foreign withholding taxes with respect to income received from sources within
foreign countries. So long as more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may elect, for U.S. federal income tax purposes,
to treat certain foreign taxes paid by it, including generally any withholding
taxes and other foreign income taxes, as paid by its shareholders. If the Fund
makes this election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and shareholders would be entitled
either (a) to credit their proportionate amount of such taxes against their U.S.
federal income tax liabilities, subject to certain limitations described in the
Statement of Additional
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Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income. Shareholders of the Equity Value,
Equity Growth, Equity Income, Small Company Equity, Asset Allocation, Small Cap
Value and Growth and Income Funds should not expect to claim a foreign tax
credit or deduction.
The foregoing summarizes some of the important federal tax
considerations generally affecting the Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Funds should consult their tax advisers with specific reference
to their own tax situation. Shareholders will be advised annually as to the
federal income tax consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction
of Galaxy's Board of Trustees. The Statement of Additional Information contains
the names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903, serves as the Investment Adviser to the Funds.
Fleet is an indirect wholly-owned subsidiary of Fleet Financial Group, Inc., a
registered bank holding company with total assets of approximately $____ billion
at December 31, 1996. Fleet, which commenced operations in 1984, also provides
investment management and advisory services to individual and institutional
clients and manages the other investment portfolios of Galaxy: the Money Market,
Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Treasury Money Market,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions
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that have been delegated to the International Equity Fund's Sub-Adviser as
described below).
For the services provided and expenses assumed with respect to the
Equity Value, Equity Growth, Equity Income, Small Company Equity, Asset
Allocation, Small Cap Value and Growth and Income Funds, the Investment Adviser
is entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of .75% of the average daily net assets of each Fund. For the
services provided and expenses assumed with respect to the International Equity
Fund, the Investment Adviser is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rate of 1.15% of the first $50 million of
the Fund's average daily net assets, plus .95% of the next $50 million of such
assets, plus .85% of net assets in excess of $100 million. The fees for the
Funds are higher than fees paid by most other mutual funds, although the Board
of Trustees of Galaxy believes that they are not higher than average advisory
fees paid by funds with similar investment objectives and policies.
Fleet may from time to time, in its discretion, waive advisory fees
payable by the Funds in order to help maintain a competitive expense ratio and
may from time to time allocate a portion of its advisory fees to Fleet Trust
Company or other subsidiaries of Fleet Financial Group, Inc. in consideration
for administrative and shareholder support services which they provide to
beneficial shareholders. For the fiscal year ended October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rates of
0.__%, 0.__%, 0.__%, 0.__%, 0.__% and 0.__% of the average daily net assets of
the Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds, respectively.
For the period from December 4, 1995 through October 31, 1996, Fleet
received advisory fees (after fee waivers) at the effective annual rates of
____% and ____% of the average daily net assets of the Small Cap Value and
Growth and Income Funds, respectively. Without fee waivers, each Fund would have
borne advisory fees at the annual rate of 0.75% of its average daily net assets.
The Predecessor Small Cap Value and Predecessor Growth and Income Funds
bore advisory fees during the period from November 1, 1995 through December 3,
1995 pursuant to the investment advisory agreement then in effect with Shawmut
Bank, N.A., their former adviser at the effective annual rates of ___% and ___%
of each such Predecessor Fund's average daily net assets after fee waivers.
Without fee waivers, each Predecessor Fund would have borne advisory fees at the
annual rate of 1.00% of its average daily net assets.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide
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a continuous investment program for the Fund, including research and management
with respect to all securities and investments and cash equivalents in the Fund.
In addition, the advisory agreement authorizes Fleet to engage a sub-adviser to
assist it in the performance of its services. Pursuant to such authorization,
Fleet has appointed Oechsle, a Delaware limited partnership with principal
offices at One International Place, Boston, Massachusetts 02210, as the
Sub-Adviser to the International Equity Fund. The general partner of Oechsle is
Oechsle Group, L.P., and the managing general partner of Oechsle Group, L.P. is
Walter Oechsle. Oechsle currently manages approximately $9.4 billion in assets.
Oechsle began serving as sub-adviser to the International Equity Fund on August
12, 1996.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides the Investment Adviser with foreign broker research and a quarterly
review of international economic and investment developments. Fleet, among other
things, assists and consults with the Sub- Adviser in connection with the Fund's
continuous investment program; approves lists of foreign countries recommended
by the Sub-Adviser for investment; reviews the investment policies and
restrictions of the Fund and recommends appropriate changes to the Board of
Trustees; and provides the Board of Trustees and the Sub- Adviser with
information concerning relevant economic and political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million. For the period from August 12, 1996 through
October 31, 1996, Oechsle received sub-advisory fees from Fleet at the effective
rate of ____% of the International Equity Fund's average daily net assets.
Prior to August 12, 1996, Wellington Management Company ("Wellington
Management") served as the International Equity Fund's sub-adviser. For the
services provided and expenses assumed pursuant to its sub-advisory agreement,
Wellington Management was entitled to receive a fee from Fleet, computed daily
and paid quarterly, at the annual rate of .50% of the first $50 million of the
International Equity Fund's average daily net assets, plus .30% of the next $50
million of such assets, plus .20% of all net assets in excess of $100 million.
For the period from November 1, 1995 through August 11, 1996, Wellington
Management received sub- advisory fees at the effective annual rate of ___% of
the Fund's average daily net assets.
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The Equity Value Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978 and has been the
Fund's portfolio manager since its inception.
The Equity Growth Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Armknecht, an Executive Vice President, has been with Fleet and
its predecessors since 1989 and has been the Fund's portfolio manager since its
inception.
The Equity Income Fund's portfolio manager, J. Edward Klisiewicz, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
The International Equity Fund's portfolio managers, David von Hemert of
Fleet and S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. von Hemert, a Senior Vice President, has been with Fleet and its
predecessors since 1980 and has been managing the Fund since August, 1994. Mr.
Keesler, General Partner and Portfolio Manager, has been with Oechsle since its
founding in 1986. Ms. Harris has been a Portfolio Manager at Oechsle since
January 1995. Prior thereto, she was Portfolio Manager and Investment Director
for the State of Wisconsin Investment Board and a Fund Manager and Equity
Analyst for Northern Trust Company.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro,
is primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been
with Fleet and its predecessors since 1976 and has been the Fund's portfolio
manager since its inception.
The Asset Allocation Fund's co-portfolio managers, Donald Jones and
David Lindsay, are primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Jones determines the allocation of the Fund's
assets between equity and fixed income investments and manages the equity
portion of the Fund's investment portfolio. Mr. Lindsay manages the fixed income
portion of the Fund's investment portfolio. Mr. Jones, who currently serves as a
Vice President, has been with Fleet and its predecessors as a portfolio manager
since 1988, has been the Fund's portfolio manager since May 1, 1995 and has
managed Galaxy's New York Municipal Bond Fund since September 1994. Mr. Lindsay,
a Senior Vice President, has been with Fleet and its predecessors since 1986. He
has managed the fixed income portion of the Fund's portfolio since _______, 1996
and has managed Galaxy's Corporate Bond Fund since its inception in December
1994.
The Small Cap Value Fund's portfolio manager, Peter Larson, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Larson served as the portfolio manager of the Predecessor Small
Cap Value Fund since its inception in 1992. He joined Shawmut Bank in 1963 as an
investment officer and
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was a Vice President in charge of Shawmut Bank's Small Cap Equity Management
product since inception in 1982.
The Growth and Income Fund's portfolio manager, Brendan Henebry, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Henebry served as portfolio manager for the Predecessor Growth
and Income Fund since its inception in 1992. He was associated with Shawmut Bank
and its predecessor since 1965 and was a Vice President since 1978. During the
past six years he served as manager of Shawmut Bank's Growth and Income Equity
Management Group.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
custodian and Institutions which agree to provide shareholder support services
that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Funds, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Funds' method of
operation would not affect a Fund's net asset value per Retail Share or result
in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), located at
4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. FDISG is a wholly-owned subsidiary of
First Data Corporation.
FDISG generally assists the Funds in their administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
Effective September 5, 1996, FDISG is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of combined average daily net assets of the Funds and the other
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portfolios offered by Galaxy (collectively, the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. Prior to September 5, 1996, for the services
provided to the Funds, FDISG was entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Portfolios, .085% of the
next $2.5 billion of combined average daily net assets and .08% of combined
average daily net assets over $5 billion. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive all or a portion of the administration fee
payable to it by the Funds, either voluntarily or pursuant to applicable
statutory expense limitations. For the fiscal year ended October 31, 1996, the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity and Asset Allocation Funds paid FDISG administration fees at the
effective annual rate of ____% of each Fund's average daily net assets.
For the period from December 4, 1995 through October 31, 1996, the
Small Cap Value and Growth and Income Funds paid FDISG administration fees at
the effective annual rate of ____% of each Fund's average daily net assets.
The Predecessor Small Cap Value and Predecessor Growth and Income Funds
bore administration fees during the period from November 1, 1995 through
December 3, 1995 pursuant to the administration agreement then in effect with
Federated Administrative Services, their prior administrator, at the effective
annual rate of ____% of each such Predecessor Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each of the series in the Funds as follows:
Class C shares (Trust Shares), Class C - Special Series 1 shares (Retail A
Shares) and Class C - Special Series 2 shares (Retail B Shares), each series
representing interests in the Equity Value Fund; Class G - Series 1 shares
(Trust Shares) and Class G Series 2 shares (Retail A Shares), both series
representing interests in the International Equity Fund; Class H - Series 1
shares (Trust Shares), Class H - Series 2 shares (Retail A Shares) and Class H -
Series 3 shares (Retail B Shares), each series representing interests in the
Equity Growth Fund; Class I - Series 1 shares (Trust Shares) and Class I -
Series 2 shares (Retail A Shares), both series representing interests in the
Equity Income
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Fund; Class K - Series 1 shares (Trust Shares), Class K - Series 2 shares
(Retail A Shares) and Class K - Series 3 shares (Retail B Shares), each series
representing interests in the Small Company Equity Fund; Class N - Series 1
shares (Trust Shares), Class N Series 2 shares (Retail A Shares) and Class N -
Series 3 shares (Retail B Shares), each series representing interests in the
Asset Allocation Fund; Class U - Series 1 shares (Trust Shares), Class U -
Series 2 shares (Retail A Shares) and Class U - Series 3 shares (Retail B
Shares), each series representing interest in the Growth and Income Fund; and
Class X - Series 1 shares (Trust Shares) and Class X - Series 2 shares (Retail A
Shares), each series representing interests in the Small Cap Value Fund. Each
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Funds' Trust Shares and these other portfolios, which are offered
through separate prospectuses, contact the Distributor at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all
operating expenses paid by that Fund except as follows. Holders of a Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Holders of Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity, Asset Allocation and Growth
and Income Funds bear the fees that are paid under Galaxy's Distribution and
Services Plan described below. In addition, shares of each series in a Fund bear
differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Each Share of Galaxy (irrespective of series designation) has a par
value of $.001 per Share, represents an equal proportionate interest in the
related Fund with other Shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such Fund as are declared in the
discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full Share held, and a
proportionate fractional vote for each fractional Share held, and will vote in
the aggregate and not by class or series, 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 or series.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees.
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SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by FDISG as administrator and transfer agent to
the shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .50% of the average
daily net asset value of Retail A Shares owned beneficially by Customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such Customers: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with the
Distributor; processing dividend payments from a Fund; providing sub-accounting
with respect to Retail A Shares or the information necessary for sub-accounting;
and providing periodic mailings to Customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such Customers: providing Customers with information as to their positions in
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the applicable Statements of Additional Information under
"Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect
to both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Retail B Shares of
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the Equity Value, Equity Growth, Small Company Equity, Asset Allocation and
Growth and Income Funds. Under the Distribution and Services Plan, Galaxy may
pay (a) the Distributor or another person for expenses and activities intended
to result in the sale of Retail B Shares, including the payment of commissions
to broker-dealers and other industry professionals who sell Retail B Shares and
the direct or indirect cost of financing such payments, (b) Institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
Institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub- accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments
by Galaxy (i) for distribution expenses may not exceed the annualized rate of
.65% of the average daily net assets attributable to each such Fund's
outstanding Retail B Shares, and (ii) to an Institution for shareholder liaison
services and/or administrative support services may not exceed the annual rates
of .25% and .25%, respectively, of the average daily net assets attributable to
the Funds' outstanding Retail B Shares which are owned of record or beneficially
by that Institution's Customers for whom the Institution is the dealer of record
or shareholder of record or with whom it has a servicing relationship. As of the
date of this Prospectus, Galaxy intends to limit the Funds' payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
AFFILIATE AGREEMENT FOR SUB-ACCOUNT SERVICES
FDISG has entered into an agreement with Fleet Bank, an affiliate of
the Investment Adviser, pursuant to which Fleet Bank performs certain
sub-accounting and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends
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and distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Fleet Bank is
compensated by FDISG for the Sub-Account Services and in connection therewith
the transfer agency fees payable by Trust Shares of the Funds to FDISG have been
increased by an amount equal to these fees. In substance, therefore, the holders
of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at 1 Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets. Chase
Manhattan may employ sub-custodians for the International Equity Fund and Asset
Allocation Fund upon approval of the Trustees in accordance with the regulations
of the SEC, for the purpose of providing custodial services for the Funds'
foreign assets held outside the United States. First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation,
serves as the Funds' transfer and dividend disbursing agent. Services performed
by these entities for the Funds are described in the applicable Statements of
Additional Information. Communications to FDISG should be directed to FDISG at
P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581.
EXPENSES
Except as noted below, Fleet and FDISG bear all expenses in connection
with the performance of their services for the Funds. Galaxy bears the expenses
incurred in the Funds' operations including: taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with FDISG); SEC
fees; state securities qualification fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholder servicing, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Funds also pay for brokerage fees
and commissions in connection with the purchase of portfolio securities.
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PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, S&P 500, an unmanaged index of groups
of common stocks, the Consumer Price Index, or the Dow Jones Industrial Average,
a recognized unmanaged index of common stocks of 30 industrial companies listed
on the New York Stock Exchange. In addition, the performance of the
International Equity Fund may be compared to the Morgan Stanley Capital
International Index or the FT World Actuaries Index and the performance of the
Small Company Equity Fund and Small Cap Value Fund may be compared to the NASDAQ
Composite Index, an unmanaged index of over-the-counter stock prices.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, or publications of a local or
regional nature may also be used in comparing the performance and yields of the
Funds. The performance and yield data will be calculated separately for Trust
Shares, Retail A Shares and/or Retail B Shares of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per Share
on the last day of the period, and annualizing the result on a semi-annual
basis. Each Fund may also advertise its "effective yield" which is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested.
The Funds may also advertise their performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use aggregate total return figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load charged by Retail A Shares of the
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Funds and the applicable contingent deferred sales charge for Retail B Shares of
the Equity Value, Equity Growth, Small Company Equity, Asset Allocation and
Growth and Income Funds and assume that dividends and capital gain distributions
made by a Fund during the period are reinvested in Fund Shares.
The Funds may also advertise total return data without reflecting the
sales charges imposed on the purchase of Retail A Shares or the redemption of
Retail B Shares in accordance with the rules of the Securities and Exchange
Commission. Quotations that do not reflect the sales charges will be higher than
quotations that do reflect the sales charges.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's Shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Retail Shares of a Fund will not be
included in calculations of yield and performance.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of either Galaxy, a particular Fund or a particular series
of shares means, with respect to the approval of an investment advisory
agreement, distribution plan or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a)
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<PAGE> 1320
more than 50% of the outstanding shares of Galaxy, such Fund or such series of
shares, or (b) 67% or more of the shares of Galaxy, such Fund or such series of
shares present at a meeting if more than 50% of the outstanding shares of
Galaxy, such Fund or such series of shares are represented at the meeting in
person or by proxy.
-82-
<PAGE> 1321
THE GALAXY FUND
Statement of Additional Information
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
Asset Allocation Fund
February 28, 1997
<PAGE> 1322
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectuses (the "Prospectuses") for the Equity
Value, Equity Growth, Equity Income, International Equity, Small Company Equity
and Asset Allocation Funds dated February 28, 1997 of The Galaxy Fund
("Galaxy"), as they may from time to time be supplemented or revised. This
Statement of Additional Information is incorporated by reference in its entirety
into each such Prospectus. No investment in shares of the Funds should be made
without reading the Prospectuses. Copies of the Prospectuses may be obtained by
writing Galaxy c/o First Data Investor Services Group, Inc., 4400 Computer
Drive, Westboro, Massachusetts 01581-5108 or by calling Galaxy at
1-800-628-0414.
<PAGE> 1323
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
THE GALAXY FUND...................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................... 1
Variable and Floating Rate Obligations......................... 1
Bank Obligations............................................... 1
Asset-Backed Securities........................................ 1
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities.................................. 2
U.S. Government Securities..................................... 3
Derivative Securities.......................................... 3
Option Writing........................................... 3
Options on Foreign Stock Indexes -- International
Equity Fund.............................................. 5
Foreign Currency Exchange Transactions................... 5
Additional Investment Limitations.................................... 6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 8
DESCRIPTION OF SHARES................................................ 10
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 13
In General..................................................... 13
Taxation of Certain Financial Instruments...................... 17
State Taxation................................................. 19
TRUSTEES AND OFFICERS................................................ 19
Shareholder and Trustee Liability.............................. 24
ADVISORY, SUB-ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS................................. 25
Custodian and Transfer Agent................................... 28
PORTFOLIO TRANSACTIONS............................................... 29
SHAREHOLDER SERVICES PLAN............................................ 31
DISTRIBUTION AND SERVICES PLAN....................................... 32
DISTRIBUTOR.......................................................... 34
AUDITORS............................................................. 35
COUNSEL.............................................................. 36
PERFORMANCE AND YIELD INFORMATION.................................... 36
MISCELLANEOUS........................................................ 40
FINANCIAL STATEMENTS................................................. 41
APPENDIX A.................................................................A-1
</TABLE>
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<PAGE> 1324
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-four investment
portfolios.
This Statement of Additional Information relates to six of those
investment portfolios: the Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund and Asset Allocation
Fund (the "Funds"). This Statement of Additional Information provides additional
investment information with respect to the Funds and should be read in
conjunction with the current Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in
accordance with their investment objectives and policies as described in their
Prospectuses. If such an instrument is not rated, Fleet Investment Advisors Inc.
("Fleet" or the "Investment Adviser"), the investment adviser to the Funds, must
determine that such instrument is comparable to rated instruments eligible for
purchase by the Funds and will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such instruments and will
continuously monitor their financial status in order to meet payment on demand.
In determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
Variable and floating rate obligations with a demand feature will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period.
BANK OBLIGATIONS
Investments by the Funds in non-negotiable time deposits are limited to no
more than 5% of each such Fund's total assets at the time of purchase.
Investments by the International Equity Fund in time deposits with maturities
longer than seven days are limited to no more than 10% of the Fund's total
assets.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt
<PAGE> 1325
instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF
PORTFOLIO SECURITIES
The Funds may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to a repurchase agreement will be held by a Fund's custodian or
sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase
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<PAGE> 1326
agreements are considered to be loans by a Fund under the Investment Company Act
of 1940, as amended (the "1940 Act").
The Funds may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid securities equal to the
repurchase price (including accrued interest). The Fund will monitor the account
to ensure such equivalent value is maintained. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Funds would be invested in high quality, short-term
"money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
DERIVATIVE SECURITIES
OPTION WRITING
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
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<PAGE> 1327
A Fund may terminate its obligation to sell prior to the expiration date
of the option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidating purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the writer will have
incurred a loss in the transaction. An option position may be closed out only on
an exchange that provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise. The writer
in such circumstances will be subject to the risk of market decline of the
underlying security during such period. A Fund will write an option on a
particular security only if Fleet or, with respect to the International Equity
Fund, Oechsle International Advisors, L.P. ("Oechsle" or the "Sub-Adviser")
believes that a liquid secondary market will exist on an exchange for options of
the same series, which will permit the Fund to make a closing purchase
transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for federal
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<PAGE> 1328
income tax purposes, and losses on closing purchase transactions are treated as
short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY
FUND
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on stock
indexes will be subject to the Sub-Adviser's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. The Fund will engage in stock index options transactions that are
determined to be consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will establish a
segregated account with its custodian or with a foreign sub-custodian in which
the Fund will deposit cash or cash equivalents or a combination of both in an
amount equal to the market value of the option, and will maintain the account
while the option is open.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds may enter into foreign currency
exchange transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign currency
to other foreign currencies. A Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of
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<PAGE> 1329
days from the date of the contract. Forward foreign currency exchange contracts
establish an exchange rate at a future date. These contracts are transferable in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement and is traded at a net price
without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, the Funds will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
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<PAGE> 1330
purchases), make short sales of securities, or maintain
a short position.
2. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate, and the Funds may
purchase securities of issuers which deal in real estate or
interests therein; however, the Funds will not purchase or sell
interests in real estate limited partnerships.
4. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or development programs or
mineral leases; provided however, that the Funds may enter into
forward currency contracts and foreign currency futures contracts
and related options to the extent permitted by their respective
investment objectives and policies.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however,
each Fund may write covered call options with respect
to its portfolio securities that are traded on a
national securities exchange, and may enter into
closing purchase transactions with respect to such
options if, at the time of the writing of such options,
the aggregate value of the securities subject to the
options written by the Fund does not exceed 25% of the
value of its total assets; and further provided that
the Funds, with the exception of the Equity Value Fund,
may purchase put and call options to the extent
permitted by their investment objectives and policies.
6. Invest in companies for the purpose of exercising
management or control.
7. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the Funds may acquire
such securities in accordance with the 1940 Act.
The investment restrictions described below are not
fundamental policies of Galaxy and may be changed by Galaxy's
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<PAGE> 1331
Board of Trustees. These non-fundamental investment policies
require that:
(A) covered call options written by the Funds will not
exceed (at the time when written) 25% of the net (rather than
total) assets of the Fund. See Investment Limitation No. 5
above;
(B) the Funds may not purchase any security if, as a result, the Fund
would then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation for
less than three years; and
(C) the Funds may not invest in warrants (other than warrants acquired by
a Fund as part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of a Fund's net assets or if, as a result, more than 2%
of a Fund's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by applicable
state securities laws.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by 440 Financial
Distributors, Inc. (the "Distributor"), and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectus, Retail A Shares of the Funds and Retail B Shares of the
Equity Value, Equity Growth, Asset Allocation and Small Company Equity Funds
("CDSC Funds") are sold to customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks,
and other qualified banks, savings and loan associations and broker/dealers
("Institutions"). As described in the applicable Prospectus, Retail A Shares of
the Funds and Retail B Shares of the CDSC Funds may also be sold to individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own accounts or for the accounts of others ("Direct
Investors"). As described in the applicable Prospectuses, Trust Shares in the
Funds are offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Shares of the International Equity Fund are also available for purchase by
clients, partners and employees of the Sub-Adviser.
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<PAGE> 1332
Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the applicable Prospectus. Retail B Shares of the
CDSC Funds are sold to Direct Investors and Customers at the net asset value
next determined after a purchase order is received, but are subject to a
contingent deferred sales charge which is payable on redemption of such shares
as described in the applicable Prospectus.
Retail A Shares of the Funds are offered for sale with a maximum front-end
sales charge of 3.75%, with certain exemptions as described in the applicable
Prospectus. An illustration of the computation of the offering price per share
of Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1996, is as follows:
<TABLE>
<CAPTION>
Equity Value Equity Growth
Fund Fund
---- ----
<S> <C> <C>
Net Assets.......................... $__________ $__________
Outstanding Shares.................. __________ __________
Net Asset Value Per Share........... $__________ $__________
Sales Charge (3.75% of
the offering price)................. $__________ $__________
Offering to Public.................. $__________ $__________
</TABLE>
<TABLE>
<CAPTION>
Equity International
Income Fund Equity Fund
----------- -----------
<S> <C> <C>
Net Assets.......................... $__________ $__________
Outstanding Shares.................. __________ __________
Net Asset Value Per Share........... $__________ $__________
Sales Charge (3.75% of
the offering price)................. $__________ $__________
Offering to Public.................. $__________ $__________
</TABLE>
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<PAGE> 1333
<TABLE>
<CAPTION>
Small Company Asset
Equity Fund Allocation Fund
----------- ---------------
<S> <C> <C>
Net Assets.......................... $__________ $__________
Outstanding Shares.................. __________ __________
Net Asset Value Per Share........... $__________ $__________
Sales Charge (3.75% of
the offering price)................. $__________ $__________
Offering to Public.................. $__________ $__________
</TABLE>
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of twenty-four
classes of shares, each representing interests in one of twenty-four separate
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Treasury Money Market Fund,
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<PAGE> 1334
Equity Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, Asset Allocation Fund, Growth and Income Fund,
Small Cap Value Fund, Short-Term Bond Fund, Intermediate Government Income Fund,
High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal
Bond Fund and Rhode Island Municipal Bond Fund. As stated in the applicable
Prospectuses, two separate series of shares (Retail A Shares and Trust Shares)
of the Funds (plus a third series of shares, i.e. Retail B Shares, of the CDSC
Funds) are offered under separate Prospectuses to different categories of
investors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of a Fund), the
Distribution and Services Plan for Retail B Shares of a Fund, and differing
transfer agency fees, Trust Shares, Retail A Shares and Retail B Shares bear pro
rata the same expenses and are entitled equally to a Fund's dividends and
distributions. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the particular
Fund involved in liquidation, based on the number of shares of the Fund that are
held by each shareholder, except that currently each Fund's Retail A Shares
would be solely responsible for the Fund's payments to Service Organizations
under the Shareholder Services Plan and each CDSC Fund's Retail B Shares would
be solely responsible for the Fund's payments to the Distributor and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only Retail A
Shares and Trust Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to Galaxy's Shareholder Services Plan for
Retail A and Trust Shares and only Retail B Shares of a Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Distribution and Services Plan for Retail B Shares. Further, shareholders of all
of the Funds, as well as those of any other investment portfolio now or
hereafter offered by Galaxy, will vote together in the aggregate and not
separately on a Fund-by-Fund basis, except as otherwise
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<PAGE> 1335
required by law or when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as Galaxy shall not
be deemed to have been effectively acted upon unless approved by the holders of
a majority of the outstanding shares of each Fund affected by the matter. A
particular Fund is deemed to be affected by a matter unless it is clear that the
interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under the Rule, the approval of
an investment advisory agreement or any change in fundamental investment policy
would be effectively acted upon with respect to a Fund only if approved by a
majority of the outstanding shares of such Fund (irrespective of series
designation). However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may
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<PAGE> 1336
receive in payment for such shares, due to changes in the market prices of the
Fund's portfolio securities, an amount that is more or less than the original
investment. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act, and the Board of Trustees will not
take any action described in this paragraph unless the proposed action has been
disclosed in writing to the Fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders (including amounts derived from
interest on Municipal Securities) would be taxable as ordinary income, to the
extent of the current and accumulated earnings and profits of the particular
Fund, and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year (the "90% distribution requirement"). In
addition, each Fund must satisfy certain requirements with respect to the source
of its income for a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited
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<PAGE> 1337
to, gains from options, futures, or forward contracts) derived with respect to
the Fund's business of investing in such stock, securities or currencies (the
"90% gross income test"). The Treasury Department may by regulation exclude from
qualifying income foreign currency gains which are not directly related to a
Fund's principal business of investing in stock or securities, or options and
futures with respect to stock or securities. Any income derived by a Fund from a
partnership or trust is treated for this purpose as derived with respect to the
Fund's business of investing in stock, securities or currencies, only to the
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
A Fund will not be treated for a taxable year as a regulated investment
company under the Code if 30% or more of the Fund's gross income for such year
is derived from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in Section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. Although proposed legislation would repeal the
30% test, it is unclear if or when such legislation would become effective. With
respect to covered call options, if the call is exercised by the holder, the
premium and the price received upon exercise constitute the proceeds of sale,
and the difference between the proceeds and the cost of the securities subject
to the call is capital gain or loss. Premiums from expired call options written
by a Fund and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses. With respect to forward
contracts, futures contracts, options on futures contracts, and other financial
instruments subject to the mark-to-market rules described below under "Taxation
of Certain Financial Instruments," the Internal Revenue Service (the "Service")
has ruled in private letter rulings issued to other registered investment
companies that a gain realized from such a contract, option or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for
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<PAGE> 1338
which the contract, option or instrument is held) if the gain arises as a result
of a constructive sale under the mark-to-market rules, and will be treated as
being derived from a security held for less than three months only if the
contract, option or instrument is terminated (or transferred) during the taxable
year (other than by reason of marking-to-market) and less than three months time
has elapsed between the date the contract, option or instrument is acquired and
the termination date. Although a private letter ruling is binding on the Service
only with respect to the taxpayer receiving the ruling, it is anticipated that
the Service would take the same position with respect to the Funds. Increases
and decreases in the value of a Fund's forward contracts, futures contracts,
options on futures contracts and other investments that qualify as part of a
"designated hedge," as defined in Section 851(g) of the Code, may be netted for
purposes of determining whether the 30% test is met.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange of
Fund Shares, if the shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the Shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (an
effective marginal rate of 39% applies in the case of corporations having
taxable income between $100,000 and $335,000, and an effective marginal rate of
38% applies in the case of corporations having taxable income between
$15,000,000 and $18,333,333).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or
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<PAGE> 1339
gross sale proceeds paid to any shareholder who (i) has failed to provide a
correct tax identification number, (ii) is subject to withholding by the
Internal Revenue Service for failure to properly include on his or her return
payments of taxable interest or dividends, or (iii) has failed to certify to the
Funds that he or she is not subject to back up withholding when required to do
so or that he or she is an "exempt recipient."
Income received by the Funds from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to a Fund's shareholders.
So long as a Fund qualifies as a regulated investment company, certain
distribution requirements are satisfied, and more than 50% of the value of the
Fund's assets at the close of the taxable year consists of stock or securities
of foreign corporations, the Fund may elect, for U.S. federal income tax
purposes, to treat foreign income taxes paid by the Fund that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Fund may qualify for and make this election in some, but not necessarily all, of
its taxable years. If a Fund were to make an election, an amount equal to the
foreign income taxes paid by the Fund would be included in the income of its
shareholders and each shareholder would be entitled either (i) to credit their
portions of this amount against their U.S. tax due, if any, or (ii) to deduct
such portion from their U.S taxable income, if any. Shortly after any year for
which it makes such an election, a Fund will report to its shareholders, in
writing, the amount per share of such foreign tax that must be included in each
shareholder's gross income and the amount which will be available for deduction
or credit. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Certain limitations are imposed on the extent to
which the credit (but not the deduction) for foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities generally
will be treated as derived from United States sources and certain foreign
currency gains and losses likewise will be treated as derived from United States
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. Additional limitations apply to
using the foreign tax credit to offset the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
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<PAGE> 1340
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the 90% distribution requirement, on the
income or gain qualifying under the 90% gross income test and on their ability
to comply with the 30% test described above.
Generally, certain foreign currency contracts entered into by the Funds
(as described above) (collectively, the "Instruments") at the close of their
taxable year are treated for federal income tax purposes as sold for their fair
market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to certain
foreign currency contracts, which are regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by the Funds, are subject to certain loss deferral rules, which limit the
amount of loss currently deductible on either part of the straddle to the amount
thereof that exceeds the unrecognized gain (if any) with respect to the other
part of the straddle, and to certain wash sales regulations. Under short sales
rules, which also are applicable, the holding period of the securities forming
part of the straddle (if they have not been held for the long-term holding
period) will be deemed not to begin prior to termination of the straddle. With
respect to certain Instruments, deductions for interest and carrying charges may
not be allowed. Notwithstanding the rules described above, with respect to
certain foreign currency contracts that are properly identified as such, a Fund
may make an election which will exempt (in whole or in part) those identified
foreign currency contracts from the Rules of Section 1256 of the Code including
"the 40%-60% rule" and "mark-to-market," but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies,
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<PAGE> 1341
or (2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40%-60% rule" will apply to the net gain or loss attributable to
the Instruments, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury Department
has not issued any such regulations. Other foreign currency contracts entered
into by a Fund may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts, Global Depository
Receipts and foreign currency contracts, may be subject to the provisions of
Subpart J of the Code, which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the mark-to-market rules,
unless an election is made to have such currency rules apply. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. A taxpayer may elect to treat
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<PAGE> 1342
as capital gain or loss foreign currency gain or loss arising from certain
identified forward contracts, futures contracts and options that are capital
assets in the hands of the taxpayer and which are not part of a straddle. In
accordance with Treasury regulations, certain transactions that are part of a
"Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Funds, which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks), is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.
The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law, distributions
of net investment income may be taxable to shareholders as dividend income even
though a substantial portion of such distributions may be derived from interest
on U.S. Government obligations which, if realized directly, would be exempt from
such income taxes. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
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<PAGE> 1343
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director,
Vicks Lithograph & Trustee Vicks Lithograph &
Printing Corporation Printing Corporation
Commercial Drive (book manufacturing and
P.O. Box 270 commercial printing);
Yorkville, NY 13495 Director, Utica Fire
Age 62 Insurance Company;
Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual
Insurance Company;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Executive Vice President
Hasbro, Inc. Treasurer & and CFO, Hasbro, Inc.
200 Narragansett Trustee (toy and game
Park Drive manufacturer), since
Pawtucket, RI 02862 1987; Trustee, The Galaxy
Age 55 VIP Fund; Trustee, Galaxy
Fund II; Managing
Partner, KPMG Peat
Marwick (accounting
firm), 1986.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee,
Age 55 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
-20-
<PAGE> 1344
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Donald B. Miller Trustee Chairman, Horizon Media,
10725 Quail Covey Road Inc. (broadcast
Boynton Beach, FL 33436 services);
Age 70 Director/Trustee,
Lexington Funds;
President and CEO, Media
General Broadcast
Services, Inc. (1986 to
1989); Chairman,
Executive Committee,
Compton International,
Inc. (advertising
agency); Trustee, Keuka
College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
James M. Seed Trustee Chairman and President,
The Astra Ventures, The Astra Projects,
Inc. Incorporated (land
One Citizens Plaza development); President,
Providence, RI 02903 The Astra Ventures,
Age 55 Incorporated (previously,
Buffinton Box Company
manufacturer of cardboard
boxes); Commissioner,
Rhode Island Investment
Commission; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor;
2468 Ohio Street President, Ames &
Bangor, ME 04401 Wellman, from 1978 to
Age 65 1991; President, Pingree
Associates, Inc., from
1974 until 1990;
Director, Essex County
Gas Company, until
January 1994; Director,
Maine Mutual Fire
Insurance Co.; Member,
Maine Finance Authority;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
</TABLE>
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<PAGE> 1345
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath,
Bank Building Philadelphia,
Broad & Chestnut Sts. Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice Treasurer
First Data Investor President First Data Investor
Services Group, Inc. and Services Group, Inc.,
4400 Computer Drive Assistant 1992 to present; Vice
Westboro, MA 01581-5108 President, Investment
Age 36 Marketing and Strategic
Planning, Manufacturers
and Traders Trust Co.,
1990 to 1992.
</TABLE>
- -------------------------
1. An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
Effective November 1, 1996, each trustee receives an annual aggregate fee
of $29,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy") (collectively, the "Trusts"), plus an
additional $2,250 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $500 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets.
For the fiscal year ended October 31, 1996, each trustee was authorized to
receive an annual aggregate fee of $18,000 for his services as a trustee of
Galaxy and Galaxy VIP plus a separate annual fee of $5,000 for his services as a
trustee of Galaxy II, in addition to meeting fees of $1,500 for each in-person
Galaxy Board meeting attended, $1,500 for each in-person Galaxy VIP Board
meeting attended not held concurrently with a Galaxy Board
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<PAGE> 1346
meeting, and $750 for each Galaxy II Board meeting attended, and reimbursement
for expenses incurred in attending meetings. Annual fees to the Chairman of the
Boards and the President and Treasurer of the Trusts were the same as the
current fees as were the fees for telephone and Board committee meetings.
Beginning March 1, 1996, each trustee is also entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of First Data Investor Services Group, Inc., ("FDISG")
receives any compensation from Galaxy for acting as an officer. No person who is
an officer, director or employee of Fleet, or any of its affiliates, or of the
Sub-Adviser, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
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<PAGE> 1347
<TABLE>
<CAPTION>
================================================================================
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $________ None $________
Trustee
- --------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $________ None $________
Chairman and Trustee
- --------------------------------------------------------------------------------
Donald B. Miller** $________ None $________
Trustee
- --------------------------------------------------------------------------------
Rev. Louis DeThomasis $________ None $________
Trustee
- --------------------------------------------------------------------------------
John T. O'Neill $________ None $________
President, Treasurer
and Trustee
- --------------------------------------------------------------------------------
James M. Seed** $________ None $________
Trustee
================================================================================
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund
and Galaxy Fund II.
** Deferred compensation in the amounts of $________ and $________ accrued
during Galaxy's fiscal year ended October 31, 1996 for Messrs. Miller and
Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall
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<PAGE> 1348
satisfy any judgment thereon. Thus, the risk of shareholder liability is limited
to circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, SUB-ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. The Investment Adviser has also agreed to pay
all expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.
For the services provided and expenses assumed by Fleet, Galaxy paid Fleet
for the fiscal years ended October 31, 1994, October 31, 1995 and October 31,
1996 advisory fees (net of fee waivers and/or expense reimbursements) of
$1,570,179, $1,797,623 and $__________, respectively, with respect to the Equity
Value Fund; and $3,192,753, $3,406,615 and $__________, respectively, with
respect to the Equity Growth Fund. For the fiscal years ended October 31, 1994,
October 31, 1995 and October 31, 1996, Fleet reimbursed advisory fees of $5,146,
$2,347 and $__________, respectively, with respect to the Equity Value Fund; and
$3,877, $9,296 and $__________, respectively, with respect to the Equity Growth
Fund.
-25-
<PAGE> 1349
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Galaxy paid Fleet advisory fees (net of fee waivers and/or expense
reimbursements) of $1,008,936, $1,097,887 and $__________, respectively, with
respect to the Equity Income Fund. For the fiscal years ended October 31, 1994,
October 31, 1995 and October 31, 1996, Fleet reimbursed advisory fees of $6,173,
$24,627 and $________, respectively, with respect to the Equity Income Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet received advisory fees (net of fee waivers and/or expense
reimbursements) of $585,753, $807,983 and $__________, respectively, with
respect to the Small Company Equity Fund; and $978,630, $982,310 and
$__________, respectively, with respect to the Asset Allocation Fund. For the
fiscal years ended October 31, 1994, October 31, 1995 and October 31, 1996,
Fleet reimbursed advisory fees of $7,017, $11,087 and $___________,
respectively, with respect to the Small Company Equity Fund; and $6,171, $37,161
and $_________, respectively, with respect to the Asset Allocation Fund.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, Fleet received advisory fees (net of fee waivers and/or expense
reimbursements) of $658,583, $850,924 and $_________, respectively, with respect
to the International Equity Fund. During the same periods, Fleet waived advisory
fees of $232,756, $291,265 and $__________, respectively, with respect to the
International Equity Fund. For the fiscal year ended October 31, 1994, Fleet
reimbursed advisory fees of $3,042 with respect to the International Equity
Fund.
The advisory agreement provides that the Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of its duties under the advisory
agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. Unless sooner terminated, the advisory agreement
will continue in effect with respect to a particular Fund until August 10, 1997,
and thereafter from year to year as long as such continuance is approved at
least annually (i) by the vote of a majority of trustees who are not parties to
such advisory agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a
majority of the outstanding shares of such Fund. The term "majority of the
outstanding shares of such Fund" means, with respect to approval of an advisory
agreement,
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<PAGE> 1350
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
Fleet Bank, an affiliate of the Investment Adviser, is paid a fee for
sub-account and administrative services performed with respect to Trust Shares
of the Funds held by defined contribution plans. Pursuant to an agreement
between Fleet Bank and FDISG, Fleet Bank will be paid $21.00 per year for each
defined contribution plan participant account. As of October 31, 1996, there
were approximately ______ defined contribution plan participant sub-accounts
invested in Trust Shares of the Funds; thus it is expected that Fleet Bank will
receive annually approximately $____________ for sub-account services. FDISG
bears this expense directly, and shareholders of Trust Shares of the Funds bear
this expense indirectly through fees paid to FDISG for transfer agency services.
Oechsle, with principal offices at One International Place, Boston,
Massachusetts 02210, serves as sub-adviser to the International Equity Fund.
Oechsle is a Delaware limited partnership. The general partner of Oechsle is
Oechsle Group, L.P., and the managing general partner of Oechsle Group, L.P. is
Walter Oechsle. As of December 31, 1996, Oechsle had discretionary management
authority with respect to approximately $________ billion of assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
International Equity Fund; places orders for the Fund; manages the Fund's
overall cash position; and provides the Investment Adviser with foreign broker
research and a quarterly review of international economic and investment
developments. Fleet, among other things, assists and consults with the
Sub-Adviser in connection with the International Equity Fund's continuous
investment program; approves lists of foreign countries recommended by the
Sub-Adviser for investment; reviews the Fund's investment policies and
restrictions and recommends appropriate changes to the Board of Trustees; and
provides the Board of Trustees and Sub-Adviser with information concerning
relevant economic and political developments. Oechsle will provide services
under this agreement in accordance with the Fund's investment objectives,
policies and restrictions. Unless sooner terminated by the Investment Adviser or
Board of Trustees upon sixty days' written notice, the sub-advisory agreement
will continue in effect from year to year as long as such continuance is
approved at least annually as described above. For the period from August 12,
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<PAGE> 1351
1996 through October 31, 1996, Oechsle received sub-advisory fees of
$____________ with respect to the International Equity Fund.
Prior to August 12, 1996, Wellington Management Company served as
sub-adviser to the International Equity Fund. For the fiscal years ended October
31, 1994 and October 31, 1995 and for the period from November 1, 1995 through
August 11, 1996, Wellington Management Company received sub-advisory fees of
$350,844, $423,376 and $__________, with respect to the International Equity
Fund.
FDISG serves as Galaxy's administrator. Under the administration
agreement, FDISG has agreed to maintain office facilities for Galaxy, furnish
Galaxy with statistical and research data, clerical, accounting, and bookkeeping
services, certain other services such as internal auditing services required by
Galaxy, and compute the net asset value and net income of the Funds. FDISG
prepares the Funds' annual and semi-annual reports to the Securities and
Exchange Commission, federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy's operations.
Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, FDISG, a wholly-owned
subsidiary of First Data Corporation, acquired all of the assets of 440
Financial Group of Worcester, Inc.
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, FDISG and/or its predecessors received administration fees of
$176,963, $210,049 and $__________, respectively, with respect to the Equity
Value Fund; $357,466, $398,623 and $__________, respectively, with respect to
the Equity Growth Fund; $116,740, $130,993 and $__________, respectively, with
respect to the Equity Income Fund; $71,393, $97,015 and $__________,
respectively, with respect to the International Equity Fund; $66,941, $95,582
and $__________, respectively, with respect to the Small Company Equity Fund;
and $110,982, $118,968 and $__________, respectively, with respect to the Asset
Allocation Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of
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<PAGE> 1352
each Fund; (iii) collect and make disbursements of money on behalf of each Fund;
(iv) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities; (v) respond to correspondence from
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Funds upon prior approval by the Board of
Trustees in accordance with the regulations of the SEC, for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the United States. The assets of the Funds are held under bank custodianship in
compliance with the 1940 Act.
FDISG also serves as Galaxy's transfer agent and dividend disbursing agent
pursuant to a Transfer Agency Agreement ("Transfer Agency Agreement"). Under the
Transfer Agency Agreement, FDISG has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders of
record, including reports to shareholders, dividend and distribution notices and
proxy materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
PORTFOLIO TRANSACTIONS
The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in equity securities on U.S. stock exchanges for the Funds involve
the payment of negotiated brokerage commissions. On U.S. stock exchanges on
which commissions are negotiated, the cost of transactions may vary among
different brokers. Transactions in the over-the-counter market are generally
principal transactions with dealers and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to
over-the-counter transactions, the Adviser and Sub-Adviser will normally deal
directly with the dealers who make a market in the securities involved except in
those circumstances where better prices and execution are available elsewhere or
as described below.
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<PAGE> 1353
For the fiscal years ended October 31, 1994, October 31, 1995 and October
31, 1996, the Equity Value Fund paid brokerage commissions aggregating $492,387,
$588,613 and $__________, respectively; the Equity Growth Fund paid brokerage
commissions aggregating $151,586, $192,433 and $__________, respectively; the
Equity Income Fund paid brokerage commissions aggregating $158,677, $108,082 and
$__________, respectively, the Asset Allocation Fund paid brokerage commissions
aggregating $101,007, $101,436 and $__________, respectively; the Small Company
Equity Fund paid brokerage commissions aggregating $107,265, $109,014 and
$__________, respectively; and the International Equity Fund paid brokerage
commissions aggregating $424,413, $341,377 and $__________, respectively.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet or Oechsle will seek to obtain the best net price and the most favorable
execution of orders. To the extent that the execution and price offered by more
than one broker/dealer are comparable, Fleet or Oechsle may effect transactions
in portfolio securities with broker/dealers who provide research, advice or
other services such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, the
Investment Adviser, Oechsle, FDISG, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to such
transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1996, ______________________________________________.
Investment decisions for each Fund are made independently from those for
the other Funds and for any other investment companies and accounts advised or
managed by Fleet or Oechsle. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund, another portfolio of
Galaxy, and/or another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which Fleet or Oechsle believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law,
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<PAGE> 1354
Fleet or Oechsle may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for its other portfolios, or other investment
companies or accounts in order to obtain best execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for providing certain
administrative and support services to Customers who are the beneficial owners
of Retail A Shares and Trust Shares of a Fund. As of October 31, 1996, Galaxy
had entered into Servicing Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agree to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
For the one-month period October 1, 1994 (date of implementation of the
Services Plan) through October 31, 1994, payments to Service Organizations
totaled $18,507, $17,565, $15,985, $8,151, $7,152 and $18,946 with respect to
Retail A Shares of the Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund and Asset Allocation
Fund, respectively. For the fiscal years ended October 31, 1995 and October 31,
1996, payments to Service Organizations totaled $245,304 and $_______,
respectively, with respect to Retail A Shares of the Equity Value Fund; $237,326
and $____________, respectively, with respect to Retail A Shares of the Equity
Growth Fund; $203,471 and $____________, respectively, with respect to Retail A
Shares of the Equity Income Fund; $93,434 and $____________, respectively, with
respect to Retail A Shares of the International Equity Fund; $102,102 and
$__________, respectively, with respect to Retail A Shares of the Small Company
Equity Fund; and $205,546 and $____________, respectively, with respect to
Retail A Shares of the Asset Allocation Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund
-31-
<PAGE> 1355
. Pursuant to the Services Plan, the Board of Trustees reviews, at least
quarterly, a written report of the amounts paid under the Servicing Agreements
and the purposes for which the expenditures were made. In addition, the
arrangements with Service Organizations must be approved annually by a majority
of Galaxy's trustees, including a majority of the trustees who are not
"interested persons" of Galaxy as defined in the 1940 Act and who have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity and Asset Allocation Funds.
The 12b-1 Plan is described in the applicable Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed .65% (annualized) of the average daily net assets attributable to
such Funds' outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to each such Funds' outstanding Retail B Shares which are
owned of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Statement of Additional
Information, Galaxy intends to limit the Funds' payments for shareholder liaison
and administrative support services under the 12b-1 Plan to an aggregate fee of
not more than .30% (on an annualized basis) of the average daily net asset value
of Retail B Shares owned of record or beneficially by Customers of Institutions.
-32-
<PAGE> 1356
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of a Fund
may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval, and that any other type of material amendment must be approved by a
majority of the Board of Trustees, and by a majority of the trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan or in
any related agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments (the "Disinterested Trustees").
For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity and Asset Allocation Funds bore the
following distribution and shareholder servicing fees until the 12b-1 Plan:
$________ in distribution fees and $________ in shareholder servicing fees with
respect to Retail B Shares of the Equity Value Fund; $________ in distribution
fees and $________ in shareholder servicing fees with respect to Retail B Shares
of the Equity Growth Fund; $_______ in distribution fees and $________ in
shareholder servicing fees with respect to Retail B Shares of the Small Company
Equity Fund; and $_________ in distribution fees and $________ in shareholder
servicing fees with respect to Retail B Shares of the Asset Allocation Fund. For
the fiscal year ended October 31, 1996, all amounts paid under the 12b-1 Plan
were attributable to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of such
Fund, by the Distributor or by the Service
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<PAGE> 1357
Organization. An agreement will also terminate automatically in
the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
440 Financial Distributors, Inc., a wholly-owned subsidiary of FDISG,
serves as Galaxy's Distributor. On March 31, 1995, FDISG acquired all of the
issued and outstanding stock of the Distributor. Prior to that time, the
Distributor was a wholly-owned subsidiary of 440 Financial Group of Worcester,
Inc. and an indirect subsidiary of State Mutual Life Assurance Company of
America.
Unless otherwise terminated, the Distribution Agreement among Galaxy, the
Distributor and its parent, FDISG, remains in effect until May 31, 1997, and
thereafter will continue from year to year upon annual approval by Galaxy's
Board of Trustees, or by the vote of a majority of the outstanding shares of
Galaxy and by the vote of a majority of the Board of Trustees of Galaxy who are
not parties to the Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement will terminate in the event of its assignment, as defined in the 1940
Act.
The Distributor is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the applicable
Prospectus. For the period December 1, 1996 (date of imposition of such charge)
through October 31, 1996, the Distributor received front-end sales charges in
connection with Retail A Share purchases as follows: Equity Value Fund --
$________; Equity Growth Fund -- $________; Equity Income Fund -- $________;
International Equity Fund -- $________; Small Company Equity Fund -- $________;
and Asset Allocation Fund -- $________. Of these amounts, the Distributor and
affiliates of Fleet retained $________ and $________, respectively, with respect
to the Equity Value Fund; $________ and $________, respectively, with respect to
the Equity Growth Fund; $________ and $________, respectively, with respect to
the Equity Income Fund; $________ and $________, respectively, with respect to
the International Equity Fund; $________ and $________, respectively, with
respect to the Small Company Equity Fund; and $________ and $________,
respectively, with respect to the Asset Allocation Fund.
The Distributor is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B
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<PAGE> 1358
Shares of the Funds. For the period from March 4, 1996 (date of the initial
public offering of Retail B Shares) through October 31, 1996, the Distributor
received contingent deferred sales charges in connection with Retail B Share
redemptions as follows: Equity Value Fund -- $________; Equity Growth Fund --
$________; Small Company Equity Fund -- $________; and Asset Allocation Fund --
$________. All such amounts were paid over to affiliates of Fleet.
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the Funds
during the fiscal year ended October 31, 1996:
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Equity Value $ $ $ $
Equity Growth $ $ $ $
Equity Income $ $ $ $
International $ $ $ $
Equity
Small Company $ $ $ $
Equity
Asset $ $ $ $
Allocation
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan that have been adopted by Galaxy (see
"Shareholder Services Plan" and "Distribution and Services Plan" above).
AUDITORS
____________________________, independent certified public accountants,
with offices at ___________________________________, serve as auditors to
Galaxy. The financial highlights for the respective Funds included in their
Prospectuses and the financial statements for the Funds contained in Galaxy's
Annual Report to Shareholders and [_______________________] into this Statement
of Additional Information for the respective fiscal periods ended
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<PAGE> 1359
October 31 of each calendar year have been audited by _________________________
for the periods included in their report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107, are counsel to Galaxy and will pass
upon certain legal matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund in
accordance with the method prescribed by the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1 )(6) - 1]
cd
Where: a = dividends and interest earned by a
Fund during the period;
b = expenses accrued for the period
(net of reimbursements);
c = average daily number of shares
outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on
the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the
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<PAGE> 1360
obligation for each day of the subsequent month that the obligation is held by
the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to receivables-backed obligations that are expected to be
subject to monthly payments of principal and interest ("pay-downs"), (i) gain or
loss attributable to actual monthly pay downs are accounted for as an increase
or decrease to interest income during the period, and (ii) each Fund may elect
either (a) to amortize the discount and premium on the remaining security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the remaining term of the security, if any, if
the weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.
Based on the foregoing calculation, the standard yield for Retail A Shares
of the Equity Value, Equity Growth, Equity Income, Small Company Equity, Asset
Allocation and International Equity Funds for the 30-day period ended October
31, 1996 were _____%, _____%, _____%, _____%, ______%, and _____%, respectively.
Based on the foregoing calculation, the standard yield for Retail B Shares
of the Equity Value, Equity Growth, Small Company Equity and Asset Allocation
Funds for the 30-day period ended October 31, 1996 were _____%, _____%, _____%,
and _____%, respectively.
Based on the foregoing calculation, the standard yield for Trust Shares of
the Equity Value, Equity Growth, Equity Income, Small Company Equity, Asset
Allocation and International Equity Funds for the 30-day period ended October
31, 1996 were _____%, _____%, _____%, _____%, _____% and _____%, respectively.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during
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<PAGE> 1361
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV l/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year (or
other) periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Aggregate total return for Retail A Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to October 31, 1996 was ______%. From
September 1, 1988 (inception) to October 31, 1996, average annual total return
for Retail A Shares of the Equity Value Fund was ______%. For the one-year and
five-year periods ending October 31, 1996, the average annual total returns for
Retail A Shares of the Equity Value Fund were _____% and _____%, respectively.
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<PAGE> 1362
Aggregate total returns for Retail A Shares of the Equity Growth and
Equity Income Funds from December 14, 1990 (inception) to October 31, 1996 were
_____% and _____%, respectively. From December 14, 1990 (inception) to October
31, 1996, average annual total returns for Retail A Shares of the Equity Growth
and Equity Income Funds were _____% and _____%, respectively. For the one-year
and five-year periods ending October 31, 1996, the average annual total returns
for Retail A Shares of the Equity Growth and Equity Income Funds were _____% and
_____% and _____% and _____%, respectively.
Aggregate total returns for Retail A Shares of the Small Company Equity,
Asset Allocation and International Equity Funds from December 30, 1991
(inception) to October 31, 1996 were _____%, _____% and _____%, respectively.
From December 30, 1991 (inception) to October 31, 1996, average annual total
returns for Retail A Shares of the Small Company Equity, Asset Allocation and
International Equity Funds were _____%, _____% and _____%, respectively. For the
one-year period ending October 31, 1996, the average annual total returns for
Retail A Shares of the Small Company Equity, Asset Allocation and International
Equity Funds were _____%, _____% and _____%, respectively.
Aggregate total returns for Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity and Asset Allocation Funds from March 4, 1996 (date
of their initial public offering) to October 31, 1996 were _____%, _____%,
_____% and _____%,
respectively.
Aggregate total return for Trust Shares of the Equity Value Fund for the
period September 1, 1988 (inception) to October 31, 1996 was _____%. From
September 1, 1988 (inception) to October 31, 1996, average annual total return
for Trust Shares of the Equity Value Fund was _____%. For the one-year and
five-year periods ending October 31, 1996, the average annual total returns for
Trust Shares of the Equity Value Fund were _____% and _____%, respectively.
Aggregate total returns for Trust Shares of the Equity Growth and Equity
Income Funds from December 14, 1990 (inception) to October 31, 1996 were _____%
and _____%, respectively. From December 14, 1990 (inception) to October 31,
1996, average annual total returns for Trust Shares of the Equity Growth and
Equity Income Funds were _____% and _____%, respectively. For the one-year and
five-year periods ending October 31, 1996, the average annual total returns for
Trust Shares of the Equity Growth and Equity Income Funds were _____% and
_____%, respectively.
Aggregate total returns for Trust Shares of the Small Company Equity,
Asset Allocation and International Equity Funds from December 30, 1991
(inception) to October 31, 1996 were
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<PAGE> 1363
_____%, _____% and _____%, respectively. From December 30, 1991 (inception) to
October 31, 1996, average annual total returns for Trust Shares of the Small
Company Equity, Asset Allocation and International Equity Funds were _____%,
_____% and _____%, respectively. For the one-year period ending October 31,
1996, the average annual total returns for Trust Shares of the Small Company
Equity, Asset Allocation and International Equity Funds were _____%, _____% and
_____%, respectively.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares in
that particular series of the Fund, together with all income, earnings, profits,
and proceeds derived from the investment thereof, including any proceeds from
the sale of such investments, any funds or payments derived from any
reinvestment of such proceeds and a portion of any general assets of Galaxy not
belonging to a particular series or Fund. In determining the net asset value of
a particular Series of a Fund, assets belonging to the particular series of the
Fund are charged with the direct liabilities in respect of that series and with
a share of the general liabilities of Galaxy, which are allocated in proportion
to the relative asset values of the respective series and Funds at the time of
allocation. Subject to the provisions of Galaxy's Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular series or Fund, are conclusive.
As of February ____, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows:
As of February __, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows:
As of February ___, 1997, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows:
-40-
<PAGE> 1364
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1996 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are [_______________] this Statement of Additional
Information. The Financial Statements included in the Annual Report for the
Funds for the fiscal year ended October 31, 1996 have been audited by Galaxy's
independent accountants, ______________________________, whose report thereon
also appears in such Annual Report and is [_________________________]. The
Financial Statements in such Annual Report have been [________________] in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-41-
<PAGE> 1365
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
L.P. ("Fitch"), Standard & Poor's Ratings Group, Division of
McGraw Hill ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
IBCA Limited and IBCA Inc. ("IBCA") and Thomson BankWatch, Inc.
("Thomson").
Corporate and Tax-Exempt Bond Ratings
The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Securities that are
rated "A" have protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Securities
that are rated "BBB" have below average protection factors but are still
considered sufficient for prudent investment. Considerable variability in risk
is present during economic cycles. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Fitch for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. AAA
bonds are considered to be investment grade and of the highest credit quality.
The obligor is judged to have an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A bonds
are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
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<PAGE> 1366
conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
may modify a rating of Aa, A or Baa by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon
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<PAGE> 1367
completion of construction or elimination of the basis of the
condition.
The four highest ratings of IBCA for tax-exempt and corporate bonds are
AAA, AA, A and BBB. IBCA assesses the investment quality of unsecured debt with
an original maturity of more than one year, which is issued by bank holding
companies and their principal banking subsidiaries. Obligations rated AAA by
IBCA have the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to increase investment
risk significantly. Obligations for which there is a very low expectation of
investment risk are rated AA. Obligations rated A have a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although changes in business, economic or financial conditions may lead
to increased investment risk. Obligations rated BBB currently have a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories. IBCA may append a rating of plus (+) or
minus (-) to a rating to denote relative status within a major rating category.
Corporate and Tax-Exempt Commercial Paper Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. Duff 3 indicates satisfactory liquidity and other protection factors
qualify such issues as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.
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<PAGE> 1368
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. F-1 securities possess very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 securities possess good
credit quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories. F-3 securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade. Fitch may also
use the symbol "LOC" with its short-term ratings to indicate that the rating is
based upon a letter of credit issued by a commercial bank.
S&P's commercial paper ratings are current assessments of the likelihood
of timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics will be denoted with a plus (+) designation.
Issues rated A-2 by S&P indicate that capacity for timely payment on these
issues is satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1. Issues rated A-3 have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes and circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only a speculative capacity for timely
payment.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of
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<PAGE> 1369
the characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a good capacity for timely repayment.
Obligations rated A3 are supported by a satisfactory capacity for timely
repayment. Obligations are rated B if there is an uncertainty as to the capacity
to ensure timely repayment.
Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation TBW-3
represents the lowest investment grade category and indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
Tax-Exempt Note Ratings
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated SP-3
are issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the
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<PAGE> 1370
differences between short-term credit risk and long-term risk. Loans bearing the
designation MIG-1 or VMIG-1 are of the best quality, enjoying strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. Loans bearing the designation
MIG-2 or VMIG-2 are of high quality, with margins of protection ample although
not so large as with loans rated MIG-1 or VMIG-1. Loans bearing the designation
MIG-3 or VMIG-3 are of favorable quality with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established. Loans bearing the designation MIG-4 or VMIG-4 are
of adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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<PAGE> 1371
THE GALAXY FUND
FORM N-lA
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
To be filed by Amendment.
(b) Exhibits:
(1) (a) Declaration of Trust dated March 31,
1986 is incorporated herein by reference to
Exhibit (1)(a) to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on April 14, 1986.
(b) Amendment No. 1 to the Declaration of Trust
dated as of April 26, 1988 is incorporated
herein by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
December 30, 1991.
(c) Certificate pertaining to Classification of
Shares dated May 5, 1986 pertaining to Class
A and Class B Shares is incorporated herein
by reference to Exhibit (1)(b) to
Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on June
11, 1986.
(d) Certificate of Classification of Shares
dated December 9, 1987 pertaining to Class
C, Class D and Class E Shares is
incorporated herein by reference to
Exhibit(1)(c) to Post-Effective Amendment
No. 2 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on January 15, 1988.
(e) Certificate of Classification of Shares
dated November 8, 1989 pertaining to Class C
Special Series 1 and Class D - Special
Series 1 Shares is incorporated herein by
reference to Exhibit (1)(d) to
Post-Effective Amendment No. 5 to the
Registrant's Registration
<PAGE> 1372
Statement on Form N-1A, as filed with the
Commission on February 20, 1990.
(f) Certificate of Classification of Shares
dated August 16, 1990 pertaining to Class F
shares; Class G - Series 1 shares; Class G -
Series 2 shares; Class H - Series 1 shares;
Class H - Series 2 shares; Class I - Series
1 shares; Class I - Series 2 shares; Class J
- Series 1 shares and Class J - Series 2
shares is incorporated herein by reference
to Exhibit (1)(e) to Post-Effective
Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on August 20,
1990.
(g) Certificate of Classification of Shares
dated December 10, 1991 pertaining to Class
K - Series 1 shares; Class K - Series 2
shares; Class L - Series 1 shares; Class L -
Series 2 shares; Class M - Series 1 shares;
Class M - Series 2 shares; Class N - Series
1 shares; Class N - Series 2 shares; Class O
- Series 1 shares and Class O - Series 2
shares is incorporated herein by reference
to Exhibit (1)(g) to Post-Effective
Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission December 30, 1991.
(h) Certificate of Classification of Shares
dated February 22, 1993 pertaining to Class
P - Series 1 shares; Class P - Series 2
shares; Class Q - Series 1 shares; Class Q -
Series 2 shares; Class R - Series 1 shares;
Class R - Series 2 shares; Class S - Series
1 shares and Class S - Series 2 shares, is
incorporated by reference to Exhibit (1)(h)
to Post Effective Amendment No. 20 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
February 28, 1995.
(i) Certificate of Classification of Shares
dated December 7, 1994 pertaining to Class T
- Series 1 shares and Class T - Series 2
shares is incorporated herein by reference
to Exhibit (1)(i) to Post-Effective
Amendment No. 20 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on February 28,
1995.
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<PAGE> 1373
(j) Form of Certificate of Classification of
Shares pertaining to Class U - Series 1
shares and Class U - Series 2 shares, Class
V shares, Class W shares, and Class X -
Series 1 shares and Class X - Series 2
shares is incorporated herein by reference
to Exhibit (1)(j) to Post Effective
Amendment No. 22 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on August 17,
1995.
(k) Form of Certificate of Classification of
Shares pertaining to Class C-Special Series
2, Class H-Series 3, Class J-Series 3, Class
K-Series 3, Class L-Series 3, Class M-Series
3, Class N-Series 3 and Class U-Series 3
Shares is incorporated herein by reference
to Exhibit (1)(k) to Post-Effective
Amendment No. 23 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on September 29,
1995.
(l) Form of Certificate of Classification of
Shares pertaining to Class A - Special
Series 2.
(2) Code of Regulations is incorporated herein
by reference to Exhibit (2) to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on April
14, 1986.
(3) None.
(4) None.
(5) (a) Advisory Agreement between the Registrant
and Fleet Investment Advisors Inc. with
respect to the Money Market, Government,
U.S. Treasury, Tax-Exempt, Institutional
Treasury Money Market, Short-Term Bond,
Intermediate Government Income (formerly
Intermediate Bond), Corporate Bond, High
Quality Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island
Municipal Bond, Equity Value, Equity Growth,
Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds
dated as of May 19, 1994.
(b) Addendum No. 1 to Advisory Agreement between
the Registrant and Fleet Investment Advisors
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<PAGE> 1374
Inc. with respect to the Connecticut
Municipal Money Market, Massachusetts
Municipal Money Market, Growth and Income
and Small Cap Value Funds dated as of
December 1, 1995.1
(c) Sub-Advisory Agreement between Fleet
Investment Advisors Inc. and Oechsle
International Advisors, L.P. with respect to
the International Equity Fund dated as of
August 12, 1996.
(6) (a) Distribution Agreement among the Registrant,
First Data Investor Services Group. Inc. and
440 Financial Distributors, Inc. dated as of
June 1, 1996.
(7) (a) The Galaxy Fund Deferred Compensation Plan
and Related Agreement effective as of March
1, 1996.(1)
(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy
Fund II Deferred Compensation Plan and
Related Agreement effective as of January 1,
1997.
(8) (a) Global Custody Agreement between the
Registrant and The Chase Manhattan Bank,
N.A. dated as of November 1, 1991 is
incorporated herein by reference to Exhibit
(8)(a) to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on
Form N-1A, as filed with the Commission on
December 3, 1991.
(b) Consent to Assignment of Global Custody
Agreement between the Registrant, The Chase
Manhattan Bank, N.A. and 440 Financial Group
of Worcester, Inc. to The Shareholder
Services Group, Inc. d/b/a 440 Financial
dated March 31, 1995 is incorporated herein
by reference to Exhibit (8)(b) to Post-
Effective Amendment No. 22 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on August
17, 1995.
(9) (a) Administration Agreement between the
Registrant and First Data Investor Services
Group, Inc. dated as of June 1, 1996.
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<PAGE> 1375
(b) Transfer Agency Agreement between the
Registrant and First Data Investor Services
Group, Inc. dated as of June 1, 1996.
(c) Fee Letter Agreement between the Registrant
and First Data Investor Services Group, Inc.
dated as of June 1, 1996.
(d) Shareholder Services Plan and Related Forms
of Servicing Agreements.
(10) Opinion of counsel that shares are validly
issued, fully paid and non-assessable.(2)
(11) (a) Consent of the Registrant's Independent
Accountants to be filed by Amendment.
(b) Consent of the Predecessor Funds'
Independent Accountants to be filed by
Amendment.
(c) Consent of Drinker Biddle & Reath.
(d) Consent of Willkie Farr & Gallagher.
(e) Consent of Ropes & Gray
(f) Consent of Day, Berry & Howard
(12) None.
(13) (a) Purchase Agreement between the Registrant
and Shearson Lehman Brothers Inc. dated
August 10, 1986 is incorporated herein by
reference to Exhibit (13) to Post-Effective
Amendment No. 1 to the Registrant's
Registration Statement on form N-1A, as
filed with the Commission on June 18, 1987.
(b) Purchase Agreement between the Registrant
and Shearson Lehman Brothers Inc. dated
October 11, 1990 with respect to the
Treasury, Equity Growth, Equity Income,
International Equity and High Quality Bond
Funds is incorporated herein by reference to
Exhibit (13)(b) to Post-Effective Amendment
No. 7 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on October 18, 1990.
(c) Purchase Agreement between the Registrant
and SMA Equities, Inc. dated December 30,
1991
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<PAGE> 1376
with respect to the Small Company Equity
Fund, Short-Term Bond Fund, Tax-Exempt Bond
Fund, Asset Allocation Fund, and New York
Municipal Bond Fund is incorporated herein
by reference to Exhibit (13)(c) to
Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
December 30, 1991.
(d) Purchase Agreement between the Registrant
and Allmerica Investments, Inc. dated
February 22, 1993 with respect to the
Connecticut Municipal Bond, Massachusetts
Municipal Bond, Rhode Island Municipal Bond
and Institutional Treasury Money Market
Funds is incorporated herein by reference to
Exhibit (13)(d) to Post-Effective Amendment
No. 16 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on August 31, 1993.
(e) Purchase Agreement between the Registrant
and 440 Financial Distributors, Inc. dated
May 19, 1994 with respect to the Corporate
Bond Fund is incorporated herein by
reference to Exhibit (13)(e) to
Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
February 28, 1995.
(f) Form of Purchase Agreement between the
Registrant and 440 Financial Distributors,
Inc. with respect to the Connecticut
Municipal Money Market, Massachusetts
Municipal Money Market Money, Growth and
Income and Small Cap Value Funds is
incorporated herein by reference to Exhibit
(13)(j) to Post-Effective Amendment No. 22
to the Registrant's Registration Statements
in Form N-1A, as filed with the Commission
on August 17, 1995.
(g) Form of Purchase Agreement between the
Registrant and 440 Financial Distributors,
Inc. with respect to Retail B Shares of the
Short-Term Bond, High Quality Bond, Tax-
Exempt Bond, Equity Value, Equity Growth,
Small Company Equity, Asset Allocation and
Growth and Income Funds is incorporated
herein by reference to Exhibit (13)(g) to
Post-Effective Amendment No. 23 to the
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<PAGE> 1377
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
September 29, 1995.
(14) Individual Retirement Account Custodial
Agreement and Accompanying Disclosure
Statement with Adoption Agreement and New
Account Application is incorporated herein
by reference to Exhibit 14 to Post-Effective
Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A, as
filed with the Commission on December 30,
1991.
(15) Distribution and Services Plan for Retail B
Shares and Form of Servicing Agreement.
(16) (a) Schedules for computation of performance
quotations for the Money Market and
Government Funds provided in the
Registration Statement in response to Item
22 of Form N-1A are incorporated herein by
reference to Exhibit (16) (a) to
Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
January 4, 1989.
(b) Schedules for computation of performance
quotations for the Intermediate Government
Income and Equity Value Funds provided in
the Registration Statement in response to
Item 22 of Form N-1A are incorporated herein
by reference to Exhibit (16)(b) to Post-
Effective Amendment No. 7 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
October 18, 1990.
(c) Schedule for computation of performance
quotations for the Tax-Exempt Fund provided
in the Registration Statement in response to
Item 22 of Form N-1A are incorporated herein
by reference to Exhibit (16)(c) to Post-
Effective Amendment No. 8 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
February 28, 1991.
(d) Schedule for computation of performance
quotations - Equity Growth Fund is
incorporated herein by reference to Exhibit
(16)(d) to the Registrant's Registration
Statement on Form N-1A filed, as filed with
the Commission on June 23, 1992.
-7-
<PAGE> 1378
(e) Schedule for computation of performance
quotations - Equity Income Fund is
incorporated herein by reference to Exhibit
(16)(e) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(f) Schedule for computation of performance
quotations - High Quality Bond Fund is
incorporated herein by reference to Exhibit
(16)(f) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(g) Schedule for computation of performance
quotations - International Equity Fund is
incorporated herein by reference to Exhibit
(16)(g) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(h) Schedule for computation of performance
quotations - Small Company Equity Fund is
incorporated herein by reference to Exhibit
(16)(h) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(i) Schedule for computation of performance
quotations - Asset Allocation Fund is
incorporated herein by reference to Exhibit
(16)(i) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(j) Schedule for computation of performance
quotations - Short-Term Bond Fund is
incorporated herein by reference to Exhibit
(16)(j) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(k) Schedule for computation of performance
quotations - Tax-Exempt Bond Fund is
incorporated herein by reference to Exhibit
(16)(k) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(l) Schedule for computation of performance
quotations - New York Municipal Bond Fund is
incorporated herein by reference to Exhibit
-8-
<PAGE> 1379
(16)(l) to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 23, 1992.
(m) Schedule for computation of performance
quotations - Connecticut Municipal Bond Fund
is incorporated herein by reference to
Exhibit (16)(m) to Post-Effective Amendment
No. 16 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on August 31, 1993.
(n) Schedule for computation of performance
quotations - Massachusetts Municipal Bond
Fund is incorporated herein by reference to
Exhibit (16)(n) to Post-Effective Amendment
No. 16 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on August 31, 1993.
(o) Schedule for computation of performance
quotations - Institutional Treasury Money
Market Fund is incorporated herein by
reference to Exhibit (16)(o) to Post-
Effective Amendment No. 16 to the
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on August
31, 1993.
(p) Schedule for computation of performance
quotations - Rhode Island Municipal Bond
Fund is incorporated herein by reference to
Exhibit (16)(p) to Post-Effective Amendment
No. 21 to the Registrant's Registration
Statement on Form N-1A, as filed with the
Commission on June 12, 1995.
(q) Schedule for computation of performance
quotations - Corporate Bond Fund is
incorporated herein by reference to Exhibit
(16)(q) to Post-Effective Amendment No. 21
to the Registrant's Registration Statement
on Form N-1A, as filed with the Commission
on June 12, 1995.
(r) Schedule for computation of performance
quotations - U.S. Treasury Fund is
incorporated herein by reference to Exhibit
(27)(r) to Post-Effective Amendment No. 27
to the Registrant's Registration Statement
on Form N-1A.(1)
-9-
<PAGE> 1380
(s) Schedule for computation of performance
quotations - Connecticut Municipal Money
Market Fund is incorporated herein by
reference to Exhibit (27)(s) to Post-
Effective Amendment No. 27 to the
Registrant's Registration Statement on Form
N-1A.(1)
(t) Schedule for computation of performance
quotations - Massachusetts Municipal Money
Market Fund is incorporated herein by
reference to Exhibit (27)(t) to Post-
Effective Amendment No. 27 to the
Registrant's Registration Statement on Form
N-1A.(1)
(u) Schedule for computation of performance
quotations - Small Cap Value Fund is
incorporated herein by reference to Exhibit
(27)(u) to Post-Effective Amendment No. 27
to the Registrant's Registration Statement
on Form N-1A.(1)
(v) Schedule for computation of performance
quotations - Growth and Income Fund is
incorporated herein by reference to Exhibit
(27)(v) to Post-Effective Amendment No. 27
to the Registrant's Registration Statement
on Form N-1A.(1)
(18) Amended and Restated Plan Pursuant to Rule
18f-3 for Operation of a Multi-Class System.
(27) (a) Financial Data Schedule as of October 31,
1996 for the Money Market Fund.
(b) Financial Data Schedule as of October 31,
1996 for the Government Fund.
(c) Financial Data Schedule as of October 31,
1996 for the U.S. Treasury Fund.
(d) Financial Data Schedule as of October 31,
1996 for the Tax-Exempt Fund.
(e) Financial Data Schedule as of October 31,
1996 for the Institutional Treasury Money
Market Fund.
-10-
<PAGE> 1381
(f) Financial Data Schedule as of October 31,
1996 for the Connecticut Municipal Money
Market Fund.
(g) Financial Data Schedule as of October 31,
1996 for the Massachusetts Municipal Money
Market Fund.
(h) Financial Data Schedule as of October 31,
1996 for the Short-Term Bond Fund.
(i) Financial Data Schedule as of October 31,
1996 for the Intermediate Government Income
Fund.
(j) Financial Data Schedule as of October 31,
1996 for the High Quality Bond Fund.
(k) Financial Data Schedule as of October 31,
1996 for the Corporate Bond Fund.
(l) Financial Data Schedule as of October 31,
1996 for the Tax-Exempt Bond Fund.
(m) Financial Data Schedule as of October 31,
1996 for the New York Municipal Bond Fund.
(n) Financial Data Schedule as of October 31,
1996 for the Connecticut Municipal Bond
Fund.
(o) Financial Data Schedule as of October 31,
1996 for the Massachusetts Municipal Bond
Fund.
(p) Financial Data Schedule as of October 31,
1996 for the Rhode Island Municipal Bond
Fund.
(q) Financial Data Schedule as of October 31,
1996 for the Equity Value Fund.
(r) Financial Data Schedule as of October 31,
1996 for the Equity Growth Fund.
(s) Financial Data Schedule as of October 31,
1996 for the Equity Income Fund.
(t) Financial Data Schedule as of October 31,
1996 for the International Equity Fund.
-11-
<PAGE> 1382
(u) Financial Data Schedule as of October 31,
1996 for the Small Company Equity Fund.
(v) Financial Data Schedule as of October 31,
1996 for the Asset Allocation Fund.
(w) Financial Data Schedule as of October 31,
1996 for the Small Cap Value Fund.
(x) Financial Data Schedule as of October 31,
1996 for the Growth and Income Fund.
- ---------------
(1) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 27 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-4806 and 811-4636) on March 4, 1996.
(2) Filed pursuant to Rule 24f-2 as part of Registrant's Rule 24f-2 Notice on
December 20, 1996.
-12-
<PAGE> 1383
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following is as of December 19, 1996:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Shares 93,069
Class A -
Special Series 1 Shares 47
Class A -
Special Series 2 Shares 0
Class B Shares 22,282
Class B -
Special Series 1 Shares 87
Class C Shares 15,054
Class C -
Special Series 1 Shares 7
Class C -
Special Series 2 Shares 361
Class D Shares 5,925
Class D -
Special Series 1 Shares 6
Class E Shares 3,981
Class E -
Special Series 1 Shares 4
Class F Shares 20,806
Class F -
Special Series 1 Shares 25
Class G - Series 1 Shares 8
Class G - Series 2 Shares 7,182
Class H - Series 1 Shares 7
Class H - Series 2 Shares 18,569
Class H - Series 3 Shares 762
Class I - Series 1 Shares 6
Class I - Series 2 Shares 12,555
Class J - Series 1 Shares 6
Class J - Series 2 Shares 2,493
Class J - Series 3 Shares 66
Class K - Series 1 Shares 9
Class K - Series 2 Shares 16,361
Class K - Series 3 Shares 763
Class L - Series 1 Shares 7
Class L - Series 2 Shares 2,110
Class L - Series 3 Shares 15
Class M - Series 1 Shares 5
Class M - Series 2 Shares 1,135
Class M - Series 3 Shares 24
Class N - Series 1 Shares 3
Class N - Series 2 Shares 10,690
Class N - Series 3 Shares 512
Class O - Series 1 Shares 4
Class O - Series 2 Shares 1,438
Class P - Series 1 Shares 4
Class P - Series 2 Shares 925
Class Q - Series 1 Shares 3
</TABLE>
-13-
<PAGE> 1384
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class Q - Series 2 Shares 1,002
Class R - Series 1 Shares 0
Class R - Series 2 Shares 186
Class S Shares 21
Class T - Series 1 Shares 951
Class T - Series 2 Shares 0
Class U - Series 1 Shares 7
Class U - Series 2 Shares 9,187
Class U - Series 3 Shares 766
Class V Shares 1,220
Class W Shares 570
Class X - Series 1 Shares 7
Class X - Series 2 Shares 4,852
</TABLE>
Item 27. Indemnification
Indemnification of the Registrant's principal underwriter, custodian
and transfer agent against certain losses is provided for, respectively in
Section 1.15 of the Distribution Agreement incorporated herein by reference as
Exhibit (6)(a), in Section 12 of the Global Custody Agreement incorporated
herein by reference as Exhibit (8)(a) and in Sections 15 and 17 of the Transfer
Agency Agreement, incorporated herein by reference as Exhibit 9(c). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986, incorporated herein by reference to Exhibit (1)(a) hereto, provides as
follows:
9.3 Indemnification of Trustees, Representatives and Employees.
The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been
such a Trustee except with respect to any matter as to which
he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of
his duties, provided that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the
Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if
either the matter of
-14-
<PAGE> 1385
willful misfeasance, gross negligence or reckless disregard of
duty, or the matter of bad faith had been adjudicated, it
would in the opinion of such counsel have been adjudicated in
favor of such person. The rights accruing to any person under
these provisions shall not exclude any other right to which he
may be lawfully entitled, provided that no person may satisfy
any right of indemnity or reimbursement hereunder except out
of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this
Section 9.3, provided that the indemnified person shall have
given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to
such indemnification.
The Trustees shall indemnify representatives and employees of
the Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
Fleet Investment Advisors Inc. ("Fleet") is an investment
adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 28 of officers and directors of
Fleet, together with information as
-15-
<PAGE> 1386
to any business profession, vocation or employment of a
substantial nature engaged in by such officers and directors
during the past two years is incorporated herein by reference
to Schedules A and D of Form ADV filed by Fleet pursuant to
the Advisers Act (SEC File No. 801-20312).
[/R]
(b) Business and Other Connections of Sub-Adviser
Oechsle International Advisors, L.P. ("Oechsle") is an
investment adviser registered under the Investment Advisers
Act of 1940 (the "Advisers Act").
The list required by this Item 28 of the partners of Oechsle,
together with information as to any business profession,
vocation or employment of a substantial nature engaged in by
such partners during the past two years, is incorporated
herein by reference to Schedules A and D of Form ADV filed by
Oechsle pursuant to the Advisers Act (SEC File No. 801-28111).
Item 29. Principal Underwriter
(a) In addition to The Galaxy Fund, 440 Financial Distributors,
Inc. (the "Distributor") currently acts as distributor for The
Galaxy VIP Fund, Galaxy Fund II, BT Insurance Funds Trust,
Wilshire Target Funds, Inc., AMBAC Treasurer's Trust, Panorama
Trust and Armada Funds. The Distributor is registered with the
Securities and Exchange Commission as a broker-dealer and is a
member of the National Association of Securities Dealers. The
Distributor is a wholly-owned subsidiary of First Data
Investor Services Group, Inc., 4400 Computer Drive, Westboro,
MA 01581-5108.
(b) The information required by this Item 29 (b) with respect to
each director, officer, or partner of 440 Financial
Distributors, Inc. is incorporated by reference to Schedule A
of Form BD filed by 440 Financial Distributors, Inc. with the
Securities and Exchange Commission pursuant to the Securities
Act of 1934 (File No. 8-45467).
(c) The Distributor receives no compensation from the Registrant
for distribution of its shares other than payments for
distribution assistance pursuant to Registrant's Distribution
and Services Plan for Retail B Shares. The Distributor is an
affiliated person of First Data Investor Services Group, Inc.,
the Registrant's administrator, which receives
-16-
<PAGE> 1387
administration, fund accounting and transfer agency fees as
described in parts A and B.
Item 30. Location of Accounts and Records
(1) Fleet Investment Advisors Inc., 50 Kennedy Plaza, 2nd Floor,
Providence, Rhode Island 02903 (records relating to its
functions as investment adviser to all of the Registrant's
Funds).
(2) Oechsle International Advisors, L.P., One International Place,
Boston, Massachusetts 02210 (records relating to its functions
as subinvestment adviser to the International Equity Fund).
(3) 440 Financial Distributors, Inc., 290 Donald Lynch Boulevard,
Marlboro, Massachusetts 01752 (records relating to its
functions as distributor).
(4) First Data Investor Services Group, Inc. 53 State Street, Mail
Stop BOS 425, Boston, MA 02109 (records relating to its
functions as administrator).
(5) First Data Investor Services Group, Inc. 4400 Computer Drive,
Westboro, MA 001581-5108 (records relating to its functions as
transfer agent).
(6) Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107
(Registrant's Declaration of Trust, Code of Regulations and
Minute Books).
(7) The Chase Manhattan Bank, 1211 Avenue of the Americas, New
York, New York 10036 (records relating to its functions as
custodian).
Item 31. Management Services
Inapplicable.
Item 32. Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest available Annual
Reports to Shareholders which includes Management's Discussion of the
Registrant's performance, upon request and without charge.
-17-
<PAGE> 1388
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 29 to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Pawtucket, State of
Rhode Island, on the 30th day of December, 1996.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
--------------------
President
John T. O'Neill
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 29 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John T. O'Neill Trustee, President December 30, 1996
- ----------------------- and Treasurer
John T. O'Neill
*/s/ Dwight E. Vicks, Jr. Chairman of the Board December 30, 1996
- ------------------------ of Trustees
Dwight E. Vicks, Jr.
*/s/ Donald B. Miller Trustee December 30, 1996
- ------------------------
Donald B. Miller
*/s/ Louis DeThomasis Trustee December 30, 1996
- ------------------------
Louis DeThomasis
*/s/ Bradford S. Wellman Trustee December 30, 1996
- ------------------------
Bradford S. Wellman
*/s/ James M. Seed Trustee December 30, 1996
- ------------------------
James M. Seed
</TABLE>
-18-
<PAGE> 1389
*By: /s/ John T. O'Neill
-------------------
John T. O'Neill
Attorney-In-Fact
-19-
<PAGE> 1390
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 4, 1996 /s/ Dwight E. Vicks, Jr.
-----------------------
Dwight E. Vicks, Jr.
<PAGE> 1391
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Donald B. Miller
--------------------
Donald B. Miller
<PAGE> 1392
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Brother Louis DeThomasis
----------------------------
Brother Louis DeThomasis
<PAGE> 1393
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Bradford S. Wellman
-----------------------
Bradford S. Wellman
<PAGE> 1394
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ James M. Seed
------------------
James M. Seed
<PAGE> 1395
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints W. Bruce McConnel, III, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in his capacity as trustee or officer, or both, of The Galaxy
Fund (the "Trust"), to execute any and all amendments to the Trust's
Registration Statement on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"), and
all instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and said attorney shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney may lawfully do or cause to be done by
virtue hereof.
Dated: December 5, 1996 /s/ John T. O'Neill
-------------------
John T. O'Neill
<PAGE> 1396
Index to Exhibits
Exhibit No. Description
- ----------- -----------
(1)(l) Form of Certificate of Classification of Shares pertaining to
Class A - Special Series 2.
(5)(a) Advisory Agreement between the Registrant and Fleet Investment
Advisors Inc. with respect to the Money Market, Government, U.S.
Treasury, Tax-Exempt, Institutional Treasury Money Market,
Short-Term Bond, Intermediate Government Income (formerly
Intermediate Bond), Corporate Bond, High Quality Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds dated as of May 19,
1994.
(5)(c) Sub-Advisory Agreement between Fleet Investment Advisors Inc. and
Oechsle International Advisors, L.P. with respect to the
International Equity Fund dated as of August 12, 1996.
(6)(a) Distribution Agreement among the Registrant, First Data Investor
Services Group. Inc. and 440 Financial Distributors, Inc. dated as
of June 1, 1996.
(7)(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan and Related Agreement effective as of January 1,
1997.
(9)(a) Administration Agreement between the Registrant and First Data
Investor Services Group, Inc. dated as of June 1, 1996.
(9)(b) Transfer Agency Agreement between the Registrant and First Data
Investor Services Group, Inc. dated as of June 1, 1996.
(9)(c) Fee Letter Agreement between the Registrant and First Data
Investor Services Group, Inc. dated as of June 1, 1996.
(9)(d) Shareholder Services Plan and Related Form of Servicing
Agreements.
(11)(c) Consent of Drinker Biddle & Reath.
(11)(d) Consent of Willkie Farr & Gallagher.
<PAGE> 1397
(11)(e) Consent of Ropes & Gray.
(11)(f) Consent of Day, Berry & Howard.
(15) Distribution and Services Plan for Retail B Shares and Form of
Servicing Agreement.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
a Multi-Class System.
(27)(a) Financial Data Schedule as of October 31, 1996 for the Money
Market Fund.
(27)(b) Financial Data Schedule as of October 31, 1996 for the Government
Fund.
(27)(c) Financial Data Schedule as of October 31, 1996 for the U.S.
Treasury Fund.
(27)(d) Financial Data Schedule as of October 31, 1996 for the Tax-Exempt
Fund.
(27)(e) Financial Data Schedule as of October 31, 1996 for the
Institutional Treasury Money Market Fund.
(27)(f) Financial Data Schedule as of October 31, 1996 for the Connecticut
Municipal Money Market Fund.
(27)(g) Financial Data Schedule as of October 31, 1996 for the
Massachusetts Municipal Money Market Fund.
(27)(h) Financial Data Schedule as of October 31, 1996 for the Short-Term
Bond Fund.
(27)(i) Financial Data Schedule as of October 31, 1996 for the
Intermediate Government Income Fund.
(27)(j) Financial Data Schedule as of October 31, 1996 for the High
Quality Bond Fund.
(27)(k) Financial Data Schedule as of October 31, 1996 for the Corporate
Bond Fund.
(27)(l) Financial Data Schedule as of October 31, 1996 for the Tax-Exempt
Bond Fund.
(27)(m) Financial Data Schedule as of October 31, 1996 for the New York
Municipal Bond Fund.
(27)(n) Financial Data Schedule as of October 31, 1996 for the Connecticut
Municipal Bond Fund.
<PAGE> 1398
(27)(o) Financial Data Schedule as of October 31, 1996 for the
Massachusetts Municipal Bond Fund.
(27)(p) Financial Data Schedule as of October 31, 1996 for the Rhode
Island Municipal Bond Fund.
(27)(q) Financial Data Schedule as of October 31, 1996 for the Equity
Value Fund.
(27)(r) Financial Data Schedule as of October 31, 1996 for the Equity
Growth Fund.
(27)(s) Financial Data Schedule as of October 31, 1996 for the Equity
Income Fund.
(27)(t) Financial Data Schedule as of October 31, 1996 for the
International Equity Fund.
(27)(u) Financial Data Schedule as of October 31, 1996 for the Small
Company Equity Fund.
(27)(v) Financial Data Schedule as of October 31, 1996 for the Asset
Allocation Fund.
(27)(w) Financial Data Schedule as of October 31, 1996 for the Small Cap
Value Fund.
(27)(x) Financial Data Schedule as of October 31, 1996 for the Growth and
Income Fund.
<PAGE> 1
EXHIBIT 1(l)
THE GALAXY FUND
(A Massachusetts Business Trust)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as follows:
(1) That I am the duly elected Secretary of The Galaxy Fund ("Galaxy");
(2) That in such capacity I have examined the record of actions taken
by the Board of Trustees of Galaxy at a Regular Meeting of the Board
held on December 5, 1996 (the "Meeting");
(3) That the following resolutions were duly adopted at the Meeting by
the Board of Trustees of Galaxy:
1. CLASSIFICATION OF SHARES.
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration
of Trust, an unlimited number of authorized, unissued and unclassified
shares of beneficial interest of Galaxy be, and hereby are, classified
into an additional separate series of shares which shall be designated
Class A-Special Series 2;
FURTHER RESOLVED, that Class A-Special Series 2 shares of
beneficial interest shall represent interests in the Money Market Fund;
FURTHER RESOLVED, that each share of Class A-Special Series 2
newly classified hereby shall have all of the following preferences,
conversion and other rights, voting powers, restrictions, limitations,
qualifications and terms and conditions of redemption:
(1) Assets Belong to a Class. All consideration received by
Galaxy for the issue or sale of shares of Class A-Special Series 2
shall be invested and reinvested with the consideration received by
Galaxy for the issue and sale of all other shares now or hereafter
classified as shares of Class A (irrespective of whether said shares
have been classified as part of a series of said Class and if so
classified as part of a series, irrespective of the particular series
classification), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds
derived from the sale, exchange, or liquidation of such investment, any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of
<PAGE> 2
Galaxy allocated to Class A (including the Class A shares and Class
A-Special Series 1 shares formerly classified, Class A-Special Series 2
shares herein classified or such other shares with respect to such
Class A) by the Board of Trustees in accordance with Galaxy's
Declaration of Trust. All income, earnings, profits, and proceeds,
including any profits derived from the sale, exchange or liquidation of
such shares of Class A, and any assets derived from any reinvestment of
such proceeds in whatever form, shall be allocated to the Class
A-Special Series 2 shares in the proportion that the net asset value of
such Special Series 2 shares of such Class bears to the total net asset
value of all shares of such Class A (irrespective of whether said
shares have been classified as part of a series of said Class and, if
so classified as part of a series, irrespective of the particular
series classification).
(2) Liabilities Belonging to a Class. All the liabilities
(including expenses) of Galaxy in respect of Class A shall be allocated
to the Class A-Special Series 2 shares hereby classified of such Class
A in the proportion that the net asset value of such Special Series 2
shares of such Class bears to the total net asset value of all shares
of such Class A (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified as
a part of a series, irrespective of the particular series
classification), except that to the extent that may be from time to
time determined by the Board of Trustees to allocate the following
expenses to such Class A- Special Series 2 shares (or any other series
of shares of such Class):
(a) only the Special Series 2 shares of Class A shall
bear: (i) the expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of Galaxy which
provide for services by the institutions exclusively for their
customers who own of record or beneficially such Special Series 2
shares; and (ii) such other expenses and liabilities as the Board of
Trustees may from time to time determine are directly attributable to
such shares and which therefore should be borne solely by the Special
Series 2 shares of Class A; and
(b) no Special Series 2 shares of Class A shall bear
(i) the expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Galaxy which provide for
services by the institutions exclusively for their customers who own of
record or beneficially shares of Class A other than Special Series 2
shares of such Class A; and (ii) such other expenses and liabilities as
the Board of Trustees may from time to time determine are directly
attributable to shares
-2-
<PAGE> 3
of Class A other than the Special Series 2 shares of such Class A and
which therefore should be borne solely by such other shares of Class A
and not the Special Series 2 shares of such Class A.
(3) Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations, Qualifications, and Terms and Conditions of
Redemption. Except as provided hereby, each Special Series 2 share of
Class A shall have the same preferences, conversion, and other rights,
voting powers, restrictions, limitations, qualifications, and terms and
conditions of redemption applicable to all other shares as set forth in
Galaxy's Declaration of Trust and shall also have the same preferences,
conversion, and other rights, voting powers, restrictions, limitations,
qualifications, and terms and conditions of redemption as each other
share formerly, now or hereafter classified as a share of Class A
(irrespective of whether said share has been classified as a part of a
series of said Class and, if so classified as a part of a series,
irrespective of the particular series classification) except that:
(a) On any matter that pertains to the agreements or
expenses and liabilities described under Section (2), clause
(a) above (or to any plan or other document adopted by Galaxy
relating to said agreements, expenses, or liabilities) and is
submitted to a vote of shareholders of Galaxy, only the
Special Series 2 shares of Class A (excluding the other shares
classified as a series of such Class other than Special Series
2) shall be entitled to vote, except that:
(i) if said matter affects shares in Galaxy
other than the Special Series 2 shares of Class A, such other
affected shares in Galaxy shall also be entitled to vote, and
in such case, such Special Series 2 shares of such Class A
shall be voted in the aggregate together with such other
affected shares and not by class or series except where
otherwise required by law or permitted by the Board of
Trustees of Galaxy; and
(ii) if said matter does not affect the
Special Series 2 shares of Class A, such shares shall not be
entitled to vote (except where required by law or permitted by
the Board of Trustees) even though the matter is submitted to
a vote of the holders of shares in Galaxy other than said
Special Series 2 shares of such Class A.
(b) With respect to the Special Series 2 shares of
Class A, the first sentence of Section 5.1B(9) shall not
apply, and the following shall apply instead:
-3-
<PAGE> 4
To the extent of the assets of the Trust
legally available for such redemptions, a
Shareholder of the Trust shall have the
right to require the Trust to redeem his
full and fractional Shares of any class out
of assets belonging to the classes with the
same alphabetical designation as such class
at a redemption price equal to the net asset
value per Share for such Shares being
redeemed next determined after receipt of a
request to redeem in proper form as
determined by the Trustees, less such
deferred sales charge, redemption fee or
other charge, if any, as may be fixed by the
Trustees, subject to the right of the
Trustees to suspend the right of redemption
of Shares or postpone the date of payment of
such redemption price in accordance with the
provisions of applicable law.
(c) Class A-Special Series 2 shares shall be
convertible into Class A shares on the basis of the relative
net asset values of the shares converted and the shares into
which such shares are converted, and otherwise after such time
or times, and upon such conditions and pursuant to such
procedures, as shall be determined by the Trustees from time
to time in connection with the sale and issuance of such
shares. The foregoing resolutions remain in full force and
effect as of the date hereof.
____________________________
W. Bruce McConnel, III
Secretary
Dated: _________ __, 1996
Subscribed and sworn to before
me this ____ day of ________, 1996
______________________________________
Notary Public or Commissioner of Deeds
My Commission Expires:
-4-
<PAGE> 1
EXHIBIT 5(a)
THE GALAXY FUND
ADVISORY AGREEMENT
AGREEMENT made as of May 19, 1994 between THE GALAXY FUND, a
Massachusetts business trust, located in Worcester, Massachusetts ("Galaxy"),
and FLEET INVESTMENT ADVISORS INC., a New York Corporation, located in
Rochester, New York (the "Adviser").
WHEREAS, Galaxy is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Galaxy desires to retain the Adviser as investment adviser to
the Money Market Fund, Government Fund, Tax-Exempt Fund, U.S. Treasury Fund,
Institutional Treasury Money Market Fund, Short-Term Bond Fund, Intermediate
Bond Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund,
New York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund, Rhode Island Municipal Bond Fund, Equity Value Fund, Equity
Growth Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund and Asset Allocation Fund (individually, a "Fund," and collectively, the
"Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Delivery of Documents. The Adviser acknowledges that it has received
copies of each of the following as certified by Galaxy:
(a) Galaxy's Declaration of Trust, as filed with the State
Secretary of the Commonwealth of Massachusetts on March 31, 1986 and
all amendments thereto (such Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is herein called
the "Declaration of Trust");
(b) Galaxy's Code of Regulations and any amendments thereto
(such Code of Regulations, as presently in effect and as it shall from
time to time be amended, is herein called the "Code of Regulations");
(c) Resolutions of Galaxy's Board of Trustees authorizing the
appointment of the Adviser and approving this Agreement;
(d) Galaxy's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange
<PAGE> 2
Commission ("SEC") on April 14, 1986 and all amendments thereto;
(e) Galaxy's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (Registration No.
33-4806) and under the 1940 Act as filed with the SEC on April 14, 1986
and all amendments thereto; and
(f) Galaxy's most recent prospectuses with respect to the
Funds (such prospectuses, as presently in effect and all amendments and
supplements thereto, herein called "Prospectuses").
Galaxy will furnish the Adviser from time to time with execution copies
of all amendments of, or supplements to, the foregoing.
2. Services. Galaxy hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. Intending to be legally bound, the Adviser accepts such appointment
and agrees to furnish the services required herein to the Funds for the
compensation hereinafter provided.
Subject to the supervision of Galaxy's Board of Trustees, the Adviser
will provide with respect to the Funds a continuous investment program for each
Fund, including investment research and management with respect to all
securities and investments and cash equivalents in such Fund. The Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Fund and will arrange for the purchase and
sale of securities and other investments of each Fund. The Adviser will review,
monitor and report to the Board of Trustees on the performance and investment
procedures of any sub-adviser approved pursuant to Section 3; assist and consult
with any sub-adviser in connection with a Fund's continuous investment program;
approve lists of foreign countries which may be recommended by any sub-adviser
for investment by the International Equity Fund; and provide the Board of
Trustees and any sub-adviser with such information concerning relevant economic
and political developments as the Adviser shall deem appropriate or as shall be
requested by the Board of Trustees. The Adviser will provide the services under
this Agreement in accordance with each Fund's investment objective, policies and
restrictions as stated in the Prospectuses and resolutions of Galaxy's Board of
Trustees applicable to such Fund.
3. Sub-Adviser. It is understood that the Adviser may from time to time
employ or associate with itself such person or persons as the Adviser believes
to be fitted to assist it in the performance of this Agreement (herein a
"Sub-Adviser"); provided,
-2-
<PAGE> 3
however, that the compensation of such person or persons shall be paid by the
Adviser and that the Adviser shall be as fully responsible to Galaxy for the
acts and omissions of any such person as it is for its own acts and omissions;
and provided, however, that the retention of any Sub-Adviser shall be approved
as may be required by the 1940 Act.
4. Covenants by Adviser. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will conform with all Rules and Regulations of the SEC
applicable to it as an investment adviser and will in addition conduct
its activities under this agreement in accordance with those
regulations of the Board of Governors of the Federal Reserve System
pertaining to the investment advisory activities of bank holding
companies which are applicable to the Adviser;
(b) will use the same skill and care in providing such
services as it uses in providing services to other investment
companies;
(c) will place orders pursuant to its investment
determinations for the Funds either directly with the issuer or with
any broker or dealer. In placing orders with brokers and dealers, the
Adviser will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation,
when the execution and price offered by two or more brokers or dealers
are comparable, the Adviser may, in its discretion, purchase and sell
portfolio securities from and to brokers and dealers who provide Galaxy
with research advice and other services. Except as permitted by the
SEC, portfolio securities will not be purchased from or sold to the
Adviser, the Funds' distributor (the "Distributor"), or any affiliated
person of Galaxy, the Adviser, or the Distributor, provided, however,
that subject to the provisions of this paragraph and to the extent
permitted by law, the Adviser may purchase or sell portfolio securities
through the Distributor or an affiliate of the Distributor or the
Adviser acting as broker;
(d) will maintain all books and records with respect to the
securities transactions for the Funds, keep Galaxy's books of account
with respect to the Funds and furnish Galaxy's Board of Trustees such
periodic and special reports as the Board may request with respect to
the Funds;
(e) will treat confidentially and as proprietary information
of Galaxy all records and other information relative to the Funds and
prior, present or potential shareholders, and will not use such records
and information for any purpose other than performance of its
-3-
<PAGE> 4
responsibilities and duties hereunder (except after prior notification
to and approval in writing by Galaxy, which approval shall not be
unreasonably withheld and may not be withheld and will be deemed
granted where the Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by
Galaxy).
5. Services Not Exclusive. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent the Adviser or any affiliated person (as defined in the 1940 Act) of
the Adviser from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of any Fund or (ii)
limit or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or other investments (including any securities or
other investments which any Fund is eligible to buy) for its or their own
accounts or for the accounts of others for whom it or they may be acting;
provided, however, that the Adviser agrees that it will not undertake any
activities which, in its judgment, will adversely affect the performance of its
obligations to the Funds under this Agreement.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Funds are the property of Galaxy and further agrees to
surrender promptly to Galaxy any of such records upon Galaxy's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
7. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Funds.
8. Compensation. For the services provided and the expenses assumed
with respect to the Funds pursuant to this Agreement, Galaxy will pay the
Adviser from the assets belonging to the Fund involved and the Adviser will
accept as full compensation therefor fees, computed daily and paid monthly, at
an annual rate of .40% of the net assets of the Money Market, Government and
Tax-Exempt Funds; .40% of the first $750,000,000 of net assets of the U.S.
Treasury Fund plus .35% of net assets of such Fund in excess of $750,000,000;
.20% of the net assets of the International Treasury Money Market Fund; .75% of
the net assets of the Short-Term Bond, Intermediate Bond, High Quality
-4-
<PAGE> 5
Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond, Rhode Island Municipal Bond,
Equity Value, Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds; and 1.15% of the first $50 million of the International Equity
Fund's average daily net assets, plus .95% of the next $50 million of such
assets, plus .85% of net assets in excess of $100 million.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over each
Fund) exceed the expense limitations of any such state, the Adviser will
reimburse Galaxy for such excess expenses to the extent described in any written
undertaking provided by the Adviser to such state.
9. Limitation of Liability. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by Galaxy, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard of its obligations and duties under this
Agreement.
10. Duration and Termination. This Agreement shall become effective
with respect to each Fund on the day such Fund first commences the public
offering of its shares and, unless sooner terminated, shall continue in effect
until August 10, 1995. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to a particular Fund for successive twelve month
periods ending on August 10, provided such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of Galaxy's
Board of Trustees who are not parties to this Agreement, or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and (b) by Galaxy's Board of Trustees or by the vote of a
majority of the outstanding voting securities of such Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time, without
the payment of any penalty, by Galaxy's Board of Trustees or by vote of a
majority of the outstanding voting securities of such Fund, or by the Adviser,
on 60 days' written notice (which notice may be waived by the party entitled to
receive the same). This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as such terms in the 1940 Act.)
11. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or
-5-
<PAGE> 6
termination is sought. No amendment of this Agreement shall be effective with
respect to a particular Fund until approved by the vote of a majority of the
outstanding voting securities of that Fund.
12. Miscellaneous. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect to a
particular Fund, the Adviser shall continue to be legally bound to provide the
services required herein for the other Funds for the period and on the terms set
forth in this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and shall be governed by
New York law.
13. Names. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and the principal office of Galaxy. The obligations of "The Galaxy Fund" entered
into the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders, or representatives of Galaxy personally,
but bind only the property of Galaxy, and all persons dealing with any class of
shares of Galaxy must look solely to the property of Galaxy belonging to such
class for the enforcement of any claims against Galaxy.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE GALAXY FUND
By /s/ John T. O'Neill
---------------------------
President
FLEET INVESTMENT ADVISORS INC.
By /s/ James A Knauf, Jr.
---------------------------
-7-
<PAGE> 1
EXHIBIT 5(c)
THE GALAXY FUND
SUB-ADVISORY AGREEMENT
INTERNATIONAL EQUITY FUND
AGREEMENT made as of August 12, 1996 between FLEET INVESTMENT
ADVISORS INC., a New York corporation (the "Adviser"), and OECHSLE INTERNATIONAL
ADVISORS, L.P., a Delaware limited partnership ("Oechsle").
WHEREAS, The Galaxy Fund ("Galaxy") is registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to
Galaxy's International Equity Fund (the "Fund");
WHEREAS, the Adviser desires to retain Oechsle to assist it in
the provision of a continuous investment program for the Fund and Oechsle is
willing to do so;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints Oechsle to act as
sub-adviser to the Fund as permitted by the Adviser's Advisory Agreement with
Galaxy pertaining to the Fund. Intending to be legally bound, Oechsle accepts
such appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of
Galaxy's Board of Trustees, Oechsle will assist the Adviser in providing a
continuous investment program for the Fund, including research and management
with respect to all securities and investments and cash equivalents in the Fund.
Oechsle will provide services under this Agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
prospectuses and statement of additional information and resolutions of Galaxy's
Board of Trustees applicable to the Fund.
Without limiting the generality of the foregoing, Oechsle
further agrees that it will:
(a) prepare, subject to the Adviser's approval, lists
of foreign countries for investment by the Fund and determine from time
to time what securities and other investments will be purchased,
retained or sold for the
<PAGE> 2
Fund, including, with the assistance of the Adviser, the
Fund's investments in futures and forward currency
contracts;
(b) manage in consultation with the Adviser the
Fund's temporary investments in securities;
(c) place orders for the Fund either directly
with the issuer or with any broker or dealer;
(d) manage the Fund's overall cash position, and
determine from time to time what portion of the Fund's assets will be
held in different currencies;
(e) provide the Adviser with foreign broker research,
a quarterly review of international economic and investment
developments, and occasional "White Papers" on international investment
issues;
(f) attend regular business and investment-related
meetings with Galaxy's Board of Trustees and the Adviser if requested
to do so by Galaxy and/or the Adviser; and
(g) maintain books and records with respect to the
securities transactions for the Fund, furnish to the Adviser and
Galaxy's Board of Trustees such periodic and special reports as they
may request with respect to the Fund, and provide in advance to the
Adviser all reports to the Board of Trustees for examination and review
within a reasonable time prior to Galaxy Board meetings.
3. Covenants by Sub-Adviser. Oechsle agrees with respect to
the services provided to the Fund that it:
(a) will conform with all Rules and Regulations
of the Securities and Exchange Commission ("SEC") applicable to
it;
(b) will use the same skill and care in providing
such services as it uses in providing services to other
investment companies;
(c) will telecopy trade information to the
Adviser on the first business day following the day of the trade and cause
broker confirmations to be sent directly to the Adviser. In executing portfolio
transactions and selecting brokers or dealers, Oechsle will use its best efforts
to seek on behalf of the Fund the best overall terms available. In assessing the
best overall terms available for any transaction, Oechsle shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the
-2-
<PAGE> 3
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall terms
available, and in selecting the broker or dealer to execute a particular
transaction, Oechsle may also consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
provided to the Fund and/or other accounts over which Oechsle or any affiliate
of Oechsle exercises investment discretion. Oechsle is authorized, subject to
the prior approval of Galaxy's Board of Trustees, to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, Oechsle determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer--viewed in terms of that particular
transaction or in terms of the overall responsibilities of Oechsle to the Fund
and to Galaxy.
Except to the extent permitted by the SEC or by applicable
law, portfolio securities will not be purchased from or sold to the Adviser,
Oechsle, the Fund's distributor (the "Distributor"), or any affiliated person of
either Galaxy, the Adviser, Oechsle, or the Distributor.
(d) will treat confidentially and as proprietary
information of Galaxy all records and other information relative to the Fund and
prior, present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder (except after prior notification to and approval in writing by
Galaxy, which approval shall not be unreasonably withheld and may not be
withheld and will be deemed granted where Oechsle may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by
Galaxy).
(e) Oechsle will notify Galaxy of any change in its
membership within a reasonable time after such change.
4. Services Not Exclusive. (a) The services furnished by
Oechsle hereunder are deemed not to be exclusive, and nothing in this Agreement
shall (i) prevent Oechsle or any affiliated person (as defined in the 1940 Act)
of Oechsle from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of the Fund or (ii)
limit or restrict Oechsle or any such affiliated person from buying, selling or
trading any securities or other investments (including any securities or other
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<PAGE> 4
investments which the Fund is eligible to buy) for its or their own accounts or
for the accounts of others for whom it or they may be acting; provided, however,
that Oechsle agrees that it will not undertake any activities which, in its
judgment, will adversely affect the performance of its obligations to the Fund
under this Agreement.
(b) Nothing contained herein, however, shall
prohibit Oechsle from advertising or soliciting the public generally with
respect to other products or services, regardless of whether such advertisement
or solicitation may include prior, present or potential shareholders of Galaxy.
5. Portfolio Transactions. Investment decisions for the Fund
shall be made by Oechsle independently from those for any other investment
companies and accounts advised or managed by Oechsle. The Fund and such
investment companies and accounts may, however, invest in the same securities.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Oechsle believes to be equitable to the Fund and
such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund. To the extent permitted by
law, Oechsle may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for other investment companies or accounts in
order to obtain best execution.
6. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Oechsle hereby agrees that all records which it
maintains for Galaxy are the property of Galaxy and further agrees to surrender
promptly to Galaxy any of such records upon Galaxy's request. Oechsle further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, Oechsle will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
8. Compensation. For the services provided and the expenses
assumed with respect to the Fund pursuant to this Agreement, the Adviser will
pay Oechsle and Oechsle will accept as full compensation therefor fees, computed
daily and paid quarterly, at the annual rate of .40% of the first $50 million of
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<PAGE> 5
the Fund's average daily net assets, plus .35% of average daily net assets in
excess of $50 million.
9. Limitation of Liability of Oechsle. Oechsle shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
Galaxy or the Adviser, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of Oechsle
in the performance of its duties or from reckless disregard of its obligations
and duties under this Agreement.
10. Reference to Oechsle. Neither the Adviser nor any
affiliate or agent of it shall make reference to or use the name of Oechsle or
any of its affiliates, or any of their clients, except references concerning the
identify of and services provided by Oechsle to the Fund, which references shall
not differ in substance from those included in the current registration
statement pertaining to the Fund, this Agreement and the Advisory Agreement
between the Adviser and Galaxy with respect to the Fund, in any advertising or
promotional materials without the prior approval of Oechsle, which approval
shall not be unreasonably withheld or delayed. The Adviser hereby agrees to make
all reasonable efforts to cause Galaxy and any affiliate thereof to satisfy the
foregoing obligation.
11. Duration and Termination. This Agreement shall become
effective as of the date hereof and, unless sooner terminated, shall continue in
effect until August 10, 1997. Thereafter if not terminated, this Agreement shall
continue in effect for successive twelve-month periods ending on August 10,
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of those members of Galaxy's Board of Trustees who are not
parties to this Agreement, or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by Galaxy's Board of Trustees or by the vote of a majority of the outstanding
voting securities of the Fund. Notwithstanding the foregoing, this Agreement may
be terminated at any time, without the payment of any penalty, by the Adviser or
by Galaxy (by Galaxy's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) on 60 days' written notice to Oechsle
(which notice may be waived by the party entitled to receive the same) and will
automatically terminate upon the termination of the Advisory Agreement between
the Adviser and Galaxy with respect to the Fund. This Agreement may be
terminated by Oechsle at any time, without payment of any penalty, on 90 days'
written notice to Galaxy and the Adviser (which notice may be waived by the
party entitled to receive the same). This Agreement will immediately terminate
in the event of its assignment. (As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested persons" and
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<PAGE> 6
"assignment" shall have the same meanings as such terms in the 1940 Act.)
12. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective with respect to the Fund until approved by the vote
of a majority of the outstanding voting securities of the Fund.
13. Notice. Any notice, advice or report to be given pursuant
to this Agreement shall be delivered or mailed:
To Oechsle at:
One International Place
Boston, MA 02110
Attention: Stephen J. Butters
With a copy to:
Christopher P. Harvey, Esq.
Hale and Dorr
60 State Street
Boston, MA 02109
To the Adviser at:
75 State Street
Boston, MA 02109
Attention: Thomas O'Neill
To Galaxy at:
4400 Computer Drive
Westboro, MA 01581
With a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
14. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or
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<PAGE> 7
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
15. Names. The names "The Galaxy Fund" and "Trustees of The
Galaxy Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and the principal office of the Trust. The obligations of "The
Galaxy Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of Galaxy personally, but bind only the property of Galaxy, and
all persons dealing with any class of shares of Galaxy must look solely to the
property of Galaxy belonging to such class for the enforcement of any claims
against Galaxy.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
Attest: FLEET INVESTMENT ADVISORS INC.
By:/s/Thomas O'Neill
- --------------------------- --------------------
Attest: OECHSLE INTERNATIONAL
ADVISORS, L.P.
By:/s/Sean Roche
- --------------------------- --------------------
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<PAGE> 1
EXHIBIT 6(a)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 by and among
THE GALAXY FUND, a Massachusetts business trust ("Galaxy"), First Data Investor
Services Group, Inc., a Massachusetts corporation ("FDISG"), and 440 Financial
Distributors, Inc., a Massachusetts corporation (the "Distributor") and a
wholly-owned subsidiary of FDISG.
W I T N E S S E T H
WHEREAS, Galaxy is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Galaxy is currently offering units of beneficial interest, par
value $.001 (the "Shares"), representing interests in the following investment
portfolios: Money Market Fund, Government Fund, Tax-Exempt Fund, U.S. Treasury
Fund, Institutional Treasury Money Market Fund, Connecticut Municipal Money
Market Fund, Massachusetts Municipal Money Market Fund, Equity Value Fund,
Equity Growth Fund, Equity Income Fund, International Equity Fund, Asset
Allocation Fund, Small Company Equity Fund, Growth and Income Fund, Small Cap
Value Fund, ShortTerm Bond Fund, Intermediate Government Income Fund, High
Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund (individually a "Fund" and collectively the
"Funds"); and
WHEREAS, a front-end sales charge may be imposed in connection with the
sale of certain Shares of one or more of the Funds ("Load Shares"); and
WHEREAS, a contingent deferred sales charge ("CDSC") may be imposed in
connection with the redemption of certain Shares of one or more of the Funds
("CDSC Shares"); and
WHEREAS, the Distributor currently serves as distributor for the Funds
pursuant to a Distribution Agreement dated as of March 31, 1995, as amended, by
and among Galaxy, FDISG and the Distributor (the "Existing Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing
Agreement in its entirety in order to reflect certain additional changes to the
terms thereof;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
<PAGE> 2
1. Service as Distributor.
1.1 The Distributor will act as Galaxy's disclosed agent for the
distribution of the Shares covered by the registration statement and prospectus
then in effect under the Securities Act of 1933, as amended (the "1933 Act").
The Distributor will have no liability for payment for the purchase of Shares
sold pursuant to this Agreement or with respect to redemptions or repurchases of
Shares.
1.2 The Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes reasonable in connection with such solicitation. Galaxy understands
that the Distributor is the distributor, and may in the future be the
distributor, of the shares of other investment companies' portfolios
("Portfolios") including Portfolios having investment objectives similar to
those of the Funds. Galaxy further understands that investors and potential
investors in the Funds may invest in shares of such other Portfolios. Galaxy
agrees that the Distributor's duties to such Portfolios shall not be deemed in
conflict with its duties to Galaxy under this paragraph 1.2.
1.3 The Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising, compensation
of underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current shareholders, and the printing and mailing of
sales literature; provided, however, that each Fund will bear the expenses
incurred and other payments made in accordance with the provisions of this
Agreement and any plan now or hereafter adopted with respect to any one or more
series of Shares of such Fund pursuant to Rule 12b-1 under the 1940 Act
(collectively, the "Plans").
1.4 All activities by the Distributor and its agents and employees as
distributor of the Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the 1940 Act by the Securities and Exchange Commission or
any securities association registered under the Securities Exchange Act of 1934,
as amended.
1.5 The Distributor agrees to provide (a) two wholesalers dedicated to
supporting sales of Shares of the Funds and Galaxy Fund II, and (b) one or more
persons, during normal business hours, to respond to telephone questions with
respect to the Funds.
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<PAGE> 3
1.6 The Distributor will transmit any orders received by it for
purchase or redemption of the Shares to Galaxy's transfer agent and custodian.
1.7 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, Galaxy's officers may decline to accept any orders for, or make any sales
of, the Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8 The Distributor may enter into selling agreements with selected
dealers or other institutions with respect to the offering of the Shares to the
public. Each such selling agreement will provide (a) that all payments for
purchases of Shares will be sent directly from the dealer or such other
institution to the Funds' transfer agent and (b) that, if payment is not made
with respect to purchases of Shares at the customary or required time for
settlement of the transaction, the Distributor will have the right to cancel the
sale of the Shares ordered by the dealer or such other institution, in which
case the dealer or such other institution will be responsible for any loss
suffered by any Fund or the Distributor resulting from such cancellation. The
Distributor may also act as disclosed agent for a Fund and sell Shares of that
Fund to individual investors, such transactions to be specifically approved by
an officer of that Fund.
1.9 The Distributor will send a confirmation to each purchaser of
Shares under this Agreement. Such confirmations will comply with all applicable
Federal and state laws and rules and regulations of authorized regulatory bodies
and will clearly state that the Distributor is acting as agent in the
transaction and that all remittances, registration instructions and
certifications for redemption should be sent directly to the Funds' transfer
agent. Such confirmations will also set forth the mailing address and delivery
address of the Funds' transfer agent.
1.10 All Load Shares offered for sale by the Distributor shall be
offered for sale to the public at a price per share (the "offering price") equal
to (a) their net asset value (determined in the manner set forth in Galaxy's
Declaration of Trust and the then current prospectus) plus, except with respect
to certain classes of persons set forth in the then current prospectus, (b) a
sales charge which shall be the percentage of the offering price of such Load
Shares as set forth in the then current prospectus. The offering price, if not
an exact multiple of one cent, shall be adjusted to the nearest cent.
Concessions by the Distributor to dealers and other institutions shall be set
forth in either the selling agreements between the Distributor and such dealers
and institutions as from time to time amended, or if such
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<PAGE> 4
concessions are described in the then current prospectus, shall be as so set
forth. No dealer or other institution who enters into a selling agreement with
the Distributor shall be authorized to act as agent for Galaxy in connection
with the offering or sale of the Load Shares to the public or otherwise.
1.11 If any Load Shares sold by Galaxy are redeemed or repurchased by
Galaxy or by the Distributor as disclosed agent or are tendered for redemption
within seven business days after the date of confirmation of the original
purchase of said Load Shares, the Distributor shall forfeit the sales charge
received by the Distributor in respect of such shares, provided that the
portion, if any, of such amount re-allowed by the Distributor to dealers or
other institutions shall be repayable to Galaxy only to the extent recovered by
the Distributor from the dealer or other institution involved. The Distributor
shall include in each selling agreement with such dealers and other institutions
a corresponding provision for the forfeiture by them of their concession with
respect to the Load Shares sold by them or their principals and redeemed or
repurchased by Galaxy or by the Distributor as disclosed agent (or tendered for
redemption) within seven business days after the date of confirmation of such
initial purchases.
1.12 Galaxy agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in such states as the Distributor may designate.
1.13 Galaxy shall furnish from time to time, for use in connection with
the sale of the Shares, such written information with respect to the Funds and
the Shares as the Distributor may reasonably request; and Galaxy warrants that
the statements contained in any such information shall fairly show or represent
what they purport to show or represent. Galaxy shall also furnish the
Distributor upon request with (a) unaudited semi-annual statements of the Funds'
books and accounts, (b) quarterly earnings statements of the Funds, (c) a
monthly itemized list of the securities in the Funds, (d) monthly balance sheets
as soon as practicable after the end of each month, and (e) from time to time
such additional information regarding the Funds' financial condition as the
Distributor may reasonably request.
1.14 Galaxy represents to the Distributor that all registration
statements and prospectuses filed by Galaxy with the Securities and Exchange
Commission under the 1933 Act with respect to the Shares have been prepared in
conformity with the requirements of said Act and the rules and regulations of
the Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus filed with
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<PAGE> 5
the Securities and Exchange Commission and any amendments and supplements
thereto, including statements of additional information incorporated therein by
reference, which at any time shall have been filed with the Securities and
Exchange Commission. Galaxy represents and warrants to the Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with the 1933 Act and the rules and regulations of the Securities and
Exchange Commission; that all statements of fact contained in any such
registration statement and prospectus will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of the Shares. Galaxy may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus, as,
in the light of future developments, may, in the opinion of Galaxy's counsel, be
necessary or advisable. Galaxy shall promptly notify the Distributor of any
advice given to it by Galaxy's counsel regarding the necessity or advisability
so to amend or supplement such registration statement or prospectus. If Galaxy
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by Galaxy of a written request from the
Distributor to do so, the Distributor may, at its option, terminate this
Agreement. Galaxy shall not file any amendment to any registration statement or
supplement to any prospectus without giving the Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit Galaxy's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus, of whatever
character, as Galaxy may deem advisable, such right being in all respects
absolute and unconditional.
1.15 Galaxy authorizes the Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. Galaxy agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any institution who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers and directors, or any such controlling person, may incur under the 1933
Act, or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration
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<PAGE> 6
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in either any
registration statement or any prospectus or necessary to make the statements in
either thereof not misleading; provided, however, that Galaxy's agreement to
indemnify the Distributor, its officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any statements or representations contained in any registration
statement or in any prospectus that were furnished in writing to Galaxy or its
counsel by the Distributor and used in the answers to the registration statement
or in the corresponding statements made in the prospectus, or arising out of or
based upon any omission or alleged omission to state a material fact in
connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that Galaxy's agreement to indemnify the Distributor and Galaxy's
representations and warranties hereinbefore set forth in paragraph 1.14 shall
not be deemed to cover any liability to Galaxy or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of the
Distributor's reckless disregarding of its obligations and duties under this
Agreement. Galaxy's agreement to indemnify the Distributor, its officers and
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon Galaxy's being notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to Galaxy at its
principal office in Westboro, Massachusetts and sent to Galaxy by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. The failure so to notify Galaxy of
any such action shall not relieve Galaxy from any liability which Galaxy may
have to the person against whom such action is brought by reason of any such
untrue, or allegedly untrue, statement or omission, or alleged omission,
otherwise than on account of Galaxy's indemnity agreement contained in this
paragraph 1.15. Galaxy will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by Galaxy and
approved by the Distributor, which approval shall not unreasonably be withheld.
In the event Galaxy elects to assume the defense of any such suit and retain
counsel of good standing approved by the Distributor, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case Galaxy does not elect to assume the
defense of any such suit, or in case the Distributor reasonably does not approve
of counsel chosen by Galaxy, Galaxy will reimburse the Distributor, its officers
and directors, or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses
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<PAGE> 7
of any counsel retained by the Distributor or them. Galaxy's indemnification
agreement contained in this paragraph 1.15 and Galaxy's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Distributor, its
officers and directors, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnity will inure exclusively to
the Distributor's benefit, to the benefit of its several officers and directors,
and their respective estates, and to the benefit of the controlling persons and
their successors. Galaxy agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against Galaxy or any of its
officers or trustees in connection with the issue and sale of any Shares.
1.16 FDISG and the Distributor agree to indemnify, defend and hold
Galaxy, its several officers and trustees, and any person who controls Galaxy
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Galaxy, its officers or
trustees or any such controlling person, may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or expense
incurred by Galaxy, its officers or trustees, or such controlling person
resulting from such claims or demands, shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material fact contained in information
furnished in writing by the Distributor to Galaxy or its counsel and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by the Distributor to
Galaxy or its counsel required to be stated in such answers or necessary to make
such information not misleading. The agreement of FDISG and the Distributor to
indemnify Galaxy, its officers and trustees, and any such controlling person, as
aforesaid, is expressly conditioned upon FDISG's and the Distributor's being
notified of any action brought against Galaxy, its officers or trustees, or any
such controlling person, such notification to be given by letter or telegram
addressed to FDISG and the Distributor at their principal offices in Westboro,
Massachusetts and sent to FDISG and the Distributor by the person against whom
such action is brought, within 10 days after the summons or other first legal
process shall have been served. FDISG and the Distributor shall have the right
of first control of the defense of such action, with counsel of their own
choosing, satisfactory to Galaxy, if such action is based solely upon such
alleged misstatement or omission on the Distributor's part, and in any other
event Galaxy, its officers or trustees or such controlling person shall
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<PAGE> 8
each have the right to participate in the defense or preparation of the defense
of any such action. The failure so to notify FDISG and the Distributor of any
such action shall not relieve FDISG and the Distributor from any liability which
FDISG and the Distributor may have to Galaxy, its officers or trustees, or to
such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of FDISG's
and the Distributor's indemnity agreement contained in this paragraph 1.16.
1.17 No Shares shall be offered by either the Distributor or Galaxy
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by Galaxy if and so long as
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act, or if and so long as a current prospectus as required by Section 10(a)(2)
of the 1933 Act is not on file with the Securities and Exchange Commission;
provided, however, that nothing contained in this paragraph 1.17 shall in any
way restrict or have any application to or bearing upon Galaxy's obligation to
repurchase Shares from any shareholder in accordance with the provisions of
Galaxy's prospectus or Declaration of Trust.
1.18 Galaxy agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the Securities and Exchange Commission
for amendments to the registration statement or prospectus then in
effect or for additional information;
(b) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
the registration statement or prospectus then in effect or the
initiation by service of process on Galaxy of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Securities and Exchange Commission
with respect to any amendment to any registration statement or
prospectus which may from time to time be filed with the Securities and
Exchange Commission.
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<PAGE> 9
For purposes of this paragraph 1.18, informal requests by or acts of
the Staff of the Securities and Exchange Commission shall not be deemed actions
of or requests by the Securities and Exchange Commission.
1.19 The Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of Galaxy all records and
other information relative to Galaxy and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by Galaxy, which approval shall
not be unreasonably withheld and may not be withheld where the Distributor may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Galaxy.
1.20 This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
1.21 The names "The Galaxy Fund" and "Trustees of The Galaxy Fund"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of Galaxy. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, Shareholders, or representatives of
Galaxy personally, but bind only the Trust Property, and all persons dealing
with any class of Shares of Galaxy must look solely to the Trust Property
belonging to such class for the enforcement of any claims against Galaxy.
1.22 FDISG and the Distributor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by Galaxy in connection with
the performance by the Distributor of its services hereunder, except for a loss
resulting from willful misfeasance, bad faith or negligence on the part of the
Distributor in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement.
1.23 The Distributor agrees to be responsible for implementing and
operating the Plans in accordance with the terms thereof.
1.24 With respect to CDSC Shares, the Distributor shall impose a CDSC
in connection with the redemption of such CDSC
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<PAGE> 10
Shares, not to exceed a specified percentage of the original purchase price of
the Shares, as from time to time set forth in the then current prospectus. The
Distributor may retain (or receive from Galaxy, as the case may be) all of any
CDSC. The Distributor may pay to broker-dealers or other persons to whom such
CDSC Shares are sold a commission or other payment to the extent consistent with
the then current prospectus and applicable rules and regulations.
2. Term.
This Agreement shall become effective as of June 1, 1996 and, unless
sooner terminated as provided herein, shall continue until May 31, 1997 and
thereafter shall continue automatically for successive annual periods ending on
May 31 of each year, provided such continuance is specifically approved at least
annually by (i) Galaxy's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of Galaxy,
provided that in either event the continuance is also approved by a majority of
Galaxy's trustees who are not parties to this Agreement and who are not
interested persons (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on sixty days' notice,
by Galaxy's Board of Trustees, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of Galaxy, or by the Distributor. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
-10-
<PAGE> 11
3. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE GALAXY FUND
Attest:/s/W. Bruce McConnel, III By:/s/John T. O'Neill
---------------------------- ------------------------
Secretary President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
Attest: By:
--------------------------- ------------------------
Title: Title:
440 FINANCIAL DISTRIBUTORS, INC.
Attest: By:
--------------------------- ------------------------
Title: Title:
-11-
<PAGE> 1
EXHIBIT 7 (b)
THE GALAXY FUND
THE GALAXY VIP FUND
GALAXY FUND II
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Boards of Trustees (the
"Board") of The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II (the
"Trusts") shall be eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
2. Terms of Participation
(a) A Trustee may elect to participate in the Plan by
signing a Deferred Compensation Agreement (the "Agreement") in the form attached
hereto and incorporated by reference herein. A Trustee's participation will
commence on January 1 of the calendar year immediately following the year in
which the Trustee executed the Agreement, except that when a Trustee executes an
Agreement within 30 days of the Plan's initial effective date or within 30 days
of first becoming eligible to participate in the Plan, participation will
commence with respect to services to be performed subsequent to the date of the
Agreement.
(b) Participation in the Plan will continue until the
Trustee furnishes written notice to the Trusts that the Trustee terminates his
participation in the Plan or until such time as the Trusts terminate the Plan
pursuant to Section 6 below. Termination by a Trustee shall be made by written
notice delivered or mailed to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) no later than December 31 of the calendar year preceding the
calendar year in which such termination is to take effect.
(c) A Trustee who has terminated his participation
may subsequently elect to participate in the Plan by executing a new Agreement
in accordance with subsection (a) above.
(d) A Trustee may alter the amount of deferral for
any future calendar year, and/or elect a different method by which he will
receive amounts deferred for future calendar years, if the Trustee and the
Trusts enter into a new Agreement on or before December 31 of the calendar year
preceding the calendar year for which the new Agreement is to take effect. For
each new Agreement which changes the method of receipt of deferred amounts, a
new record account (the "Deferred Compensation Account" or "Account") will be
established for the Trustee.
<PAGE> 2
3. Deferred Compensation Account. While a Trustee participates
in the Plan pursuant to an Agreement, all deferred compensation payable by the
Trusts for the Trustee's services shall be credited to the Trustee's Deferred
Compensation Account under the applicable Agreement. A Trustee shall allocate
amounts in his Account(s) among the investment options available under the Plan
by submitting a written request to the Treasurer (or his delegate) on such form
as may be required by the Treasurer prior to the date deferrals are scheduled to
begin. The Boards shall specify from time to time the investment options
available under the Plan. The Galaxy VIP Fund's portfolios will not be offered
as investment options under the Plan. The Trustee may request that the
investment allocation of his Account, including past as well as future
deferrals, be changed by submitting a written request to the Treasurer (or his
delegate) on such form as may be required by the Treasurer, or by telephoning
the Treasurer (or his delegate); provided that a Trustee may make an investment
allocation change only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the Treasurer (or his
delegate) receives such request.
The Trustee's Account(s) will be credited with any income,
gains and losses that would have been realized if amounts equal to the deferred
amounts had been invested in accordance with the Trustee's allocation election
on the date such deferred amounts were credited to the Trustee's Account(s). For
this purpose, any amounts that would have been received, had amounts been
invested as described above, from a chosen investment option will be treated as
if reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following the
year in which the Trustee dies, retires, resigns, becomes disabled or otherwise
ceases to be a member of the Boards, the total amount credited to the Trustee's
Account under the applicable Agreement shall be distributed to the Trustee (or
upon his death, to his designated beneficiary) in accordance with one of the
alternatives set forth below:
(i) one single-sum payment; or
(ii) any number of annual installments (as calculated
in the following paragraph) for a period of two to 15 years. Installments shall
be paid annually as of January 31 until the balance in the Trustee's Account is
exhausted.
Selection of an alternative shall be made at the time the
Trustee executes the Agreement. Except as provided in the following paragraph,
the amount of each installment payment, other than the final payment, shall be
equal to 1/n multiplied by the balance in the Trustee's Account as of the
previous December 31, where "n" equals the number of payments yet to be made.
The
-2-
<PAGE> 3
final payment will equal the balance in the Trustee's Account as of the final
January 31 payment date, and such payment shall be made as soon as practicable
after such date. For example, if payments are to be made in ten annual
installments commencing on January 31, 2000, the first payment will be equal to
1/10th of the December 31, 1999 balance in the Account, and the following year's
payment would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the
first scheduled payment is less than $2,000, the Trusts shall instead pay such
amount in a single sum as of that date. Further, the Trustee may not select a
period of time which will cause an annual payment to be less than $1,000.
Notwithstanding the foregoing, in the event the Trustee ceases to be a Trustee
of the Trusts and becomes a proprietor, officer, partner, or employee of, or
otherwise becomes affiliated with, any business or entity that is in competition
with any of the Trusts, or becomes employed by any governmental agency having
jurisdiction over the affairs of any of the Trusts, the Trusts reserve the right
at the sole discretion of the Boards to make an immediate single-sum payment to
the Trustee in an amount equal to the balance in the Trustee's Account at that
time.
Notwithstanding the preceding two paragraphs, the Trusts may
at any time make a single-sum payment to a Trustee (or surviving beneficiary)
equal to a part or all of the balance in the Trustee's Account upon a showing of
an unforeseeable (i.e., unanticipated) financial emergency caused by an event
beyond the control of the Trustee (or surviving beneficiary) which would result
in severe financial hardship to the Trustee (or surviving beneficiary) if such
payment were not made. The determination of whether such emergency exists shall
be made at the sole discretion of the Boards (with the Trustee requesting the
payment not participating in the discussion or the decision). The amount of the
payment shall be limited to the amount necessary to meet the financial
emergency, and any remaining balance in the Trustee's Account shall thereafter
be paid at the time and in the manner otherwise set forth in this Section.
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the Trustee's death,
any amounts in the Trustee's Account shall be paid in a single sum to the
Trustee's estate. If the designated beneficiary dies after beginning to receive
installment payments, any amounts payable from the Trustee's Account shall be
paid in a single sum to the beneficiary's estate at the beneficiary's death.
5. Designation of Beneficiary. A Trustee may designate in
writing any person or legal entity as his beneficiary to receive any amounts
payable from his Account(s)
-3-
<PAGE> 4
upon his death. If the Trustee should die without effectively designating a
surviving beneficiary, his beneficiary shall be his estate.
6. Amendment and Termination of the Plan. The Trusts reserve
the right to amend or terminate the Plan by a joint resolution of the Boards. A
written notice of any such amendment or termination shall be delivered or mailed
to each participating Trustee no later than December 31 of the calendar year
preceding the calendar year in which the amendment or termination is to take
effect. The balance in the Trustee's Account(s) shall remain subject to the
provisions of the Plan and distribution will not be accelerated because of the
termination of the Plan.
7. Non-Assignability. The right of a Trustee or any other
person to receive payments under this Plan or any Agreement hereunder shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Trustee or any beneficiary.
8. Miscellaneous
(a) No Funding. The Trusts shall not be required to
fund or secure in any way their respective obligations hereunder. Nothing in the
Plan or in any Agreement hereunder and no action taken pursuant to the
provisions of the Plan or of any Agreement hereunder shall be construed to
create a trust or a fiduciary relationship of any kind. Payments under the Plan
and any Agreement hereunder shall be made when due from the general assets of
the Trusts. Neither a Trustee nor his designated beneficiary shall acquire any
interest in such assets by virtue of the Plan or any Agreement hereunder. This
Plan constitutes a mere promise by the Trusts to make payments in the future,
and to the extent that a Trustee or his designated beneficiary acquires a right
to receive any payment from the Trusts under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the Trusts. The
Trusts intend for this Plan to be unfunded for tax purposes and for the purposes
of Title I of the Employee Retirement Income Security Act of 1974, as amended.
(b) Interpretation. The Trusts shall have full power
and authority to interpret, construe and administer this Plan and any Agreement
hereunder and their interpretation and construction thereof, and actions
hereunder, including any valuation of the Trustee's Account(s), or the amount or
recipients of the payment to be made therefrom, shall be binding and conclusive
on all persons for all purposes. The Trusts shall not be liable to any person
for any action taken or omitted in connection with the interpretation and
administration of this
-4-
<PAGE> 5
Plan and any Agreement hereunder unless attributable to their own willful
misconduct or lack of good faith.
(c) Withholding. To the extent required by law, the
Trusts shall withhold federal or state income or employment taxes from any
payments under the Plan or any Agreement hereunder and shall furnish the Trustee
(or beneficiary) and the applicable governmental agency or agencies with such
reports, statements or information as may be required in connection with such
payments.
(d) Incapacity of Payee. If the Trusts shall find
that any person to whom any payment is payable under this Plan or any Agreement
hereunder is unable to care for his affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim therefor shall have been made
by a duly appointed guardian, committee or other legal representative) may be
paid to the spouse, a parent, or a brother or sister, or to any person deemed by
the Trusts to have incurred expense for the person who is otherwise entitled to
payment, in such manner and proportions as the Trusts may determine. Any such
payment shall serve to discharge the liability of the Trusts under this
Agreement to make payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in administering
this Plan and any Agreement hereunder shall be paid by the Trusts.
(f) No Additional Rights. Nothing in this Plan or any
Agreement hereunder shall be construed as conferring any right on the part of
the Trustee to be or remain a Trustee of the Trusts or to receive any particular
amount of Trustee's fees.
(g) Binding Notice. This Plan and any Agreement
hereunder shall be binding upon, and inure to the benefit of, the Trusts, their
respective successors and assigns, and each Trustee and his heirs, executors,
administrators and legal representatives.
(h) Governing Law. This Plan and any Agreement
hereunder shall be governed by and construed under the laws of the Commonwealth
of Massachusetts.
(i) Effective Date. This Plan shall be effective as
of January 1, 1997. The Galaxy Fund Deferred Compensation Plan, The Galaxy VIP
Fund Deferred Compensation Plan and Galaxy Fund II Deferred Compensation Plan
(the "Original Plans") are hereby merged into the Plan. Any amounts which were
deferred
-5-
<PAGE> 6
under the Original Plans by a Trustee, and earnings thereon, shall be paid from
the Plan in accordance with the terms of the Trustee's elections under the
Original Plans.
Adopted: December 7, 1995 Adopted by the
Revised: December 5, 1996 Boards of Trustees
of The Galaxy Fund,
The Galaxy VIP Fund and
Galaxy Fund II
-6-
<PAGE> 7
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN AGREEMENT
This Agreement is entered into this ____ day of ___________, 19__,
between The Galaxy Fund (consisting of the Institutional Treasury Money Market,
Money Market, Government, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, U.S. Treasury, Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity, Asset
Allocation, Small Cap Value, Growth and Income, Short-Term Bond, Intermediate
Government Income, Corporate Bond, High Quality Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds), The Galaxy VIP Fund (consisting of the Money
Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond Fund),
Galaxy Fund II (together with The Galaxy Fund and The Galaxy VIP Fund, the
"Trusts") (consisting of the Large Company Index, Small Company Index, Utility
Index, U.S. Treasury Index and Municipal Bond Funds) and any other investment
portfolio that may be established by the Trusts in the future, and
____________________ (the "Trustee") pursuant to The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
WHEREAS, the Trustee will be rendering valuable services to the Trusts
as a member of the Boards of Trustees (the "Board"),
<PAGE> 8
and the Trusts are willing to accommodate the Trustee's desire to be compensated
for such services on a deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for the
Trusts on and after _____________, 19__, the Trustee shall
defer ____% of the amounts otherwise payable to the Trustee
for serving as a Trustee. The deferred compensation shall be
credited to a book reserve maintained by the Trusts in the
Trustee's name, together with credited amounts in the nature
of income, gains and losses (the "Account"). The Account
maintained for the Trustee shall be paid to the Trustee on a
deferred basis in accordance with the terms of this Agreement.
2. The Trusts shall credit the Trustee's Account as of the day
such amount would be paid to the Trustee if this Agreement
were not in effect. Such Account shall be valued at fair
market value as of the last day of the calendar year and such
other dates as are necessary for the proper administration of
this Agreement, and the Trustee shall receive a written
accounting of his Account balance following such valuation.
-2-
<PAGE> 9
The Trustee may request that all or a portion of the amount in
his Account be allocated among one or more of the investment
options offered by the Board under The Plan. The Galaxy VIP
Fund's portfolios will not be offered as investment options
under the Plan. The initial allocation request may be made at
the time of enrollment. Once made, an investment allocation
request shall remain in effect for all future amounts
allocated to the Trustee's Account until changed by the
Trustee. The Trustee may change his investment allocation for
past deferrals and future deferrals by submitting a written
request to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) on such form as may be required by the Treasurer
or by telephoning the Treasurer (or his delegate); provided
that, the Trustee may make an investment allocation change
only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the
Treasurer (or his delegate) receives such request. Although
the Trusts intend to invest the amounts in the Trustee's
Account according to the Trustee's requests, the Trusts
reserve the right to invest the amounts in the Trustee's
Account without regard to such requests.
The Trustee agrees on behalf of the Trustee and any designated
beneficiary to assume all risks in
-3-
<PAGE> 10
connection with the investment performance of any amounts
which are invested or which continue to be invested in
accordance with the investment directions of the Trustee.
Title to and beneficial ownership of any assets, whether cash
or investments, which the Trusts may use to pay benefits
hereunder, shall at all times remain in the Trusts, and the
Trustee and any designated beneficiary shall not have any
property interest whatsoever in any specific assets of the
Trusts.
3. As of January 31 of the calendar year following the calendar
year the Trustee dies, retires, resigns, becomes disabled or
otherwise ceases to be a member of the Board, the Trusts
(subject to the terms of the Plan) shall: [check one]
/ / pay the Trustee (or his beneficiary) a single-sum
amount equal to the balance in the Trustee's Account
on that date; or
/ / commence making annual payments to the Trustee (or
his beneficiary) for a period of __ [insert a whole
number from two through 15] years.
-4-
<PAGE> 11
If the second box is selected, such payments shall be made on
January 31st of each year in approximately equal annual
installments as adjusted and computed by the Trusts in
accordance with the terms of the Plan, with the final payment
equalling the then remaining balance in the Trustee's Account.
4. In the event the Trustee dies before payments have commenced
or been completed under Section 3, the Trusts shall make
payment in accordance with Section 3 to the Trustee's
designated beneficiary, whose name, address, and Social
Security number are:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the
Trustee's death, any amounts in the Trustee's Account shall be
paid in a single sum to the Trustee's estate. If the
designated beneficiary dies after
-5-
<PAGE> 12
beginning to receive installment payments, any amounts payable
from the Trustee's Account shall be paid in a single sum to
the beneficiary's estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the
Trustee's compensation for services performed as a Trustee of
the Trusts in all future years unless terminated on a
prospective basis in writing in accordance with the terms of
the Plan. The Trustee may subsequently elect to defer his
compensation by executing a new Deferred Compensation
Agreement. If a new Agreement is entered into which changes
the manner in which deferred amounts will be distributed, a
new Trustee's Account will be established for purposes of
crediting deferrals, income, gains, and losses under the new
Agreement. Any new Agreement shall relate solely to
compensation for services performed after the new Agreement
becomes effective and shall not alter the terms of this
Agreement with respect to the deferred payment of compensation
for services performed during any calendar year in which this
Agreement was in effect. Notwithstanding the foregoing, the
Trustee may at any time amend the beneficiary designation
hereunder by written notice to the Trusts.
-6-
<PAGE> 13
6. This Agreement constitutes a mere promise by the Trusts to
make benefit payments in the future, and the right of any
person to receive such payments under this Agreement shall be
no greater than the right of any unsecured general creditor of
the Trusts. The Trusts and Trustee intend for this Agreement
to be unfunded for tax purposes and for the purposes of Title
I of the Employee Retirement Income Security Act of 1974, as
amended.
7. Any written notice to the Trusts referred to in this Agreement
shall be made by mailing or delivering such notice to the
Trusts to the attention of the Treasurer, c/o Jylanne Dunne,
First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, MA 01581-5108. Any written notice to the Trustee
referred to in this Agreement shall be made by delivery to the
Trustee in person or by mailing such notice to the Trustee at
his last known residential or business address.
8. This Agreement is subject to all of the terms contained in the
Plan as attached hereto and incorporated by reference herein.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
THE GALAXY FUND
By:___________________________
Title:________________________
THE GALAXY VIP FUND
By:___________________________
Title:________________________
GALAXY FUND II
By:___________________________
Title:________________________
TRUSTEE
______________________________
(Signature of Trustee)
-8-
<PAGE> 15
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN
TRUSTEE ACCOUNT ALLOCATION REQUEST
I hereby request to have my Account(s) under the Galaxy Fund/The
Galaxy VIP Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan") invested
in the following investment options in the percentages indicated as soon as
administratively feasible. This request supersedes any prior requests I have
made with respect to the Plan, and applies to amounts deferred in the past under
the Plan as well as to future deferrals. I hereby agree to assume all risks in
connection with the investment performance of the amounts which are invested in
accordance with this election.
<TABLE>
<CAPTION>
Percentage
Invested Investment Option
-------- -----------------
<S> <C>
100% U.S. Treasury Bills Account (two-year rate, adjusted quarterly)
---
100%
===
</TABLE>
DATED:_________________________________, 1996 ______________________________
<PAGE> 1
EXHIBIT 9(a)
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 between THE
GALAXY FUND, a Massachusetts business trust ("Galaxy"), and First Data Investor
Services Group, Inc., a Massachusetts corporation ("FDISG").
W I T N E S S E T H
WHEREAS, Galaxy is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Galaxy desires to employ the capital held in the following of
its investment portfolios, Money Market Fund, Government Fund, Tax-Exempt Fund,
U.S. Treasury Fund, Institutional Treasury Money Market Fund, Connecticut
Municipal Money Market Fund, Massachusetts Municipal Money Market Fund, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity Fund,
Asset Allocation Fund, Small Company Equity Fund, Growth and Income Fund, Small
Cap Value Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High
Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund (individually a "Fund" and collectively the
"Funds"), by investing and reinvesting the same in investments of the type and
in accordance with the limitations specified in its Declaration of Trust and in
its Prospectus(es) with respect to each Fund as from time to time in effect; and
WHEREAS, Galaxy has submitted or will submit to FDISG copies of
Galaxy's Declaration of Trust and the Prospectus(es) for each Fund and
resolutions of Galaxy's Board of Trustees with respect to each Fund; and
WHEREAS, FDISG currently serves as administrator for the Funds pursuant
to an Administration Agreement dated as of March 31, 1995, as amended, between
the Fund and FDISG (the "Existing Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing
Agreement in its entirety in order to reflect certain additional changes to the
terms thereof;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
<PAGE> 2
1. Services as Administrator
FDISG hereby accepts its appointment as administrator for the Funds,
and agrees to provide services hereunder subject to the direction and control of
Galaxy's Board of Trustees.
With respect to each Fund, FDISG agrees to: compute the net asset value
of Galaxy's Funds and the net income available for dividends in accordance with
Galaxy's current Prospectuses, the Statements of Additional Information and the
resolutions of the Board of Trustees; furnish statistical and research data,
clerical, accounting and bookkeeping services, and stationery and office
supplies; provide internal auditing and legal services and internal executive
and administrative services; prepare those portions of Galaxy's semi-annual
reports to the Securities and Exchange Commission on Form N-SAR that pertain to
each Fund, and coordinate and file such reports; compile data for and prepare
for execution by Galaxy those portions of Galaxy's Federal and state tax returns
and required tax filings that pertain to each Fund and file such returns and
filings when completed (other than those filings required to be made by Galaxy's
custodian and transfer agent); prepare compliance filings pursuant to state
securities laws with the advice of Galaxy's counsel; prepare those portions of
Galaxy's Annual and Semi-Annual Reports to shareholders that pertain to each
Fund, and coordinate and file such reports; compile data for, prepare, and file
timely notices to the Securities and Exchange Commission required with respect
to the registration of each Fund's shares pursuant to Rule 24f-2 under the 1940
Act; arrange for and bear the cost of processing purchase and redemption orders
with respect to each Fund's shares; keep and maintain the Funds' financial
accounts and records; monitor Galaxy's arrangements with respect to services
provided by certain institutional shareholders (herein called "Service
Organizations") to their customers, who are the beneficial owners of any class
of Galaxy's shares of beneficial interest (including any series or sub-class
thereof), pursuant to agreements between Galaxy and such Service Organizations
(herein called "Servicing Agreements"), including, among other things, reviewing
the qualifications of Service Organizations wishing to enter into Servicing
Agreements with Galaxy, assisting in the execution and delivery of the Servicing
Agreements, reporting to the Board of Trustees with respect to the amounts paid
or payable by Galaxy from time to time under the Servicing Agreements and the
nature of the services provided by Service Organizations and maintaining
appropriate records in connection with the foregoing duties; and generally
assist in all aspects of the Funds' operations.
FDISG also agrees to maintain office facilities for Galaxy (which may
be at the offices of FDISG or a corporate affiliate and which shall be in such
location as Galaxy may reasonably determine) and to supervise all administrative
aspects of the
-2-
<PAGE> 3
Funds' operations except those performed by the Funds' investment adviser under
its Advisory Agreement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
FDISG hereby agrees that all records which it maintains for Galaxy are the
property of Galaxy, and further agrees to surrender promptly to Galaxy any of
such records upon Galaxy's request. FDISG further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
In computing the net asset value of each Fund, FDISG may utilize one or
more independent pricing services approved from time to time by the Board of
Trustees of Galaxy to obtain securities prices. Each Fund will pay its share of
the cost of such services based upon its actual use of the services.
2. Fees; Expenses; Expense Reimbursement
In consideration of services provided and expenses assumed with respect
to the Funds, Galaxy will pay FDISG a monthly fee as agreed to by Galaxy and
FDISG from time to time.
FDISG will from time to time employ or associate with itself such
person or persons as FDISG may believe to be particularly fitted to assist it in
the performance of this Agreement. Such person or persons may be officers and
employees who are employed by both FDISG and Galaxy. The compensation of such
person or persons shall be paid by FDISG and no obligation will be incurred on
behalf of Galaxy in such respect.
FDISG will bear all expenses in connection with the performance of its
services under this Agreement. Other expenses to be incurred in the operation of
the Funds including taxes, interest, brokerage fees and commissions, if any,
fees of trustees who are not officers, directors, stockholders or employees of
FDISG, or of the Funds' investment adviser or distributor, Securities and
Exchange Commission fees and state Blue Sky qualification fees, advisory and
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, outside auditing and legal expenses,
costs of maintenance of corporate existence, typesetting and printing of
Prospectuses for regulatory purposes and for distribution to current
shareholders of the Funds, costs of shareholders' reports and corporate meetings
and any extraordinary expenses will be borne by the Funds, provided, however,
that the Funds will not bear, directly or indirectly, the cost of any activity
which is primarily intended to result in the distribution of Fund shares.
If in any fiscal year the aggregate expenses of a Fund (as defined
under the securities regulations of any state having
-3-
<PAGE> 4
jurisdiction over such Fund) exceed the expense limitations of any such state,
FDISG will reimburse such Fund for .20% of such excess expense. The expense
reimbursement obligation of FDISG is limited to the amount of its fees hereunder
for such fiscal year, provided, however, that notwithstanding the foregoing,
FDISG shall reimburse a Fund for such excess expense regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Fund so requires. Such
expense reimbursement, if any, will be estimated, reconciled, and paid on a
monthly basis.
3. Proprietary and Confidential Information
FDISG agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of Galaxy all records and other
information relative to Galaxy and prior, present or potential shareholders, and
not to use such records and information for any purpose other than performance
of its responsibilities and duties hereunder, except after prior notification to
and approval in writing by Galaxy, which approval shall not be unreasonably
withheld and may not be withheld and will be deemed granted where FDISG may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Galaxy.
4. Limitation of Liability
FDISG shall not be liable for any error of judgment or mistake of law
or for any loss suffered by Galaxy in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or negligence on the part of FDISG in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, director, employee, or agent
of FDISG, who may be or become an officer, trustee, employee or agent of Galaxy,
shall be deemed, when rendering services to Galaxy or acting on any business of
Galaxy (other than services or business in connection with FDISG's duties as
administrator hereunder), to be rendering such services to or acting solely for
Galaxy and not as an officer, director, employee, or agent or one under the
control or direction of FDISG even though paid by it.
5. Term
This Agreement shall become effective as of June 1, 1996 and, unless
sooner terminated as provided herein, shall continue until May 31, 1997 and
thereafter shall continue automatically with respect to each Fund for successive
annual periods ending on May 31 of each year, provided, such continuance is
specifically approved at least annually (a) by the vote of a majority of those
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<PAGE> 5
members of Galaxy's Board of Trustees who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by Galaxy's Board of Trustees or by the vote of
a majority of the outstanding voting securities of the affected Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time without the payment of any penalty, by Galaxy by the vote of
Galaxy's Board of Trustees, or by the vote of a majority of the outstanding
voting securities of the Fund, or by FDISG, on sixty days' written notice. (As
used in this Agreement, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as such terms in
the 1940 Act.) This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
6. Names.
The names "The Galaxy Fund" and "Trustees of The Galaxy Fund" refer
respectively to Galaxy created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of Galaxy. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
Galaxy personally, but bind only the Trust Property, and all persons dealing
with any class of shares of Galaxy must look solely to the Trust Property
belonging to such class for the enforcement of any claims against Galaxy.
7. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE GALAXY FUND
Attest: /s/ W. Bruce McConnel, III By: /s/John T. O'Neill
-------------------------- ---------------------
Secretary President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
Attest: By:
-------------------------- ---------------------
Title: Title:
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<PAGE> 1
EXHIBIT 9(b)
AMENDED AND RESTATED
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 between THE
GALAXY FUND, a Massachusetts business trust (the "Fund"), and FIRST DATA
INVESTOR SERVICES GROUP, INC., a Massachusetts corporation (the "Transfer
Agent").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("the 1940 Act"),
is offering units of beneficial interest, par value $.001, and is currently
classifying such units into twenty-four classes each consisting of one or more
series and may add further classes or series in the future (such units, of all
classes and series, are herein called the "Shares"); and
WHEREAS, the Transfer Agent currently serves as transfer agent,
registrar and dividend disbursing agent for the Fund pursuant to a Transfer
Agency Agreement dated as of March 31, 1995, as amended, by and between the Fund
and the Transfer Agent (the "Existing Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing
Agreement in its entirety in order to reflect certain changes to the terms
thereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Transfer Agent to serve as
transfer agent, registrar and dividend disbursing agent for the Fund with
respect to the Shares for the period and on the terms set forth in this
Agreement. The Fund may from time to time issue separate classes or series of
Shares or classify and reclassify Shares of each class or series. The Transfer
Agent shall identify to each such class or series property belonging to such
class or series and in such reports, confirmations and notices to the Fund
called for under this Agreement shall identify the class or series to which such
report, confirmation or notice pertains. The Transfer Agent accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 17 of this Agreement, subject,
however, to the performance standards set forth in Appendix I to this Agreement.
<PAGE> 2
2. Delivery of Documents. The Transfer Agent acknowledges that it
has received copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Fund's Board of Trustees authorizing
the appointment of the Transfer Agent as transfer agent, registrar and
dividend disbursing agent for the Fund and approving this Agreement;
(b) The Fund's Declaration of Trust filed with the Secretary
of the Commonwealth of Massachusetts on March 31, 1986 and all
amendments thereto (such Declaration of Trust, as currently in effect
and as it shall from time to time be amended, is herein called the
"Declaration of Trust");
(c) The Fund's Code of Regulations and all amendments thereto
(such Code of Regulations, as currently in effect and as it shall from
time to time be amended, is herein called the "Code");
(d) The Amended and Restated Distribution Agreement between
the Transfer Agent, 440 Financial Distributors, Inc. (the
"Distributor") and the Fund dated as of even date herewith (the
"Distribution Agreement");
(e) The following agreements: the Amended and Restated
Administration Agreement between the Transfer Agent and the Fund dated
as of even date herewith (the "Administration Agreement"); the Advisory
Agreement, as amended, between Fleet Investment Advisors Inc. ("Fleet")
and the Fund with respect to the Fund or any class or series thereof
and the Sub-Advisory Agreement between Fleet and Wellington Management
Company ("Wellington Management") with respect to the International
Equity Fund (such advisory agreement, as amended, and sub-advisory
agreement are herein referred to collectively as the "Advisory
Agreements"); the Global Custody Agreement, as amended, between The
Chase Manhattan Bank N.A. (the "Custodian") and the Fund dated as of
November 1, 1991 (as amended, the "Custody Agreement");
(f) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and
Exchange Commission (the "SEC") on September 10, 1982;
(g) The Fund's Registration Statement on Form N-1A under the
1940 Act and the Securities Act of 1933, as amended (the "1933 Act") as
filed with the SEC on April 14, 1986 (File No. 33-4806) relating to the
Shares, and all amendments thereto;
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<PAGE> 3
(h) The Fund's most recent prospectus or prospectuses and
statement or statements of additional information (such prospectus or
prospectuses and statement or statements of additional information, as
currently in effect, and all amendments and supplements thereto, are
herein collectively called the "Prospectus");
(i) Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), the Fund shall provide a
copy of either (i) a filed notice of eligibility to claim the exclusion
from the definition of "commodity pool operator" contained in Section
2(a)(1)(A) of the Commodity Exchange Act (the "CEA") that is provided
in Rule 4.5 under the CEA, together with all supplements as are
required by the CFTC, or (ii) a letter which has been granted the Fund
by the CFTC which states that the Fund will not be treated as a "pool"
as defined in Section 4.10(d) of the CFTC's General Regulations, or
(iii) a letter which has been granted the Fund by the CFTC which states
that the CFTC will not take any enforcement action if the Fund does not
register as a "commodity pool operator";
(j) The Fund's Shareholder Services Plan relating to Trust
Shares and Retail A Shares of certain of the Fund's investment
portfolios, and each Servicing Agreement between a Service Organization
(as defined in the Shareholder Services Plan) and the Fund; and
(k) The Fund's Distribution and Services Plan relating to
Retail B Shares of certain of the Fund's investment portfolios, and
each Servicing Agreement between a Service Organization (as defined in
the Distribution and Services Plan) and the Fund.
The Fund will furnish the Transfer Agent from time to time with copies
of all amendments of or supplements to the foregoing, if any.
3. Definitions.
(a) "Authorized Persons." As used in this Agreement, the term
"Authorized Person" means the Fund's President, Treasurer and any other
person, whether or not any such person is an officer or employee of the
Fund, duly authorized by the Board of Trustees of the Fund to give Oral
and Written Instructions on behalf of the Fund and listed on the
Certificate annexed hereto as Appendix A or such other Certificate
listing persons duly authorized to give Oral and Written Instructions
on behalf of the Fund as may be received by the Transfer Agent from
time to time.
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<PAGE> 4
(b) "Oral Instructions." As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by the
Transfer Agent from an Authorized Person or from a person reasonably
believed by the Transfer Agent to be an Authorized Person. The Fund
agrees to deliver to the Transfer Agent, at the time and in the manner
specified in Paragraph 4(b) of this Agreement, Written Instructions
confirming Oral Instructions.
(c) "Written Instructions." As used in this Agreement, the
term "Written Instructions" means written instructions delivered by
mail, tested telegram, cable, telex or facsimile sending device, and
received by the Transfer Agent, signed by an Authorized Person.
(d) "Shareholder." As used in this Agreement, the term
"Shareholder" means each holder of at least one Share.
4. Instructions Consistent with Declaration of Trust and Code.
(a) Unless otherwise provided in this Agreement, the Transfer
Agent shall act only upon Oral and Written Instructions. Although the
Transfer Agent may take cognizance of the provisions of the Declaration
of Trust and the Code of the Fund, the Transfer Agent may assume that
any Oral or Written Instructions received hereunder are not in any way
inconsistent with any provisions of such Declaration of Trust or the
Code or any vote, resolution or proceeding of the Shareholders, or of
the Board of Trustees, or of any committee thereof.
(b) The Transfer Agent shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by the
Transfer Agent pursuant to this Agreement. The Fund agrees to forward
to the Transfer Agent Written Instructions confirming Oral Instructions
in such manner that the Written Instructions are received by the
Transfer Agent (whether by hand delivery, telex, facsimile sending
device or otherwise) by the close of business of the same day that such
Oral Instructions are given to the Transfer Agent. The Fund agrees that
the fact that such confirming Written Instructions are not received by
the Transfer Agent shall in no way affect the validity of the
transactions or enforceability of the transactions authorized by the
Fund by giving Oral Instructions. The Fund agrees that the Transfer
Agent shall incur no liability to the Fund in acting upon Oral
Instructions given to the Transfer Agent hereunder concerning such
transactions provided such instructions reasonably appear to have been
received from an Authorized Person.
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<PAGE> 5
5. Issuance, Redemption and Exchange of Shares.
(a) Issuance of Shares. Upon receipt of a purchase order from
a Service Organization or prospective Shareholder for the purchase of
Shares of a particular class or series and sufficient information to
enable the Transfer Agent to establish a Shareholder account, and after
confirmation of receipt or crediting of federal funds for the order
from the Custodian, the Transfer Agent shall issue and credit the
account of the Shareholder with Shares of the appropriate class or
series in the manner described in the Prospectus.
(b) Redemption of Shares. Upon receipt of a redemption order
from the Fund's Distributor, a Service Organization or a Shareholder,
the Transfer Agent shall redeem the number and class or series of
Shares indicated thereon from the redeeming Shareholder's account and
receive from the Custodian and disburse: (i) the amount of any
contingent deferred sales charges payable to the Fund's distributor
with respect to Retail B Shares, and (ii) the balance of the redemption
proceeds to the person entitled to such proceeds, in accordance with
such procedures and controls as are mutually agreed upon from time to
time by the Fund, the Transfer Agent and the Custodian.
(c) Exchange of Shares. Upon receipt of an exchange order from
a Service Organization or a Shareholder and in accordance with the
Prospectus and such procedures and controls as are mutually agreed upon
from time to time by the Fund, the Transfer Agent and the Custodian,
the Transfer Agent shall arrange for the exchange of Shares of a class
or series of the Fund having an exchange privilege for Shares of other
classes or series of the Fund.
6. Authorized Shares. The Fund is authorized to issue an
unlimited number of Shares, par value $.001 per Share. The Fund agrees to
notify the Transfer Agent promptly of any change in or termination of the Fund's
declaration under Rule 24f-2 of the 1940 Act.
7. Dividends and Distributions. The Fund shall furnish the Transfer
Agent with appropriate evidence of action taken by the Fund's Board of Trustees
authorizing the declaration and payment of dividends and distributions to the
Fund's Shareholders. After deducting any amount required to be withheld by any
applicable laws, rules and regulations, the Transfer Agent shall, as agent for
each Shareholder and in accordance with the provisions of the Declaration of
Trust and Prospectus, receive from the Custodian and pay such Shareholder such
dividends and/or distributions in cash or, with respect to any Shareholder who
has properly elected to have his or her dividends and/or distributions
reinvested in Shares of a portfolio, reinvest such
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<PAGE> 6
dividends and/or distributions in additional full and fractional Shares. In lieu
of receiving from the Custodian and paying to Shareholders cash dividends and/or
distributions, the Transfer Agent may arrange for the direct payment of cash
dividends and distributions to Shareholders by the Custodian, in accordance with
such procedures and controls as are mutually agreed upon from time to time by
the Fund, the Transfer Agent and the Custodian.
The Transfer Agent shall prepare and file with the Internal Revenue
Service and/or other appropriate taxing authorities, and address and mail to
Shareholders or their authorized representatives, such returns and information
relating to dividends and distributions paid by the Fund as are required to be
so prepared, filed and mailed by applicable laws, rules and regulations, or such
substitute form of notice as may from time to time be permitted or required by
the Internal Revenue Service and/or other appropriate taxing authorities. On
behalf of the Fund, the Transfer Agent shall pay on a timely basis to the
appropriate federal authorities any taxes required by applicable federal tax
laws to be withheld by the Fund on dividends and distributions paid by the Fund.
8. Communications with Shareholders.
(a) Communications to Shareholders. The Transfer Agent will
address and mail all communications by the Fund to Shareholders or
their authorized representatives, including reports to Shareholders,
dividend and distribution notices and proxy materials for its meetings
of Shareholders. The Transfer Agent will receive and tabulate the proxy
cards for the meetings of Shareholders.
(b) Correspondence. The Transfer Agent will answer such
correspondence from Shareholders, securities brokers and others
relating to its duties hereunder and such other correspondence as may
from time to time be mutually agreed upon between the Transfer Agent
and the Fund.
9. Records.
(a) The Transfer Agent shall keep accounts for each
Shareholder showing the following information:
(i) name, address and United States tax
identification or Social Security number;
(ii) number and class or series of Shares held and
number of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations;
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<PAGE> 7
(iii) historical information regarding the account
of each Shareholder, including: (1) information relating to
dividends and distributions paid, (2) the date and price for
all transactions relating to a Shareholder's account, and (3)
information necessary to calculate, in accordance with the
Fund's registration statement, the appropriate contingent
deferred sales charge payable with respect to Retail B Shares;
(iv) any stop or restraining order placed against a
Shareholder's account;
(v) any correspondence relating to the current
maintenance of a Shareholder's account;
(vi) information with respect to withholdings
effected; and
(vii) any information required in order for the
Transfer Agent to perform any calculations contemplated or
required by this Agreement.
(b) The Transfer Agent shall keep subaccounts for each
Shareholder requesting such service in connection with Shares held by
such Shareholder for separate accounts, containing the same information
for each subaccount as required by Subparagraph (a) above.
(c) The books and records pertaining to the Fund which are in
the possession of the Transfer Agent shall be the Property of the Fund.
Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall
have access to such books and records at all times during the Transfer
Agent's normal business hours, and such books and records shall be
surrendered to the Fund promptly upon request. Upon the reasonable
request of the Fund, copies of any such books and records shall be
provided by the Transfer Agent to the Fund or the Fund's authorized
representative at the Fund's expense.
10. Ongoing Functions. The Transfer Agent will perform the
following functions on an ongoing basis for each class or series of the Fund:
(a) furnish state-by-state registration reports to the Fund;
(b) calculate front-end sales charges payable in connection
with the purchase of Retail A Shares and
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<PAGE> 8
contingent deferred sales charges payable in connection with the
redemption of Retail B Shares and provide for the payment of all such
sales charges to the Fund's distributor (subject to the applicable
limitations of the National Association of Securities Dealers, Inc. on
asset-based sales charges);
(c) calculate dealer commissions for the Fund, as applicable,
if any;
(d) provide toll-free lines for direct Shareholder use, plus
customer liaison staff with on-line inquiry capacity;
(e) mail duplicate confirmations to dealers of their clients'
activity, whether executed through the dealer or directly with the
Transfer Agent, if any;
(f) provide detail for underwriter or broker confirmations and
other participating dealer Shareholder accounting, in accordance with
such procedures as may be agreed upon from time to time by the Fund and
the Transfer Agent;
(g) provide Shareholder lists and statistical information
concerning accounts to the Fund; and
(h) provide timely notification of Fund activity, and such
other information as may be agreed upon from time to time by the
Transfer Agent and the Custodian, to the Fund or the Custodian.
11. Cooperation with Accountants. The Transfer Agent shall cooperate
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their opinion as such may be required from time to time by the
Fund.
12. Confidentiality. The Transfer Agent agrees on behalf of itself and
its employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Fund, which approval shall not be unreasonably withheld and may not be withheld
where the Transfer Agent may be exposed to civil or criminal contempt
proceedings for failure to comply, when
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<PAGE> 9
requested to divulge such information by duly constituted authorities, or when
so requested by the Fund.
13. Operational Improvements. The Transfer Agent agrees to make
the following operational improvements within sixty (60) days of the date of
this Agreement: synchronization of "master file" update; provision of additional
resources and procedures for problem resolution; and improvement of the accuracy
and reconciliation of account transaction data. The Transfer Agent agrees to
make the following operational improvements within ninety (90) days of the date
of this Agreement: development of same-day order entry processing.
14. Equipment Failures. In the event of equipment failures beyond
the Transfer Agent's control, the Transfer Agent shall, at no additional expense
to the Fund, take reasonable steps to minimize service interruptions but shall
have no liability with respect thereto. The Transfer Agent shall enter into and
shall maintain in effect with appropriate parties one or more agreements making
reasonable provision for emergency use of electronic data processing equipment
to the extent appropriate equipment is available.
15. Right to Receive Advice.
(a) Advice of Fund. If the Transfer Agent shall be in doubt as
to any action to be taken or omitted by it, it may request, and shall
receive, from the Fund directions or advice.
(b) Advice of Counsel. If the Transfer Agent shall be in doubt
as to any question of law involved in any action to be taken or omitted
by the Transfer Agent, it may request advice at its own cost from
counsel of its own choosing (who may be counsel for Fleet, Wellington
Management, the Custodian, the Distributor, a Service Organization, the
Fund or the Transfer Agent, at the option of the Transfer Agent).
(c) Conflicting Advice. In case of conflict between directions
or advice received by the Transfer Agent pursuant to subparagraph (a)
of this paragraph and advice received by the Transfer Agent pursuant to
subparagraph (b) of this paragraph, the Transfer Agent shall be
entitled to rely on and follow the advice received pursuant to the
latter provision alone.
(d) Protection of the Transfer Agent. The Transfer Agent shall
be protected in any action or inaction which it takes in reliance on
any directions or advice received pursuant to subparagraphs (a) or (b)
of this paragraph which the Transfer Agent, after receipt of any such
directions or advice, reasonably and in good faith believes to be
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<PAGE> 10
consistent with such directions or advice. However, nothing in this
paragraph shall be construed as imposing upon the Transfer Agent any
obligation (i) to seek such directions or advice, or (ii) to act in
accordance with such directions or advice when received, unless, under
the terms of another provision of this Agreement, the same is a
condition to the Transfer Agent's properly taking or omitting to take
such action. Nothing in this subparagraph (d) shall excuse the Transfer
Agent when an action or omission on the part of the Transfer Agent
constitutes willful misfeasance, bad faith, negligence or reckless
disregard by the Transfer Agent of its duties under this Agreement.
16. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of the Prospectus
comply with all applicable requirements of the 1933 Act, the 1940 Act, the CEA
and any laws, rules and regulations of governmental authorities having
jurisdiction.
17. Compensation. As sole compensation for the services rendered by the
Transfer Agent during the term of this Agreement, the Fund will pay to the
Transfer Agent such monthly fees as the parties may agree upon from time to time
in writing, for each class or series of the Fund, subject, however, to the
performance standards set forth in Appendix I to this Agreement.
18. Indemnification. The Fund agrees to indemnify and hold the Transfer
Agent harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the 1933
Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, the CEA and
any state and foreign securities and blue sky laws, all as or as to be amended
from time to time) and expenses, including (without limitation) attorneys' fees
and disbursements, arising directly or indirectly from any action or thing which
the Transfer Agent takes or does or omits to take or do at the request or on the
direction of or in reliance on the advice of the Fund, provided that the
Transfer Agent shall not be indemnified against any liability to the Fund or to
its Shareholders (or any expenses incident to such liability) arising out of the
Transfer Agent's negligent failure to perform its duties under this Agreement.
19. Responsibility of the Transfer Agent. The Transfer Agent shall be
under no duty to take any action on behalf of the Fund except as specifically
set forth herein or as may be specifically agreed to by the Transfer Agent in
writing. In the performance of its duties hereunder, the Transfer Agent shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement. The
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<PAGE> 11
Transfer Agent shall be responsible for the negligent failure in the performance
of its duties under this Agreement, but to the extent that duties, obligations
and responsibilities are not expressly set forth in this Agreement, the Transfer
Agent shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith or negligence on its part or reckless disregard
of such duties, obligations and responsibilities. Without limiting the
generality of the foregoing or of any other provision of this Agreement, the
Transfer Agent in connection with its duties under this Agreement shall not be
under any duty or obligation to inquire into and shall not be liable for or in
respect of (a) the validity or invalidity or authority or lack thereof of any
advice, direction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which the Transfer Agent reasonably
believes to be genuine, or (b) delays or errors or loss of data occurring by
reason of circumstances beyond the Transfer Agent's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in paragraph 14), flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
20. Registration as Transfer Agent. The Transfer Agent represents that
it has and is currently registered as a transfer agent with the SEC and has
complied with the regulations of the SEC applicable to registered transfer
agents. The Transfer Agent agrees that it will continue to be registered as a
transfer agent with the appropriate federal agency for the duration of this
Agreement. Should the Transfer Agent fail to be registered with the appropriate
federal agency as a transfer agent at any time during this Agreement, the Fund
may (notwithstanding Paragraph 21 hereof), on written notice to the Transfer
Agent, immediately terminate this Agreement.
21. Duration and Termination. This Agreement shall become effective as
of June 1, 1996 and, unless sooner terminated as provided herein, shall continue
until May 31, 1997 and thereafter shall continue automatically for successive
annual periods ending on May 31 of each year. Notwithstanding the foregoing,
this Agreement may be terminated at any time without the payment of any penalty
by the Transfer Agent or the Fund on sixty (60) days' written notice.
22. Notices. All notices and other communications (collectively
referred to as a "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to the Transfer Agent, at the Transfer Agent's
address, 4400 Computer Drive, Westboro, Massachusetts 01581; (b) if to the Fund,
at the address of the Fund; or (c) if to neither of the foregoing, at such other
address as to which
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<PAGE> 12
the sender shall have been notified by any such Notice or other communication.
If the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, more than 100 miles apart, the Notice may
be sent by first-class mail, in which case it shall be deemed to have been given
three days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
the location of the sender of a Notice and the address of the addressee thereof
are, at the time of sending, not more than 100 miles apart, the Notice may be
sent by first-class mail, in which case it shall be deemed to have been given
two days after it is sent, or if sent by messenger, it shall be deemed to have
been given on the day it is delivered, or if sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
23. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
24. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
26. Releases. The names "The Galaxy Fund" and "Trustees of the Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986, which is hereby referred to and a copy of which is
on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of "The
Galaxy Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Fund personally, but bind only the Trust Property, and
all persons dealing with any class of Shares of the Fund must look solely to the
Trust Property belonging to such class for the enforcement of any claims against
the Fund. The Transfer Agent agrees to release all Shareholders, Trustees,
officers, employees and agents of the Fund from personal liability in connection
with the Trust Property or the duties, obligations and responsibilities of the
Fund under this Agreement.
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<PAGE> 13
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in Massachusetts
and governed by Massachusetts law. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
[SEAL] THE GALAXY FUND
Attest: /s/ W. Bruce McConnel, III By: /s/ John T. O'Neill
--------------------------- -------------------------
Secretary President
[SEAL] FIRST DATA INVESTOR SERVICES
GROUP, INC.
Attest: By:
--------------------------- -------------------------
Title: Title:
-13-
<PAGE> 14
APPENDIX I
TO THE
AMENDED AND RESTATED TRANSFER AGENCY AGREEMENT
BETWEEN
THE GALAXY FUND (THE "FUND")
AND
FIRST DATA INVESTOR SERVICES GROUP, INC.
(THE "TRANSFER AGENT")
PERFORMANCE STANDARDS
Pursuant to Paragraph 1 of this Agreement, the Transfer Agent
has agreed to perform the services described in this Agreement in accordance
with the performance standards set forth in this Appendix I. The parties agree
that such performance standards, which are described in the chart attached
hereto, may be revised from time to time upon mutual agreement of the parties.
Each of the performance standards will be monitored by a
Quality Assurance Team:
(a) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) in any particular month, the Transfer Agent agrees to take
appropriate corrective action within the following thirty (30) day period.
(b) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) in two (2) consecutive months, the fee payable to the
Transfer Agent hereunder for such service shall be reduced by one percent (1%)
for the second of those two months.
(c) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) in three (3) consecutive months, the fee payable to the
Transfer Agent hereunder for such service shall be reduced by one and one-half
percent (1.5%) for the third of those three months.
(d) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) for any three (3) months within a six (6)-month period, then
the Fund shall have the right to terminate this Agreement upon forty-five (45)
days' written notice to the Transfer Agent.
(e) In the event that there is no specific fee for a
particular service set forth in the written fee agreement between
I-1
<PAGE> 15
the Fund and the Transfer Agent, then any reduction in the fee payable to the
Transfer Agent as a result of a failure to meet a particular performance
standard for that service hereunder shall be taken as a reduction in the annual
per account maintenance fee.
I-2
<PAGE> 16
PERFORMANCE STANDARDS
<TABLE>
<CAPTION>
================================================================================
ITEM STANDARD
================================================================================
<S> <C>
GENERAL PROCESSING:
- --------------------------------------------------------------------------------
New Account Set-Up 100% processed same day
- --------------------------------------------------------------------------------
Financial Quality Control 100% processed same day
- --------------------------------------------------------------------------------
Non-Financial Correspondence 100% acknowledged by telephone within 24
hours of receipt; items less than 30 days old
resolved within 3 business days; items older
than 30 days resolved within 5 business days
- --------------------------------------------------------------------------------
Maintenance Items 3 business days
- --------------------------------------------------------------------------------
Not in good order items Call out same day
- --------------------------------------------------------------------------------
Research received by phone 100% called with status report within 48
hours; 100% resolved within 3 business days
- --------------------------------------------------------------------------------
Research received by mail 100% acknowledged by telephone within 24
hours of receipt; 100% resolved within 4
business days
- --------------------------------------------------------------------------------
PHONES:
- --------------------------------------------------------------------------------
Abandonment Rate 3% or less
- --------------------------------------------------------------------------------
Average speed of answer 20 seconds or less
- --------------------------------------------------------------------------------
Service level 90% of calls will be answered in 20 seconds
or less
- --------------------------------------------------------------------------------
PRINT/MAIL:
- --------------------------------------------------------------------------------
Monthly Statements 5 business days
- --------------------------------------------------------------------------------
Daily Confirmations T + 2
- --------------------------------------------------------------------------------
Checks T + 1
- --------------------------------------------------------------------------------
Ad Hoc Projects 5 business days from receipt
- --------------------------------------------------------------------------------
FULFILLMENT: within 24 hours
================================================================================
</TABLE>
I-3
<PAGE> 1
EXHIBIT 9(c)
June 1, 1996
The Galaxy Fund
4400 Computer Drive
Westboro, MA 01581
Re: CUSTODIAN, TRANSFER AGENCY, FUND ACCOUNTING AND
ADMINISTRATION FEES
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to (a) First Data Investor Services Group, Inc.
("FDISG") as the party responsible for payment of all fees and expenses under
the terms of a Global Custody Agreement dated November 1, 1991 between you (the
"Company") and The Chase Manhattan Bank, N.A. ("Chase"), as amended; (b) FDISG
under the terms of an Amended and Restated Transfer Agency Agreement dated as of
June 1, 1996 between the Company and FDISG; and (c) FDISG under the terms of an
Amended and Restated Administration Agreement dated as of June 1, 1996 between
the Company and FDISG. Pursuant to the terms of these agreements, the Company
will pay to FDISG, for its administrative, fund accounting and transfer agency
services, and for the services that Chase will provide to the Company as
custodian in respect of the Company's Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Institutional Treasury Money Market Fund,
Connecticut Municipal Money Market Fund, Massachusetts Municipal Money Market
Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund, International
Equity Fund, Asset Allocation Fund, Small Company Equity Fund, Growth and Income
Fund, Small Cap Value Fund, ShortTerm Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New
York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Fund and such other
investment portfolios as are from time to time added by means of an amendment or
exhibit to each of these agreements (each a "Portfolio" and collectively the
"Portfolios") the following:
<PAGE> 2
The Galaxy Fund
June 1, 1996
Page 2
1. (a) Prior to September 5, 1996, an asset-based administration fee at
the annual rate of .09% of the first $2.5 billion of the Portfolios' combined
average daily net assets, .085% of the next $2.5 billion of combined average
daily net assets and .08% of combined average daily net assets over $5 billion;
and (b) effective September 5, 1996, an asset-based administration fee at the
annual rate of .09% of the first $2.5 billion of the Portfolios' combined
average daily net assets, .085% of the next $2.5 billion of combined average
daily net assets and .075% of combined average daily net assets over $5 billion.
2. An annual fund accounting fee for each Portfolio based on the
average net assets of each Portfolio as follows: net assets under $50 million -
$25,000; net assets of $50 million but less than $200 million - $35,000; net
assets of $200 million but less than $500 million - $50,000; net assets of $500
million but less than $1 billion - $85,000; and net assets in excess of $1
billion - $125,000, plus out-of-pocket expenses, including but not limited to an
out-of-pocket charge for security quotes estimated to be as follows - equity and
bond price quotes - $.20 and $.50 per quote per day, respectively, and money
market price quotes - $.50 per quote per week. The annual fund accounting fee
for a Portfolio possessing more than 25% in non-domestic assets will be 150% of
the annual fund accounting fees described above.
3. Domestic and/or global custody fees for each Portfolio are comprised
of an annual account fee, annual holding fees and transaction fees (domestic
custody) and/or an annual account maintenance fee and asset and transaction fees
per country (global custody) as more particularly set forth in the Schedule
attached hereto as Exhibit "A", plus out-of-pocket charges including but not
limited to taxes, insurance, telephone and script fees.
4. Transfer agency fees for each Portfolio are comprised of annual
account maintenance fees and transaction fees as more specifically set forth in
the Schedule attached hereto as Exhibit "B", plus out-of-pocket charges
including but not limited to confirmation production, postage, forms, telephone,
microfilm, microfiches, archives and expenses incurred at the specific direction
of the Company. Transfer agency fees are subject to the performance standards
set forth in Appendix I to the Amended
<PAGE> 3
The Galaxy Fund
June 1, 1996
Page 3
and Restated Transfer Agency Agreement dated as of June 1, 1996 between the
Company and FDISG.
5. All asset-based fees shall be calculated daily and paid monthly. Net
assets shall be computed in accordance with the Portfolios' prospectuses,
statements of additional information and the resolutions of the Company's Board
of Trustees. All other fees and out-of-pocket expenses shall be invoiced and
paid monthly.
The fees for the period from the day of the year this
agreement is entered into until the end of that year shall be prorated according
to the proportion which such period bears to the full annual period. Upon any
termination of the underlying agreements before the end of any year, the fees
for such part of a year shall be prorated according to the proportion which such
period bears to the full year and shall be payable upon the date of termination
of any agreement.
6. FDISG accepts the payments hereunder as full payment from the
Company under the terms of its respective agreements with the Company with
respect to the Portfolios.
7. The names "The Galaxy Fund" and "Trustees of The Galaxy Fund" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Company. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Company personally, but bind only the Trust Property, and all persons
dealing with any class of shares of the Company must look solely to the Trust
Property belonging to such class for the enforcement of any claims against the
Company.
8. This letter agreement may be signed by each party hereto upon a
separate copy in which event all copies shall constitute a single counterpart of
this letter agreement.
<PAGE> 4
The Galaxy Fund
June 1, 1996
Page 4
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
-------------------------------
Title:
Accepted: THE GALAXY FUND
By: /s/ John T. O'Neill
-----------------------------------
President
<PAGE> 5
EXHIBIT "A"
CUSTODY
DOMESTIC CUSTODY
The fees for Domestic Custody are comprised of three separate charges as
follows:
<TABLE>
<CAPTION>
<S> <C>
ANNUAL ACCOUNT FEE
Assets less than $100 Million $ 5,000
Assets $100 - 500 Million $ 7,500
Assets greater than $500 Million $ 15,000
ANNUAL HOLDING FEE
Book Entry (DTC, FBE, etc.) $ 24.00
Physical $ 60.00
PTC $ 72.00
Euroclear/Cedel 3 basis points
TRANSACTION FEE
DTC $ 8.00
Fed Book Entry $ 8.00
Physical/Commercial Paper $ 22.00
Interfund trades $ 5.00
Options $ 25.00
Futures $ 25.00
Repurchase agreements $ 15.00
</TABLE>
Note:
(1) Euroclear/Cedel holdings charge is based upon dollar
value of holdings (i.e. asset based charge).
GLOBAL CUSTODY
The fees for Global Custody are comprised of three separate charges as follows:
ANNUAL ACCOUNT MAINTENANCE FEE
Fees are based on average net assets per Portfolio and include
management of custodian network, collection and settlement of principal
and income items and monitoring the quality of services provided. Fees
are billable on a monthly basis at the rate of 1/12 of the annual fee.
A-1
<PAGE> 6
<TABLE>
<CAPTION>
FUND NET ASSETS ANNUAL FEE
--------------- ----------
<S> <C>
Up to $100 million $25,000
$100 to $250 million $35,000
$250 to $500 million $45,000
Over $500 million Negotiable
</TABLE>
ASSET AND TRANSACTION FEES PER COUNTRY
<TABLE>
<CAPTION>
Basis Point Transaction Basis Point Transaction
Country Charge Charge Country Charge Charge
- ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Argentina 22 $ 75 Japan 7 $ 30
(equity)
Australia 7 $ 30 Malaysia 22 $120
Austria 12 $ 60 Mexico 16 $ 60
Belgium 7 $ 30 Netherlands 7 $ 30
Canada 7 $ 30 New Zealand 12 $ 60
Chile 20 $100 Norway 12 $ 60
China 40 $100 Philippines 22 $120
Denmark 16 $ 60 Singapore 22 $120
Finland 16 $ 60 South Korea 20 $100
France 7 $ 30 Spain 26 $120
Germany 7 $ 30 Sweden 7 $ 30
Greece 26 $120 Switzerland 7 $ 30
Hong Kong 12 $ 60 Taiwan 32.75 $120
India 40 $100 Thailand 22 $120
Indonesia 26 $120 Turkey 26 $120
Ireland 7 $ 30 United Kingdom 7 $ 30
Italy 7 $ 30 Venezuela 22 $120
Japan (debt) 12 $ 60
</TABLE>
Out-of-pocket charges, including but not limited to, taxes, insurance,
telephone, script fees, will be invoiced at cost.
A-2
<PAGE> 7
EXHIBIT "B"
SHAREHOLDER SERVICES
ANNUAL FUND MINIMUM
Fees are based on annual per shareholder account charge for account maintenance
and fees for certain shareholder generated transactions plus all out-of-pocket
expenses. There is a minimum annual fee per portfolio of $5,000 per year.
ANNUAL MAINTENANCE FEE
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes. The
Annual Maintenance Charge is $14.00 per account.
NEW ACCOUNT SET-UP CHARGE
$5.00 per account
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, confirmation production,
postage, forms, telephone, microfilm, microfiches, archives and expenses
incurred at the specific direction of the Company.
PRODUCTION AND MASS MAIL
The per piece fees for production and mass mail exclude postage which will be
invoiced as an out-of-pocket expense at cost.
DAILY, MONTHLY AND DIVIDEND STATEMENTS
<TABLE>
<S> <C>
Printing, folding, inserting, metering and mailing
(Includes return envelope inserting) $.075/ea
ADDITIONAL INSERTS
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
FIDUCIARY FEE STATEMENTS
Printing, inserting, metering, mailing and return
envelope inserting $ .11/ea
</TABLE>
B-1
<PAGE> 8
<TABLE>
<S> <C>
W-8 STATEMENTS
Printing, folding, inserting, metering, mailing,
mailer or return envelope inserting $ .155/ea
W-8 STATEMENTS (BULK)
Printing, folding, inserting, metering, mailing,
mailer or return envelope inserting $1.305/ea
Credit for return handling and processing $ .70/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
W-9 STATEMENTS
Printing, folding, inserting, metering, mailing
and mailer or return envelope inserting $ .155/ea
W-9 SOLICITATIONS (BULK)
Solicitation printing, folding, inserting, metering,
mailing and mailer or return envelope inserting $ .905/ea
Credit for return handling and processing $ .50/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
LASER CHECKS
Printing, folding, inserting, metering and mailing
(Includes return envelope inserting) $ .085/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
</TABLE>
B-2
<PAGE> 9
<TABLE>
<S> <C>
PROXIES
Proxy Base Stock .0238/ea
Printing plate charge 25.00/side
Copy setting fees 50.00/ea
Proxy printing
1 to 9,999 .15/ea
10,000 to 49,999 .05/ea
50,000 plus .025/ea
Inserting, bursting, metering and mailing
over 3501 pieces .0105/ea
2501 to 3500 .12/ea
1501 to 2500 .15/ea
1 to 1500 .17/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
Manual processing/counting $ 13.00/hr
NEW ACCOUNT LETTERS
Printing, folding, inserting, metering .070/pg
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
</TABLE>
B-3
<PAGE> 1
EXHIBIT 9(d)
THE GALAXY FUND
SHAREHOLDER SERVICES PLAN
Section l. Upon the recommendation of First Data Investor Services
Group, Inc. ("FDISG"), the administrator of The Galaxy Fund (the "Trust"), any
officer of the Trust is authorized to execute and deliver, in the name and on
behalf of the Trust, written agreements in substantially the form attached
hereto or in any other form duly approved by the Board of Trustees ("Servicing
Agreements") with securities dealers, financial institutions and other industry
professionals that are shareholders or dealers of record or which have a
servicing relationship ("Service Organizations") with the beneficial owners of
the Retail A Shares and/or Trust Shares of the Money Market, Government,
Tax-Exempt, U.S. Treasury, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Small Company Equity, Equity Value, Equity Growth,
Equity Income, Small Cap Value, Growth and Income, International Equity, Asset
Allocation, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Corporate Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds of the
Trust (the "Funds"). Pursuant to said Agreements, Service Organizations shall
provide administrative support services as set forth therein to their customers
who beneficially own Retail A Shares and/or Trust Shares (as described in the
Trust's prospectuses) of the Funds in consideration of fees, computed and paid
in the manner set forth in the Servicing Agreements, at the annual rate of up to
.50% in the aggregate of the net asset value of the Retail A Shares or Trust
Shares beneficially owned by such customers. Any bank, trust company, thrift
institution or broker-dealer is eligible to become a Service Organization and to
receive fees under this Plan, including Fleet Financial Group, Inc. and its
affiliates. All expenses incurred by the Trust with respect to Retail A Shares
and/or Trust Shares of a particular Fund in connection with Servicing Agreements
and the implementation of this Plan shall be borne entirely by the holders of
the applicable series of Shares of the Fund. Each Servicing Agreement will
provide for a fee waiver by a Service Organization to the extent that the net
investment income of a series of Shares of a particular Fund earned in the
applicable period is less than the fee due from such series for such period.
Section 2. FDISG shall monitor the arrangements pertaining to the
Trust's Servicing Agreements with Service Organizations in accordance with the
terms of the Administration Agreement between FDISG and the Trust. FDISG shall
not, however, be obliged by this Plan to recommend, and the Trust shall not be
obliged to execute, any Servicing Agreement with any qualifying Service
Organization.
<PAGE> 2
Section 3. So long as this Plan is in effect, FDISG shall provide to
the Trust's Board of Trustees, and the trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such expenditures were made.
Section 4. Unless sooner terminated, this Plan shall continue until May
22, 1997 and thereafter shall continue automatically for successive annual
periods provided such continuance is approved at least annually by a majority of
the Board of Trustees, including a majority of the trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any Agreement related to this Plan
(the "Disinterested Trustees").
Section 5. This Plan may be amended at any time with respect to any
Fund by the Board of Trustees, provided that any material amendments of the
terms of this Plan shall become effective only upon the approvals set forth in
Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
Section 7. While this Plan is in effect, the selection and nomination
of the trustees of the Trust who are not "interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trust's
Disinterested Trustees.
Section 8. This Plan has been adopted by the Trust as of October 11,
1989 and amended and restated as of September 6, 1990, September 12, 1991,
December 5, 1991, February 22, 1993, May 19, 1994, February 23, 1995, June 12,
1995 and May 23, 1996.
-2-
<PAGE> 3
THE GALAXY FUND
SERVICING AGREEMENT
(Money Market, Government, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and U.S. Treasury Funds - Retail A Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you
concerning the provision of administrative support services to your customers
("Customers") who may from time to time beneficially own shares of the Money
Market, Government, Tax- Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and U.S. Treasury Funds designated as such
Funds' Class A shares, Class B shares, Class E shares, Class V shares, Class W
shares and Class F shares, respectively, offered by The Galaxy Fund (the
"Trust") to investors maintaining with us certain qualified accounts as
described in the applicable prospectuses pertaining to such shares (such shares,
which constitute a separate series of shares of the Money Market, Government,
Tax-Exempt, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and U.S. Treasury Funds (collectively, the "Funds"), are hereinafter
referred to as "Retail Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. You agree to offer to provide one or more of the
following administrative support services to Customers who may from time to time
beneficially own Retail Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) providing information periodically to Customers
showing their positions in Retail Shares; (iii) arranging for bank wires; (iv)
responding to Customer inquiries relating to the services performed by you; (v)
providing subaccounting with respect to Retail Shares beneficially owned by
Customers or the information to us necessary for subaccounting; (vi) if required
by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) forwarding to Customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Shareholder Services Plan related hereto; (viii) aggregating and processing
purchase, exchange and redemption requests from Customers and placing net
purchase, exchange and redemption orders with our
<PAGE> 4
distributor or transfer agent; (ix) providing Customers with a service that
invests the assets of their accounts in Retail Shares; and (x) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations. It is
understood that not all Customers may require or wish to avail themselves of any
or all such services.
Section 2. We recognize that you may be subject to the
provisions of the Glass-Steagall Act and other laws governing, among other
things, the conduct of activities by federally-chartered and supervised banks
and other banking organizations. As such, you are restricted in the activities
you may undertake and for which you may be paid and, therefore, you will perform
only those activities which are consistent with your statutory and regulatory
obligations. You will act solely as an agent for, upon the order of, and for the
account of, your Customers.
Section 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 4. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning the Trust or Retail
Shares except those contained in the Trust's then current prospectuses and
statement of additional information pertaining to Retail Shares, copies of which
will be supplied to you, or in such supplemental literature or advertising as
may be authorized by the Trust in writing.
Section 5. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for the Trust in any matter or in any respect. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold the Trust
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you or your
officers, employees or agents regarding your responsibilities hereunder for the
purchase, redemption, transfer or registration of Retail Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
Section 6. In consideration of the services and facilities
provided by you hereunder, the Trust will pay to you, and you will accept as
full payment therefor, a fee at the annual rate of .25% of the average daily net
asset value of the Retail
-2-
<PAGE> 5
Shares of the Money Market Fund, Government Fund, Tax-Exempt Fund, Connecticut
Municipal Money Market Fund, Massachusetts Municipal Money Market Fund and U.S.
Treasury Fund beneficially owned as of the end of each month by your Customers
for whom you are the dealer of record or holder of record or with whom you have
a servicing relationship, which fee will be computed at that time. Fees for the
Money Market Fund, Government Fund, Tax- Exempt Fund, Connecticut Municipal
Money Market Fund, Massachusetts Municipal Money Market Fund and U.S. Treasury
Fund will be payable monthly. For purposes of determining the fees payable under
this Section 6, the average daily net asset value of your Customers' Retail
Shares will be computed in the manner specified in the Trust's Registration
Statement (as the same is in effect from time to time) in connection with the
computation of the net asset value of Retail Shares for purposes of purchases
and redemptions. The fee rates stated above may be prospectively increased or
decreased by the Trust, in its sole discretion, at any time upon notice to you.
Further, the Trust may, in its discretion and without notice, suspend or
withdraw the sale of Retail Shares including the sale of such Retail Shares to
you for the account of any Customer or Customers. All fees payable by the Trust
under this Agreement with respect to the Retail Shares of a particular Fund
shall be payable entirely out of the net investment income allocable to such
Retail Shares, and no shares of the Fund involved, other than the Retail Shares,
and no other class of shares of the Trust (or a separate series of shares of any
such class) shall be responsible for such fees. In addition, by your written
acceptance of this Agreement, you agree to and do waive such portion of the fee
payable under this Section 6 as is necessary to assure that the amount of such
fee which is required to be accrued on any day with respect to your Customers'
Retail Shares does not exceed the income to be accrued to your Customers' Retail
Shares on that day.
Section 7. Any person authorized to direct the disposition of
the monies paid or payable by the Trust pursuant to this Agreement will provide
to the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
-3-
<PAGE> 6
Section 8. The Trust may enter into other similar Servicing
Agreements with any other person or persons without your consent.
Section 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Retail Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Retail Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Retail
Shares or establish or maintain Customer accounts for the primary purpose of
investing in Retail Shares; (iv) in the event an issue pertaining to this
Agreement or our Shareholder Services Plan related hereto is submitted for
shareholder approval, you will vote any Retail Shares held for your own account
in the same proportion as the vote of the Retail Shares held for your Customers'
accounts; and (v) you will not engage in activities pursuant to this Agreement
which constitute acting as a broker or dealer under state law unless you have
obtained the licenses required by such law.
Section 10. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by the Trust or its designee.
Unless sooner terminated, this Agreement will continue until May 22, 1997 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to Retail Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 13 hereof) or by you upon notice to the Trust.
Section 11. All notices and other communications between the
parties to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar telecommunications device to the appropriate address
stated herein, or to such other address as either party shall so provide the
other.
Section 12. This Agreement will be construed in accordance
with the laws of the Commonwealth of Massachusetts and is nonassignable by the
parties hereto.
Section 13. This Agreement has been approved by vote of a
majority of (i) the Board of Trustees of the Trust and (ii)
-4-
<PAGE> 7
those trustees who are not "interested persons" (as defined in the Investment
Company Act of 1940) of the Trust and who have no direct or indirect financial
interest in the operation of the Shareholder Services Plan adopted by the Trust
regarding the provision of support services to the beneficial owners of Retail A
Shares and/or Trust Shares or in any agreement related thereto ("Disinterested
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval.
Section 14. The names "The Galaxy Fund" and "Trustees of The
Galaxy Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of "The
Galaxy Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
If you agree to be legally bound by the provisions of this
Agreement, pleas sign a copy of this letter where indicated below and promptly
return it to the Trust, c/o Neil Forrest, First Data Investor Services Group,
Inc., 4400 Computer Drive, Westboro, MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:______________________
Date:___________________ (Authorized Officer)
Accepted and Agreed to:
(Name of Service Organization)
Date:__________________ By:______________________
(Authorized Officer)
-5-
<PAGE> 8
THE GALAXY FUND
SERVICING AGREEMENT
(Money Market, Government, Tax-Exempt and U.S. Treasury Funds - Trust Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you
concerning the provision of administrative support services to your customers
("Customers") who may from time to time beneficially own shares of the Money
Market, Government, Tax- Exempt and U.S. Treasury Funds, designated as such
Funds' Class A - Special Series 1 shares, Class B - Special Series 1 shares,
Class E - Special Series 1 shares and Class F - Special Series 1 shares,
respectively, offered by The Galaxy Fund (the "Trust") to investors maintaining
with us certain qualified accounts as described in the applicable prospectuses
pertaining to such shares (such shares, which constitute a separate series of
shares of the Money Market, Government, Tax-Exempt and U.S. Treasury Funds
(collectively, the "Funds"), are hereinafter referred to as "Trust Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. You agree to offer to provide one or more of the
following administrative support services to Customers who may from time to time
beneficially own Trust Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) providing information periodically to Customers
showing their positions in Trust Shares; (iii) arranging for bank wires; (iv)
responding to Customer inquiries relating to the services performed by you; (v)
providing subaccounting with respect to Trust Shares beneficially owned by
Customers or the information to us necessary for subaccounting; (vi) if required
by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) forwarding to Customers proxy
statements and proxies containing any proposals regarding this Agreement or the
Shareholder Services Plan related hereto; (viii) aggregating and processing
purchase, exchange and redemption requests from Customers and placing net
purchase, exchange and redemption orders with our distributor or transfer agent;
(ix) providing Customers with a service that invests the assets of their
accounts in Trust Shares; and (x) providing such other similar services as we
may
<PAGE> 9
reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations. It is understood that not all Customers may
require or wish to avail themselves of any or all such services.
Section 2. We recognize that you may be subject to the
provisions of the Glass-Steagall Act and other laws governing, among other
things, the conduct of activities by federally-chartered and supervised banks
and other banking organizations. As such, you are restricted in the activities
you may undertake and for which you may be paid and, therefore, you will perform
only those activities which are consistent with your statutory and regulatory
obligations. You will act solely as an agent for, upon the order of, and for the
account of, your Customers.
Section 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 4. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning the Trust or Trust
Shares except those contained in the Trust's then current prospectuses and
statement of additional information pertaining to Trust Shares, copies of which
will be supplied to you, or in such supplemental literature or advertising as
may be authorized by the Trust in writing.
Section 5. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for the Trust in any matter or in any respect. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold the Trust
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you or your
officers, employees or agents regarding your responsibilities hereunder for the
purchase, redemption, transfer or registration of Trust Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
Section 6. In consideration of the services and facilities
provided by you hereunder, the Trust will pay to you, and you will accept as
full payment therefor, a fee at the annual rate of .25% of the average daily net
asset value of the Trust Shares of the Money Market Fund, Government Fund,
Tax-Exempt Fund and U.S. Treasury Fund beneficially owned as of the end of each
month by your Customers for whom you are the dealer of record or
-2-
<PAGE> 10
holder of record or with whom you have a servicing relationship, which fee will
be computed at that time. Fees for the Money Market Fund, Government Fund,
Tax-Exempt Fund and U.S. Treasury Fund will be payable monthly. For purposes of
determining the fees payable under this Section 6, the average daily net asset
value of your Customers' Trust Shares will be computed in the manner specified
in the Trust's Registration Statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Trust Shares
for purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Trust Shares including the sale
of such Trust Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Trust Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Trust Shares, and no shares of the Fund involved, other than
the Trust Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
waive such portion of the fee payable under this Section 6 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Trust Shares does not exceed the income to be
accrued to your Customers' Trust Shares on that day.
Section 7. Any person authorized to direct the disposition of
the monies paid or payable by the Trust pursuant to this Agreement will provide
to the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
Section 8. The Trust may enter into other similar Servicing
Agreements with any other person or persons without your consent.
Section 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Trust Shares;
-3-
<PAGE> 11
(ii) the compensation payable to you hereunder, together with any other
compensation payable to you by Customers in connection with the investment of
their assets in Trust Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Trust Shares
or establish or maintain Customer accounts for the primary purpose of investing
in Trust Shares; (iv) in the event an issue pertaining to this Agreement or our
Shareholder Services Plan related hereto is submitted for shareholder approval,
you will vote any Trust Shares held for your own account in the same proportion
as the vote of the Trust Shares held for your Customers' accounts; and (v) you
will not engage in activities pursuant to this Agreement which constitute acting
as a broker or dealer under state law unless you have obtained the licenses
required by such law.
Section 10. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by the Trust or its designee.
Unless sooner terminated, this Agreement will continue until May 22, 1997 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to Trust Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 13 hereof) or by you upon notice to the Trust.
Section 11. All notices and other communications between the
parties to this Agreement will be duly given if mailed, telegraphed, telexed or
transmitted by similar telecommunications device to the appropriate address
stated herein, or to such other address as either party shall so provide the
other.
Section 12. This Agreement will be construed in accordance
with the laws of the Commonwealth of Massachusetts and is nonassignable by the
parties hereto.
Section 13. This Agreement has been approved by vote of a
majority of (i) the Board of Trustees of the Trust and (ii) those trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of the Trust and who have no direct or indirect financial interest in the
operation of the Shareholder Services Plan adopted by the Trust regarding the
provision of support services to the beneficial owners of Retail A Shares and/or
Trust Shares or in any agreement related thereto ("Disinterested Trustees"),
cast in person at a meeting called for the purpose of voting on such approval.
-4-
<PAGE> 12
Section 14. The names "The Galaxy Fund" and "Trustees of The
Galaxy Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of "The
Galaxy Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
If you agree to be legally bound by the provisions of this
Agreement, pleas sign a copy of this letter where indicated below and promptly
return it to the Trust, c/o Neil Forrest, First Data Investor Services Group,
Inc., 4400 Computer Drive, Westboro, MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:______________________
Date:___________________ (Authorized Officer)
Accepted and Agreed to:
(Name of Service Organization)
Date:__________________ By:______________________
(Authorized Officer)
-5-
<PAGE> 13
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, Equity Value, Equity Growth, Equity Income, International
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds - Retail A Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers ("Customers") who
may from time to time beneficially own shares of the Small Company Equity,
Equity Value, Equity Growth, Equity Income, International Equity, Asset
Allocation, Small Cap Value, Growth and Income, Short-Term Bond, Intermediate
Government Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds, designated as such Funds' Class K - Series 2
shares, Class C - Special Series 1 shares, Class H - Series 2 shares, Class I -
Series 2 shares, Class G - Series 2 shares, Class N - Series 2 shares, Class X -
Series 2 Shares, Class U Series 2 Shares, Class L - Series 2 shares, Class D -
Special Series 1 shares, Class J - Series 2 shares, Class T - Series 2 shares,
Class M - Series 2 shares, Class O - Series 2 shares, Class P - Series 2 shares,
Class Q - Series 2 shares and Class R - Series 2 shares, respectively, offered
by The Galaxy Fund (the "Trust") to investors maintaining with us certain
qualified accounts as described in the applicable prospectuses pertaining to
such shares (such shares, which constitute a separate series of shares of the
Small Company Equity, Equity Value, Equity Growth, Equity Income, International
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds (collectively, the
"Funds"), are hereinafter referred to as "Retail Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section l. You agree to offer to provide one or more of the following
administrative support services to Customers who may from time to time
beneficially own Retail Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) arranging for bank wires; (iii) providing
subaccounting with respect to
<PAGE> 14
Retail Shares beneficially owned by Customers or the information to us necessary
for subaccounting; (iv) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; (v) aggregating and processing purchase, exchange and redemption
requests from Customers and placing net purchase, exchange and redemption orders
with our distributor or transfer agent; and (vi) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
Section 2. You agree to offer to provide one or more of the following
services to Customers who may from time to time beneficially own Retail Shares:
(i) providing information periodically to Customers showing their positions in
Retail Shares; (ii) responding to Customer inquiries relating to the services
performed by you; (iii) providing Customers with a service that invests the
assets of their accounts in Retail Shares; and (iv) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
Section 3. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally-chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as an agent for, upon the order of, and for the account of,
your Customers.
Section 4. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 5. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning Shares offered by the
Trust except those contained in the Trust's then current prospectuses and
statement of additional information pertaining to Retail Shares, copies of which
will be supplied to you, or in such supplemental literature or advertising as
may be authorized by the Trust in writing.
-2-
<PAGE> 15
Section 6. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Retail Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
Section 7. In consideration of the services and facilities provided by
you pursuant to Section 1 hereof, the Trust will pay to you, and you will accept
as full payment therefor, a fee at the annual rate of (a) .25% of the average
daily net asset value of the Retail Shares of the Small Company Equity Fund,
Equity Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Asset Allocation Fund, Small Cap Value Fund and Growth and Income Fund
(collectively, "Equity Funds") beneficially owned as of the end of each fiscal
quarter by your Customers for whom you are the dealer of record or holder of
record or with whom you have a servicing relationship, which fee will be
computed at that time; and (b) .15% of the average daily net asset value of the
Retail Shares of the Short-Term Bond Fund, Intermediate Government Income Fund,
High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal
Bond Fund and Rhode Island Municipal Bond Fund (collectively, "Bond Funds")
beneficially owned as of the end of each month by your Customers for whom you
are the dealer of record or holder of record or with whom you have a servicing
relationship, which fee will be computed at that time. In consideration of the
additional services provided by you pursuant to Section 2 hereof, the Trust will
pay to you, and you will accept as full payment therefor, a fee at the annual
rate of (a) .25% of the average daily net asset value of the Retail Shares of
the Equity Funds; and (b) .15% of the average daily net asset value of the
Retail Shares of the Bond Funds. Fees for the Equity Funds will be payable
quarterly and for the Bond Funds, monthly. For purposes of determining the fees
payable under this Section 7, the average daily net asset value of your
Customers' Retail Shares will be computed in the manner specified in the Trust's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Retail Shares for
purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
-3-
<PAGE> 16
without notice, suspend or withdraw the sale of Retail Shares including the sale
of such Retail Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Retail Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Retail Shares, and no shares of the Fund involved, other than
the Retail Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
waive such portion of the fee payable under this Section 7 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Retail Shares does not exceed the income to be
accrued to your Customers' Retail Shares on that day.
Section 8. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
Section 9. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
Section 10. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Retail Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Retail Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Retail
Shares or establish or maintain Customer accounts for the primary purpose of
investing in Retail Shares; (iv) in the event an issue pertaining to this
Agreement or our Shareholder Services Plan related hereto is submitted for
shareholder approval, you will vote any Retail Shares held for your own account
in the same proportion as the vote of the Retail Shares held for your
-4-
<PAGE> 17
Customers' accounts; and (v) you will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by such law.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 22, 1997, and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 14 hereof. This Agreement is terminable with respect
to Retail Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 14 hereof) or by you upon notice to the Trust.
Section 12. All notices and other communications between the parties to
this Agreement will be duly given if mailed, telegraphed, telexed or transmitted
by similar telecommunications device to the appropriate address stated herein,
or to such other address as either party shall so provide the other.
Section 13. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
Section 14. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or Trust Shares
or in any agreement related thereto (the "Disinterested Trustees"), cast in
person at a meeting called for the purpose of voting on such approval.
Section 15. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders, or representatives of
the Trust personally but bind only the Trust property, and all persons dealing
with any class of shares of the
-5-
<PAGE> 18
Trust must look solely to the Trust property belonging to such class for the
enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Neil Forrest, First Data Investor Services Group, Inc., 4400
Computer Drive, Westboro, MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:__________________________
Date: ________________ (Authorized Officer)
Accepted and Agreed to:
[Name of Service Organization]
By:___________________________
Date: _________________ (Authorized Officer)
-6-
<PAGE> 19
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, Equity Value, Equity Growth, Equity Income, International
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds - Trust Shares)
Gentlemen:
We wish to enter into this Servicing Agreement with you
concerning the provision of administrative support services to your customers
("Customers") who may from time to time beneficially own shares of the Small
Company Equity, Equity Value, Equity Growth, Equity Income, International
Equity, Asset Allocation, Small Cap Value, Growth and Income, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds, designated as such Funds'
Class K - Series 1 shares, Class C shares, Class H - Series 1 shares, Class I
Series 1 shares, Class G - Series 1 shares, Class N - Series 1 shares, Class X -
Series 1 Shares, Class U - Series 1 Shares, Class L - Series 1 shares, Class D
shares, Class J - Series 1 shares, Class T - Series 2 shares, Class M - Series 1
shares, Class O - Series 1 shares, Class P - Series 1 shares, Class Q Series 1
shares and Class R - Series 1 shares, respectively, offered by The Galaxy Fund
(the "Trust") to investors maintaining with us certain qualified accounts as
described in the applicable prospectuses pertaining to such shares (such shares,
which constitute a separate series of shares of the Small Company Equity, Equity
Value, Equity Growth, Equity Income, International Equity, Asset Allocation,
Small Cap Value, Growth and Income, Short-Term Bond, Intermediate Government
Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds (collectively, the "Funds"), are hereinafter referred to as
"Trust Shares").
The terms and conditions of this Servicing Agreement are as
follows:
<PAGE> 20
Section 1. You agree to offer to provide one or more of the
following administrative support services to Customers who may from time to time
beneficially own Trust Shares: (i) processing dividend payments from us on
behalf of Customers; (ii) arranging for bank wires; (iii) providing
subaccounting with respect to Trust Shares beneficially owned by Customers or
the information to us necessary for subaccounting; (iv) if required by law,
forwarding shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers; (v) aggregating and processing purchase, exchange
and redemption requests from Customers and placing net purchase, exchange and
redemption orders with our distributor or transfer agent; and (vi) providing
such other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations. It is
understood that not all Customers may require or wish to avail themselves of any
or all such services.
Section 2. You agree to offer to provide one or more of the following
services to Customers who may from time to time beneficially own Trust Shares:
(i) providing information periodically to Customers showing their positions in
Trust Shares; (ii) responding to Customer inquiries relating to the services
performed by you; (iii) providing Customers with a service that invests the
assets of their accounts in Trust Shares; and (iv) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations. It is understood that not all
Customers may require or wish to avail themselves of any or all such services.
Section 3. We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federally-chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as an agent for, upon the order of, and for the account of,
your Customers.
Section 4. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 5. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Trust or Trust Shares
except those contained in the Trust's
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<PAGE> 21
then current prospectuses and statement of additional information pertaining to
Trust Shares, copies of which will be supplied to you, or in such supplemental
literature or advertising as may be authorized by the Trust in writing.
Section 6. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold the Trust harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder for the purchase,
redemption, transfer or registration of Trust Shares by or on behalf of
Customers. You and your employees will, upon request, be available during normal
business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
Section 7. In consideration of the services and facilities provided by
you pursuant to Section 1 hereof, the Trust will pay to you, and you will accept
as full payment therefor, a fee at the annual rate of (a) .25% of the average
daily net asset value of the Trust Shares of the Small Company Equity Fund,
Equity Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Asset Allocation Fund, Small Cap Value Fund and Growth and Income Fund
(collectively, "Equity Funds") beneficially owned as of the end of each fiscal
quarter by your Customers for whom you are the dealer of record or holder of
record or with whom you have a servicing relationship, which fee will be
computed at that time; and (b) .15% of the average daily net asset value of the
Trust Shares of the Short-Term Bond Fund, Intermediate Government Income Fund,
High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal
Bond Fund and Rhode Island Municipal Bond Fund (collectively, "Bond Funds")
beneficially owned as of the end of each month by your Customers for whom you
are the dealer of record or holder of record or with whom you have a servicing
relationship, which fee will be computed at that time. In consideration of the
additional services provided by you pursuant to Section 2 hereof, the Trust will
pay to you, and you will accept as full payment therefor, a fee at the annual
rate of (a) .25% of the average daily net asset value of the Trust Shares of the
Equity Funds; and (b) .15% of the average daily net asset value of the Trust
Shares of the Bond Funds. Fees for the Equity Funds will be payable quarterly
and for the Bond Funds, monthly. For purposes of determining the fees payable
under this Section 7, the average daily net asset value of your Customers' Trust
Shares will be computed in the manner specified in the Trust's Registration
Statement (as the same is in effect from time to
-3-
<PAGE> 22
time) in connection with the computation of the net asset value of Trust Shares
for purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Trust Shares including the sale
of such Trust Shares to you for the account of any Customer or Customers. All
fees payable by the Trust under this Agreement with respect to the Trust Shares
of a particular Fund shall be payable entirely out of the net investment income
allocable to such Trust Shares, and no shares of the Fund involved, other than
the Trust Shares, and no other class of shares of the Trust (or a separate
series of shares of any such class) shall be responsible for such fees. In
addition, by your written acceptance of this Agreement, you agree to and do
waive such portion of the fee payable under this Section 7 as is necessary to
assure that the amount of such fee which is required to be accrued on any day
with respect to your Customers' Trust Shares does not exceed the income to be
accrued to your Customers' Trust Shares on that day.
Section 8. Any person authorized to direct the disposition of the
monies paid or payable by the Trust pursuant to this Agreement will provide to
the Board of Trustees of the Trust, and the Board will review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. In addition, you will furnish the Trust or
its designees with such information as may be reasonably requested (including,
without limitation, periodic certifications confirming the provision to
Customers of the services described herein), and will otherwise cooperate with
the Trust and its designees (including, without limitation, any auditors
designated by the Trust), in connection with the preparation of reports to the
Board of Trustees concerning this Agreement and the monies paid or payable by
the Trust pursuant hereto, as well as any other reports or filings that may be
required by law.
Section 9. The Trust may enter into other similar Servicing Agreements
with any other person or persons without your consent.
Section 10. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Trust Shares; (ii) the compensation payable to you hereunder, together with any
other compensation payable to you by Customers in connection with the investment
of their assets in Trust Shares of the Funds, will be disclosed by you to your
Customers, will be authorized by your Customers and will not result in an
excessive or unreasonable fee to you; (iii) you will not advertise or otherwise
promote your Customer accounts primarily as a means of investing in Trust Shares
or establish or maintain Customer accounts for the primary purpose
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<PAGE> 23
of investing in Trust Shares; (iv) in the event an issue pertaining to this
Agreement or our Shareholder Services Plan related hereto is submitted for
shareholder approval, you will vote any Trust Shares held for your own account
in the same proportion as the vote of the Trust Shares held for your Customers'
accounts; and (v) you will not engage in activities pursuant to this Agreement
which constitute acting as a broker or dealer under state law unless you have
obtained the licenses required by such law.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. Unless
sooner terminated, this Agreement will continue until May 22, 1997 and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trust in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to Trust Shares of any of the Funds, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 14 hereof) or by you upon notice to the Trust.
Section 12. All notices and other communications between the parties to
this Agreement will be duly given if mailed, telegraphed, telexed or transmitted
by similar telecommunications device to the appropriate address stated herein,
or to such other address as either party shall so provide the other.
Section 13. This Agreement will be construed in accordance with the
laws of the Commonwealth of Massachusetts and is nonassignable by the parties
hereto.
Section 14. This Agreement has been approved by vote of a majority of
(i) the Board of Trustees of the Trust and (ii) those trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Trust and who have no direct or indirect financial interest in the operation of
the Shareholder Services Plan adopted by the Trust regarding the provision of
support services to the beneficial owners of Retail A Shares and/or Trust Shares
or in any agreement related thereto ("Disinterested Trustees"), cast in person
at a meeting called for the purpose of voting on such approval.
Section 15. The names "The Galaxy Fund" and "Trustees of The Galaxy
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated March 31, 1986 which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "The Galaxy Fund"
entered into in the name or on
-5-
<PAGE> 24
behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, or representatives of the Trust personally, but bind
only the Trust property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust property belonging to such class for the
enforcement of any claims against the Trust.
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to the Trust, c/o Neil Forrest, First Data Investor Services Group,
Inc., 4400 Computer Drive, Westboro, MA 01581-5108.
Very truly yours,
THE GALAXY FUND
By:______________________
Date:___________________ (Authorized Officer)
Accepted and Agreed to:
(Name of Service Organization)
Date:__________________ By:______________________
(Authorized Officer)
-6-
<PAGE> 1
EXHIBIT 11(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statement of Additional Information that
is included in Post-Effective Amendment No. 29 to the Registration Statement
(No. 33-4806) on Form N-1A under the Securities Act of 1933, as amended, of The
Galaxy Fund. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
Philadelphia, Pennsylvania /s/Drinker Biddle & Reath
---------------------------
December 30, 1996 Drinker Biddle & Reath
<PAGE> 1
EXHIBIT 11(d)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our Firm under the caption "Counsel" included in the Statement of Additional
Information that is included in Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, and Amendment No. 30 to the Registration Statement on Form N-1A under
the Investment Company Act of 1940, as amended (Nos. 33-4806 and 811-4636) of
the Galaxy Funds -- New York Municipal Bond Fund.
/s/Willkie Farr & Gallagher
-------------------------------
Willkie Farr & Gallagher
December 30, 1996
New York, New York
<PAGE> 1
EXHIBIT 11(e)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
December 27, 1996
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Ladies and Gentlemen:
We hereby consent to the reference to us under the caption "Counsel" in
the Statements of Additional Information that relate to your Massachusetts
Municipal Bond Fund, Rhode Island Municipal Bond Fund and Massachusetts
Municipal Money Market Fund that are included in Post-Effective Amendment No. 29
to your Registration Statement on Form N-1A (No. 33-4806), which you have
informed us is to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/Ropes & Gray
Ropes & Gray
<PAGE> 1
EXHIBIT 11(f)
DAY, BERRY & HOWARD
CITY PLACE
HARTFORD, CONNECTICUT 06103-3499
December 30, 1996
The Galaxy Fund
4400 Computer Drive
Westborough, MA 01581-5108
Gentlemen:
We hereby consent, without admitting that we are in the category of
persons whose consent is required, to the reference to us under the caption
"Counsel" in the Statement of Additional Information included in Post-Effective
Amendment No. 29 to your Registration Statement on Form N-1A (No. 33-4806) as
filed with the Securities and Exchange Commission.
Very truly yours,
/s/Day, Berry & Howard
DAY, BERRY & HOWARD
<PAGE> 1
EXHIBIT 15
THE GALAXY FUND
DISTRIBUTION AND SERVICES PLAN
This Distribution and Services Plan (the "Plan") has been
adopted by the Board of Trustees of The Galaxy Fund (the "Trust") in connection
with the Retail B series of shares (the "B Shares") in each of the following
investment portfolios of the Trust: Small Company Equity Fund, Equity Growth
Fund, Asset Allocation Fund, Equity Value Fund, Growth and Income Fund,
Short-Term Bond Fund, High Quality Bond Fund, Tax-Exempt Bond Fund and Money
Market Fund (collectively, the "Funds"). The Plan has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
Section 1. Expenses. The Trust may incur expenses under the
Plan in an amount not to exceed 1.15% annually of the average daily net assets
attributable to the outstanding B Shares of each of the Funds.
Section 2. Distribution Payments. (a) The Trust may pay the
distributor of the Trust (the "Distributor") (or any other person) a fee (a
"Distribution Fee") of up to 0.65% annually of the average daily net assets
attributable to the outstanding B Shares of each of the Funds. The Distribution
Fee shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution services and the assumption of related expenses
(including the payment of commissions and transaction fees) in conjunction with
the offering and sale of B Shares of the Funds. In determining the amounts
payable on behalf of a Fund under the Plan, the net asset value of the B Shares
shall be computed in the manner specified in the Trust's then current
Prospectuses and Statement of Additional Information describing such B Shares.
(b) Payments to the Distributor under subsection (a) above
shall be used by the Distributor to cover expenses and activities primarily
intended to result in the sale of B Shares. Such expenses and activities may
include but are not limited to: (i) direct out-of-pocket promotional expenses
incurred by the Distributor in advertising and marketing B Shares; (ii) expenses
incurred in connection with preparing, printing, mailing, and distributing or
publishing advertisements and sales literature; (iii) expenses incurred in
connection with printing and mailing Prospectuses and Statements of Additional
Information to other than current shareholders; (iv) periodic payments or
commissions to one or more securities dealers, brokers, financial institutions
or other industry professionals, such as investment advisors, accountants, and
estate planning firms (each a "Distribution Organization") with respect to a
Fund's B Shares
<PAGE> 2
beneficially owned by customers for whom the Distribution Organization is the
Distribution Organization of record or shareholder of record; (v) the direct or
indirect cost of financing the payments or expenses included in (i) and (iv)
above; or (vi) such other services as may be construed by any court or
governmental agency or commission, including the Securities and Exchange
Commission (the "Commission"), to constitute distribution services under the
1940 Act or rules and regulations thereunder.
Section 3. Payments for Shareholder Liaison Services Covered
by Plan. (a) The Trust may also pay securities dealers, brokers, financial
institutions or other industry professionals, such as investment advisors,
accountants, and estate planning firms (each a "Service Organization") for
Shareholder Liaison Services (as hereinafter defined) provided with respect to
its customers' B Shares. Shareholder Liaison Services shall be provided pursuant
to an agreement in substantially the form attached hereto ("Servicing
Agreement"). Any organization providing distribution assistance may also become
a Service Organization and receive fees for Shareholder Liaison Services
pursuant to a Servicing Agreement under this Plan.
(b) Fees paid to a Service Organization under subsection (a)
above may be paid at an annual rate of up to 0.25% of the average daily net
assets attributable to the outstanding B Shares of each of the Funds, which B
Shares are owned of record or beneficially by that Service Organization's
customers for whom such Service Organization is the dealer of record or
shareholder of record or with whom it has a servicing relationship. Such fees
shall be calculated and accrued daily, paid monthly and computed in the manner
set forth in the Servicing Agreement.
(c) "Shareholder Liaison Services" means "personal service
and/or the maintenance of shareholder accounts" within the meaning of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., such
as responding to customer inquiries and providing information on their
investments.
Section 4. Payments for Administrative Support Services
Covered by Plan. (a) The Trust may also pay Service Organizations for
Administrative Support Services (as hereinafter defined) provided with respect
to its Customers' B Shares. Administrative Support Services shall be provided
pursuant to a Servicing Agreement. Any organization that receives fees under
Section 2 or Section 3 of this Plan may also receive fees pursuant to this
Section 4.
(b) Fees paid to a Service Organization under subsection (a)
above may be paid at an annual rate of up to 0.25% of the average daily net
assets attributable to the outstanding B
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<PAGE> 3
Shares of each of the Funds, which B Shares are owned of record or beneficially
by that Service Organization's customers for whom such Service Organization is
the dealer of record or shareholder of record or with whom it has a servicing
relationship. Such fees shall be calculated and accrued daily, paid monthly and
computed in the manner set forth in the Servicing Agreement.
(c) "Administrative Support Services" include but are not
limited to: (i) transfer agent and subtransfer agent services for beneficial
owners of B Shares; (ii) aggregating and processing purchase and redemption
orders; (iii) providing beneficial owners with statements showing their
positions in B Shares; (iv) processing dividend payments; (v) providing
subaccounting services for B Shares held beneficially; (vi) forwarding
shareholder communications, such as proxies, shareholder reports, dividend and
tax notices, and updating prospectuses to beneficial owners; and (vii)
receiving, tabulating, and transmitting proxies executed by beneficial owners;
provided, however, that such term does not include Shareholder Liaison Services.
Section 5. Expenses Allocated; Compliance. Amounts paid by a
Fund under the Plan must be for services rendered for or on behalf of the
holders of such Fund's B Shares. However, joint distribution financing or other
services rendered with respect to such B Shares (which may involve other
investment funds or companies that are affiliated persons of the Trust or
affiliated persons of the Distributor) is authorized to the extent permitted by
law.
Section 6. Reports to Trust. So long as this Plan is in
effect, the Distributor shall provide the Trust's Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
Section 7. Approval of Plan. This Plan will become effective
with respect to a particular Fund's B Shares on the date the public offering of
B Shares commences upon the approval by a majority of the Board of Trustees,
including a majority of those trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements entered
into in connection with the Plan (the "Disinterested Trustees"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
Section 8. Continuance of Plan. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until September 7,
1997, and thereafter for so long as its continuance is specifically approved at
least annually by the
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<PAGE> 4
Trust's Board of Trustees in the manner described in Section 7 hereof.
Section 9. Amendments. This Plan may be amended at any time by
the Board of Trustees provided that (a) any amendment to increase materially the
costs which the B Shares of a Fund may bear for distribution pursuant to the
Plan shall be effective only upon approval by a vote of a majority of the
outstanding B Shares affected by such matter, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval in the manner
described in Section 7 hereof.
Section 10. Termination. This Plan, as to any Fund, is
terminable without penalty at any time by (a) a vote of a majority of the
Disinterested Trustees, or (b) a vote of a majority of the outstanding B Shares
of such Fund.
Section 11. Selection/Nomination of Trustees. While this Plan
is in effect, the selection and nomination of those Disinterested Trustees shall
be committed to the discretion of such Disinterested Trustees.
Section 12. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
Adopted: September 7, 1995
Reapproved: September 5, 1996
Revised: December 5, 1996
-4-
<PAGE> 5
THE GALAXY FUND
SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the provision
of shareholder liaison and/or administrative support services to your customers
who may from time to time be the record or beneficial owners of Retail B Shares
(such shares referred to herein as the "B Shares") of one or more of our
investment portfolios (individually, a "Fund" and collectively, the "Funds"),
which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide Shareholder Liaison Services to your customers
("Clients") who may from time to time own of record or beneficially a Fund's B
Shares. "Shareholder Liaison Services" means "personal service and/or the
maintenance of shareholder accounts" within the meaning of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., such as
responding to customer inquiries and providing information on their investments.
Section 2. You agree to provide Administrative Support Services to Clients who
may from time to time own of record or beneficially a Fund's B Shares.
"Administrative Support Services" include but are not limited to: (i) transfer
agent and subtransfer agent services for beneficial owners of B Shares; (ii)
aggregating and processing purchase and redemption orders; (iii) providing
beneficial owners with statements showing their positions in B Shares; (iv)
processing dividend payments; (v) providing subaccounting services for B Shares
held beneficially; (vi) forwarding shareholder communications, such as proxies,
shareholder reports, dividend and tax notices, and updating prospectuses to
beneficial owners; and (vii) receiving, tabulating, and transmitting proxies
executed by beneficial owners; provided, however, that such term does not
include Shareholder Liaison Services.
Section 3. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to Clients.
Section 4. Neither you nor any of your officers, employees or agents is
authorized to make any representations concerning us, a Fund, or its B Shares
except those contained in our then current prospectuses for such B Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
Section 5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by law. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
Section 6. In consideration of the services and facilities provided by you
pursuant to Section 1 hereof, we will pay to you, and you will accept as full
<PAGE> 6
payment therefor, a fee at the annual rate of (a) .25% of the average daily net
asset value of B Shares of the Small Company Equity Fund, Equity Growth Fund,
Asset Allocation Fund, Equity Value Fund and Growth and Income Fund
(collectively, the "Equity Funds") owned of record or beneficially by Clients
from time to time for whom you are the dealer of record or holder of record or
with whom you have a servicing relationship, (b) .15% of the average daily net
asset value of B Shares of the Short-Term Bond Fund, High Quality Bond Fund and
Tax-Exempt Bond Fund (collectively, the "Bond Funds") owned of record or
beneficially by Clients from time to time for whom you are the dealer of record
or holder of record or with whom you have a servicing relationship, and (c) .05%
of the average daily net asset value of B Shares of the Money Market Fund owned
of record or beneficially by Clients from time to time for whom you are the
dealer of record or holder of record and with whom you have a servicing
relationship. In consideration of the services provided by you pursuant to
Section 2 hereof, we will pay to you, and you will accept as full payment
therefor, a fee at the annual rate of (a) .25% of the average daily net asset
value of B Shares of the Equity Funds, (b) .15% of the average daily net asset
value of B Shares of the Bond Funds, and (c) .05% of the average daily net asset
value of B Shares of the Money Market Fund. Said fee will be computed daily and
payable monthly. For purposes of determining the fees payable under this Section
6, the average daily net asset value of Clients' B Shares will be computed in
the manner specified in our then current Registration Statement in connection
with the computation of the net asset value of the particular Fund's B Shares
for purposes of purchases and redemptions. The fee rates stated above may be
prospectively increased or decreased by us, in our sole discretion, at any time
upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of B Shares, including the sale of such Shares to
you for the account of any Clients.
Section 7. You acknowledge that you will provide to our Board of Trustees, at
least quarterly, separate written reports of the amounts expended pursuant to
this Agreement for Shareholder Liaison Services and for Administrative Support
Services, respectively, and the purposes for which such expenditures were made.
In connection with such reports, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of some or all of
the services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Trustees concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 8. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 9. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of B Shares; (ii) the
compensation payable to you hereunder, together with any other compensation you
receive from Clients in connection with the investment of their assets in B
Shares of the Funds, will be disclosed to Clients, will be authorized by Clients
and will not be excessive or unreasonable.
Section 10. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until [September 7, 1997], and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by us in the manner
described in Section 13 hereof. This Agreement is terminable with respect to any
Fund, without penalty, at any time by us (which termination may
-2-
<PAGE> 7
be by vote of a majority of our Disinterested Trustees as defined in Section 13
hereof or by vote of the holders of a majority of the outstanding B Shares of
such Fund) or by you upon notice to us. This Agreement will terminate in the
event of its assignment, as defined in the Investment Company Act of 1940 (the
"Act").
Section 11. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 12. This Agreement will be construed in accordance with the laws of the
Commonwealth of Massachusetts without giving effect to principles of conflict of
laws.
Section 13. This Agreement has been approved by vote of a majority of (i) our
Board of Trustees and (ii) those Trustees who are not "interested persons" (as
defined in the Act) of us and have no direct or indirect financial interest in
the operation of the Distribution and Services Plan adopted by us regarding the
provision of shareholder liaison and/or administrative support services to the
record or beneficial owners of B Shares or in any agreements related thereto
("Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, c/o First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
Very truly yours,
THE GALAXY FUND
By:
----------------------------------------------------
Authorized Officer
Accepted and Agreed to:
Name of Organization
By:
----------------------------------------------------
Authorized Officer
Date:
--------------------------------------------------
- -------------------------------------------------------
Taxpayer Identification Number
- ---------------------------------------------
Account Number
- ---------------------------------------------
Dealer Code
-3-
<PAGE> 8
APPENDIX A
Please check the appropriate boxes to indicate the Funds for which you
wish to act as a Service Organization with respect to B Shares:
Shareholder Liaison Services Administrative Support Services
/ / Small Company Equity Fund / / Small Company Equity Fund
/ / Equity Growth Fund / / Equity Growth Fund
/ / Asset Allocation Fund / / Asset Allocation Fund
/ / Equity Value Fund / / Equity Value Fund
/ / Growth and Income Fund / / Growth and Income Fund
/ / Short-Term Bond Fund / / Short-Term Bond Fund
/ / High Quality Bond Fund / / High Quality Bond Fund
/ / Tax-Exempt Bond Fund / / Tax-Exempt Bond Fund
/ / Money Market Fund / / Money Market Fund
- -------------------------------------------
(Service Organization Name)
By:
---------------------------------------
---------------------------------------
Authorized Officer
Dated:
------------------------------------
A-1
<PAGE> 1
EXHIBIT 18
THE GALAXY FUND
("GALAXY")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission
(the "Commission") promulgated Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 25, 1995, the Board
of Trustees of Galaxy authorized Galaxy to operate its multi-class distribution
structure in compliance with Rule 18f-3. On October 10, 1995, Galaxy filed a
Plan pursuant to Rule 18f-3 for operation of a multi-class system (the "1995
Prior Plan"), which had been approved by the Board of Trustees of Galaxy on
September 7, 1995, with the Commission. Prior to the filing of the 1995 Prior
Plan, Galaxy operated a multi-class distribution structure pursuant to an
exemptive order granted by the Commission on February 19, 1992. On March 1,
1996, Galaxy filed an Amended and Restated Plan pursuant to Rule 18f-3 for
operation of a multi-class system (the "1996 Prior Plan"), which had been
approved by the Board of Trustees of Galaxy on December 7, 1995. The Amended and
Restated Plan pursuant to Rule 18f-3 for operation of a multi-class system
presented herewith, which was approved by the Board of Trustees of Galaxy on
December 5, 1996, shall become effective when it is filed with the Commission
and thereafter shall supersede both the 1995 Prior Plan and the 1996 Prior Plan.
II. ATTRIBUTES OF CLASSES
A. Generally
Equity Funds
Galaxy shall offer (a) three classes of shares -Retail A
Shares, Retail B Shares and Trust Shares -- in the Equity Value Fund, Equity
Growth Fund, Small Company Equity Fund,
<PAGE> 2
Asset Allocation Fund and Growth and Income Fund, and (b) two classes of shares
- -- Retail A Shares and Trust Shares -- in the International Equity Fund, Equity
Income Fund and Small Cap Value Fund (each a "Fund" and collectively, the
"Equity Funds").
Bond Funds
Galaxy shall offer (a) three classes of shares -Retail A
Shares, Retail B Shares and Trust Shares -- in the Short-Term Bond Fund, High
Quality Bond Fund and Tax-Exempt Bond Fund, and (b) two classes of shares --
Retail A Shares and Trust Shares -- in the Intermediate Government Income Fund,
New York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund, Rhode Island Municipal Bond Fund and Corporate Bond Fund
(each a "Fund" and collectively, the "Bond Funds").
Money Market Funds
Galaxy shall offer (a) three classes of shares -Retail A
Shares, Retail B Shares and Trust Shares -- in the Money Market Fund, and (b)
two classes of shares -- Retail A Shares and Trust Shares -- in the Government
Fund, Tax-Exempt Fund and U.S. Treasury Fund (each a "Fund" and collectively,
the "Money Market Funds").
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain shareholder services. More
particularly, the Retail A Shares, the Retail B Shares and the Trust Shares of
each Fund shall represent interests in the same portfolio of investments of the
particular Fund, and shall be identical in all respects, except for: (a) the
impact of (i) expenses assessed to a class pursuant to the Shareholder Services
Plan or Distribution and Services Plan adopted for that class, (ii) transfer
agency expenses, and (iii) any other incremental expenses identified from time
to time that should be properly allocated to one class so long as any changes in
expense allocations are reviewed and approved by a vote of the Board of
Trustees, including a majority of the independent Trustees; (b) the fact that
(i) the Retail A Shares shall vote separately on any matter submitted to holders
of Retail A Shares that pertains to the Shareholder Services Plan adopted for
that class; (ii) the Retail B Shares shall vote separately on any matter
submitted to holders of Retail B Shares that pertains to the Distribution and
Services Plan adopted for that class; (iii) the Trust Shares shall vote
separately on any matter submitted to holders of Trust Shares that pertains to
the Shareholder Services Plan adopted for that class; and (iv) each class shall
vote separately on any matter submitted to shareholders that pertains to the
class expenses borne by that class; (c) the exchange privileges of each class of
shares; (d)
-2-
<PAGE> 3
the designation of each class of shares; and (e) the different shareholder
services relating to a class of shares.
B. Distribution Arrangements, Expenses and Sales Charges
1. Equity Funds
RETAIL A SHARES
Retail A Shares of the Equity Funds shall be
offered to individuals or corporations who submit a purchase application to
Galaxy, purchasing directly either for their own accounts or for the accounts of
others ("Direct Investors") and shall be offered to Fleet Brokerage Securities
Corporation, Fleet Securities, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") who purchase the shares on
behalf of their customers ("Customers") who are the beneficial owners of the
shares.
Retail A Shares of the Equity Funds shall be
subject to a front-end sales charge which shall not initially exceed 3.75% of
the offering price of Retail A Shares of those Funds.
Retail A Shares of the Equity Funds shall further
be subject to a fee payable pursuant to the Shareholder Services Plan adopted
for that class of up to .25% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from an
Equity Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Equity Funds shall further
be subject to a separate fee payable pursuant to the same Shareholder Services
Plan adopted for that class of up to .25% (on an annualized basis) of the
average daily net asset value of Retail A Shares beneficially owned by Customers
of Institutions. Services provided by Institutions for such separate fee may
include: (a) providing Customers with information as to their positions in
Retail A Shares; (b) responding to Customer inquiries; and (c) providing a
service to invest the assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees
payable by Retail A Shares of the Equity Funds pursuant to the Shareholder
Services Plan adopted for that class to an amount
-3-
<PAGE> 4
which shall not initially exceed .30% (on an annualized basis) of the average
daily net asset value of Retail A Shares beneficially owned by Customers of
Institutions.
RETAIL B SHARES
Retail B Shares of the Equity Funds shall be
offered to Direct Investors and to Institutions who purchase the shares on
behalf of Customers who are the beneficial owners of the shares.
Retail B Shares of the Equity Funds, if redeemed
within six years of purchase, shall be subject to a contingent deferred sales
charge which shall not initially exceed 5.0% of the original purchase price or
redemption proceeds, whichever is lower.
Retail B Shares of the Equity Funds shall be
further subject to a fee payable pursuant to the Distribution and Services Plan
adopted for the class (a) for distribution expenses, which shall not initially
exceed .65% (on an annual basis) of the average daily net asset value of the
Equity Funds' respective outstanding Retail B Shares, (b) for shareholder
liaison services, which shall not initially exceed .25% of the average daily net
assets attributable to Retail B Shares of the respective Equity Funds that are
owned of record or beneficially by customers of securities dealers, brokers,
financial institutions or other industry professionals ("Service Organizations")
that provide shareholder liaison services with respect to such customers' Retail
B Shares, and (c) for administrative support services, which shall not initially
exceed .25% of the average daily net assets attributable to Retail B Shares of
the respective Equity Funds that are owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Retail B Shares.
Shareholder liaison services provided under the
Distribution and Services Plan means "personal service and/or the maintenance of
shareholder accounts" within the meaning of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"), such as responding to
customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially;
-4-
<PAGE> 5
(f) forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(g) reviewing, tabulating and transmitting proxies executed by beneficial
owners.
TRUST SHARES
Trust Shares of the Equity Funds shall be offered
to investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans. Trust Shares of the International
Equity Fund also shall be offered to clients, partners and employees of
Wellington Management Company, the sub-adviser to that Fund.
Trust Shares of the Equity Funds shall not be
subject to a sales charge and shall not initially be subject to the shareholder
servicing fee payable pursuant to the Shareholder Services Plan adopted but not
yet implemented with respect to such class.
2. Bond Funds
RETAIL A SHARES
Retail A Shares of the Bond Funds (other than the
Corporate Bond Fund) shall be offered to Direct Investors and shall be offered
to Institutions who purchase shares on behalf of Customers. As of the date of
filing of this Plan with the Commission, Retail A Shares of the Corporate Bond
Fund shall not initially be offered to investors.
Retail A Shares of the Bond Funds shall be subject
to a front-end sales charge which shall not initially exceed 3.75% of the
offering price of Retail A Shares of those Funds.
Retail A Shares of the Bond Funds shall further be
subject to a fee payable pursuant to the Shareholder Services Plan adopted for
that class of up to .15% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from a
Bond Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Bond Funds shall further be
subject to a separate fee payable pursuant to the same Shareholder Services Plan
adopted for that class of up to .15%
-5-
<PAGE> 6
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such separate fee may include: (a) providing Customers with
information as to their positions in Retail A Shares; (b) responding to Customer
inquiries; and (c) providing a service to invest the assets of Customers in
Retail A Shares.
Galaxy shall initially limit the total fees
payable by Retail A Shares of the Bond Funds pursuant to the Shareholder
Services Plan adopted for that class to an amount which shall not initially
exceed .15% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Bond Funds shall be offered
to Direct Investors and to Institutions who purchase the shares on behalf of
Customers who are the beneficial owners of the shares.
Retail B Shares of the Bond Funds, if redeemed
within six years of purchase, shall be subject to a contingent deferred sales
charge which shall not initially exceed 5.0% of the original purchase price or
redemption proceeds, whichever is lower.
Retail B Shares of the Bond Funds shall be further
subject to a fee payable pursuant to the Distribution and Services Plan adopted
for the class (a) for distribution expenses, which shall not initially exceed
.65% (on an annual basis) of the average daily net asset value of the Bond
Funds' respective outstanding Retail B Shares, (b) for shareholder liaison
services, which shall not initially exceed .25% of the average daily net assets
attributable to Retail B Shares of the respective Bond Funds that are owned of
record or beneficially by customers of securities dealers, brokers, financial
institutions or other industry professionals ("Service Organizations") that
provide shareholder liaison services with respect to such customers' Retail B
Shares, and (c) for administrative support services, which shall not initially
exceed .25% of the average daily net assets attributable to Retail B Shares of
the respective Bond Funds that are owned of record or beneficially by customers
of Service Organizations that provide administrative support services with
respect to such customers' Retail B Shares.
Shareholder liaison services provided under the
Distribution and Services Plan means "personal service and/or the maintenance of
shareholder accounts" within the meaning of the Rules of Fair Practice of the
NASD, such as responding to
-6-
<PAGE> 7
customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing subaccounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
TRUST SHARES
Trust Shares of the Bond Funds (other than the
Rhode Island Municipal Bond Fund) shall be offered to investors maintaining
qualified accounts at bank and trust institutions, including subsidiaries of
Fleet Financial Group, Inc. and, with respect to each Bond Fund other than the
tax-exempt Bond Funds, to participants in employer-sponsored defined
contribution plans. Trust Shares of the Corporate Bond Fund shall also be
offered to Direct Investors and to Institutions who purchase shares on behalf of
Customers. As of the date of filing of this Plan with the Commission, Trust
Shares of the Rhode Island Municipal Bond Fund shall not initially be offered to
investors.
Trust Shares of the Bond Funds shall not be
subject to a sales charge and shall not initially be subject to the shareholder
servicing fee payable pursuant to the Shareholder Services Plan adopted but not
yet implemented with respect to such class.
3. Money Market Funds
RETAIL A SHARES
Retail A Shares of the Money Market Funds shall be
offered to Direct Investors and shall be offered to Institutions who purchase
shares on behalf of Customers.
Retail A Shares of the Money Market Funds shall
not be subject to a sales charge.
Retail A Shares of the Money Market Funds shall be
subject to a shareholder servicing fee payable pursuant to the Shareholder
Services Plan adopted for that class of up to .25% (on an annualized basis) of
the average daily net asset value of
-7-
<PAGE> 8
the Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may
include: (a) aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with Galaxy's distributor; (b)
processing dividend payments from a Money Market Fund; (c) providing customers
with information as to their position in shares; (d) providing sub-accounting
with respect to Retail A Shares or the information necessary for subaccounting;
and (e) providing periodic mailings to Customers.
Galaxy shall initially limit the shareholder
servicing fee payable by Retail A Shares of the Money Market Funds pursuant to
the Shareholder Services Plan adopted for that class to an amount which shall
not initially exceed .10% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
RETAIL B SHARES
Retail B Shares of the Money Market Fund shall not
be available for purchase, but shall be available only upon exchange of Retail B
Shares of an Equity Fund or Bond Fund for Retail B Shares of the Money Market
Fund.
Galaxy shall not impose an exchange or contingent
deferred sales charge at the time Retail B Shares of an Equity Fund or Bond Fund
are exchanged for Retail B Shares of the Money Market Fund. Retail B Shares of
the Money Market Fund, if redeemed within six years of purchase of the exchanged
Retail B Shares of an Equity Fund or Bond Fund, shall be subject to a contingent
deferred sales charge which shall not initially exceed 5.0% of the original
purchase price of the exchanged Investor B Shares or redemption proceeds,
whichever is lower.
Retail B Shares of the Money Market Fund shall be
further subject to a fee payable pursuant to the Distribution and Services Plan
adopted for the class (a) for distribution expenses, which shall not initially
exceed .65% (on an annual basis) of the average daily net asset value of the
Money Market Fund's outstanding Retail B Shares, (b) for shareholder liaison
services, which shall not initially exceed .05% of the average daily net assets
attributable to Retail B Shares of the Money Market Fund that are owned of
record or beneficially by customers of securities dealers, brokers, financial
institutions or other industry professionals ("Service Organizations") that
provide shareholder liaison services with respect to such customers' Retail B
Shares, and (c) for administrative support services, which shall not initially
exceed .05% of the average daily net assets attributable to Retail B Shares of
the Money Market Fund that are owned of record or beneficially by customers of
Service
-8-
<PAGE> 9
Organizations that provide administrative support services with respect to such
customers' Retail B Shares.
Shareholder liaison services provided under the
Distribution and Services Plan means "personal service and/or the maintenance of
shareholder accounts" within the meaning of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"), such as responding to
customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
TRUST SHARES
Trust Shares in the Money Market Funds shall be
offered to investors maintaining qualified accounts at bank and trust
institutions, including subsidiaries of Fleet Financial Group, Inc., and with
respect to each Money Market Fund other than the Tax-Exempt Fund, to
participants in employer-sponsored defined contribution plans.
Trust Shares in the Money Market Funds shall not
be subject to a sales charge and shall not initially be subject to the
shareholder servicing fee payable pursuant to the Shareholder Services Plan
adopted but not yet implemented with respect to such class.
C. Exchange Privileges
RETAIL A SHARES
Holders of Retail A Shares generally shall be permitted to
exchange their Retail A Shares in a Fund for Retail A Shares of other Funds of
Galaxy or shares of other funds advised by Fleet Investment Advisors Inc. or its
affiliates in which the shareholders maintain an existing account. No additional
sales charge will be incurred when exchanging Retail A Shares of a Fund for
Retail A Shares of another Fund that imposes a sales charge.
Galaxy shall not initially charge any exchange fee.
-9-
<PAGE> 10
RETAIL B SHARES
Holders of Retail B Shares generally shall be permitted to
exchange their Retail B Shares in a Fund for Retail B Shares of other Funds of
Galaxy without paying any exchange fee or contingent deferred sales charge at
the time the exchange is made.
TRUST SHARES
Galaxy shall not initially offer holders of Trust Shares an
exchange privilege.
D. Conversion Features
RETAIL A SHARES
Galaxy shall not initially offer a conversion feature to
holders of Retail A Shares.
RETAIL B SHARES
Retail B Shares acquired by purchase generally shall convert
automatically to Retail A Shares, based on relative net asset value, six years
after the beginning of the calendar month in which the Shares were purchased.
Retail B Shares of the Money Market Fund generally shall convert automatically
to Retail A Shares, based on relative net asset value, six years after the date
of purchase of the exchanged Retail B Shares of an Equity Fund or Bond Fund.
Retail B Shares acquired through a reinvestment of dividends
or distributions generally shall convert automatically to Retail A Shares, based
on relative net asset value, at the earlier of (a) six years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions.
TRUST SHARES
Galaxy shall not initially offer a conversion feature to
holders of Trust Shares.
E. Shareholder Services
1. Retirement Plans
RETAIL A SHARES AND RETAIL B SHARES
Galaxy shall initially make Retail A Shares and
Retail B Shares of the Funds (other than the tax-exempt Funds)
-10-
<PAGE> 11
available for purchase in connection with the following tax-deferred prototype
retirement plans: individual retirement accounts, simplified employee pension
plans, multi-employee retirement plans and Keogh plans.
TRUST SHARES
Galaxy shall not initially make Trust Shares of
the Funds available for purchase in connection with any
retirement plans.
2. Checkwriting Privilege
RETAIL A SHARES AND RETAIL B SHARES - MONEY MARKET
FUNDS
Galaxy shall initially offer a checkwriting
privilege to holders of Retail A Shares and/or Retail B Shares of the Money
Market Funds. A charge for use of the checkwriting privilege may be imposed by
Galaxy.
RETAIL A SHARES AND RETAIL B SHARES - EQUITY FUNDS
AND BOND FUNDS
Galaxy shall not initially offer a checkwriting
privilege to holders of Retail A Shares or Retail B Shares of the Equity or Bond
Funds.
TRUST SHARES
Galaxy shall not initially offer a checkwriting
privilege to holders of Trust Shares.
3. Automatic Investment Program
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered an
automatic investment program whereby a Direct Investor generally may purchase
Retail A Shares and/or Retail B Shares of a Fund on a monthly or quarterly basis
by having a specific amount of money debited from his/her account at a financial
institution.
Galaxy shall not initially offer an automatic
investment program to Customers of Institutions.
TRUST SHARES
Galaxy shall not initially offer an automatic
investment program to holders of Trust Shares.
-11-
<PAGE> 12
4. Systematic Withdrawal Plan
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a
systematic withdrawal plan which, in general, shall permit a Direct Investor to
automatically redeem Retail A Shares and/or Retail B Shares on a monthly,
quarterly, semi-annual or annual basis.
Galaxy shall not initially offer a systematic
withdrawal plan to Customers of Institutions.
TRUST SHARES
Galaxy shall not initially offer a systematic
withdrawal plan to holders of Trust Shares.
5. College Investment Program
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a
college investment program whereby a Direct Investor may purchase Retail A
Shares and/or Retail B Shares of a Fund as a means to finance a college savings
plan.
Galaxy shall not initially offer a college
investment program to Customers of Institutions.
TRUST SHARES
Galaxy shall not initially offer a college
investment program to holders of Trust Shares.
6. Direct Deposit Program
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors receiving social security
benefits shall initially be eligible for a direct deposit program whereby a
Direct Investor generally may purchase Retail A Shares and/or Retail B Shares of
a Fund by having social security payments automatically deposited into his or
her Fund account.
Galaxy shall not initially offer a direct deposit
program to Customers of Institutions.
TRUST SHARES
Galaxy shall not initially offer a direct deposit
program to holders of Trust Shares.
-12-
<PAGE> 13
7. Information Services
RETAIL A SHARES AND RETAIL B SHARES
Holders of Retail A Shares and Retail B Shares
shall initially be able to obtain Fund performance and investment information 24
hours a day, 7 days a week by telephoning the Galaxy Information Center - 24
Hour Information Service.
Galaxy shall initially offer Direct Investors a
Voice Response System which, in general, will provide a Direct Investor with
automated telephone access to Fund and account information and the ability to
make telephone exchanges and redemptions. Galaxy shall not initially offer
Customers of Institutions a voice response system.
Galaxy shall initially offer Direct Investors a
Galaxy Shareholder Services telephone number which, in general, will provide a
Direct Investor with account information and recent exchange transaction
information. Galaxy shall not initially offer Customers of Institutions a
shareholder services telephone number.
TRUST SHARES
Galaxy shall initially offer holders of Trust
Shares a telephone number to call for applications and information concerning
initial purchases and current performance and a telephone number to call for
additional purchases, redemptions, exchanges and other shareholder services.
Galaxy shall initially offer holders of Trust
Shares in the Corporate Bond Fund the information services described for Retail
Shares.
8. Payroll Deduction Program
RETAIL A SHARES AND RETAIL B SHARES
Direct Investors shall initially be offered a
payroll deduction program whereby a Direct Investor may purchase Retail A Shares
and/or Retail B Shares of a Fund each pay period by having a specific amount of
money debited from his/her paycheck.
Galaxy shall not initially offer a payroll
deduction program to Customers of Institutions.
TRUST SHARES
Galaxy shall not initially offer a payroll
deduction program to holders of Trust Shares.
-13-
<PAGE> 14
F. Methodology for Allocating Expenses Between Classes
Prior to determining each day's dividends/distributions for
each class of shares, the following expense items shall be calculated as
indicated:
General Expenses
The general expenses of a Money Market Fund will be allocated
between the classes of shares, based upon the relative shares outstanding. The
general expenses of an Equity Fund or Bond Fund will be allocated between the
classes of shares, based upon the average daily net assets of each class of
shares.
Class Expenses
SHAREHOLDER SERVICES PLAN PAYMENTS - RETAIL A SHARES
Retail A Shares will pay a shareholder servicing fee pursuant
to a Shareholder Services Plan adopted for that class which will be multiplied
by the daily net asset value of the outstanding shares in the class
(beneficially owned by customers of Service Organizations that provide
administrative support services under the Plan), the product of which will be
divided by 365 days to arrive at the daily expense accrual for that class.
DISTRIBUTION AND SERVICES PLAN PAYMENTS - RETAIL B
SHARES
Retail B Shares will pay a distribution fee, a shareholder
liaison services fee, and an administrative support services fee pursuant to the
Distribution and Services Plan adopted for that class which, with respect to
each such fee, will be multiplied by the daily net asset value of the
outstanding shares in the class (in the case of the shareholder liaison services
fee and the administrative support services fee, outstanding shares in the class
beneficially owned by Customers of Service Organizations that provide such
services under the Plan), the product of which will be divided by 365 days to
arrive at the daily expense accrual for that class.
TRANSFER AGENCY EXPENSES
Retail A Shares, Retail B Shares and Trust Shares will pay
different transfer agency expenses based on the number of open accounts
attributable to each class and other out-of-pocket expenses, the sum total of
which for each class of shares will be divided by 365 days to arrive at the
daily transfer agency expense accrual for each class of shares.
-14-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NUMBER> 1
<NAME> MONEY MARKET - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,088,391,627
<INVESTMENTS-AT-VALUE> 2,088,391,627
<RECEIVABLES> 10,532,450
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,098,924,077
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<TOTAL-LIABILITIES> 15,390,130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,084,653,663
<SHARES-COMMON-STOCK> 1,159,964,557
<SHARES-COMMON-PRIOR> 581,386,298
<ACCUMULATED-NII-CURRENT> 233,572
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 2,083,533,947
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<INTEREST-INCOME> 99,750,826
<OTHER-INCOME> 0
<EXPENSES-NET> 12,207,228
<NET-INVESTMENT-INCOME> 87,543,598
<REALIZED-GAINS-CURRENT> (43,235)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 87,500,363
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44,808,226)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,836,525,760
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<NAME> MONEY MARKET - TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> GOVERNMENT - RETAIL
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<NAME> GOVERNMENT - TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NUMBER> 6
<NAME> U.S. TREASURY - RETAIL
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<NAME> U.S. TREASURY - TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> TAX EXEMPT - RETAIL
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<TABLE> <S> <C>
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<NAME> TAX EXEMPT - TRUST
<S> <C>
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</TABLE>
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<NAME> INSTITUTIONAL TREASURY
<S> <C>
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<TABLE> <S> <C>
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<NAME> CONNECTICUT MUNI MM
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<SHARES-COMMON-PRIOR> 102,636,161
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 8,250
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 7,436
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 110,544,441
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,610,549
<OTHER-INCOME> 0
<EXPENSES-NET> 673,005
<NET-INVESTMENT-INCOME> 2,937,544
<REALIZED-GAINS-CURRENT> (817)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,936,727
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,945,794)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 259,542,285
<NUMBER-OF-SHARES-REDEEMED> 253,516,407
<SHARES-REINVESTED> 1,891,469
<NET-CHANGE-IN-ASSETS> 7,917,347
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 429,315
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 766,867
<AVERAGE-NET-ASSETS> 105,166,529
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> MASSACHUSETTS MUNI MM
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 46,912,118
<INVESTMENTS-AT-VALUE> 46,912,118
<RECEIVABLES> 266,287
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,178,405
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112,351
<TOTAL-LIABILITIES> 112,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,078,634
<SHARES-COMMON-STOCK> 47,078,470
<SHARES-COMMON-PRIOR> 40,326,146
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 12,580
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 47,066,054
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,429,025
<OTHER-INCOME> 0
<EXPENSES-NET> 258,919
<NET-INVESTMENT-INCOME> 1,170,106
<REALIZED-GAINS-CURRENT> (12,416)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,157,690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,170,106)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 72,519,201
<NUMBER-OF-SHARES-REDEEMED> 66,446,448
<SHARES-REINVESTED> 679,571
<NET-CHANGE-IN-ASSETS> 6,752,324
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 171,619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 349,467
<AVERAGE-NET-ASSETS> 42,054,868
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SHORT TERM BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 90,761,538
<INVESTMENTS-AT-VALUE> 91,267,990
<RECEIVABLES> 1,183,380
<ASSETS-OTHER> 600
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92,451,970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576,516
<TOTAL-LIABILITIES> 576,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,267,287
<SHARES-COMMON-STOCK> 3,341,269
<SHARES-COMMON-PRIOR> 3,316,057
<ACCUMULATED-NII-CURRENT> 130,065
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6,028,350
<ACCUM-APPREC-OR-DEPREC> 506,452
<NET-ASSETS> 91,875,454
<DIVIDEND-INCOME> 17,209
<INTEREST-INCOME> 6,101,390
<OTHER-INCOME> 0
<EXPENSES-NET> 910,160
<NET-INVESTMENT-INCOME> 5,208,439
<REALIZED-GAINS-CURRENT> 112,054
<APPREC-INCREASE-CURRENT> (568,149)
<NET-CHANGE-FROM-OPS> 4,752,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,899,771)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,343,671
<NUMBER-OF-SHARES-REDEEMED> 16,939,526
<SHARES-REINVESTED> 1,599,869
<NET-CHANGE-IN-ASSETS> 25,245,631
<ACCUMULATED-NII-PRIOR> 19,340
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,550,090
<GROSS-ADVISORY-FEES> 724,764
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,144,237
<AVERAGE-NET-ASSETS> 36,397,386
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> (.07)
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SHORT TERM BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 90,761,538
<INVESTMENTS-AT-VALUE> 91,267,990
<RECEIVABLES> 1,183,380
<ASSETS-OTHER> 600
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92,451,970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576,516
<TOTAL-LIABILITIES> 576,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,267,287
<SHARES-COMMON-STOCK> 5,826,883
<SHARES-COMMON-PRIOR> 3,488,539
<ACCUMULATED-NII-CURRENT> 130,065
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6,028,350
<ACCUM-APPREC-OR-DEPREC> 506,452
<NET-ASSETS> 91,875,454
<DIVIDEND-INCOME> 17,209
<INTEREST-INCOME> 6,101,390
<OTHER-INCOME> 0
<EXPENSES-NET> 910,160
<NET-INVESTMENT-INCOME> 5,208,439
<REALIZED-GAINS-CURRENT> 112,054
<APPREC-INCREASE-CURRENT> (568,149)
<NET-CHANGE-FROM-OPS> 4,752,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,302,682)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73,676,572
<NUMBER-OF-SHARES-REDEEMED> 51,413,583
<SHARES-REINVESTED> 1,175,479
<NET-CHANGE-IN-ASSETS> 25,245,631
<ACCUMULATED-NII-PRIOR> 19,340
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,550,090
<GROSS-ADVISORY-FEES> 724,764
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,144,237
<AVERAGE-NET-ASSETS> 60,111,707
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> (.07)
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SHORT TERM BOND - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 90,761,538
<INVESTMENTS-AT-VALUE> 91,267,990
<RECEIVABLES> 1,183,380
<ASSETS-OTHER> 600
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92,451,970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576,516
<TOTAL-LIABILITIES> 576,516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,267,287
<SHARES-COMMON-STOCK> 26,023
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 130,065
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6,028,350
<ACCUM-APPREC-OR-DEPREC> 506,452
<NET-ASSETS> 91,875,454
<DIVIDEND-INCOME> 17,209
<INTEREST-INCOME> 6,101,390
<OTHER-INCOME> 0
<EXPENSES-NET> 910,160
<NET-INVESTMENT-INCOME> 5,208,439
<REALIZED-GAINS-CURRENT> 112,054
<APPREC-INCREASE-CURRENT> (568,149)
<NET-CHANGE-FROM-OPS> 4,752,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,986)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 301,660
<NUMBER-OF-SHARES-REDEEMED> 47,553
<SHARES-REINVESTED> 5,137
<NET-CHANGE-IN-ASSETS> 25,245,631
<ACCUMULATED-NII-PRIOR> 19,340
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,550,090
<GROSS-ADVISORY-FEES> 724,764
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,144,237
<AVERAGE-NET-ASSETS> 191,298
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> (.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERMEDIATE GOVT INCOME - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 291,151,000
<INVESTMENTS-AT-VALUE> 293,248,130
<RECEIVABLES> 3,239,880
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 296,488,010
<PAYABLE-FOR-SECURITIES> 1,500,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,496,342
<TOTAL-LIABILITIES> 2,997,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 319,204,281
<SHARES-COMMON-STOCK> 7,923,739
<SHARES-COMMON-PRIOR> 7,740,020
<ACCUMULATED-NII-CURRENT> 525,316
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 28,335,918
<ACCUM-APPREC-OR-DEPREC> 2,097,130
<NET-ASSETS> 293,490,809
<DIVIDEND-INCOME> 25,551
<INTEREST-INCOME> 20,251,099
<OTHER-INCOME> 0
<EXPENSES-NET> 2,494,812
<NET-INVESTMENT-INCOME> 17,781,838
<REALIZED-GAINS-CURRENT> (2,311,334)
<APPREC-INCREASE-CURRENT> (3,748,553)
<NET-CHANGE-FROM-OPS> 11,721,951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,849,267)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,536,648
<NUMBER-OF-SHARES-REDEEMED> 22,121,133
<SHARES-REINVESTED> 3,514,752
<NET-CHANGE-IN-ASSETS> 27,895,597
<ACCUMULATED-NII-PRIOR> 298,687
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 21,940,262
<GROSS-ADVISORY-FEES> 2,262,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,103,197
<AVERAGE-NET-ASSETS> 85,266,922
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (.22)
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERMEDIATE GOVT INCOME - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 291,151,000
<INVESTMENTS-AT-VALUE> 293,248,130
<RECEIVABLES> 3,239,880
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 296,488,010
<PAYABLE-FOR-SECURITIES> 1,500,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,496,342
<TOTAL-LIABILITIES> 2,997,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 319,204,281
<SHARES-COMMON-STOCK> 21,239,771
<SHARES-COMMON-PRIOR> 18,099,094
<ACCUMULATED-NII-CURRENT> 525,316
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 28,335,918
<ACCUM-APPREC-OR-DEPREC> 2,097,130
<NET-ASSETS> 293,490,809
<DIVIDEND-INCOME> 25,551
<INTEREST-INCOME> 20,251,099
<OTHER-INCOME> 0
<EXPENSES-NET> 2,494,812
<NET-INVESTMENT-INCOME> 17,781,838
<REALIZED-GAINS-CURRENT> (2,311,334)
<APPREC-INCREASE-CURRENT> (3,748,553)
<NET-CHANGE-FROM-OPS> 11,721,951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,933,355)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 81,002,156
<NUMBER-OF-SHARES-REDEEMED> 52,076,826
<SHARES-REINVESTED> 3,100,671
<NET-CHANGE-IN-ASSETS> 27,895,597
<ACCUMULATED-NII-PRIOR> 298,687
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 21,940,262
<GROSS-ADVISORY-FEES> 2,262,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,103,197
<AVERAGE-NET-ASSETS> 216,358,112
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> (.22)
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> HIGH QUALITY BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 177,114,038
<INVESTMENTS-AT-VALUE> 180,508,165
<RECEIVABLES> 2,813,871
<ASSETS-OTHER> 880
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 183,322,916
<PAYABLE-FOR-SECURITIES> 2,054,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563,086
<TOTAL-LIABILITIES> 2,618,024
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181,808,631
<SHARES-COMMON-STOCK> 2,960,244
<SHARES-COMMON-PRIOR> 2,830,538
<ACCUMULATED-NII-CURRENT> 121,385
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,619,251
<ACCUM-APPREC-OR-DEPREC> 3,394,127
<NET-ASSETS> 180,704,892
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,446,222
<OTHER-INCOME> 0
<EXPENSES-NET> 1,523,983
<NET-INVESTMENT-INCOME> 9,922,239
<REALIZED-GAINS-CURRENT> 1,020,018
<APPREC-INCREASE-CURRENT> (3,640,756)
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<DISTRIBUTIONS-OF-INCOME> (1,722,962)
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<NUMBER-OF-SHARES-SOLD> 11,663,127
<NUMBER-OF-SHARES-REDEEMED> 11,581,369
<SHARES-REINVESTED> 1,325,701
<NET-CHANGE-IN-ASSETS> 15,981,587
<ACCUMULATED-NII-PRIOR> 73,096
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5,590,980
<GROSS-ADVISORY-FEES> 1,271,428
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,865,986
<AVERAGE-NET-ASSETS> 30,364,756
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> HIGH QUALITY BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 177,114,038
<INVESTMENTS-AT-VALUE> 180,508,165
<RECEIVABLES> 2,813,871
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<TOTAL-ASSETS> 183,322,916
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563,086
<TOTAL-LIABILITIES> 2,618,024
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181,808,631
<SHARES-COMMON-STOCK> 14,242,458
<SHARES-COMMON-PRIOR> 12,662,975
<ACCUMULATED-NII-CURRENT> 121,385
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,619,251
<ACCUM-APPREC-OR-DEPREC> 3,394,127
<NET-ASSETS> 180,704,892
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,446,222
<OTHER-INCOME> 0
<EXPENSES-NET> 1,523,983
<NET-INVESTMENT-INCOME> 9,922,239
<REALIZED-GAINS-CURRENT> 1,020,018
<APPREC-INCREASE-CURRENT> (3,640,756)
<NET-CHANGE-FROM-OPS> 7,301,501
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,186,289)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,925,801
<NUMBER-OF-SHARES-REDEEMED> 38,640,554
<SHARES-REINVESTED> 5,272,956
<NET-CHANGE-IN-ASSETS> 15,981,587
<ACCUMULATED-NII-PRIOR> 73,096
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,590,980
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,271,428
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,865,986
<AVERAGE-NET-ASSETS> 138,917,510
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> (.62)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> HIGH QUALITY BOND - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 177,114,038
<INVESTMENTS-AT-VALUE> 180,508,165
<RECEIVABLES> 2,813,871
<ASSETS-OTHER> 880
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 183,322,916
<PAYABLE-FOR-SECURITIES> 2,054,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563,086
<TOTAL-LIABILITIES> 2,618,024
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181,808,631
<SHARES-COMMON-STOCK> 61,751
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 121,385
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,619,251
<ACCUM-APPREC-OR-DEPREC> 3,394,127
<NET-ASSETS> 180,704,892
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,446,222
<OTHER-INCOME> 0
<EXPENSES-NET> 1,523,983
<NET-INVESTMENT-INCOME> 9,922,239
<REALIZED-GAINS-CURRENT> 1,020,018
<APPREC-INCREASE-CURRENT> (3,640,756)
<NET-CHANGE-FROM-OPS> 7,301,501
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,988)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 650,504
<NUMBER-OF-SHARES-REDEEMED> 25,139
<SHARES-REINVESTED> 11,298
<NET-CHANGE-IN-ASSETS> 15,981,587
<ACCUMULATED-NII-PRIOR> 73,096
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5,590,980
<GROSS-ADVISORY-FEES> 1,271,428
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,865,986
<AVERAGE-NET-ASSETS> 367,699
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> (.25)
<PER-SHARE-DIVIDEND> (.36)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> CORPORATE BOND TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 106,592,309
<INVESTMENTS-AT-VALUE> 106,460,555
<RECEIVABLES> 1,934,884
<ASSETS-OTHER> 12,263
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 108,407,702
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 679,914
<TOTAL-LIABILITIES> 679,914
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,076,718
<SHARES-COMMON-STOCK> 10,228,835
<SHARES-COMMON-PRIOR> 3,480,710
<ACCUMULATED-NII-CURRENT> 224,825
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,442,001
<ACCUM-APPREC-OR-DEPREC> (131,754)
<NET-ASSETS> 107,727,788
<DIVIDEND-INCOME> 37,220
<INTEREST-INCOME> 7,635,846
<OTHER-INCOME> 0
<EXPENSES-NET> 933,141
<NET-INVESTMENT-INCOME> 6,739,925
<REALIZED-GAINS-CURRENT> 1,258,135
<APPREC-INCREASE-CURRENT> (2,341,149)
<NET-CHANGE-FROM-OPS> 5,956,911
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,740,091)
<DISTRIBUTIONS-OF-GAINS> (269,505)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 108,802,753
<NUMBER-OF-SHARES-REDEEMED> 40,160,472
<SHARES-REINVESTED> 3,047,222
<NET-CHANGE-IN-ASSETS> 70,336,818
<ACCUMULATED-NII-PRIOR> 12,253
<ACCUMULATED-GAINS-PRIOR> 269,505
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 824,075
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,152,894
<AVERAGE-NET-ASSETS> 109,876,716
<PER-SHARE-NAV-BEGIN> 10.74
<PER-SHARE-NII> .64
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> (.64)
<PER-SHARE-DISTRIBUTIONS> (.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TAX EXEMPT BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 127,340,806
<INVESTMENTS-AT-VALUE> 130,243,627
<RECEIVABLES> 2,421,013
<ASSETS-OTHER> 237,555
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,902,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 613,336
<TOTAL-LIABILITIES> 613,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,303,876
<SHARES-COMMON-STOCK> 2,628,976
<SHARES-COMMON-PRIOR> 2,932,336
<ACCUMULATED-NII-CURRENT> 2,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 79,784
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,902,821
<NET-ASSETS> 132,288,859
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,119,276
<OTHER-INCOME> 0
<EXPENSES-NET> 959,891
<NET-INVESTMENT-INCOME> 6,159,385
<REALIZED-GAINS-CURRENT> 184,040
<APPREC-INCREASE-CURRENT> (121,103)
<NET-CHANGE-FROM-OPS> 6,222,322
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,393,399)
<DISTRIBUTIONS-OF-GAINS> (19)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,667,225
<NUMBER-OF-SHARES-REDEEMED> 7,906,263
<SHARES-REINVESTED> 989,521
<NET-CHANGE-IN-ASSETS> (3,249,517)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 19
<OVERDIST-NET-GAINS-PRIOR> 101,859
<GROSS-ADVISORY-FEES> 949,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,275,878
<AVERAGE-NET-ASSETS> 29,835,214
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TAX EXEMPT BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 127,340,806
<INVESTMENTS-AT-VALUE> 130,243,627
<RECEIVABLES> 2,421,013
<ASSETS-OTHER> 237,555
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,902,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 613,336
<TOTAL-LIABILITIES> 613,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,303,876
<SHARES-COMMON-STOCK> 9,570,225
<SHARES-COMMON-PRIOR> 8,510,984
<ACCUMULATED-NII-CURRENT> 2,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 79,784
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,902,821
<NET-ASSETS> 132,288,859
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,119,276
<OTHER-INCOME> 0
<EXPENSES-NET> 959,891
<NET-INVESTMENT-INCOME> 6,159,385
<REALIZED-GAINS-CURRENT> 184,040
<APPREC-INCREASE-CURRENT> (121,103)
<NET-CHANGE-FROM-OPS> 6,222,322
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,757,676)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,408,564
<NUMBER-OF-SHARES-REDEEMED> 6,119,217
<SHARES-REINVESTED> 58,201
<NET-CHANGE-IN-ASSETS> 11,347,548
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 19
<OVERDIST-NET-GAINS-PRIOR> 101,859
<GROSS-ADVISORY-FEES> 949,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,275,878
<AVERAGE-NET-ASSETS> 96,531,208
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TAX EXEMPT BOND - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 127,340,806
<INVESTMENTS-AT-VALUE> 130,243,627
<RECEIVABLES> 2,421,013
<ASSETS-OTHER> 237,555
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,902,195
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 613,336
<TOTAL-LIABILITIES> 613,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,303,876
<SHARES-COMMON-STOCK> 72,978
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 79,784
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,902,821
<NET-ASSETS> 132,288,859
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,119,276
<OTHER-INCOME> 0
<EXPENSES-NET> 959,891
<NET-INVESTMENT-INCOME> 6,159,385
<REALIZED-GAINS-CURRENT> 184,040
<APPREC-INCREASE-CURRENT> (121,103)
<NET-CHANGE-FROM-OPS> 6,222,322
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,291)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 775,566
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3,525
<NET-CHANGE-IN-ASSETS> 779,091
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 19
<OVERDIST-NET-GAINS-PRIOR> 101,859
<GROSS-ADVISORY-FEES> 949,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,275,878
<AVERAGE-NET-ASSETS> 302,570
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> NEW YORK MUNI BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 62,151,913
<INVESTMENTS-AT-VALUE> 63,697,055
<RECEIVABLES> 1,130,888
<ASSETS-OTHER> 298,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,126,682
<PAYABLE-FOR-SECURITIES> 989,313
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 221,444
<TOTAL-LIABILITIES> 1,210,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,268,798
<SHARES-COMMON-STOCK> 3,735,346
<SHARES-COMMON-PRIOR> 3,977,437
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,898,015
<ACCUM-APPREC-OR-DEPREC> 1,545,142
<NET-ASSETS> 63,915,925
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,572,340
<OTHER-INCOME> 0
<EXPENSES-NET> 566,420
<NET-INVESTMENT-INCOME> 3,005,920
<REALIZED-GAINS-CURRENT> (16,589)
<APPREC-INCREASE-CURRENT> (200,532)
<NET-CHANGE-FROM-OPS> 2,788,799
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,896,290)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,610,907
<NUMBER-OF-SHARES-REDEEMED> 11,561,982
<SHARES-REINVESTED> 1,393,109
<NET-CHANGE-IN-ASSETS> (2,557,966)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,881,426
<GROSS-ADVISORY-FEES> 491,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 820,757
<AVERAGE-NET-ASSETS> 42,113,780
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> (.03)
<PER-SHARE-DIVIDEND> (.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> NEW YORK MUNI BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 62,151,913
<INVESTMENTS-AT-VALUE> 63,697,055
<RECEIVABLES> 1,130,888
<ASSETS-OTHER> 298,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,126,682
<PAYABLE-FOR-SECURITIES> 989,313
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 221,444
<TOTAL-LIABILITIES> 1,210,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,268,798
<SHARES-COMMON-STOCK> 2,210,466
<SHARES-COMMON-PRIOR> 2,140,906
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,898,015
<ACCUM-APPREC-OR-DEPREC> 1,545,142
<NET-ASSETS> 63,915,925
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,572,340
<OTHER-INCOME> 0
<EXPENSES-NET> 566,420
<NET-INVESTMENT-INCOME> 3,005,920
<REALIZED-GAINS-CURRENT> (16,589)
<APPREC-INCREASE-CURRENT> (200,532)
<NET-CHANGE-FROM-OPS> 2,788,799
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,109,630)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,313,377
<NUMBER-OF-SHARES-REDEEMED> 3,713,933
<SHARES-REINVESTED> 144,855
<NET-CHANGE-IN-ASSETS> 744,299
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,881,426
<GROSS-ADVISORY-FEES> 491,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 820,757
<AVERAGE-NET-ASSETS> 23,380,785
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> (.03)
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> CT MUNI BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 29,346,410
<INVESTMENTS-AT-VALUE> 29,522,724
<RECEIVABLES> 428,486
<ASSETS-OTHER> 51,251
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,002,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 410,431
<TOTAL-LIABILITIES> 410,431
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,357,881
<SHARES-COMMON-STOCK> 2,291,223
<SHARES-COMMON-PRIOR> 1,783,739
<ACCUMULATED-NII-CURRENT> 4,402
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 946,567
<ACCUM-APPREC-OR-DEPREC> 176,314
<NET-ASSETS> 29,592,030
<DIVIDEND-INCOME> 2,013
<INTEREST-INCOME> 1,486,563
<OTHER-INCOME> 0
<EXPENSES-NET> 201,870
<NET-INVESTMENT-INCOME> 1,286,706
<REALIZED-GAINS-CURRENT> 6,306
<APPREC-INCREASE-CURRENT> 52,961
<NET-CHANGE-FROM-OPS> 1,345,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,015,743)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,649,519
<NUMBER-OF-SHARES-REDEEMED> 6,235,644
<SHARES-REINVESTED> 720,485
<NET-CHANGE-IN-ASSETS> 5,134,360
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 725,409
<GROSS-ADVISORY-FEES> 230,995
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412,333
<AVERAGE-NET-ASSETS> 24,641,676
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (.42)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> CT MUNI BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 29,346,410
<INVESTMENTS-AT-VALUE> 29,522,724
<RECEIVABLES> 428,486
<ASSETS-OTHER> 51,251
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,002,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 410,431
<TOTAL-LIABILITIES> 410,431
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,357,881
<SHARES-COMMON-STOCK> 625,772
<SHARES-COMMON-PRIOR> 403,126
<ACCUMULATED-NII-CURRENT> 4,402
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 946,567
<ACCUM-APPREC-OR-DEPREC> 176,314
<NET-ASSETS> 29,592,030
<DIVIDEND-INCOME> 2,013
<INTEREST-INCOME> 1,486,563
<OTHER-INCOME> 0
<EXPENSES-NET> 201,870
<NET-INVESTMENT-INCOME> 1,286,706
<REALIZED-GAINS-CURRENT> 6,306
<APPREC-INCREASE-CURRENT> 52,961
<NET-CHANGE-FROM-OPS> 1,345,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (267,813)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,132,087
<NUMBER-OF-SHARES-REDEEMED> 1,846,223
<SHARES-REINVESTED> 23,783
<NET-CHANGE-IN-ASSETS> (690,353)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 725,409
<GROSS-ADVISORY-FEES> 230,995
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412,333
<AVERAGE-NET-ASSETS> 6,157,702
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> MA MUNI BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 36,469,152
<INVESTMENTS-AT-VALUE> 36,466,325
<RECEIVABLES> 632,617
<ASSETS-OTHER> 382,151
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,481,093
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,276
<TOTAL-LIABILITIES> 159,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,081,678
<SHARES-COMMON-STOCK> 2,642,762
<SHARES-COMMON-PRIOR> 1,614,697
<ACCUMULATED-NII-CURRENT> 12,622
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 769,656
<ACCUM-APPREC-OR-DEPREC> (2,827)
<NET-ASSETS> 37,321,817
<DIVIDEND-INCOME> 2,467
<INTEREST-INCOME> 1,829,371
<OTHER-INCOME> 0
<EXPENSES-NET> 218,615
<NET-INVESTMENT-INCOME> 1,613,223
<REALIZED-GAINS-CURRENT> 13,421
<APPREC-INCREASE-CURRENT> (183,226)
<NET-CHANGE-FROM-OPS> 1,443,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,133,798)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,325,331
<NUMBER-OF-SHARES-REDEEMED> 8,871,687
<SHARES-REINVESTED> 838,981
<NET-CHANGE-IN-ASSETS> 10,292,625
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 717,434
<GROSS-ADVISORY-FEES> 270,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 457,011
<AVERAGE-NET-ASSETS> 25,881,851
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> MA MUNI BOND - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 36,469,152
<INVESTMENTS-AT-VALUE> 36,466,325
<RECEIVABLES> 632,617
<ASSETS-OTHER> 382,151
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,481,093
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,276
<TOTAL-LIABILITIES> 159,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,081,678
<SHARES-COMMON-STOCK> 1,111,654
<SHARES-COMMON-PRIOR> 762,400
<ACCUMULATED-NII-CURRENT> 12,622
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 769,656
<ACCUM-APPREC-OR-DEPREC> (2,827)
<NET-ASSETS> 37,321,817
<DIVIDEND-INCOME> 2,467
<INTEREST-INCOME> 1,829,371
<OTHER-INCOME> 0
<EXPENSES-NET> 218,615
<NET-INVESTMENT-INCOME> 1,613,223
<REALIZED-GAINS-CURRENT> 13,421
<APPREC-INCREASE-CURRENT> (183,226)
<NET-CHANGE-FROM-OPS> 1,443,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (468,311)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,850,513
<NUMBER-OF-SHARES-REDEEMED> 1,383,198
<SHARES-REINVESTED> 121
<NET-CHANGE-IN-ASSETS> 3,467,436
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 717,434
<GROSS-ADVISORY-FEES> 270,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 457,011
<AVERAGE-NET-ASSETS> 10,172,519
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> RHODE ISLAND BOND - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 14,369,906
<INVESTMENTS-AT-VALUE> 14,597,021
<RECEIVABLES> 280,820
<ASSETS-OTHER> 121,722
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,999,563
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99,824
<TOTAL-LIABILITIES> 99,824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,611,852
<SHARES-COMMON-STOCK> 1,398,502
<SHARES-COMMON-PRIOR> 1,016,780
<ACCUMULATED-NII-CURRENT> 2,050
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 58,722
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 227,115
<NET-ASSETS> 14,899,739
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 732,497
<OTHER-INCOME> 0
<EXPENSES-NET> 101,712
<NET-INVESTMENT-INCOME> 630,785
<REALIZED-GAINS-CURRENT> 60,733
<APPREC-INCREASE-CURRENT> (40,492)
<NET-CHANGE-FROM-OPS> 651,026
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (630,785)
<DISTRIBUTIONS-OF-GAINS> (59,217)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,940,054
<NUMBER-OF-SHARES-REDEEMED> 532,866
<SHARES-REINVESTED> 115,793
<NET-CHANGE-IN-ASSETS> 10,522,981
<ACCUMULATED-NII-PRIOR> 1300
<ACCUMULATED-GAINS-PRIOR> 57,956
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,973
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176,821
<AVERAGE-NET-ASSETS> 13,196,346
<PER-SHARE-NAV-BEGIN> 10.67
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQUITY VALUE - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 284,016,278
<INVESTMENTS-AT-VALUE> 329,829,913
<RECEIVABLES> 1,024,770
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 330,854,683
<PAYABLE-FOR-SECURITIES> 1,467,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 647,115
<TOTAL-LIABILITIES> 2,114,385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 243,728,454
<SHARES-COMMON-STOCK> 8,269,298
<SHARES-COMMON-PRIOR> 6,739,100
<ACCUMULATED-NII-CURRENT> 288,324
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,889,289
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,813,635
<NET-ASSETS> 328,740,298
<DIVIDEND-INCOME> 6,254,544
<INTEREST-INCOME> 1,022,747
<OTHER-INCOME> 0
<EXPENSES-NET> 3,540,630
<NET-INVESTMENT-INCOME> 3,736,661
<REALIZED-GAINS-CURRENT> 38,931,940
<APPREC-INCREASE-CURRENT> 15,119,614
<NET-CHANGE-FROM-OPS> 57,788,215
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,097,197)
<DISTRIBUTIONS-OF-GAINS> (7,667,373)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,226,307
<NUMBER-OF-SHARES-REDEEMED> 16,887,461
<SHARES-REINVESTED> 8,656,906
<NET-CHANGE-IN-ASSETS> 21,995,752
<ACCUMULATED-NII-PRIOR> 219,961
<ACCUMULATED-GAINS-PRIOR> 20,394,193
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,220,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,542,270
<AVERAGE-NET-ASSETS> 115,673,168
<PER-SHARE-NAV-BEGIN> 14.33
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 2.74
<PER-SHARE-DIVIDEND> (.14)
<PER-SHARE-DISTRIBUTIONS> (1.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.96
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQUITY VALUE - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 284,016,278
<INVESTMENTS-AT-VALUE> 329,829,913
<RECEIVABLES> 1,024,770
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,854,683
<PAYABLE-FOR-SECURITIES> 1,467,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 647,115
<TOTAL-LIABILITIES> 2,114,385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 243,728,454
<SHARES-COMMON-STOCK> 12,206,996
<SHARES-COMMON-PRIOR> 11,534,519
<ACCUMULATED-NII-CURRENT> 288,324
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,889,289
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,813,635
<NET-ASSETS> 328,740,298
<DIVIDEND-INCOME> 6,254,544
<INTEREST-INCOME> 1,022,747
<OTHER-INCOME> 0
<EXPENSES-NET> 3,540,630
<NET-INVESTMENT-INCOME> 3,736,661
<REALIZED-GAINS-CURRENT> 38,931,940
<APPREC-INCREASE-CURRENT> 15,119,614
<NET-CHANGE-FROM-OPS> 57,788,215
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,569,302)
<DISTRIBUTIONS-OF-GAINS> (12,767,986)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,072,552
<NUMBER-OF-SHARES-REDEEMED> 48,737,242
<SHARES-REINVESTED> 12,028,475
<NET-CHANGE-IN-ASSETS> 9,363,785
<ACCUMULATED-NII-PRIOR> 219,961
<ACCUMULATED-GAINS-PRIOR> 20,394,193
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,220,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,542,270
<AVERAGE-NET-ASSETS> 179,816,272
<PER-SHARE-NAV-BEGIN> 14.33
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 2.74
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> (1.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.96
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQUITY VALUE - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 284,016,278
<INVESTMENTS-AT-VALUE> 329,829,913
<RECEIVABLES> 1,024,770
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 330,854,683
<PAYABLE-FOR-SECURITIES> 1,467,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 647,115
<TOTAL-LIABILITIES> 2,114,385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 243,728,454
<SHARES-COMMON-STOCK> 119,776
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 288,324
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,889,289
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,813,635
<NET-ASSETS> 328,740,298
<DIVIDEND-INCOME> 6,254,544
<INTEREST-INCOME> 1,022,747
<OTHER-INCOME> 0
<EXPENSES-NET> 3,540,630
<NET-INVESTMENT-INCOME> 3,736,661
<REALIZED-GAINS-CURRENT> 38,931,940
<APPREC-INCREASE-CURRENT> 15,119,614
<NET-CHANGE-FROM-OPS> 57,788,215
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,779)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,841,623
<NUMBER-OF-SHARES-REDEEMED> 32,058
<SHARES-REINVESTED> 1,761
<NET-CHANGE-IN-ASSETS> 1,811,326
<ACCUMULATED-NII-PRIOR> 219,961
<ACCUMULATED-GAINS-PRIOR> 20,394,193
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,220,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,542,270
<AVERAGE-NET-ASSETS> 846,595
<PER-SHARE-NAV-BEGIN> 14.74
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.99
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EQUITY GROWTH - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 507,991,855
<INVESTMENTS-AT-VALUE> 724,192,197
<RECEIVABLES> 5,011,709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 729,203,906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,989,433
<TOTAL-LIABILITIES> 1,989,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 464,937,542
<SHARES-COMMON-STOCK> 7,893,497
<SHARES-COMMON-PRIOR> 5,720,754
<ACCUMULATED-NII-CURRENT> 395,041
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 45,681,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 216,200,342
<NET-ASSETS> 727,214,473
<DIVIDEND-INCOME> 8,637,619
<INTEREST-INCOME> 3,394,171
<OTHER-INCOME> 0
<EXPENSES-NET> 6,772,913
<NET-INVESTMENT-INCOME> 5,258,877
<REALIZED-GAINS-CURRENT> 48,132,075
<APPREC-INCREASE-CURRENT> 69,078,894
<NET-CHANGE-FROM-OPS> 122,469,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (745,079)
<DISTRIBUTIONS-OF-GAINS> (1,757,610)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,414,525
<NUMBER-OF-SHARES-REDEEMED> 20,716,176
<SHARES-REINVESTED> 2,454,356
<NET-CHANGE-IN-ASSETS> 39,152,705
<ACCUMULATED-NII-PRIOR> 665,685
<ACCUMULATED-GAINS-PRIOR> 6,587,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,746,270
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,777,273
<AVERAGE-NET-ASSETS> 134,883,389
<PER-SHARE-NAV-BEGIN> 17.29
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 3.39
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.37
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EQUITY GROWTH - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 507,991,855
<INVESTMENTS-AT-VALUE> 724,192,197
<RECEIVABLES> 5,011,709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 729,203,906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,989,433
<TOTAL-LIABILITIES> 1,989,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 464,937,542
<SHARES-COMMON-STOCK> 27,580,152
<SHARES-COMMON-PRIOR> 24,274,434
<ACCUMULATED-NII-CURRENT> 395,041
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 45,681,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 216,200,342
<NET-ASSETS> 727,214,473
<DIVIDEND-INCOME> 8,637,619
<INTEREST-INCOME> 3,394,171
<OTHER-INCOME> 0
<EXPENSES-NET> 6,772,913
<NET-INVESTMENT-INCOME> 5,258,877
<REALIZED-GAINS-CURRENT> 48,132,075
<APPREC-INCREASE-CURRENT> 69,078,894
<NET-CHANGE-FROM-OPS> 122,469,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,784,442)
<DISTRIBUTIONS-OF-GAINS> (7,280,310)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150,675,297
<NUMBER-OF-SHARES-REDEEMED> 101,099,590
<SHARES-REINVESTED> 7,869,807
<NET-CHANGE-IN-ASSETS> 57,445,514
<ACCUMULATED-NII-PRIOR> 665,685
<ACCUMULATED-GAINS-PRIOR> 6,587,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,746,270
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,777,273
<AVERAGE-NET-ASSETS> 496,781,298
<PER-SHARE-NAV-BEGIN> 18.77
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.26
<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EQUITY GROWTH - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 507,991,855
<INVESTMENTS-AT-VALUE> 724,192,197
<RECEIVABLES> 5,011,709
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 729,203,906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,989,433
<TOTAL-LIABILITIES> 1,989,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 464,937,542
<SHARES-COMMON-STOCK> 197,185
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 395,041
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 45,681,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 216,200,342
<NET-ASSETS> 727,214,473
<DIVIDEND-INCOME> 8,637,619
<INTEREST-INCOME> 3,394,171
<OTHER-INCOME> 0
<EXPENSES-NET> 6,772,913
<NET-INVESTMENT-INCOME> 5,258,877
<REALIZED-GAINS-CURRENT> 48,132,075
<APPREC-INCREASE-CURRENT> 69,078,894
<NET-CHANGE-FROM-OPS> 122,469,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,960,553
<NUMBER-OF-SHARES-REDEEMED> 173,837
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,786,716
<ACCUMULATED-NII-PRIOR> 665,685
<ACCUMULATED-GAINS-PRIOR> 6,587,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,746,270
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,777,273
<AVERAGE-NET-ASSETS> 1,847,757
<PER-SHARE-NAV-BEGIN> 17.30
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 3.40
<PER-SHARE-DIVIDEND> (.18)
<PER-SHARE-DISTRIBUTIONS> (.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.39
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EQUITY INCOME - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 192,603,335
<INVESTMENTS-AT-VALUE> 232,297,730
<RECEIVABLES> 1,016,656
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233,314,386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 268,578
<TOTAL-LIABILITIES> 268,578
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,015,423
<SHARES-COMMON-STOCK> 7,506,038
<SHARES-COMMON-PRIOR> 5,459,241
<ACCUMULATED-NII-CURRENT> 425,338
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,910,625
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,694,395
<NET-ASSETS> 233,045,808
<DIVIDEND-INCOME> 5,013,456
<INTEREST-INCOME> 1,648,110
<OTHER-INCOME> 0
<EXPENSES-NET> 2,407,075
<NET-INVESTMENT-INCOME> 4,254,491
<REALIZED-GAINS-CURRENT> 19,910,652
<APPREC-INCREASE-CURRENT> 10,612,766
<NET-CHANGE-FROM-OPS> 34,777,909
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,939,416)
<DISTRIBUTIONS-OF-GAINS> (3,071,779)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,450,662
<NUMBER-OF-SHARES-REDEEMED> 15,665,697
<SHARES-REINVESTED> 4,801,918
<NET-CHANGE-IN-ASSETS> 32,586,883
<ACCUMULATED-NII-PRIOR> 384,596
<ACCUMULATED-GAINS-PRIOR> 6,232,081
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,533,644
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,407,075
<AVERAGE-NET-ASSETS> 106,390,760
<PER-SHARE-NAV-BEGIN> 14.98
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 2.47
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> (.54)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.91
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EQUITY INCOME - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 192,603,335
<INVESTMENTS-AT-VALUE> 232,297,730
<RECEIVABLES> 1,016,656
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233,314,386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 268,578
<TOTAL-LIABILITIES> 268,578
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,015,423
<SHARES-COMMON-STOCK> 6,268,275
<SHARES-COMMON-PRIOR> 5,856,577
<ACCUMULATED-NII-CURRENT> 425,338
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,910,652
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,694,395
<NET-ASSETS> 233,045,808
<DIVIDEND-INCOME> 5,013,456
<INTEREST-INCOME> 1,648,110
<OTHER-INCOME> 0
<EXPENSES-NET> 2,407,075
<NET-INVESTMENT-INCOME> 4,254,491
<REALIZED-GAINS-CURRENT> 19,910,652
<APPREC-INCREASE-CURRENT> 10,612,766
<NET-CHANGE-FROM-OPS> 34,777,909
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,274,333)
<DISTRIBUTIONS-OF-GAINS> (3,159,136)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,153,962
<NUMBER-OF-SHARES-REDEEMED> 11,200,471
<SHARES-REINVESTED> 2,551,413
<NET-CHANGE-IN-ASSETS> 6,504,904
<ACCUMULATED-NII-PRIOR> 384,596
<ACCUMULATED-GAINS-PRIOR> 6,232,081
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,533,644
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,407,075
<AVERAGE-NET-ASSETS> 98,095,135
<PER-SHARE-NAV-BEGIN> 14.99
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 2.48
<PER-SHARE-DIVIDEND> (.37)
<PER-SHARE-DISTRIBUTIONS> (.54)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.93
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 200,119,067
<INVESTMENTS-AT-VALUE> 206,090,275
<RECEIVABLES> 2,799,489
<ASSETS-OTHER> 10,944
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 208,900,708
<PAYABLE-FOR-SECURITIES> 148,190
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,047,842
<TOTAL-LIABILITIES> 1,196,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,696,582
<SHARES-COMMON-STOCK> 2,521,956
<SHARES-COMMON-PRIOR> 2,330,961
<ACCUMULATED-NII-CURRENT> 2,497,207
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,541,488
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,969,399
<NET-ASSETS> 207,704,676
<DIVIDEND-INCOME> 3,535,725
<INTEREST-INCOME> 599,389
<OTHER-INCOME> 0
<EXPENSES-NET> 2,001,868
<NET-INVESTMENT-INCOME> 2,133,246
<REALIZED-GAINS-CURRENT> 11,411,904
<APPREC-INCREASE-CURRENT> 1,358,635
<NET-CHANGE-FROM-OPS> 14,903,785
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (271,437)
<DISTRIBUTIONS-OF-GAINS> (538,170)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,188,755
<NUMBER-OF-SHARES-REDEEMED> 11,262,703
<SHARES-REINVESTED> 744,929
<NET-CHANGE-IN-ASSETS> 87,986,839
<ACCUMULATED-NII-PRIOR> 1,200,199
<ACCUMULATED-GAINS-PRIOR> 2,304,281
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,619,241
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,466,806
<AVERAGE-NET-ASSETS> 32,755,387
<PER-SHARE-NAV-BEGIN> 12.92
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.94
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 200,119,067
<INVESTMENTS-AT-VALUE> 206,090,275
<RECEIVABLES> 2,799,489
<ASSETS-OTHER> 10,944
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 208,900,708
<PAYABLE-FOR-SECURITIES> 148,190
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,047,842
<TOTAL-LIABILITIES> 1,196,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,696,582
<SHARES-COMMON-STOCK> 12,313,125
<SHARES-COMMON-PRIOR> 6,905,615
<ACCUMULATED-NII-CURRENT> 2,497,207
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,541,488
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,969,399
<NET-ASSETS> 207,704,676
<DIVIDEND-INCOME> 3,535,725
<INTEREST-INCOME> 599,389
<OTHER-INCOME> 0
<EXPENSES-NET> 2,001,868
<NET-INVESTMENT-INCOME> 2,133,246
<REALIZED-GAINS-CURRENT> 11,411,904
<APPREC-INCREASE-CURRENT> 1,358,635
<NET-CHANGE-FROM-OPS> 14,903,785
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,437,075)
<DISTRIBUTIONS-OF-GAINS> (1,766,390)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,166,862
<NUMBER-OF-SHARES-REDEEMED> 41,352,726
<SHARES-REINVESTED> 1,580,379
<NET-CHANGE-IN-ASSETS> 87,986,839
<ACCUMULATED-NII-PRIOR> 1,200,199
<ACCUMULATED-GAINS-PRIOR> 2,304,281
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,619,241
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,466,806
<AVERAGE-NET-ASSETS> 134,214,187
<PER-SHARE-NAV-BEGIN> 12.98
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 1.30
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.01
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> SMALL CO. EQUITY - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 231,395,298
<INVESTMENTS-AT-VALUE> 280,339,607
<RECEIVABLES> 15,182,007
<ASSETS-OTHER> 27,411
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295,549,025
<PAYABLE-FOR-SECURITIES> 5,197,686
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 602,090
<TOTAL-LIABILITIES> 5,799,776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,042,347
<SHARES-COMMON-STOCK> 5,567,469
<SHARES-COMMON-PRIOR> 2,805,047
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,762,593
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,944,309
<NET-ASSETS> 289,749,249
<DIVIDEND-INCOME> 417,135
<INTEREST-INCOME> 702,310
<OTHER-INCOME> 0
<EXPENSES-NET> 2,712,989
<NET-INVESTMENT-INCOME> (1,593,544)
<REALIZED-GAINS-CURRENT> 36,017,542
<APPREC-INCREASE-CURRENT> 5,841,537
<NET-CHANGE-FROM-OPS> 40,265,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (513,596)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 397,053,745
<NUMBER-OF-SHARES-REDEEMED> 346,365,223
<SHARES-REINVESTED> 502,766
<NET-CHANGE-IN-ASSETS> 149,250,236
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,515,648
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,562,812
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,717,890
<AVERAGE-NET-ASSETS> 77,723,250
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> (.14)
<PER-SHARE-GAIN-APPREC> 3.99
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.96
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> SMALL CO. EQUITY - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 231,395,298
<INVESTMENTS-AT-VALUE> 280,339,607
<RECEIVABLES> 15,182,007
<ASSETS-OTHER> 27,411
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295,549,025
<PAYABLE-FOR-SECURITIES> 5,197,686
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<OTHER-ITEMS-LIABILITIES> 602,090
<TOTAL-LIABILITIES> 5,799,776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,042,347
<SHARES-COMMON-STOCK> 8,662,903
<SHARES-COMMON-PRIOR> 5,791,017
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,762,593
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,944,309
<NET-ASSETS> 289,749,249
<DIVIDEND-INCOME> 417,135
<INTEREST-INCOME> 702,310
<OTHER-INCOME> 0
<EXPENSES-NET> 2,712,989
<NET-INVESTMENT-INCOME> (1,593,544)
<REALIZED-GAINS-CURRENT> 36,017,542
<APPREC-INCREASE-CURRENT> 5,841,537
<NET-CHANGE-FROM-OPS> 40,265,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,014,801)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140,211,402
<NUMBER-OF-SHARES-REDEEMED> 85,139,941
<SHARES-REINVESTED> 652,265
<NET-CHANGE-IN-ASSETS> 149,250,236
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,515,648
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,562,812
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,717,890
<AVERAGE-NET-ASSETS> 129,531,825
<PER-SHARE-NAV-BEGIN> 16.38
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> 4.08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.20
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> SMALL CO. EQUITY - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 231,395,298
<INVESTMENTS-AT-VALUE> 280,339,607
<RECEIVABLES> 15,182,007
<ASSETS-OTHER> 27,411
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295,549,025
<PAYABLE-FOR-SECURITIES> 5,197,686
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<OTHER-ITEMS-LIABILITIES> 602,090
<TOTAL-LIABILITIES> 5,799,776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,042,347
<SHARES-COMMON-STOCK> 183,748
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,762,593
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,944,309
<NET-ASSETS> 289,749,249
<DIVIDEND-INCOME> 417,135
<INTEREST-INCOME> 702,310
<OTHER-INCOME> 0
<EXPENSES-NET> 2,712,989
<NET-INVESTMENT-INCOME> (1,593,544)
<REALIZED-GAINS-CURRENT> 36,017,542
<APPREC-INCREASE-CURRENT> 5,841,537
<NET-CHANGE-FROM-OPS> 40,265,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,690,344
<NUMBER-OF-SHARES-REDEEMED> 92,260
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 149,250,236
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,515,648
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,562,812
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,717,890
<AVERAGE-NET-ASSETS> 1,694,396
<PER-SHARE-NAV-BEGIN> 17.27
<PER-SHARE-NII> (.19)
<PER-SHARE-GAIN-APPREC> 2.83
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.91
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> ASSET ALLOCATION - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 206,305,418
<INVESTMENTS-AT-VALUE> 243,697,997
<RECEIVABLES> 2,219,680
<ASSETS-OTHER> 75,849
<OTHER-ITEMS-ASSETS> 576
<TOTAL-ASSETS> 245,994,102
<PAYABLE-FOR-SECURITIES> 1,003,310
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 978,814
<TOTAL-LIABILITIES> 1,982,124
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,270,362
<SHARES-COMMON-STOCK> 8,046,520
<SHARES-COMMON-PRIOR> 5,954,778
<ACCUMULATED-NII-CURRENT> 622,447
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,726,590
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,392,579
<NET-ASSETS> 244,011,978
<DIVIDEND-INCOME> 2,226,994
<INTEREST-INCOME> 5,007,670
<OTHER-INCOME> 0
<EXPENSES-NET> 2,558,884
<NET-INVESTMENT-INCOME> 4,675,780
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<PER-SHARE-NAV-END> 14.52
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> ASSET ALLOCATION - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> OCT-31-1996
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<NET-ASSETS> 244,011,978
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<NUMBER-OF-SHARES-SOLD> 67,329,259
<NUMBER-OF-SHARES-REDEEMED> 35,310,703
<SHARES-REINVESTED> 2,461,350
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<GROSS-EXPENSE> 2,573,406
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<PER-SHARE-NAV-BEGIN> 12.83
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> ASSET ALLOCATION - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 206,305,418
<INVESTMENTS-AT-VALUE> 243,697,997
<RECEIVABLES> 2,219,680
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<OTHER-ITEMS-LIABILITIES> 978,814
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 622,447
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,726,590
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,392,579
<NET-ASSETS> 244,011,978
<DIVIDEND-INCOME> 2,226,994
<INTEREST-INCOME> 5,007,670
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<EXPENSES-NET> 2,558,884
<NET-INVESTMENT-INCOME> 4,675,780
<REALIZED-GAINS-CURRENT> 8,828,444
<APPREC-INCREASE-CURRENT> 17,143,392
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<NUMBER-OF-SHARES-SOLD> 3,509,640
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<SHARES-REINVESTED> 14,490
<NET-CHANGE-IN-ASSETS> 3,402,821
<ACCUMULATED-NII-PRIOR> 406,096
<ACCUMULATED-GAINS-PRIOR> 1,498,280
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<GROSS-EXPENSE> 2,573,406
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<PER-SHARE-NAV-BEGIN> 13.59
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> .91
<PER-SHARE-DIVIDEND> (.12)
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<PER-SHARE-NAV-END> 14.51
<EXPENSE-RATIO> 1.95
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> SMALL CAP VALUE - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 144,152,338
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<TOTAL-LIABILITIES> 1,676,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117,255,655
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<SHARES-COMMON-PRIOR> 2,173,105
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 25,575,872
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 171,743,742
<DIVIDEND-INCOME> 1,841,762
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<OTHER-INCOME> 0
<EXPENSES-NET> 1,838,049
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<REALIZED-GAINS-CURRENT> 25,576,246
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<SHARES-REINVESTED> 1,944,464
<NET-CHANGE-IN-ASSETS> 1,957,033
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 12.68
<PER-SHARE-NII> .01
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<PER-SHARE-DIVIDEND> (.02)
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<PER-SHARE-NAV-END> 14.75
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> SMALL CAP VALUE - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 144,152,338
<INVESTMENTS-AT-VALUE> 173,064,553
<RECEIVABLES> 356,104
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<TOTAL-LIABILITIES> 1,676,915
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<NET-ASSETS> 171,743,742
<DIVIDEND-INCOME> 1,841,762
<INTEREST-INCOME> 627,829
<OTHER-INCOME> 0
<EXPENSES-NET> 1,838,049
<NET-INVESTMENT-INCOME> 631,542
<REALIZED-GAINS-CURRENT> 25,576,246
<APPREC-INCREASE-CURRENT> 9,455,938
<NET-CHANGE-FROM-OPS> 35,663,726
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<PER-SHARE-NII> .05
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<PER-SHARE-DIVIDEND> (.06)
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<PER-SHARE-NAV-END> 14.76
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> GROWTH & INCOME - RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> OCT-31-1996
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<PER-SHARE-NII> .21
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<EXPENSE-RATIO> 1.34
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> GROWTH & INCOME - TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
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<INVESTMENTS-AT-VALUE> 269,626,031
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> GROWTH & INCOME - CDSC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 223,593,437
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<PAID-IN-CAPITAL-COMMON> 199,670,761
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<ACCUMULATED-NII-CURRENT> 607,040
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<ACCUMULATED-NET-GAINS> 22,735,617
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<ACCUM-APPREC-OR-DEPREC> 46,032,594
<NET-ASSETS> 269,046,012
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<EXPENSES-NET> 2,852,800
<NET-INVESTMENT-INCOME> 4,970,763
<REALIZED-GAINS-CURRENT> 25,439,278
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<DISTRIBUTIONS-OF-INCOME> (12,819)
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<NUMBER-OF-SHARES-SOLD> 4,475,967
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<SHARES-REINVESTED> 12,313
<NET-CHANGE-IN-ASSETS> 4,424,449
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</TABLE>
